Saturday, January 24, 2009

GE's earnings revisited

GE is getting bashed because of the "phoniness" of their earnings. They almost made .37 cents for the quarter, and had $13.7 billion of industrial cash flow from operations. The problem GE has is that their dividend consumes all of this cash flow.

And forget GE Capital, because no one trusts their earnings, especially because of the $1.37 billion in tax benefits.

Maybe Wall Street thinks GE mimes Richard Feynman in their earnings reports!

Jeffrey Immelt says it would all be "blather" if it weren't for GE's $48 billion of cash, but Wall Street just wants to talk about their debt! The volume in the stock and the puts shows that the shorts want to break this number. Watch Immelt on the video to see his spin on earnings.

The dividend story is here, and it is the same as it was a month ago. It will be cut.

What these executives think is that the economy is just about "confidence." The vast majority of the population is just broke. It's not about "confidence" it's about solvency.

The bankers at the Federal Reserve always thought that he ills of this economy were caused by "liquidity." It wasn't a "liquidity" issue in banking but a "solvency" issue.

Now the whole world knows that the banks across the globe are "insolvent."

It's the same with the consumer. It's not about confidence, it's about "solvency." The consumer is holding on to their money because they don't have any! And those who aren't broke, don't want to become their neighbor who is, so they've adopted frugality.

You can't spend when you're spending was predicated on credit!

Look at John Thain, and his redecorated million dollar office, and take a look at this slideshow by GE subsidiary CNBC entitled "John Thain's Decorating Spree." Frugality is in!

Now look at this scathing piece by The Independent on John Thain:

The executive excesses uncovered by the end of the long boom initially incited just employee and shareholder anger. They have now given rise to public fury. Stephen Foley reports

So Wall Street excess has a new face. Step forward Merrill Lynch boss John Thain, ejected in spectacular style from the firm's new parent company, Bank of America, after revelations that he had squandered $1.2m (£873,000) of shareholders' fast-disappearing money on redecorating his office. A "commode on legs" costing $35,000? Regency chairs at $24,000? Some $1,400 on a "parchment waste can"? Come on, John. What were you thinking? His $85,000 Persian rug looks set to become as emblematic of finance industry greed as Tyco International chief executive Dennis Kozlowski's $6,000 shower curtain was of corporate malfeasance in the dotcom era.

The sheer hilarity of Mr Thain's purchases briefly lightened the gloom on Wall Street, as japesters discussed what a "commode on legs" might be. CNBC, the business TV station watched on almost every trading floor, flashed up a portable hospital toilet-cum-wheelchair for the infirm as one suggestion. (It is actually an antique cabinet or chest of drawers.) Bloggers trawled Google to point out you don't have to pay $68,000 for a 19th-century credenza, since one online store is selling a similar piece for $4,826. Until Mr Thain's commode hit the headlines, Dick Fuld of Lehman Brothers was probably the most famous face of the credit crisis, with his grilling on Capitol Hill a signal moment. A House of Representatives committee brandished documents showing four days before the bank filed for bankruptcy protection, Lehman's compensation committee was asked to grant $20m in "special payments" for three executives who were leaving. Somehow, even with the money-making edifice collapsed about them, Wall Street's executives are only now looking up from the trough. As Mr Thain and a myriad examples before him show, it will be a tough adjustment now the trough has been taken away.

John Thain didn't care how he spent shareholders money, even when the Titanic was sinking. How about the average Joe? His 401k has been cut in half, his credit lines have been cut, and he's probably underwater in his mortgage, and now he's worried about his job security because Wall Street, with their excesses have destroyed the financial system that he knew, and now in his mind it's threatening to bring industrial America down with it. He can't spend, because now he has to spend "earned" money!

And Wall Street is now so negative, that the commode on the top of this page represents GE's medical divison and John Thain's "commode with legs!"

And the happiest man on Wall Street is now Dick Fuld, because John Thain has now ursurped him as the gadfly cartoon character that now can be best lampooned on Wall Street!

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