Dow

[trendy]

GE cuts dividend for first time since the Great Depression (1938)!!!!

This is all Canary in the coal mine actions.

The two decade long credit mountain in the USA is collapsing right in front of us. More casualties to come. GM will go BK, SAAB is BK, Opel next, Holden will follow, then GM US next. No one is buying cars here period.

http://www.bloomberg.com/apps/news?p...oRs&refer=home

GE Cuts Dividend as Immelt Seeks to Safeguard AAA (Update2)
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By Rachel Layne

Feb. 27 (Bloomberg) -- General Electric Co. cut its annual dividend for the first time since 1938 as the global recession and credit crunch sapped profit at its finance unit and threatened the company’s AAA credit rating.

The quarterly dividend was lowered 68 percent to 10 cents a share from 31 cents for this year’s second half, the Fairfield, Connecticut-based company said in a statement. The reduction will save GE, which has paid a dividend for 110 years, about $9 billion a year, the company said.

Chief Executive Officer Jeffrey Immelt had said in January GE would earn enough to support both the dividend and highest- available debt rating. Earlier this month, with no sign of an easing in the global slowdown, he said the board would review the dividend and that he could run GE with less than a top rating if analysts downgraded the debt. A downgrade may increase the cost of capital and further hurt profit at GE Capital.

“They didn’t make the current environment, they have to just survive it,” said William Batcheller, director of investment management at Butler Wick & Co. in Youngstown, Ohio, which has about $675 million under management. “You can’t blame Immelt that markets have come down like this.”

Moody’s Investors Service said after today’s dividend cut it will keep GE on review for a possible debt downgrade from Aaa, its highest level. Standard & Poor’s also kept GE’s top- notch AAA and “negative” outlook unchanged.

“The reduction in GE’s common dividend will address some of the concerns regarding the stress on GE’s cash flow,” said Moody’s analyst Richard Lane, who covers the parent company, in a statement. “Nonetheless, Moody’s is continuing its review of the ratings for possible downgrade.”

GE Shares

GE, the world’s biggest provider of aircraft leasing, jet engines, power-plant turbines, medical imaging machines and locomotives, fell 59 cents to $8.51 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have dropped 75 percent in 12 months.

The $1.24 annual dividend GE had planned for 2009 would have cost about $13.1 billion in all. The company has already paid or agreed to pay $6.2 billion for this year’s first two quarters, Chief Financial Officer Keith Sherin said Feb. 10.

In the statement, Immelt said the dividend cut is “the right precautionary action at this time to further strengthen our company for the long-term, while still providing an attractive dividend.”

Immelt also said today that, aided by the dividend change, GE doesn’t have any plans to raise additional equity. GE raised $15 billion in October from the sale of $3 billion in preferred stock to Warren Buffett’s Berkshire Hathaway Inc. and $12 billion in common stock. Buffett declined to comment about today action through assistant Carrie Kizer.

Companies Reduce Dividends

U.S. companies are reducing dividends at the fastest rate in half a century, hoarding cash and squeezing investors who depend on the payouts more than ever to boost returns. GE’s dividend has been providing a yield of about 14 percent as the shares trade at lows not seen since the mid-1990s.

GE, the only remaining original member of the Dow Jones Industrial Average, has paid a dividend to investors since 1899.

Immelt, 53, and the board are making the cut as debt ratings of both GE and its GE Capital finance arm are under review for possible downgrades. S&P and Moody’s are studying whether GE can generate the profit it needs to pay common stock holders, support the debt load and still invest as needed in its businesses.

S&P in December said GE had a 1-in-3 chance of losing its AAA designation during the next two years. Moody’s Investors Service placed GE on review in January, triggering what is typically a three-month process.

More Flexibility

The dividend cut “helps them with the rating agencies,” said Nicholas Heymann, an analyst with Sterne Agee & Leach Inc. who has a “sell” rating on the shares. “It gives them more flexibility to be able to build necessary levels of loss reserves and loss provisions at the financial subsidiary, and that in turn is a very important component of what their ratings are with the rating agencies.”

The global recession and credit crisis may make it harder for GE Capital to meet its $5 billion profit goal this year, and growth at GE’s industrial businesses also is slowing.

The average analyst estimate for GE Capital profit is about $3.6 billion, Sherin said Feb. 10. Moody’s laid out in December the criteria GE had to meet to retain its highest rating, Aaa, including the ability of the non-finance units to produce $16 billion in cash flow as Immelt had promised.

Generating Cash

Most of that cash would come from revenue tied to equipment such as jet engines and power turbines, plus $500 million from a reduced payment GE Capital makes to the parent, and about $2 billion from other sources. GE said Dec. 2 that would be more than enough to pay the dividend this year.

Moody’s wants GE Capital to earn enough to restore a larger internal payment to the parent company in 2010. If that doesn’t look like it will happen, Moody’s says GE can’t justify the Aaa.

Immelt has said that he and GE’s board consider the dividend a good way to return value to shareholders. More than 40 percent of GE’s holders of its 10.5 billion outstanding shares are individual investors.

GE had already broken its usual dividend practice in September, when it announced the board would keep the quarterly payout at 31 cents a share in 2009 -- the first year in more than three decades without a dividend boost. The company repeated its intention Dec. 16.

GE’s bonds have traded the past six years as if the company was rated below AAA, according to Moody’s implied ratings. The bonds imply GE should be ranked five steps lower at A2.

