GE And The Coring Out Of US Business

| April 11, 2008

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Bloomberg business news brings us word of General Electric’s fall in profits and reduction in forecast:

April 11 (Bloomberg) — General Electric Co. dropped the most since the 1987 stock market crash after reporting an unexpected decline in profit just a month after Chief Executive Officer Jeffrey Immelt assured investors 2008 earnings would be met.

“Two days after the Webcast, the Bear Stearns situation took place,” Immelt said. “The last two weeks in March were a different world in financial services.”

The market turmoil also prevented GE from selling some finance assets, Immelt said. GE put its U.S. credit card business and Japanese consumer finance units up for sale last year. The health-care unit also trailed expectations.

The first thing that should leap out at you is that the Bear Sterns buy out had an impact on GE, which brings us to the core of this post. In fact we are going to find out over the next year just how much of our once mighty economy is a glittering façade, with front line companies that the public assumes manufacture things we all want to buy and use are little more than hollowed out shells. They have sold off all of the manufacturing capacity to Mexico, China or Vietnam and have instead been gambling for the last 10 years with the proceeds. Nobody cared as long as it was working, but as evidenced by the news of the day it’s no longer working.

One case does not make a point, so lets have a look at that stalwart of the US, General Motors. Back in February, GM reported a $722,000,000.00 loss. For a single quarter. Thats about the GDP of Liberia. On an annualized basis GM is losing the same amount of money as the GDP of the Fiji!

Over the past decade or more, GM became less about building quality automobiles and became more of a finance house with an automotive value added assembly shop attached. While everyone was making out large in the debt fueled speculation business, they were in grand shape. Now that debt is poison, they are finding themselves in trouble. The economy is shifting from a mortgage fueled age of indulgence into a cash-on-hand, essentials first age of conservation. Those that actually can build quality products for a reasonable price that meet an essential demand are going to do well. Those that live on the speculative margins marketing to people who could only afford their goods from inflating housing “equity” will be gone.

Sadly for everyone, we have a lot of bad debt still left to write off almost everywhere we look. Companies like GE and GM who have shifted from manufacturing to “services” are on a sad path to further loses as debt for commercial real estate, Alt-A mortgage pools, credit cards and leveraged buyouts like Harrah’s Entertainment and other things that in hindsight look quite perilous have to be liquidated and reconciled.

Keep watching the news for companies you think make things taking large and growing losses from bad debt. It seems that far too many companies were betting long on speculation and the credit ponzi nightmare.

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Category: Credit Backlash, Economics, Main

About the Author ()

Bruce Henderson is a former Marine who focuses custom data mining and visualization technologies on the economy and other disasters.

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