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A Funny thing happened on the way to the Balance Sheet . . .



February 04, 2009 – Comments (1) | RELATED TICKERS: GE

Nothing succeeds like success.

 However, with mark-to-market accounting rules, nothing fails like failure.  GE is among many companies who must write down assets - even assets that are shares in other companies.  What do you suppose has happened to shares in companies of late?  I know, right?  So losses beget further losses.  And now, any companies who own GE must take write-downs because GE is now worth less.  But wait, it gets worse . . .

Pension funds are usually managed and not tied directly to the price of employer's shares.  However, pension funds usually have a significant portion of funds in stocks.  What has happened to those shares?  GE has gone from a WAY-overfunded-Pension to an underfunded pension, as have many other companies.  At some point, that may need to be rectified by moving additional company assets to pension funds to cover shortfalls.  And that becomes a downward spiral too, since that drives share prices down.

Doom and gloom?!?  Maybe.  But consider the reverse, should it ever occur.  Let's consider that perhaps the world isn't coming to an end, that stock prices have reached their nadir.  Now what happens?  Everything mentioned above in reverse, of course!  In fact, mark-to-market rules will REQUIRE the increase in asset valuations as underlying asset prices increase.

 Optimist that I am, I would have expected this turning point before now.  But recent events give me considerable hope, including:
    1)  Money Market Balances are at all-time highs - at near 0% returns, this money will need to
         go somewhere!
    2)  Wild fluctuations have subsided.
    3)  Sans auto and banking shares, the markets seem to be reacting well to bad news.
    4)  Housing sales are improving (FINALLY!)
    5)  Interest rates are still very low, as is inflation.  Both continue to create a climate for growth!
    6)  We tested last year's lows and (so far) have not surpassed those lows.
    7)  The anointed one still gives us all "Hope" for tomorrow (sorry, I don't mean to disrespect our
         commander-in-chief - just those who worship him!  :-)

1 Comments – Post Your Own

#1) On February 04, 2009 at 9:33 AM, DaretothREdux (46.86) wrote:

I like the first half of your analysis, but I still think we will test those lows. We have another leg down before it's all over...but who knows? Long term GE might be a good buy right now even so.

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