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Picked up more USG, GE today


Mandeep
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So what sort of figures do you think GECS will produce Mandeep? You're not worried there?

They've had issues re; the integrity of their accounting figures for GECS: http://www.forbes.com/feeds/afx/2008/09/05/afx5395144.html

 

If unemployment blows out we could see a more prolonged trough for the stock due to credit losses, also especially if we see an extended downturn = energy and tech businesses won't get going at all.

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I own some GE and USG, but am honestly real worried about GE. I think it another major U.S. company goes under, it can easily be GE. Their enormous debt load of near half a Trillion dollars with a relatively small amount of tangible equity could make it very difficult for them to survive a prolonged downturn in the economy.

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they have subprime exposure in england too don't they?

 

 

immelt is awesome though. You guys should check out his berkeley presentation.

Other than numbers, GE is number one in every industry.

Who can compete with CNBC? no one. Who can compete with their wind turbine business that makes $3B profit post tax.

They got jet turbines, and locomotives too.

 

If GE goes down, we'll be dead.

 

push for energy/infrastructure will benefit them too.

 

 

and usg is just, well usg. I don't even know why I bought it.

haha.

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Who does GE Capital lend to? Are most of their loans to finance corporate and governmental clients buying their industrial products like turbines, etc.. or consumers? That could make a big difference to the nature of those loans.

 

Most of their lending comes in 2 buckets:

- consumer

- commercial

 

The consumer is basically auto loans, mortgage loans around the world, especially in the UK.

The commercial loans are predominantly in commercial real estate, and equipment financing to related businesses that they deal with in their other businesses i.e. health care, aircraft businesses.

 

If unemployment goes to like 10%+ and we have a protracted downturn, there will be a very high amount of loan defaults IMO.

GE have had SEC investigations in the past regarding their low provisioning rates for non-performing loans in the GECS business, so I think there could be a suprise on the downside. Their tier 1 ratios and loss provisions are generally lower (when it should be higher) than the major banks.

 

 

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they have subprime exposure in england too don't they?

 

 

immelt is awesome though. You guys should check out his berkeley presentation.

Other than numbers, GE is number one in every industry.

Who can compete with CNBC? no one. Who can compete with their wind turbine business that makes $3B profit post tax.

They got jet turbines, and locomotives too.

 

If GE goes down, we'll be dead.

 

push for energy/infrastructure will benefit them too.

 

 

All the industries you mentioned are struggling big time right now, and will probably be struggling for a long time. CNBC is a very small part of GE and replies on Ad spending, which is down a lot, and will be hurt by a continuing shift from tv to online advertising. Wind Turbine sales are highly related to the price of oil. Their wind turbine sales will be down quite a bit this year from last year. Jet Turbines? Do you realize how much Boing (a huge customer of GE's) is struggling, and airlines around the world are reducing their future orders for new planes. Locomotives? The Rail companies are struggling and their profits are partially based on commodity prices, which aren't going to recover anytime soon. Sales in this area will down down significantly form 2008. How about their appliance business? They tried to sell it and were unable to. Its appliance business revolves around housing, which is going to be a long and slow turnaround. Their financial division (40% of the company) is a mess. How about Health Care? It should be a good division in the long run, but hospitals and medical companies are greatly reducing spending right now. Infrastructure is the one area that shows promise, but they probably won't see a significant impact until mid 2010-early 2011. I like that they're trying to become a player in China, but growth in China won't be enough to offset there many other struggling businesses any time soon.

 

Again, I'm unortunatley a GE shareholder. I made the big mistake of starting my position at around $28, and bought more at $25, and then more at $13. I think the next few quarters will be bad, and am worried about the solvency of the company with its enormous debt load.

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of course its struggling. When did you want to buy, when they are doing good? i.e. GE 40? GE 60?

 

Isn't that the point of value-investing?

 

I don't get your points here....

 

You want to buy when the future looks promising. Many of GE's industries show no signs of turning around for a while and do not look promising at all. You want to buy great companies at fair/good prices; but one can make an argument that GE is no longer a great company.

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Prem Watsa says (Nov 2008):

 

"General Electric has never been valued this cheaply in 50 years. GE at $15-16, represents seven times earnings, over 8% yield -- which takes you right back to the 50s. This is a AAA-rated company. It has a tremendous record and today you can buy it at these very low prices."

 

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Prem Watsa says (Nov 2008):

 

"General Electric has never been valued this cheaply in 50 years. GE at $15-16, represents seven times earnings, over 8% yield -- which takes you right back to the 50s. This is a AAA-rated company. It has a tremendous record and today you can buy it at these very low prices."

 

 

So b/c someone else has bought GE that means all rational analysis goes out the window?

 

WEB is down 50% on GE. You should at least analyze it yourself. If you saw the numbers you would think twice.

 

In any event, I think Watsa would probably have second thoughts now. That statement was made in late 2008, when the worst of the crisis was just starting. GE is no longer a AAA rated company.

 

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In any event, I think Watsa would probably have second thoughts now. That statement was made in late 2008, when the worst of the crisis was just starting. GE is no longer a AAA rated company.

 

Some facts:

 

S&P cut GE's rating on March 12th.

 

Fairfax still owned 10 million shares of GE on 3/31/09, after trimming the holdings of GE by 15% to buy other names like USB (by comparison, JNJ, KFT, PFE, DELL were all trimmed by 9%-10%).

 

At the end of March, was the worst of the crisis starting?  Maybe he still just hadn't heard the bad news yet on the economy, the part about GE capital, and the jet engine and locomotive business hurting?

 

 

 

 

 

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So b/c someone else has bought GE that means all rational analysis goes out the window?

 

WEB is down 50% on GE. You should at least analyze it yourself. If you saw the numbers you would think twice. 

