24/7 Wall St.
09-17-2008, 04:40 PM
24/7 Wall St. Daily News
http://www.247wallst.com/images/2008/09/17/ge_logo.gif (http://247wallstreet.typepad.com/.shared/image.html?/photos/uncategorized/2008/09/17/ge_logo.gif) We won't bother discussing the current market situation as being a very difficult one. But the problem isn't just the baby being thrown out with the bathwater. Now they are throwing out mommy, daddy, and everyone they know. General Electric Co. (NYSE: GE) falls in this camp and its credit default swap spreads have been hit along with just about every other company that is tied to financial companies or that do business with financial firms. GE is one of the few companies left with a solid Triple-A rating, and the company has been very clear about its intent to keep it that way. As these credit spreads have been hitting new historic highs today, we asked our contacts at GE to comment.
Our company spokesman contact there sent a full response to the current situation to us. "We are committed to the Triple A, we have strong cash flows from a diversified portfolio, and even in this difficult environment the Triple A remains secure." He further added, "GECapital???s cash bond spreads are trading significantly tighter than most major financial institutions. Unlike these financial institutions, our cash bond spreads are significantly tighter then our CDS spreads. GECapital is part of the CDX and most other financial institutions are not, so when investors hedge the index, anticipating wider bond spreads for the market as a whole, our CDS naturally widens."
The market throwing the baby out with the bathwater is bad enough. What is happening in the markets right now is even worse and it is punishing major financial and non-financial companies that do not deserve it even if many other companies do deserve what is happening to them. GE's stock is down under the face value prices of the post-recession lows in 2002 or 2003 and is actually getting close to those same lows if you adjust for the dividends. On September 8, the stock was back to being above $29.00. Shares went under $23.00 at the worst part of the market today. Do the math, that is a 20% haircut.
Many have attacked the giant conglomerate structure and when I was previously on CNBC as a guest I said that destroying the conglomerate structure for a bunch of independent units was solely a bull market call. I went to add that everyone would be wishing for that conglomerate structure again if and when the economy tanks. We have talked with everyone we could from places high to low in as many business sectors as we could. There are major problems out there in the economy and there is no way that some of the old rules and old trends will return in the same manner as they had seen before. But hitting some of these companies has become far too harsh.
We recently gave a preview for our Special Situation newsletter outlining even after all the bad cases we are factoring in for all large companies and for the economy that GE's base-case value for 2009 could be $30.00, and that number could be higher. Our prior fair value analysis after its warning was $33.75 (http://www.247wallst.com/2008/04/ges-new-2008-fa.html). If things in the economy stabilize or normalize, you can even make the case that GE's stock could run back to $35.00 or higher. If this selling gets worse then of course the law of percentages will bring those targets down. But this is the general idea.
Enough is enough. The stock market and credit markets can take a great company like GE lower and lower. That is the environment we are in and we can't make any major alterations to the market or to sentiment. But really, enough is enough. Right now the fear has simply gone farther than fear itself. If any bad news comes out in the coming days from GE it should be priced in by now. Of course the caveat to that is that the market has proven it has no remote ties to rational markets nor to efficient market theories. Any how, enough is enough even under the de-leveraging climate we are entering for the foreseeable future.
See CFO Keith Sherin's exclusive comments (http://www.247wallst.com/2008/07/ges-cfo-offers.html) to 24/7 Wall St. regarding his long-term growth targets. Jon C. Ogg
September 17, 2008
complete story here... (http://www.247wallst.com/2008/09/ge-responding-t.html)
http://www.247wallst.com/images/2008/09/17/ge_logo.gif (http://247wallstreet.typepad.com/.shared/image.html?/photos/uncategorized/2008/09/17/ge_logo.gif) We won't bother discussing the current market situation as being a very difficult one. But the problem isn't just the baby being thrown out with the bathwater. Now they are throwing out mommy, daddy, and everyone they know. General Electric Co. (NYSE: GE) falls in this camp and its credit default swap spreads have been hit along with just about every other company that is tied to financial companies or that do business with financial firms. GE is one of the few companies left with a solid Triple-A rating, and the company has been very clear about its intent to keep it that way. As these credit spreads have been hitting new historic highs today, we asked our contacts at GE to comment.
Our company spokesman contact there sent a full response to the current situation to us. "We are committed to the Triple A, we have strong cash flows from a diversified portfolio, and even in this difficult environment the Triple A remains secure." He further added, "GECapital???s cash bond spreads are trading significantly tighter than most major financial institutions. Unlike these financial institutions, our cash bond spreads are significantly tighter then our CDS spreads. GECapital is part of the CDX and most other financial institutions are not, so when investors hedge the index, anticipating wider bond spreads for the market as a whole, our CDS naturally widens."
The market throwing the baby out with the bathwater is bad enough. What is happening in the markets right now is even worse and it is punishing major financial and non-financial companies that do not deserve it even if many other companies do deserve what is happening to them. GE's stock is down under the face value prices of the post-recession lows in 2002 or 2003 and is actually getting close to those same lows if you adjust for the dividends. On September 8, the stock was back to being above $29.00. Shares went under $23.00 at the worst part of the market today. Do the math, that is a 20% haircut.
Many have attacked the giant conglomerate structure and when I was previously on CNBC as a guest I said that destroying the conglomerate structure for a bunch of independent units was solely a bull market call. I went to add that everyone would be wishing for that conglomerate structure again if and when the economy tanks. We have talked with everyone we could from places high to low in as many business sectors as we could. There are major problems out there in the economy and there is no way that some of the old rules and old trends will return in the same manner as they had seen before. But hitting some of these companies has become far too harsh.
We recently gave a preview for our Special Situation newsletter outlining even after all the bad cases we are factoring in for all large companies and for the economy that GE's base-case value for 2009 could be $30.00, and that number could be higher. Our prior fair value analysis after its warning was $33.75 (http://www.247wallst.com/2008/04/ges-new-2008-fa.html). If things in the economy stabilize or normalize, you can even make the case that GE's stock could run back to $35.00 or higher. If this selling gets worse then of course the law of percentages will bring those targets down. But this is the general idea.
Enough is enough. The stock market and credit markets can take a great company like GE lower and lower. That is the environment we are in and we can't make any major alterations to the market or to sentiment. But really, enough is enough. Right now the fear has simply gone farther than fear itself. If any bad news comes out in the coming days from GE it should be priced in by now. Of course the caveat to that is that the market has proven it has no remote ties to rational markets nor to efficient market theories. Any how, enough is enough even under the de-leveraging climate we are entering for the foreseeable future.
See CFO Keith Sherin's exclusive comments (http://www.247wallst.com/2008/07/ges-cfo-offers.html) to 24/7 Wall St. regarding his long-term growth targets. Jon C. Ogg
September 17, 2008
complete story here... (http://www.247wallst.com/2008/09/ge-responding-t.html)