Get Rid of General Electric

We’ve had GE in the OI portfolio for almost four years, predating my tenure as editor… Frankly, I don’t think GE is going to give us much more from here. It’s time to sell General Electric.

Deep down, it pains me to part from GE. This is an iconic old American firm, now grown into a world technology powerhouse (no pun intended). I honestly LOVE the GE business divisions that deal with ‘real’ things, like jet engines and locomotives and power generators and windmills and subsea equipment. I get misty-eyed thinking of all the wonderful GE people who work in those metal-bending divisions, toiling at their workbenches and making the world a better place.

Then there’s GE management, which apparently has not learned its lessons from the world monetary crash of the past couple years. The money side of GE still has too much bad commercial paper. A lot of borrowers owe GE more than they’ll ever repay. And GE owes a lot of lenders more than the company can afford. There’s a looming crash in commercial real estate, and it’s set to kick in during the winter of 2010. It’ll shred GE’s capital position and rip a big hole in the bottom line.

I’ve often asked whether the GE industrial side can earn profits for the company faster than GE Capital can lose money. I’m not going to wait around to find out.

The Daily Reckoning