Monday, June 9, 2008
Its a sh-t business - but hey - the dollar is falling
Many of the releases are seemingly inconsequential - at least in a company the size of GE. Here is an example in which GE (through its Jenbacher Engine business) turns farm waste (ie sh-t) into electricity.
The individual project is inconsequential - a megawatt of capacity - so probably couple of million dollars powered by - and I am not kidding - 20 cubic metres (700 cubic feet) of cattle effluent and 50cubic metres (1700 cubic feet) of other biomass daily.
Its good to know that GE sales and development staff have their hands in the muck.
What is consequential about this project is that it is not in Iowa. It is in Italy.
The competitors to GE in Italy would have mostly Euro costs. This may be (literally) sh-t business, but it is certainly more attractive when your costs are in dollars and your competitors costs are in Euro.
Places to be bullish
One way of interpreting the current financial crisis is as the first stage of the huge current account adjustment that the US is going to have to go through. Consumers in the US have had high levels of borrowing. These were mathematically unable to be sustained indefinately - but they could be sustained for a long time.
The subprime crisis is - in one view - the first indication that a long time has passed. Endless consumer lending is no longer good business. The US current account (which ran somewhere near 6%) will reduce (over time) to a more standard 2%.
This will involve a lot of movement from domestic sectors (housing, retail, medical, domestic finance) to export orientated sectors. If this adjustment happens slowly you will get what the press refer to as a "soft landing". If it happens fast you get a recession. If it happens very fast you get a true crisis (as per Argentina where the Peso almost became worthless).
If you want to get bullish about the US you want to be bullish about the sectors where the economy will be moving to - export or import replacement orientated. The current account deficit is nowhere near 2% now - and so this trend has years left to run.
The places with the best long term trends are products that America does well - that the Chinese need - and where the competitor is European and has Euro costs and US dollar sales.
Did anyone say aeroplanes, jet engines etc? Well Boeing hasn't been a bad stock over five years though it has been a bit rough of late. But even better is the technology that involves saving energy - or shifting stuff around more efficiently. And has anyone noticed that GE engines tend to be better at that than most the competition?
If you want to get bullish about the US these are the places to get bullish - really bullish. The problem with GE is that they have domestic businesses. Medical business is doing relatively poorly in the last result on domestic performance - and NBC - which is purely domestic has results that suck. The domestic part of the finance business is not doing great either - but it is doing much better than it would have done had Immelt not pruned it so hard.
But for the moment lets wallow (if that is not too graphic) in the good stuff - in American knowhow turning Italian cattle-crap into electricity.
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