Seems as if I wasn't too far off the mark on GE selling stuff...

A new article on Yahoo Finance discusses yet another asset sale by GE and suggests that the selling is not voluntary but rather mandated in its core by the federal reserve.  It says, "General Electric Co launched the bidding process for a $40 billion portion of its U.S. commercial lending business, a critical step in its effort to avert regulation by the U.S. Federal Reserve, the Wall Street Journal said on its website on Sunday."

That is pretty much what I surmised as well in this post where I stated:, "I suspect that GE got told by the federal reserve: "being little more than a shadow banks, you are a systemic risk to the economy.  Start breaking yourself up on your own before the government comes in and does it for you"".

GE is being sold off piece by piece right now as the government tries to quietly unwind the debt Ponzi which is the company.  Unfortunately for GE shareholders, such actions invariably move the value out of the dying company onto the books of other more viable companies while leaving the toxic waste behind.  The game is to move the good stuff out while market prices are still good and before everyone paints all of GE's assets with the same bankruptcy brush as the mother company will soon be painted with.

GE's problem is that the past CEOs were running a debt Ponzi which is now near end of life.  If you want to know what this looks like in black and white, see the table below.   Only 13 measly billion in cash holds down 351 billion in debt.










The other thing that investors haven't woken up to is that the valuable pieces are being sold off first and in case you haven't noticed, the pace of selling of assets has dramatically increased.  GE is a house of cards waiting for a foul economic wind to blow it all over.  I suspect that the increased pace of selling likely has to do with the fact that the US is already likely in a recession even if it has not been declared yet.  You can scroll all the way to the bottom of this post to see Mish's latest recession call.  Mish knows economics and he is an excellent data analyst.  If he says we are already in recession, odds are very high that it is true.

One might be tempted to say, "well, with all these sales GE is becoming cash rich".  The only problem with this is that the total cash on the balance sheet is not reflecting this.  So the cash generated from these sales is going some where but it is not onto the company's balance sheet.  More likely, the company is suffering business losses that it is covering up using proceeds from the sale of assets.

One might also be tempted to say "but with sale of the finance business, the associated debt goes to someone else".  If that were true then it would be a good thing.  But according to many articles I have read, GE still has to guarantee $200bn of the debt.  This article says, "GE is selling the assets of GE Capital, but it’s not shedding the liabilities: as part of the deal, it will fully and unconditionally guarantee $210 billion in GE Capital debt. So it’s still on the hook for the $210 billion. But most of the assets are gone, and so are the $43 billion in revenues."

And that brings up my last point.   You can tout the advantages of de-leveraging relative to debt reduction but you also have to acknowledge that the associated revenue is gone forevermore.  And it was that revenue which made GE the monster that it has become.  So without those revenues we can only expect GE to shrink big time and, more likely, probably BK within the next two years or have to be taken over by government with shareholders (read: retiring boomer 401ks) wiped out.  No way will the taxpayers allow another massive payout to the moral hazard crowd like happened last time.  Heads will begin to roll and GE's will be one of them.  You cannot have a soft landing to debt Ponzi!