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Is GE A “Black Swan” In Plain Sight?

investmentresearchdynamics.com / 

GE hit $8 in 2008. If you short the stock with some patience, in my opinion it’s a low-risk bet that it will drop at least 50% over the next 12-18 months. – From the January 29, 2017 Short Seller’s Journal with GE stock at $30

At the end of January, with the stock at $30, I presented GE as a “boring and conservative” short-sell idea. The chart technicals suggested that smart money was dumping their shares. Through today, shorting GE stock when I presented the idea has returned 41.6%. I’m sure Bitcoin bandwagon bubble-chasers would sneer at that “low” ROR but it in the context of the overall stock market, it’s been a significant outperformer.

GE is a GDP company. Its business activity largely “mirrors” overall real economic activity. If GE’s business is eroding, you can be sure that the Government’s GDP calculations are fraudulent. Yet, GE’s GAAP numbers hide the extent of GE’s deteriorating economic and financial fundamentals. GE has always been a bundle of accounting gimmicks and earnings management. Former CEO Jack Welch was practically the inventor or earnings management.

The latest drop in GE’s price is being blamed on GE’s dividend cut. But this is nonsense. GE had literally raised its dividend in December 2016 and that did not cause GE stock to move higher. GE’s business continues to deteriorate. Through the first nine months of 2017, GE’s trailing twelve month net income is down about $1 billion from it run-rate at the end of 2016. The cash GE generates from its continuing operations (cash flow from operating activities) YTD for 2017 is slightly higher than for the same period in 2016, but that’s because GE cut $1 billion from inventories and harvested its account receivables. The latter two attributes reflect declining business activity and a reduced outlook for future business activity.

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