- In the search for signs of where U.S. stocks are headed,
there are few signs more negative than the steady descent of General Electric
Co., widely seen as the market's ultimate bellwether.
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- Shares in the world's biggest company by market value
hovered around the US$30 mark for the second straight day yesterday. After
falling as low as US$29.79, the shares ended the day at US$30.05, their
lowest close since December, 1998.
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- For many technical analysts, GE is standing at the precipice
of a key level of support. If the stock slides decisively below US$30 many
fear a sharp selloff will begin in earnest, and could trigger losses across
the board, analysts at Bank Credit Analyst in Montreal wrote in a report
to clients yesterday.
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- "GE could have a catalytic effect on investor psychology
and trigger a capitulation, especially given the overwhelmingly bearish
headlines in the financial press."
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- GE has the largest weighting in the Standard & Poor's
500 and has historically traded in close correlation with the broader market.
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- That's easy to understand when you consider the sheer
breadth of GE's various businesses. With 183 major subsidiaries, GE's divisions
include the NBC television network and the GE Capital financial services
arm. Its dozens of consumer products business sell everything from from
lightbulbs to coffee makers, while its high tech units supply equipment
to power generators among others.
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- In many ways, the forces working against GE are the very
currents undermining the U.S. market, as investors fret about high debt,
not enough cash, opaque accounting and weak earnings.
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- The latest downturn began in March when concern first
arose about the stability of GE Capital's various financing obligations.
Bill Gross, manager of the world's biggest bond fund, Pacific Investment
Management Co., sold GE bonds because of its heavy reliance on short-term
debt to maintain liquidity.
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- The markets' doubts gained steam in early April when
the company announced its first quarterly profit decline in more than seven
years, and GE stock dropped 9.3% in one day.
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- Shortly afterward, new chief executive Jeffrey Immelt
complained that investors were missing GE's fundamental value.
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- "I hate where our stock price is," he told
investors at the annual general meeting on April 24.
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- He surely must hate it even more now, because GE's shares
have slid another 5%, largely due to nagging concerns about accounting
at GE Capital.
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- The stock has now declined 25% this year, and is singlehandedly
responsible for 11% of the total decline in the S&P 500.
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- "Nobody really knows what's going on inside GE,"
said Eric Sprott, who said almost a year ago that large-cap stocks like
GE were overpriced, and has spent the past year short selling the market
in his hedge fund.
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- "We're all being forced to look into things a little
more now, and maybe on inspection you realize you don't know what you have,
and maybe you don't trust as much as you used to," he said.
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- GE Capital addressed some of that lack of trust last
week, obtaining a US$18-billion credit line, and reducing the percentage
of its debt concentrated in short-term commercial paper to 42% from 49%
in 2001.
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- That access to liquidity has helped convince fund managers
like Steven Wippersteg that now is a good time to buy. "I'm worried
about the market in general, and I think GE reflects that," said Mr.
Wippersteg, who manages about $100-million in U.S. assets for StrategicNova
Corp. "But I think if you look at the stock for the next 12 months,
and not just for the next six months, that this is a good buying opportunity."
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- http://www.nationalpost.com/financialpost/story.html?f=/stories/20020605/453605.
html
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- Comment
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- From
Mason O'Keiff
6-7-2
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- Steve Maich's article is right on. GE has committed the
sin of lending long and borrowing short....And cooking the books for a
very long time..GE is not a muanufacturer..maybe quasi. They are a derivative
machine. What a fantastic country we are throwing away.
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