 

 

It's interesting that you can see what HWIC can't. 

 

Myself, I own no GE and can't analyze it.

 

I posted the quote by Watsa to bring some balance to this thread.  You are focusing on their present difficulties, and I am sure HWIC bought GE for it's long term potential.  I don't think you can explain it away by suggesting they were naive about how bad the economy would get -- I mean, you are talking about the man with the "100 yr storm" vision after all.

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It's it funny that in April, people on this board were saying stuff like "GE will never go back to 10 again. that was a generational low." And now when it back at 10 everyone is thinking it is going bankrupt? This is no lehman brothers, guys. This is a deal-real manufacturing company. Now I intend to keep it 1 year+ at least, but doesn't the rally of the march lows prove that things in at least the stock market can change FAST? Remember GE at 5.73? or AXP at 9? USB (my fav) at 8?

 

come on guys, relax. This is not GM or citigroup (which I also own).

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It's it funny that in April, people were saying stuff like "GE will never go back to 10 again. that was a generational low." And now when it back at 10 everyone is thinking it is going bankrupt? This is no lehman brothers, guys. This is a deal-real manufacturing company. Now I intend to keep it 1 year+ at least, but doesn't the rally of the march lows prove that things in at least the stock market can change FAST? Remember GE at 5.73? or AXP at 9? USB (my fav) at 8?

 

come on guys, relax. This is not GM or citigroup (which I also own).

 

Berkshire did not purchase any GE shares in Q1.

 

That is a huge red flag for me.  Berkshire has a miniscule position in GE and it's clearly a large enough stock where Buffett can really sink his teeth into it.  I think it is likely a Lou Simpson holding given Warren's propensity for concentration when he really likes something.

 

Instead he bought more BNI and JNJ.

 

Buffett has a small pool of stocks to choose from (combination of Berkshire's size and his strategy that relies on predictable outcomes over long time horizons).

 

GE didn't make the cut, not even at $5.73.

 

I bought back the GE puts that I had written -- wrote more WFC puts instead at prices where Buffett would be comfortable to put 100% of his net worth into it.

 

 

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He still has that convertible preferred.

The thing about buffett is he's like a liar.

 

He didn't even purchase that much WFC or USB at under 10. That was a BIG red flag for me.

 

 

 

Oh, so you are talking about buying the convertible preferred are you?

 

Berkshire's WFC position is more than 70x larger than their GE position.

 

 

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GE is a great buy, but the real money is 3-5 years out once all the write-dwns have cleared its BS. Over the next 12 months they may well come down some more, but long-term the future looks bright. Risk mitigation requires that a investor roll into his/her position over time - vs buy the whole thing right away.

 

The reality is that a large chunk of GE's BS was financed with short-term $; they had difficulty rolling it, & had to go to longer terms with higher rates. The good news is that they were able to roll at the lowest available global rate, the bad news is that their various BU ALM's are no longer optimal. Earnings drag from penalty interest.

 

GECapital is a platform, sourcing funds at the lowest possible global cost of funds; take it away & the other BUs will be far less profitable. More penalty interest & less margin as financing/lease sales evaporate.

 

A value investment, with significant trading opportunities attached.

 

SD

 

 

 

 

 

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He still has that convertible preferred.

The thing about buffett is he's like a liar.

 

He didn't even purchase that much WFC or USB at under 10. That was a BIG red flag for me.

 

There continues to be much misperception of Buffett's GS and GE preferred purchases. You often see commentary that suggest that BRK lost money in the pfds just because GS and GE common dropped substantially from when BRK bought the preferreds.

 

Firstly, they are not convertibles (and definitely not mandatory convertibles); they are straight perpetual preferreds. As such, these pfds should trade more like the "fixed-income" instruments that they are. Unless the issuers are perceived as being likely to go bankrupt, there is no reason for them to trade in line with the common. There is a reason why Buffett opted for preferreds instead of common stock - it's not because he's stupid.

 

Secondly, Buffett also got "free" warrants in GS and GE. You can either consider these to be free (in which case he has not lost anything from the decline in common stock prices) or inpute a value to them (in which case this value should be deducted from the cost of the preferreds, in effect giving BRK a higher yield on them).

 

So, there is nothing illogical about buying GE pfds when GE is at $20+ and not buying GE common at lower prices.

 

Saying Buffett is like a liar because he didn't buy more WFC or USB is simplistic. There could be many reasons why he didn't buy more - other opportunities, position limits, liquidity constraints (which is the reason Buffett gave for selling some holdings recently). You mentioned USB as your favourite. If the price fell after you first bought in, will you keep on buying it until it became 100% of your holdings? Do you call yourself a liar if you stop buying?

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He didn't even purchase that much WFC or USB at under 10. That was a BIG red flag for me.

 

Well one reason could be that in WFC's case, BRK and its affilates are approaching ownership of 8% of the Company.  At a 10% ownership level, BRK would have to register with the Federal Reserve as a bank holding company -- something Buffett definitely does not want to do.  Once WFC pays back TARP and resumes share buybacks, it would put BRK in a position of having to sell WFC shares to avoid the 10% threshold if BRK was already close to 10%.  

 

Charlie Munger's WSC falls into BRK's share limits since its 80% owned by BRK's subsidiary Blue Chip Stamps -- so Charlie can't buy WFC for WSC either probably for the same reason.

 

Still, Charlie also is Chairman of DJCO, which most definitely is not owned by BRK, and I believe its recent purchases of common stock in the March Q and registering a quick intra-quarter 60% gain means that Charlie probably bought both WFC and USB during their early March lows since the math works to a 60% gain for both of them.  Of course, we can't know for sure until DJCO discloses what it purchased and now owns.

 

wabuffo

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