Sunday, April 13, 2008
Why is GE so important? Missing a quarter can bring the entire market down triple digits. Well, not counting the slide in Asian markets come Monday morning as well. GE is important because:
1) It is supposedly the best managed company globally
2) Its ability to beat quarterly estimates are legendary, which translates to having a great hold on business analytics, management execution and forecasting
3) It is a diversified global industrial giant, and as such should be able to weather the supposedly "localised banking correction in the US"
4) If the going gets tough for GE, can you imagine the situation for lesser companies
The company reported a 12 percent decline in first-quarter profit — its first in five years — and dim prospects for the rest of the year. GE is one of only five AAA-rated corporations worldwide, and its troubles accessing the credit markets underscore how seriously broken the credit system has become. If the weakness was solely concentrated in their financial subsidiary, it would not have reverberated as much. However, the weakness was caused not only by credit difficulties but the conglomerate's far-flung businesses on nearly every continent, spanning such industries as entertainment, health care, consumer goods and industrial manufacturing.
This lends weight to my feeling that there is another shoe to drop, one more whack down before genuine recovery can begin. Though prices are attractive, the upside is not sparkling and any attempt to rally from here will not be able to generate sufficient momentum or encourage the sidelined to jump in. The plunge saw GE losing US$55bn in market cap, what was interesting as well was UPS coming in below estimates for its quarterly results, particularly since UPS is such a good benchmark on "business velocity".
This week will be very volatile: Anwar's April 14 date with destiny; quarterly results from JPMorgan, Merrill Lynch and Citigroup. Good day!
p/s photo: Sammi Cheng