General Electric (GE) Backlash: The Pain is Coming

A must read article on Minyanville.com puts the smack down on General Electric (NYSE:GE) shares, and another one from Bloomberg.com isn't going to help shareholders come tomorrow or the foreseeable future.  GE shares get ready to battle the media.

Let's face it, when fear is driven into the hearts of investors, no matter how it gets there, word of mouth, CNBC, your baby's momma -- it's fear none the less. 

When that happens, investors bail, and the selling could jump start now that the media is tearing GE a new one.  

General Electric (NYSE:GE) appears to be a "cheap stock" when you consider traditional investing measures:

• P/E now under 10, at 7.67.
• Shares are of GE are now $16 down 58% in the last year.
• It's a company we have all grown up with, same with your grandfather.  They are more diversified than any other of the 30 companies that make up the Dow Jones Component.
• GE confirmed it planned to pay a dividend through 2009. The Company said that its plan to maintain the $0.31 per-share dividend through the end of 2009 was unchanged. 
• Warren Buffett's Berkshire Hathaway Inc. (NYSE:BRK.A), agreed to buy $3 billion in preferred GE stock, if the Oracle is buying, why would you doubt it?

The list goes on and on but those are some of the biggest selling points, but after you read Op-Ed: Could GE Collapse? by Minyanville Staff writers, GE shareholders get that not so fresh feeling of owning something crappy like Crocs Inc. (NASDAQ:CROX) or Sharper Image before the shoe dropped.  Even Warren Buffett's investing methods are being called into questions these days, with the Dow Jones Industrial Average dropping daily and now down 37% in the last 6 months, owning stocks has really sucked in 2008.

Okay, comparing GE to Crocs or the Sharper Image is a but much, but damn if corporate execs aren't great at hidding the true story while preaching to the choir 'everything's great!" a la Kerry Killinger a few days before Washington Mutual (WM) went to pennies a share.

One look at the chart and its enough to make you throw in the towel:

Bloomberg put out this article late today:

Immelt's GE Purchases Signal Sell as Insiders Buy  -  Bloomberg

Nov. 17 (Bloomberg) -- General Electric Co. Chief Executive Officer Jeffrey Immelt and Citigroup Inc.'s Vikram Pandit are back to buying their own companies' shares. That means there may be more stock declines to come.

CEOs, directors and other senior officers at New York Stock Exchange-listed companies purchased $1.37 billion worth of equities in October, according to Bethesda, Maryland-based research firm Washington Service. They snapped them up as the Standard & Poor's 500 Index fell 17 percent, the most since 1987.

Insider buying, a bullish signal for two decades, lost its prescience this year and now may be a harbinger of a retreat in shares because it signals overconfidence, according to Ben Silverman, director of research at InsiderScore.com, a stock tracking firm in Princeton, New Jersey. The last time officers bought as much was in March 2008, preceding a drop in the S&P 500 a month later, data compiled by Bloomberg show.

``Everyone's drinking the Kool-Aid,'' said Michael Levine, a money manager at New York-based OppenheimerFunds Inc., which oversees $160 billion. ``These guys know their companies better than the market, so they think they'll be right. But the economic slowdown has happened much more quickly and has been much deeper than people expected.'' 

Company's failure could trigger the mother of all bailouts.

General Electric (GE), that legendary American institution, is in deep trouble. It’s one of the few companies in the US that still retains its AAA rating - but, considering the rating agencies’ track record, that AAA isn’t worth the paper it’s written on.

The virtual crash in GE’s stock price indicates there’s something seriously wrong here. The stock reached $53 at its peak in 2000. It closed below $17 this past week, the lowest level since the mid-1990s. CEO Jeffrey Immelt, who took over from icon Jack Welch in 2001, has made his mark by managing the company into a 68% decline in stock price.

The last page of the article reads like Last Rights being read to Nino Brown before they put him away for good:

This all sounds like the actions of a company desperately trying to pay down debt. The risks and unknowns for this company are many:

* GE announced plans during the summer to sell its lighting and appliance business. It expected to get $5 to $8 billion for these divisions. It has found no buyers.

* GE announced that it wanted to sell its private-label credit-card business, with $30 billion of outstanding receivables. Given that many of these receivables are owed by subprime borrowers, it isn’t surprising that no buyers have appeared. GE provides no bad-debt figures for these portfolios.

* GE has $74 billion of commercial paper outstanding, which rolls over every few days, and is now utilizing the Fed’s short-term funding facility.

* GE holds $53 billion of off-balance-sheet assets that are pieces of securitized debt, some of which are hooked to interest-rate swaps with counterparties that are now troubled. The real value of these assets is unknown.

* GE’s recent 10Q had the following disclosure:

“GE Capital has exposure to many different industries and counterparties, and routinely executes transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks and other institutional clients.

"Many of these transactions expose GE Capital to credit risk in the event of default of its counterparty or client. In addition, GE Capital’s credit risk may be exacerbated when the collateral held by it cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the loan or derivative exposure due to it.”

* Much of GE’s debt is covered by credit insurance. This insurance is virtually worthless, as the credit insurers have collapsed.

* GE has $43 billion of long-term debt maturing by June 30, 2009, with another $38 billion due by December 31, 2009. The terms for refinancing this debt will be much worse than the previous terms.

* GE convinced the US government to insure $139 billion in debt for GE Capital using the new FDIC program. Why does a AAA company need a government guarantee?

* GE spokesmen have guaranteed the dividend only through 2009. Many other banks have promised no dividend cuts in the last year - only to cut dividends a month later.

* The most hazardous unknown for GE is the global recession, which will likely ravage the company in 2009. Their 5 main businesses (Technology Infrastructure, Energy Infrastructure, Capital Finance, NBC Universal and Consumer & Industrial) will all be under severe stress.

....

The future doesn’t look bright for GE. A perfect global storm will hit the firm in 2009 - and a GE collapse could bring about the mother of all bailouts.

So, do you feel like buying GE now, how about you who are currently holding shares, feel good about your holdings?

Fear, Panic, and all the other negative thoughts are going to push GE shares no matter if its wrong or right, its just the times we live in and the media, even the gay blogs are powerful. I'll admit, I fell in love with GE shares when they got into the low $20's and took a risk, but that's my problem, and it happens to all of us now and then, we fall in love with a company/stock and get burned.

Jeffy boy, it's been a hell of a ride and I hope you and your buds can get GE through this mess, not just for me, but for the millions of people who own shares and for all the pension funds, IRA's,and everything else that have long positions in General Electric.

Jeffster, you need all the help you can get, and for America, should GE fail, I would hate to see the impact, it could be worse than Ford or GM failing.

Your company has lost billions in market share, its unreal, and now you are down to $16 a share and a market cap of $169 billion, is it really possible to go to zero?

I hope not, prove the media wrong Jeff, the ball is in your court.

Disclaimer: Long GE and almost ready to bail.