What In The World Happened To GE?
Now that one circus has folded its tents in DC it is time for the main event, the midterm elections. If you thought that the past two weeks have been a spectacle they were just a warm up for the next greatest show on earth, the mid term elections on Tuesday November 6. We will find out about more scandals, financial misdealing’s, and general maleficence than you believe could possible happen. I am sure the salacious details of our leaders will make for great copy.
This week GE announced that it was firing its C.E.O John Flannery after 14 months in office. He was a thirty-year veteran of the company, and there were great hopes when he took office unfortunately the companies stock tanked by 50% and the board of directors decided it was time for a new direction. For the first time in its 126-year history the company that Thomas Edison founded will be run by someone with an outside background.
His name is H. Lawrence Culp a Harvard Business School grad, of course, and he has spent many years as the head of Danaher Corporation. In his time running the company it had a tremendous run with the stock gaining 465% vs the S&P, which doubled during that time. The question now is whether Mr. Culp can pull another rabbit out of his hat as he struggles to put the company on a new course.
A big question is how did a company that was once worth nearly $600 billion dollars lose 80% of its value? The answer to this isn’t simple but it becomes clearer when you look at how GE was built. Unlike many manufacturing companies it was not primarily a manufacturer! It gained much of its success in the early 1980’s when Jack Welch became C.E.O. of a company that was gradually turning into a conglomerate. Many analysists were growing dissatisfied with conglomerates as dinosaurs, but Welch proved them wrong. Eventually growing GE into one of the largest companies in the world.
Among one of his businesses was to build GE Capital as a means to finance all of the washing machines, dryers and any household products that the company would sell. Unfortunately, it also began to finance other manufacturers products and got into the leasing of aircraft engines to the aviation industry. When 9 11 hit and the airlines got crushed so did GE capital. It recovered but the housing crisis of 2008 was too much for it to handle, and if it did not get a bailout from the Treasury and Warren Buffett GE capital could have brought down the whole conglomerate.
For the past ten years it has continued to try to diversify buying a variety of businesses. Some of them worked but most of them were break even at best. Mr. Culp, who has been on the board of directors since April will certainly have his hands full if he is every going to turn the company around. He is going to need to halt the cash drain and find a business model that works in a tech led environment.
Ask Mr. Seifert
I am constantly asked questions about trading and how important execution is to insure success. Each week, we will answer those questions with a short paragraph on a variety of trading subjects.
Is it possible to sell a credit spread that has less risk than reward?
Answer: Yes, it is possible to sell a credit spread that has less risk than reward. The trade is called a 60/40 an it is an aggressive directional spread. Here is how it works. Normally when we sell a credit spread we sell the ATM strike and buy a strike that is further out of the money. If you use a 60/40 we sell a spread that is slightly in the money. We are not taking a neutral position we are trying to predict the direction that price will move. So instead of selling a $500 wide spread for $220 and assuming a $280 risk we sell the spread for $280 and assume a $220 risk. We never risk more than the difference between the strikes minus the premium we collected on the spread. The difference is in the 60/40 spread if the price doesn’t move in our favor we will not collect the entire $280 we will collect a portion of the spread as a profit. The 60/40 is a spread that many professional traders use when they are confident that the price will move in their favor.
The Wise Guy Report: The View from The Electronic Floor
Each week I talk about how the Wise Guys (floor traders) find the soft spots in the market and take advantage of price dislocation in three major commodity markets: Gold (GC), Crude Oil (CL) and Long-Term Interest Rates (ZB). On the equity side, I cover MSS which is the Mister Seifert Sez Composite Index. This is a proprietary index that I created which measures the dollar flow of the four major indexes (S&P 500, Nasdaq 100, Russell 2000 and the Dow Jones Industrials) on an unweighted basis. Let’s look at how the emerging markets are dealing with the price of Crude Oil.
US Equities Markets (Possible Tops)
For the past few weeks we have been focusing our attention on Crude Oil and Gold as they have been the markets with the most price movement. Gold continues to stay in tight congestion and Crude Oil has been rallying to new yearly highs despite an oversupply situation. The US equity markets have been far and away the stellar equity markets worldwide for the first three quarters of the year, but in the past ten days they have started to show some stress as the Fed ramps up rates. It is interesting because the equity markets have been aware of the Fed’s policy of tightening since it was announced late last year. Generally, as interest rates rise equity prices will move in the other direction but so far that is not what is happening. As interest rates have been rising, US equities have also reached new tops. With the midterm elections now, a month away it is possible that the markets may focus on where we are headed politically before it is possible to tell if this is a temporary top to an old bull market or if we are starting the first leg of a bear market.
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The option trades and strategies offered by The Optionomics Group are very unique in that they all have limited risk while creating great leverage. Our basic BL – BR Credit Spread Strategy (and all of the others) let you control 100 shares of a $200 stock ($200*100 = $20,000) for only $500 (the spread differential) or 40:1 leverage with your risk limited to only $500. Plus our strategies produce winning transactions in four out of five possible outcomes.
The Optionomics strategies let you become the casino whereby you have a mathematical edge that lets you grind out consistent returns in any kind of market environment. These strategies are designed to produce good returns over a short to intermediate term time frame. It is an approach to the stock market which will be hot, cold or average over time, but the end result should be very good in any type of market environment.
I offer a FREE Two-Week trial to the various subscription services with no cost or strings attached. Each strategy is explained in a 5-7 page booklet which includes sample recommendations and model portfolios. I doubt that you have ever seen anything like this. During your FREE trial, you can paper trade the various strategies and get a feel for the deal without risking a penny. Simply click on the appropriate tab on the Optionomics’ Home page to access the informative booklets and then sign up for one or all of the weekly subscriptions.
- The Bullish – Bearish Credit Spread Strategy: The basic strategy of trading weekly credit spreads.
- The 21st Century Covered Calls Strategy: A modern day alternative to the old fashioned covered call strategy.
- The Low Cost Put – Call Hedge Strategy: Sleep at night knowing your portfolio is protected for little or no cost.
- The Earnings Trade: Get in on potential big movers with little or no downside risk.
- The One Day Wonder Trade: Get ready for some real action. A one day trade with great potential.
- The Blow Off Top – Bottom Trade: A lot of action and big moves too.
Each Monday morning by 11:00 EST, the plays for the upcoming week plus updated model portfolios for each strategy are posted on the site. The prices in the reports are Monday morning’s opening prices. In addition, I have a webinar on Thursday afternoon where I discuss various option strategies, what is happening on the floor and answer any questions that you may have. Don’t worry if you miss the show. They are archived on the site. Sound Good? Good! You can subscribe to one or more of the subscriptions for only $19.95 each per month on a month to month basis with no contract or strings attached. If you subscribe to three, it is only $49.95 per month while you can subscribe to all six for only $79.95 per month, a 33% discount. I think you will agree that this is a super offer so give it a try. Click on www.optionomicsgroup.com to access the Optionomics Group web site and get started today doing what the pros do –
“Don’t Buy Them – Sell Them”.
Mr. Seifert