Friday, April 11, 2008

"G.E.!!! We Bring Good Things to Life!!!"

The jury is still out on the veracity of that particularly popular advertising slogan of GE's of the 1980's and early 1990's...  Maybe they did... and maybe their products will produce so much atmospheric CO2 that G.E.'s Connecticut offices will be under 6 feet of water from the encroachment of Long Island Sound.  I wouldn't presume to say, but some awfully smart folks (the kind we trust billions of dollars and dozens of lives in the U.S. Space Program to) sure seem to think so.  Being a betting man, I ain't betting against these guys in favor of a bunch of innumerate politicians, whose background is in the Law.  Nothing against the Law, mind you, it is just that that particular skill set leaves one ill equipped to determine a course of action in response to input from folks whose training is in physics and mathematics.  Nor would I retain a physicist to represent me in so much as a traffic ticket.

But I digress...

GE, with nearly $170 BILLION in revenues, representing over 1% of U.S. GDP, appears to be in the midst of its own recession.  Can the U.S. not be tracking G.E.?  I doubt it.

GDP will track the direction of Oil imports, and Oil imports are down.

Time to get your boots on, because the B-llsh-t is gonna get real deep.  The financial media has done the average investor a significant disservice.  Nearly 2 years ago, the price of oil declined precipitously to the mid $50's.  The media was RIFE with stories of ethanol supplies and hydrogen vehicles and declining oil demand... and "Average Joe" investor fell into their spell:

"The Oil bubble has popped!  Is it time to buy the banks?"  Proclaimed the talking heads on CNBC.  

Fast forward to today:  You don't find many stories supporting those silly ethanol claims, instead it has become obvious, even to the financial media, that using food for fuel has had some unintended consequences -  namely skyrocketing food prices.

If I had given that kind of advice at that time - I might be spending the next several years in litigation.  The media has no such liability.  Like the old adage "no responsibility without authority", the financial media does not operate under any condition other than to entertain you, and to present themselves in a way that does nor offend or damage their REAL customer - the advertisers.

The broker's were already spinning the GE debacle.  "Technically, blah, blah, blah..."  B.S!!

GE is so large and unwieldy to understand that I respectfully submit that no "analyst" covering them has a better handle on their earnings and revenues outcome(s)by using a micro, bottoms up approach on the company itself than does a general macro analyst doing top down work on the entire U.S. economy,  (Yes, I am aware that G.E. is THE multinational, but work with me, I am getting there) and projecting those findings onto GE.

Did I mention that, statistically speaking, it would be IMPOSSIBLE for GE's earnings to have been as smooth and reliable as they have been without significantly "managing" those earnings?

GE's revenues increased nearly 8%, so why the decline in earnings?  Maybe, just maybe, the inflation and money supply pressures within the economy as reported by the U.S. B.L.S. are not quite as accurate as they could be.  Maybe inflation is more than the 6.3% wholesale number being reported for 2007.  Maybe real inflation was more than the 8% revenue growth reported by GE.  And maybe the real inflation rate of G.E.'s costs of goods sold rose even faster.  After all, there is no reason to doubt that the earnings "management" GE is famous for did not continue to occur this past quarter.

The S & P 500 is down about 9.3% over the past 12 months.  Inflation was over 6% by any reasonable measure, and some credible sources estimate inflation estimate inflation far higher.
So in "real dollar" terms equities are off some 15.6% over the past year, and the worst of the foreclosure crisis, banking write downs, and the great credit default swaps "unwinding" has not arrived yet.

If you want to be a better investor/trader I have a tip for you:

Whenever you are watching the talking heads and their guests on the various financial media outlets, visualize these folks wearing striped prison garb with a stenciled number on their chest with a ball and chain around their ankles and a "Pinocchio" nose that grows as they speak.  

It always worked for me.

Yours for a better world,

Mentatt (at) yahoo (d0t) com

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