"Scary signs from GE" (On the Economy)

[onehandle]

Why GE worries me

Its warning calls into question the economic recovery -- and valuations that assume one is assured.

MENLO PARK, Calif. (CNN/Money) - General Electric's warning on Friday is only somewhat worrisome for GE itself. More problematic is what GE's slippage says about the economy and the upcoming earnings season.

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And this gets us back to the perennial question of whether or not GE should be considered a proxy for the U.S. economy. I say the answer is yes.

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Yet the stock market rocks on as if in a full-fledged economic recovery

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Then there's GE, which is bigger, more varied and far more important.

If GE's warning is a harbinger of things to come, it should be an interesting earnings season, to say the least.

http://money.cnn.com/2003/10/10/commentary/bottomline/lashinsky/index.htm?cnn=yes

[PROGRESSIVE1]

1. The stock market is subjective!

People buy and sell stock based upon hope and fear, not facts!
If you are in the market, you should be there for the L-O-N-G R-U-N!
Many of these Rethug brokerage firms are hoping for a recovery so that they can make more money and that Bushie will be "Re-Elected".

[Code_Name_D]

2. It's not subjective, it's speculative.

It's based on "hope & fear" because the facts just do not support the current market prices. It's a fact that they are over valued. It is hoped that the facts are wrong.

Even so, it is always amusing to see how some like to equate profit warning with economic fundamentals. The reason why GE has become the mark of the economy is because broader fundamentals do not show a rosé scenario. So they have had to look else where for "good news." And that of course is the stock market. After all, it always goes up, in the long run, so there is always good news to be had there, and good news always pushes up stocks.

Mean while, the economy collapses, it's NOT recovering. Infrastructure and consumer buying power is being canalized for short term profits. US workers are being laid off by the factory for start ups in India in order to see "productivity gains," the measure that has come to substitute price to earnings ratios. You don't actually have to do any thing, you just have to do it efficiently. And this "do nothing for profit" is exactly the sort of "investment" without any tangible product that got Enron in trouble.

GE's problem with its "pimple" sized asset is interesting. For this is actually where Enron's problems got started, with its subsidiaries. These spin off's actually served an important function for Enron. They to didn't produce a lot of revenue, but that wasn't the point. The spin offs and subsidiaries true function was to hold Enron's debt, keeping that debt off of Enron's main books. And any one can make a profit if you don't have to count your debts.

But as the subsidiaries started to go bankrupt those debts started to land back onto Enron's books.

[rapier]

3. GE

GE isn't an industrial company. GE is a financial company, essentially a modern bank.They don't make money on selling jet engines. They make money on lending for jet engines. Or supposedly they do. GE is the largest writer of leases for big ticket items like airplanes.

Have you noticed that airplane usage is way down and that lease rates because of that are way down. Do you think GE is losing money because of that. Their books don't show it. GE often lends money to companies that owe it tons of money. Why you ask. Because in todays world borrowed money is just as good as money earned and no amount of debt is too big for stock buyers. GE sometimes even buys companies that owe it a lot of money. Why? To bail them out. They buy with borrowed money and thru the miracle of modern accounting come out smelling like a rose.

GE is a world leader in the securitiztion of debt, (non mortgate that is) That world is having a bit of trouble now as the source of funds to fuel this bussiness, the money market, is losing liquidity.

GE is a bellweather. If it does bad so will lots of other companies. It's a bellweather because it is a leader in the financial/credit creation world. Forget about plastics sales. That is a sideshow. It will be good to watch GE for signs of trouble.