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Looking at GE

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By washcomp
February 5, 2009

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I bring up the following (just one guy's view) as a lot of attention has been shown toward GE recently on METAR. This is both because of the recent plummeting of its share price and because GE is somewhat a proxy for our economy.

GE is a popular stock, not only with individuals, but with institutions. We are all somewhat aware, with a fair amount of lack of transparency of GE Capitol's problems and how it is affecting the overall company. Apparently, the current selling of GE is not based on shorts (or so I've been told), but on longs dumping.

GE Capital used the goods that have been purchased as collateral. Many of its customers are in extremis (car dealers, appliance stores, computer resellers, etc.). Many are not (hospitals, Fortune 500's etc.). The ones who are most likely to fail are short term notes (30-90 days) collateralized by inventory and have signed UCC documents making GE a secured lender. If I was GE, this would be a time to reevaluate the efficacy of this short term market. No, OTOH, this is exactly the type of "paper" which the government fears freezing up as commerce would grind to a halt. While I'm obviously not privy to any discussions, it would make sense for GE to request a "backstop" in order to continue to participate in this increasingly risky business.

The government's desires are counter to GE's current best interests and there has to be a quid pro quo.

GE Capital makes up something like 46% of GE's overall business. GE is deemphasizing much of its new origination of debt (to the government's displeasure and concern), and the balance of their business's, while obviously negatively impacted by the economy are, in many cases, properly positioned to take advantage of a push toward "green" infrastructure. To the best of my knowledge, their overall blend of businesses is still profitable despite a turndown in business.

I am assuming that their dividend will be halved next year (unless we get a positive black swan event with them) and they may also lose their AAA bond rating. While not death blows, these are certainly body punches.

I think that, unless they are victims of a "phantom" short attack, people are just dumping to go elsewhere where they feel more comfortable earning 1/3-1/2 the dividends that GE is paying.

Do I think GE is going bust? No. Do I think they can become more profitable that they are now, even in the short term? Likely (but they have so many "moving parts" that it's rough to get transparency).

Are we seeing an emotional "hissy fit" by wall street traders or is GE actually broken? I would be interested in the take of some of the number crunchers on METAR's viewpoints of the GE income statement and balance sheet.

Jeff