Chingo De Dinero

So, I just reviewed the GE quarter announcement, and I am a little worried that bad things may be coming.  Many analyst expected the dividend to be cut to keep the financial stability to keep the AAA rating.  This did not happen, what this means is that S&P or another credit rating agency could cut the rates, which will increase the cost of borrowing (Moodys will probably not cut it due to the ties with Sir Warren).  After this happens, GE will be in big trouble…with so much debt, the additional cost of borrowing will hit earnings, resulting in a decrease in investments in the various businesses, resulting in deterioration of their competitive advantage, which will hit the top line and start a nasty cycle.

If you look at the numbers, most of the cash generation is from the industrial side, which will probably tighten up mid way through this year.  Addtionally, you have to wonder how the current loans made by GE are…since many of them are through credit cards.  They do have a reserve for losses, but if it is large enough is a good question. If there is some unexpected weakness in the loan portfolio, along with a slowing industrial side, mixed with additional costs to renew debt…you are talking major trouble.

In looking at the actions of management, it looks like they are trying to build confidence, which could be a last grab at keeping the AAA and stoping the downward spirl.  Not cutting the dividend and raising money from Warren are two examples of management trying to get in the publics eye to prove everything is okay.  Although, I did see the recent debt having to pay 7%…a little high for how much debt is out there.  Lets see when it gets a little worse if we hit the slippery slope.