More on GE

Floyd Norris's Blog at New York Times:

April 12, 2008, 12:49 pm
Lessons of G.E.
Pondering the G.E. earnings miss yesterday leaves me with a handful of observations:
The economic downturn is accelerating. As Kathleen Shanley of Gimme Credit writes, “If there is another company that is as close a proxy for the overall economy as General Electric, we’re not aware of it.”
G.E. had a reputation of being a master at meeting the numbers, something its bosses were confident they could do only a month ago. So you have to figure that something really bad happened in the final few weeks of the quarter.
It is in that regard that G.E.’s blame of Bear Stearns for the failure makes sense. In the earnings call, G.E.’s bosses talked of the inability to complete planned end-of-quarter transactions. I suspect a purpose of those transactions was to produce the reported profits needed to make the numbers.
The shock of G.E. analysts is in some ways amusing. I never have understood how anyone could forecast that company, given its many parts, and it makes sense that those who are supposed to make such forecasts rely heavily on management guidance, and they now feel betrayed.
No one should be shocked by signs of weakness in the financial sector, and I doubt any of the analysts are surprised by that. What has surprised them is the inabilty of G.E. to do the earnings dance.
In that light, the bearish case is that G.E.’s miss signals that the rot is deep. The bullish case is that the Bear Stearns fiasco provided only a temporarty setback at a critical end-of-quarter time. Three months from now, we may get indications as to which view is accurate.


1.
April 12th,20082:04 pm
Downturns are cyclical and eventually GE’s stock and reputation will be back up. But if GE’s missed profit target was due to the collapse of Bear Stearns, this demonstrates how widespread the subprime mortgage crises has become.
Any ’shareholder’ or mutual fund owner who opened their quarterly earnings report this week can validate how widespread this downturn has become.
Let’s just hope all this is just the result of the subprime mess, and not an indication of something deeper, such as persistent decline of real income for middle class Americans, continued rising oil and food prices, continued weakening of the dollar, etc. etc. etc.
— Posted by Anne R.
2.
April 12th,20082:42 pm
Never thought GE would cease to be one of my core holdings. Just couldn’t put up any longer with its stodgy grossly overpaid mediocre management. The decline in GE shares since 2000 when denominated in euros shows the nominal loss in dollars is catastrophic.
More broadly I’ve significantly lightened up on major industrials and consumer powerhouses like 3M and PG. Just don’t see how they’ll show any significant growth in the foreseeable future. Given the weakness of the dollar their payouts are very inadequate.
The credit meltdown sent the unmistakeable message the mega financials will not be allowed to fail. Their underlying strength is pretty impressive as demonstrated by all but Citigroup maintaining their excellent dividends. Citigroup didn’t need to cut its. Pity it folded so easily to Meredith Whitney’s criticism.
When the credit mess sorts itself out credit is really going to cost the earth. Think bank profit margins absent writedowns are strong now just you wait when things return to normal.
Lucked out with the GE. Put the money into Fording Canadian Coal Trust whose performance over the past year more than made up for GE’s dismal record since 2000.
Allow me add to a 4th item to my Rx for senior happiness in yesterday’s blog. Buy all the Visa you can. Impossible not to make a bundle over time getting an itsy bitsey crumb from each of more than half the world’s credit and atm transactions. Visa will declare a small dividend as early as the 3rd quarter. That will broaden the shareholder base considerably with trusts and institutions barred from owning non dividend paying stocks.
There’s also a 5th Rx. No one stays for breastfast alone.
— Posted by MARK KLEIN, M.D.
3.
April 12th,20083:35 pm
I don’t understand all this fuss about GE missing their numbers…. If you take a close look at GE, it is obvious that GE Finance is a substantial part of their business model and no one including them is immune from the credit meltdown.
When I downgraded Nortel in 1999-2000 timeframe due to vendor financing schemes and for building up a phony balance sheet, I also advised my clients to stay away from GM, GM Credit, Ford and GE.
I remember the punch line of my report, “these guys have more debt than most countries and I doubt that in a downturn the lenders will be coming to the rescue without asking for a pound of flesh and some….”
— Posted by Hassan Azarm
4.
April 12th,20083:44 pm
Anne R–”Let’s just hope all this is just the result of the subprime mess, and not an indication of something deeper, such as persistent decline of real income for middle class Americans, continued rising oil and food prices, continued weakening of the dollar, etc. etc. etc.”
It’s the latter I’m afraid. My comments in this brief live Memphis t.v. interview addresses the evaporation of middle class life in America over my lifetime. http://www.youtube.com/watch?v=5oQdn6NvhIU
I did get on that straw poll as a write-in beating Guiliani, Brownback, Hagel, Gingrich, Barbour, Tancredi, and JC Watts. McCain beat me by around 20 votes. The downside to the above video is I likely so p.o.’ed the GOP my straw poll results were reported as “Other”. Heaven forbid I should be become the voice of Republican party replacing the warmongers and financial feudalists now in charge.
Absent premiers playing musical chairs with government falling almost monthly America’s turned into a clone of the 4th French Republic. The old franc collapsed with politicians recycling failed policies together with the moral and financially sapping stalemated war in Algeria. It took DeGaulle to bring France’s inflation to heel and by executive order end the Algerian War. Took a lot of guts to do the latter. I was in Paris when the attempted coup happened. The police brandishing submachine were all over the heart of Paris.
To the extent I could get heard I spoke quite frankly about the issues which concern you. The American brain fried as it is with bread and circuses just wants to party. This election is really about who will be the master of ceremonies.
— Posted by MARK KLEIN, M.D.
5.
April 13th,20084:00 pm
Thank you Hassan Azarm! GE is a quazi-bank, and the “shocked” financial press has seemed to forgotten that fact in the aftermath of the earnings announcement.
Bank CEOs consistently complain in private (GE is also one of their major relationships, so complaints might not be made on the record)about GE being a bank that is free of intrusive Fed or OCC oversight. The Fed correctly considers GE (and a few large insurance companies)an institution that poses systemic risk to financial markets and the banking system.
Of course their earnings were hit. They are in the same sandbox as the banks. If 3M, Procter and Gamble, or Johnson and Johnson get hit like GE, we should be shocked; otherwise, relax, another bank had a bad quarter.
— Posted by Uncle Ho