Monday, August 3, 2009

GE's loans

As you know, my year end target for GE is 18--a number many may find implausible.

Is it?

Let's look at the bear case for GE, since it was outlined in the NY Times this weekend.

GE Capital has $38 billion of leveraged loans, and has set aside reserves against losses at 1.2%, or about less that $500 million. According to the S&P, leveraged loans trade at about 81 cents on the dollar. If GE is so good at managing their loan book, and their losses would be just 10%, then GE is under-reserving by $3 billion--in just their leveraged loans.

And since GE Capital has $650 billion in loans--Oh my--their whole book is toast!

And that, in the words of Charlie Gasparino, is "what you got."

That's it. That's the bear case. Buy into it, and short it, and then, lose money.

This is not a market, where you can take bits of data, and extrapolate it, and make money off of your bits.

That worked, when you could lay out unlimited shorts on the stocks, buy your credit default swaps and puts, and then wax poetically about the next Great Depression that was going to swallow up the earth.

I could repeat myself, but instead, I'm just going to rehash an old post, snice good ole Bob Doll of Blackrock was on CNBC this morning, now blabbing bullishly, after he was so diligently warning us that stocks shouldn't rally all the way up!

And those that are shorting GE, because they think they have the facts on their side, will have to read through it just to get to the punchline.

And since you bears, just hate it, if I throw in a bit of a philosophoical bent, I'll throw in another post that you assumed was in error at that time.

Apparently, it wasn't!

Thursday, June 11, 2009

Inherit the Wind

Joe Weisenthal, had a ridiculous call yesterday after the close:

We've Hit The Top!

It's over folks, at least for the time being...The bull run has run out of steam, felled by higher commodity prices and yields on long bonds that keep pushing higher. At this point, all the second derivative news is more than priced in, and we'll actually need to see real first-derivative gains in order to keep moving higher. Unfortunately, these won't be seen for awhile. In the meantime, continued disappointment on the housing, jobs and energy front will drag the market lower.

What Joe doesn't realize is that stocks are just being re-priced as an asset class; and they are being re-priced markedly higher. Just like oil was being re-priced. People will tell you all the stories in the world about oil demand, when it was down, but the price in the 30's didn't have any economic reflection in reality. It's also the same now in housing. Housing prices do not reflect economic reality, or the cost of housing, but you can't trade homes on an electronic marketplace with leverage, like you can with oil--because the bankers won't let you buy a house with leverage, because they're too interested in trading for themselves the things with leverage.

I said before, that I didn't think we could close below 880 on the S&P. Then I said the market will find it difficult to close much below 930--10 points down, and 100 points up. So when the market hits these inflection points, you have the world telling us we are ready to roll over--and to get out now.

Look what Rosenberg had to say yesterday morning:

The equity bull-run looks overdone: The S&P 500 is priced for around $75 of operating EPS, something I don't see occurring before 2012 (probably won't get the number above $43 per share for this year). This rally has all been multiple expansion — from 15x on trailing EPS at the low to around 23x now. The market is NOT cheap.

Bob Doll came on CNBC this morning and said we are going to visit the low 800's on the S&P. Did you see him squirm while he was saying that? That's the position of a person who isn't properly positioned!

The bearish bet from here would entail another marked increase in the price of oil, and another marked fall in bonds. I don't see that from these levels.

I remember trading the bottom in 1982, when the Dow bottomed in the high 700's. Wasn't that 777? And we had skeptics until Christmas break, when the Dow was up to 1000. At that point, the skeptics caved, even though unemployment had risen from 10-10.7% during this market move.

In Reagan's January 1983 State of the Union speech, I remember him talking how the problems "we inherited were far worse than ....expected."

Now didn't Obama use those words the other day? The problems they "inherited?" You talk about "inherited," when you know the economy is at an inflection point. When you differentiate your Administration from the previous.

Today, with the Internet, we have a much better informed electorate, and things operate at a much faster pace.

But just like the play, Inherit the Wind, you need to take a position of belief. When Clarence Darrow asked William Jennings Bryan, about the long day and the sun in Joshua we had this dialogue:

B: I believe he was inspired.
D: Can you answer my question?
B: When you let me finish the statement.
D: It is a simple question, but finish it.
B: You cannot measure the length of my answer by the length of your question.
D: No except that your answer be longer...
B: I believe it was inspired by the Almighty, and He may have used language that could be understood at the time.
D: Was---
B: Instead of using language that could not be understood until Darrow was born.

The wind was the bridge that Darrow or Bryan could never cross. Bryan believed the wind was the Almighty's spirit of inspiration; Darrow believed it to be just foolishness.

And that's why this market is so annoying for the bears.

The bears think they have the facts on their side, but the inspired bulls have the wind on their back!

Despite the arguments of why it shouldn't be!

1 comment:

Anonymous said...

what's your target of AA?