Anti-General Electric Bets Grow Stronger (GE)

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General Electric Co. (NYSE: GE) briefly hit a new 52-week low earlier this morning.  What is interesting is that there has been no support of the stock heading into Friday morning’s earnings announcement.  Expectations are getting stronger that more bad news is headed its way.  We do not want to say that traders are betting that shares will get cut in half, but conviction against the conglomerate is growing.

The main standout today is being seen in GE’s put option activity.  Themost active contracts are of course the February contracts incumulative trading, but there have been more than 57,000 optionscontracts traded in the March-2009 $5.00 PUTS.  The open interestbefore today was a mere 24,969 contracts. 

Here are the most active contracts in the PUTS for February expiration:
Strike   Volume   Op. Int.
5.00      31,102    22,477
7.50      8,480     44,029
10.00    35,040    46,301
11.00    14,757    12,206
12.00    11,708    12,064

This comes to more than 100,000 contracts traded today in the February2009 PUTS when you include the contracts not noted here, whichrepresents more than 10 million shares on a fully leveraged basis.

If you want to know why this one is falling each day, the reasons areendless.  It also boils down to speculation.  Media reports and traderspeculation point to several key concerns:

  • a dividend cut, despite Immelt’s affirmation on multiple occasions that the dividend is good for 2009
  • more weak guidance, or at least a total lack of guidance that has beenscaring Wall Street since its last time it backed away from constantlygiving guidance
  • a ratings cut is speculated as more than an "outside possibility"despite the affirmation given; we took the last ratings agency call asa warning shot across the bow with the signal that further guidancecuts would likely be followed by rating cuts
  • layoffs… we have seen many figures and heard many figures; but noone except the deepest inside the company know the answer as to howmany jobs will be cut
  • management changes… despite management’s ability to weather the stormso far, it is only logical that those numerous past calls againstmanagement are only getting louder
  • too late… GE can no longer break itself up. That time has come andgone as the values have compressed too much to make this feasible.
  • asset writedowns… Some speculate that NBC Universal has to be writtendown further, and other broad-based writedowns from other financial andnon-financial companies have become routine.

Theinfrastructure business should have a massive backlog, assuming thatoptions to delay or cancel projects even at a penalty have not beenexercised.  It is hard to imagine anything solid coming from GE Financeor from the jet engine unit. 

What GE does have going for it is a whole new infusion of capital.Some had guarantees and some did not.  But GE has raised billions.  Wedo not know just how bad the earnings report will really be, buttraders are expecting weakness to only be followed by more weakness.

Official estimates are $0.37 EPS and $48.86 billion in revenues.Whatever is coming down the pipe, we’ll know it early Friday morning.

GE shares are down at $12.81 late afternoon, but it has traded under $12.50 today. GE’s 52-week trading range is $12.58 to $38.52.

Jon C. Ogg
January 21, 2009