Reckoning at Hand for General Electric? (The company might not survive a financial crisis intact)

[SirLinksALot]

SOURCE: AMERICAN THINKER

URL: https://www.americanthinker.com/articles/2018/02/reckoning_at_hand_for_general_electric.html

by Charles Ortel


If your hackles are not yet up concerning the outlook for highly indebted multinational companies such as GE in a possible looming crisis of 2018, they ought to be.  From September 2008 until recently, we operated in a new world without traditional controls, prepared to believe everything and happy to own almost anything.  Skeptics were mocked, as markets rocked.

However, in recent months, benchmark interest rates in the United States – the largest market in the world – are trending upward after ten years at historic low levels.  As interest rates rise, most asset values will fall.  Declining asset values are especially worrying for complex borrowers like GE.

Now, investors are, again, agonizing, trying to assess how rising interest rates will affect the values of companies.  It is no wonder that GE and its stock price should be back in the spotlight.

Awaiting Crucial GE Details

GE's comprehensive annual report for 2017 will emerge soon.  Meanwhile, selling pressures have accentuated following the disappointing fourth quarter 2017 "earnings call" on January 24, 2018.

Judging preliminary financial estimates, a decade's worth of restructuring and finagling yields a still complex collection of businesses, stretched all over the world.

GE's new management's recent disclosures show a company too large to achieve enticing growth rates in revenues, profits, and free cash flow, and too financially weak to shoulder liabilities that might crystallize in a resurgent global crisis.

As of December 31, 2017, GE had $378 billion in total assets, $135 billion in total debt, and only $64 billion left in shareowners' equity, following massive share repurchases and recent losses.  More concerning, $104 billion of assets is in "goodwill and other intangibles."

In a new crisis, this large slice of GE's balance sheet would not be saleable quickly, or at stated values.  Take these soft assets out of the equation, and GE's "tangible" shareowners' equity value falls to negative $40 billion, scant protection in tumult.

The picture darkens further when comparing GE's U.S. and foreign financial results and position.  No company is yet required to dive below the surface and show more than global consolidated financial statements.  Seen on a nation-by-nation basis, GE's obligations and exposures in worst-case scenarios could prove even more challenging than management's latest estimates suggest.

So investors in GE common shares are correct to fear the worst, particularly if pessimistic that benchmark interest rates are going to rise.  Any one of many flashpoints might curtail economic activity and threaten global trade.

(Excerpt) Read more at above link ....

[WingNot]

The New York Times reports that General Electric did not pay any taxes at all last year. Of course that's because G.E. reported its sale of NBC as "a charitable donation."

[thackney]

General Electric: Barron's Shouts 'Beware!' That Settles It - Time To Buy
https://www.forbes.com/sites/johntobey/2018/02/19/general-electric-barrons-shouts-beware-that-settles-it-time-to-buy/#614262427d8f
FEB 19, 2018

Barron’s colorless black and white cover shows a broken General Electric logo with this dramatic advice:

Value investors, beware. GE faces big risks, and its shares are no bargain.

The problem is that Barron's dire graphics and categorical warning are unsupported by the article, itself. Worse, for investors who heed the warning, it comes just when GE becomes an excellent contrarian buy/hold opportunity....

There are three important realizations about contrarian investing:

- It takes a willingness to buy a “yuck” stock – one that produces a gag reflex
- It means committing to an investment because of the breadth of naysayers
- It takes on an immediacy when any positives appear amidst the negativity

...

[IsailedawayfromFR]

General Electric: Barron's Shouts 'Beware!' That Settles It - Time To Buy
https://www.forbes.com/sites/johntobey/2018/02/19/general-electric-barrons-shouts-beware-that-settles-it-time-to-buy/#614262427d8f
FEB 19, 2018

Barron’s colorless black and white cover shows a broken General Electric logo with this dramatic advice:

Value investors, beware. GE faces big risks, and its shares are no bargain.

The problem is that Barron's dire graphics and categorical warning are unsupported by the article, itself. Worse, for investors who heed the warning, it comes just when GE becomes an excellent contrarian buy/hold opportunity....

There are three important realizations about contrarian investing:

- It takes a willingness to buy a “yuck” stock – one that produces a gag reflex  Called Undertaking Calculated Risk
- It means committing to an investment because of the breadth of naysayers   Called Going Against the Grain
- It takes on an immediacy when any positives appear amidst the negativity     Called Getting in In Time Against the Grain

...

Sometimes it works, sometimes it does not.

I am glad I never bit into the Tech bubble in the late 90s nor the Enron slide into nothingness when Enron was an absolute bargain at $10/shr

The last point I would make is to ensure if one went contrarian on stocks, one considers 100% of what one risks as potentially 100% worthless so it must be a smaller portion of a portfolio one is trying to enhance overall with contrarian investing.  Do NOT make contrarian all your eggs in the basket.

[thackney]

Sometimes it works, sometimes it does not.

I am glad I never bit into the Tech bubble in the late 90s nor the Enron slide into nothingness when Enron was an absolute bargain at $10/shr

I thought hard about buying Enron at $1 thinking it was panic selling at less than the assets alone were worth.  But I didn't.

The last point I would make is to ensure if one went contrarian on stocks, one considers 100% of what one risks as potentially 100% worthless so it must be a smaller portion of a portfolio one is trying to enhance overall with contrarian investing.  Do NOT make contrarian all your eggs in the basket.

Agreed.  Buy low sell high is harder than it sounds.

[Suppressed]

My buddy has gone deep into GE, figuring it will rebound at least somewhat.

[SirLinksALot]

My buddy has gone deep into GE, figuring it will rebound at least somewhat.

I think GE can still be BOUGHT, AT THE RIGHT PRICE. This company is not going away and it has too much assets to go under. The issue to consider is what price is considered good value.

[thackney]

I think GE can still be BOUGHT, AT THE RIGHT PRICE. This company is not going away and it has too much assets to go under. The issue to consider is what price is considered good value.

Yep, I thought that number was below $17.  I will be a while likely to see my return.