GE's Global Chief Warns of Chinese Slowdown

The head of GE International, Nani Beccalli, told the Financial Times during an interview that he is concerned about the risk that the governments of the world will withdraw stimulus support too rapidly, and potentially jeopardize the tenuous global recovery. Surprisingly, when asked which specific country(s) are most at risk of a government misstep, Mr. Beccalli cited China, reflecting his view that the Chinese economy would suffer a significant slowdown if support from Beijing is withdrawn too quickly.

I would venture to say that Mr. Beccalli, who is in charge of all of General Electric's operations outside the United States, is uniquely positioned to accurately assess both the global economy as a whole, and the relative contribution of it's individual nation components. Thus, the GE executives assertion regarding China represents the most credible bucking of conventional wisdom about that country in some time. After all, if every economic tale told about China is assumed to be valid and true, then it could reasonably be surmised that the red-nation is on the brink of not only taking over earth, but also venturing into neighboring solar systems and subjugating their alien inhabitants. For some, it just seems that the US is out of growth industries.

What will America's next growth industry be? I certainly can't say with any certainty, however, a quick thought process might reinforce the notion that we aren't supposed to know what comes next. First of all, imagine the year is 1950, and you as an American as surveying the nation's economic prospects for the next half-century. Could you, at that time, ever imagine that the semi-conductor industry would give birth to powerful American corporations? No, because you wouldn't have even known what a semi-conductor was, or when it would be invented. The Technology Sector as we know it was nothing in 1950; we couldn't even conceive of it's existence. Most people probably thought that US auto makers would continue taking over the world, oblivious to the fact that an upstart US tech company - Google - would come closer to achieving that goal than GM ever had. A little bit of skepticism could go a long way towards a more accurate assessment of China, not to mention the future of the global economic and political landscape.

*long GE Sphere: Related Content

GE Is No Longer a Financial Company

General Electric (GE) has spent the past 18 months operating under the stigmatic label of "financial company". During the real estate boom such a label was entirely appropriate, as operating earnings from the Consumer/Commercial Finance segment routinely represented 40-50% of GE's consolidated net income. Now however, as evidenced by the revenue and profit breakdown charts, the Company has already begun to take the form of an Infrastructure conglomerate that happens to have a finance unit. Within the context of many investor's vision of the progression of the global economy, a Company described by the terms above would be exceedingly well positioned to capitalize on the future "building of the world". GE's capacity for future growth could be hindered by larger than expected losses at GE Capital. However, based upon our interpretation of the most recent detailed disclosures pertaining to that unit, there is reason to be optimistic.

On March 19,2009, GE released an 88 page presentation that detailed GE Capital's commercial real estate, mortgage and consumer exposure. The segment's $81B commercial real estate holdings - split fairly evenly amongst debt and equity - are well diversified across all property types. In the debt arena, GE holds a first position lien in the majority of instances. When the Company assumes an equity position in a property, it does so primarily as the owner/operator without the use of any 3rd party debt. This is an extremely advantageous position to be in, as GE has the flexibility to manage it's leases and cash flows without the burden of debt service. Yes, GE Capital will face further real estate related losses. However, the manner in which GE has typically financed it's holdings should give it an edge over other traditional financial institutions.

General Electric is perfectly positioned, we believe, to profit from two major trends that are unlikely to be derailed.

First, is the United State's movement towards the adoption of cleaner energy technologies. On this note, the Company has already developed an Integrated Gasification Combined Cycle (IGCC). This process converts coal into a fuel that when burned, emits 50% less sulfur and other particulates than if not treated. Additionally, GE already offers wind,solar and nuclear power products.

Second, is what we simply refer to as the "building of the world". Power grids, clean water, and the inexpensive transport of goods through rail systems are all components necessary for the support of growing middle classes in the developing world. GE happens to offer products and services in all of these areas.

Without a doubt, problems linger on at both GE Capital and in the financial system at large. This fact may though have blinded many to GE's unique positioning as a Company which provides essential services to a growing world. As the problems at GEC are worked away over time, the trend that has already begun will become increasingly apparent: GE is no longer a financial company.

*long GE

Ge Capital Mar19-09 Presentation Sphere: Related Content

Bloomberg: CIT Rejected "Superior" GE Offer

Bloomberg broke the following story today, reporting that CIT Group Inc.(CIT), while standing on the precipice of bankruptcy earlier this week, rejected a $2B rescue financing offer from GE Capital. If we are to believe the publicly stated motive behind the rejection of GE's offer - the GE offer promised a cash injection a full 8 days later than the time frame offered by existing bondholders - it becomes alarmingly clear just how perilous a situation CIT found itself in.

To stimulate reader's minds in their pursuit of an alternate justification for CIT's rejection of an offer that contained terms more favorable than was available from current bondholders, we will provide a set of figures below. Below we have a list of the top three aircraft Lessors in the world as determined by the number of aircraft owned by each entity. The number in parenthesis represents the size, in number of aircraft owned, of each company's fleet.

1. General Electric (1500)
2. American International Group (980)
3. CIT Group Inc. (300)

It seems that if today's financial markets could be converted entirely to numerical representations and plugged into an Excel spreadsheet, the error phrase "circular reference" would flash repeatedly.

*long GE

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