Board-Ansicht
Mix-Ansicht- GE (Heinz Blasnik/ CB) - Amanito, 22.03.2002, 13:37
- Re: und wie reagiert der gemeine Perma-Bulle darauf? - kingsolomon, 22.03.2002, 17:56
GE (Heinz Blasnik/ CB)
oh, it's probably easy enough to explain. only it's not likely to be an explanation people would want to hear.
rest assured that GE has used every legal accounting loophole imaginable to be so consistent in managing its earnings reports. same goes for Cisco, but Cisco is easier to decipher (i.e., it's easy to see how they do it...). GE is far more complex, especially due to its GE Capital subsidiary. as a non-bank financial intermediary it is not bound by minimum capital reserve requirements such as the banks have to adhere to, and as a result its capital to assets ratio is about 1:25, or put in another way, the value of the loans and leases on its books is only backed by about 4% of capital.
it follows that if only 4% of the outstanding GE Capital assets were to turn into unrecoverable duds, its capital would de facto be wiped out.
no wonder Bill Gross is getting wary of GE's commercial paper - the old borrow short and lend long game is VERY alluring when you have a steep yield curve, but it works only as long as confidence remains high, and the pile of debt GE has to roll over every 6 months or less is rather impressive.
i find it noteworthy in this context that GE has seen fit to point to its back up credit lines at the commercial banks in order to nip liquidity worries in the bud. i can't imagine that its bankers were too happy to hear about that, since everybody and his uncle is tapping their back up credit lines these days.
all that said, it appears on the surface that GE has been a very well run company to date, and i don't want to detract from its past success.
but it is also an opaque firm, that owes a great deal to financial engineering, and i for one remain suspicious...note also from a contrarian standpoint it's not exactly comforting when a company is considered to be so good that it garners award after award, while very few even dare to criticize it.
if i remember correctly, Enron was similarly opaque in its accounting and likewise the recipient of countless awards and gushing reviews from analysts and journalists alike. this is not to say that these similarities necessarily point to other similarities between the two, only as a reminder that GE surely is a crowded trade so to speak, and should anything go wrong it may well result in a mad rush to the exit.
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