[Stranger_Danger]

Will the Dow end the week in the 6,000's? I'd say so.

The interesting thing I find is people are talking about a "lost decade" (starting today!) where asset prices go nowhere but down and its barely worth trying to make a buck.

With the benefit of hindsight, the "lost decade" has just occurred but people didn't realise it as they were living it.

Disc : Bullish, nibbling, liking this environment much more than 2006/2007 - but still 70% cash. I missed the last bit of the boom by going into cash "too early" and suspect I'll miss some of the upside by not going large until its "too late". So be it.

[Hoop]

Will the Dow end the week in the 6,000's? I'd say so.

The interesting thing I find is people are talking about a "lost decade" (starting today!) where asset prices go nowhere but down and its barely worth trying to make a buck.

With the benefit of hindsight, the "lost decade" has just occurred but people didn't realise it as they were living it.

Disc : Bullish, nibbling, liking this environment much more than 2006/2007 - but still 70% cash. I missed the last bit of the boom by going into cash "too early" and suspect I'll miss some of the upside by not going large until its "too late". So be it.

Interesting perception SD...also a good piece of investment discipline..especially during bear market rallies.
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The Zurich Axioms rule 2 of 12 On Greed

2....Always take your profit too soon
Decide in an advance what gain you want from a venture, and when
you get it, get out.

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Last week the DOW followers (including me) had our question answered .."Had the bear market ended and we were in Bull Market (1) phase since last November? Answer NO!!!..
....Just witnessing the Stock Market's lower low last week reinforces the belief of many and (also those that were starting to be optimistic) that now this recession is going to be possibly longer and meaner.

The TA followers now have a TA Target of 6000 for the DOW 7500-(9000-7500)...this is a substantial predicted fall if it happens,... possibly another capitulation event...so it would be prudent to be holding cash rather than shares just in case the Techies are right...rather be safe than sorry.

Like you SD I have sold up much of my holdings ..I was in the market at 80% stock just after Xmas thinking the Bear market cycle may had ended, presently I am holding 25% and reducing ..even selling down some stock that haven't triggered sell signals yet.

This lost decade assumption by commentators is typical maligned logic, assuming the future using today's reference data..... and what scares me is the fact that many people are believing it.
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The Zurich Axioms rule 4 of 12 On Forecasts

4....Human behaviour cannot be predicted. Distrust anyone who claims to know the future, however dimly

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Investors tend to develop herd mentality during abnormal events (fads, economic crisis, windfall events) with common beliefs.

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The Zurich Axioms rule 10 of 12 On Consensus

10....Disregard the majority opinion. It is probably wrong.
Never follow speculative fads. Often, the best time to buy something is when no body else wants it.

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With reference to using the above Axioms...never use an Axiom in isolation all 12 rules should be adhered to in making an investment decision.

[trendy]

Great post hoop.

I'm starting to really see economic damage taking place here and expect unemployment will easily jump past 12% nationally. California is the barometer and they have already jumped to 10.1%, CA population is 36 million of the 300 Million in the USA (2007 census). The other sunbelt and rustbelt states are experiencing huge jumps in unemployment due to the housing and auto manufacturing crash in each region respectively.

[winner69]

Got a 6 in front of it now ..... S&P holding the 700 mark (JUST)

Bears in control .... and for some time I fear

[brettdale]

There must be a **** load of bargins out there now.

[ananda77]

...awaiting patiently possible SPX500 *860 (May 1996 high) and *840 (= 61.8% retracement 1973 - 2007 rally)

...expecting SPX500 to rally to *1000/1100 thereafter

...however, this Bear has just started...

Kind Regards

[Stranger_Danger]

Nah, it hasn't "just started". Nothing like it. The reality is that US stocks - in particular - haven't been healthy since the late 1990's and only vast amounts of near free money propped the market up.

We're now down, what, 60% or so?, since the highs of 2007.

That isn't "just started". However, it IS the point where the masses "just start" to worry about total crashes - ie, after things have already totally crashed.

[Stranger_Danger]

Things can't be all bad, AIG is up nearly 10%.

Oh the irony, huh?

[winner69]

Thought you might like this one winner how low? ...

Thanks Belg

Good old harry Blodget eh ... making a honest living now after pumping the markets up many years ago with his infamous reports .... bit ironic he mentions the S&P could go as low as 300

You and I are essentially on the same page - as the article says 'The farther stocks fall, the cheaper they get--and the higher the expected long-term return becomes.'

No question about that eh

The difference between you and me is that you are less patient then me .... you want to think its all over and now is the time be in .... my mantra is not to fight the trend but wait until it appears as if things are going to better. That way i think my long term gains will be higher than yours because i may have bought in cheaper.

I ahve no idea whetehr we are at or near the bottom. All i know is that most markets are worse today than they were last week, worse than last month and worse than last year .... and from a position of being implicitly overvalued at the moment and with all the **** going on at the moment the markets will probably be worse next week and worse next month and probably worse or no better in a years time. if i am wrong with that timing I won't have lost anything or missed out on much because i will be doing the Pheadrus thing and looking at the signs that things may have turned.

So no long term investing for me at the moment but soem day to day opportunities with a bit of play money stops one getting too bored

Keep at it Belg .... enjoy your posts .... and never forget that the further the stocks fal the cheaper they get