General Electric (GE), food riots, and more: an open letter.Submitted by IamVoting4RonPaul on Mon, 04/14/2008 - 22:20
An insightful open letter from "Bill" -- a member of LeMetropoleCafe.com:
To all: last Friday was a very important day. It doesn't seem so now since we've had 2 days over the weekend to forget about it. GE's mea culpa Friday came and went, the markets were down a couple percent, no big deal. It is a BIG DEAL. GE is one of the biggest derivative monsters on the planet. Jeff Immelt, GE's CEO came out on March 13th and affirmed earnings guidance. Bear Stearns blew up on the 15th.
Now we are lead to believe that GE's shortfall happened entirely within the last 2 weeks of March. They had some derivative problems and a couple deals that couldn't close because the market for deals tightened shut. Wait a minute! Tuesday, March 19th we were told that Bear Stearns had been saved, the system had been saved, the credit crunch was thawed, and the future was basically a cleanup of what had happened. Business as usual. We heard cheerleading on CNBC [owned by GE] that the worst was over. Fast forward 3 weeks and GE coughs up a mea culpa furball and GE stock promptly drops more than any day since the 1987 crash.
GE is a huge financier. They finance all sorts of operations and products. They finance the rails, the airlines, heavy equipment etc. GE is the #3 company in size in the US. Today, Monday, not a word. Not a word on how GE's woes will effect the economy and markets in the future. I prefer to look at this mea culpa as further proof of the "spread of contagion" of the credit crunch. The entire system is infected with bad debt, overleverage, lack of credit etc.
It has become more and more obvious every day that we as Americans are subject to more and more spin each and every day. I am not all that old, I started in the "financial business" about 25 years ago. 25 years ago, if ANY of these "mea culpa's" came out of Citi, Fannie, MBIA, GE, and on and on, the markets would have sold off 10% in a heartbeat. Today, risk is not being priced properly. It is not priced properly because the Fed, Treasury, PPT, PFWGFM, are holding the markets up so Joe sixpack doesn't get scared and run with his 401K money for the hills.
If the government is artificially holding up the market, sell them your stock. If the government is trying to artificially hold commodity prices down, it would be wise to to buy all they are selling. The market clearing prices cannot be discovered with this type of interference by the government. The USSR tried it, it did not work. Governments throughout history have tried it. It does not work. It did not work because they ran out of hard currency [Gold]. I think it's only a question of time before foreigners ask the all important question. How much hard currency do you have? SHOW ME THE GOLD! Regards, Bill H.
More from Bill:
To all; price and supply dislocations have appeared in world food markets. The IMF came out over the weekend with a statement to try and pacify the hungry. Statements, more derivatives, more paper solutions will not feed the hungry. Rice has risen about 50% in price since Jan. Shortages are beginning to appear across the globe. 33 countries so far have experienced "food riots". Prices have been governed, read [controlled], by the paper markets for years. Government meddling has caused improper pricing which has now lead to a lack of supply. For example, when I lived in Texas the government had a "rice program" that paid farmers $2000 over 5 years per acre, NOT TO PRODUCE. The land itself was only valued at $1,200 per acre at the time.
The financial markets are obviously in trouble mode. Now the real markets are experiencing dislocations. A farmer will not produce a crop if his input prices such as diesel, fertilizer, etc. exceed what he can harvest. This is the situation today. The root cause to todays' financial market, real estate market, and food market problems is simple to discern. We have not had a "real" currency for over 35 years to exact discipline on the worlds' central banks. They have played their paper games and been masters of the paper universe. When this perfect financial storm hits in full force, the world's currency system will shift back to "real backing". The banksters have done this to the population and themselves. What a shame, this situation could never have happened in a truly free market economy. If only paper were edible... Regards, Bill.