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The giant industrial and financial conglomerate General Electric (GE, Weiss Ratings: B) is holding the biggest garage sale in history!
Specifically, it will …
Sell a whopping $26.5 billion in real estate and commercial mortgages, including office buildings, industrial properties, and others. The haul includes everything from Southern California office buildings to Mexican mortgages. Wells Fargo & Co. (WFC, Weiss Ratings: A) and Blackstone Group (BX, Weiss Ratings: B+) are the buyers.
Unload its GE Capital lending business, a key division that generates almost half of its profits — but that got it into major trouble during the financial crisis. The price tag is still TBD. But it will likely run several or even tens of billions of dollars, in a sales process that will take as long as two years.
All told, it will only retain financing units that directly contribute to industrial sales. The moves will shrink GE’s investment in GE Capital businesses to just $90 billion from $363 billion.
|GE’s Jeff Immlet is looking to create a simpler, more valuable industrial company.|
What’s GE’s primary motivation? Simplification! The conglomerate grew into a massive hodgepodge of industrial, media and financial businesses over the last few decades, and it’s trying to get back to its roots now.
Another benefit? It can use the money freed up by these moves to launch a massive stock buyback! The company authorized a $50 billion share repurchase program, the biggest I have ever seen. It said it will keep its dividend stable through next year, then look to raise it after that time.
The announcements caused a truly epic move in the company’s stock price. GE soared 11 percent on the day, its biggest one-day rally in years. So if you own GE, you just cleaned up!
But what does the move say about the broader market? It shows that cheap, readily available money is making all kinds of corporate actions easier. Mergers and acquisitions. Spinoffs. Buybacks. Dividend hikes. Activity is soaring because it’s easy to borrow money to finance those kinds of moves, and because soaring asset prices are encouraging companies to cash in by selling.
We’ve already seen more than $1 trillion in global M&A so far this year, according to the Wall Street Journal. That puts 2015 on pace to be the second-biggest year ever (behind 2007).
The deals aren’t confined to any one sector, either. Health care M&A is up to $160 billion … energy is at $108 billion … technology is at $88 billion, and so on. Meanwhile, CNBC reported this morning that companies have announced an incredible $218 billion worth of buybacks so far in 2015. That’s a new record.
|“Wouldn’t it be nice if some of the cheap money was actually spent on building factories?”|
All of this is great for shareholders, and a key reason why stock prices have continued to rise. Indeed, it’s one major reason I’ve spent the better part of the past few years recommending stock after stock to subscribers — names that offer compelling value, strong sector momentum, high Weiss Ratings, and more!
But at the risk of sounding all quaint and old-fashioned, wouldn’t it be nice if some of the cheap money was actually spent on building factories? Investing in research and development? Hiring workers?
Speaking of which, what if these companies actually used the dough to raise wages? That might help spark a broader economic recovery, and spread the wealth around. We’ve seen some progress on that front from the likes of McDonald’s (MCD, Weiss Ratings: C+) and Wal-Mart (WMT, Weiss Ratings: B+). But it’d be nice to see a lot more, wouldn’t it?
I’d love to hear your opinion on that, on GE’s latest move, and what it all means to investors, workers, and America overall. You have all weekend to share, and I strongly encourage you to do so at the Money and Markets website! I’ll follow up with my thoughts early next week.
|Our Readers Speak|
Oil and the Middle East continue to dominate the conversation over at the website, and for good reason given the latest turmoil in Saudi Arabia’s backyard.
Reader Jim said: “The Iranians have ground forces in what used to be Syria, Iraq, and now Yemen, where their forces are closing in on the Bab el-Mandeb (Red Sea choke point). They already control the Straits of Hormuz (Gulf choke point). They have effectively surrounded the Saudis and effectively neutralized their main ally (U.S.) with the bomb talks.
“I think we ignore the strategic significance of all this at our peril. This could be the 1,000-year sectarian showdown in the Middle East. They are not just trading suicide bombers and IEDs as usual. If it is, all bets have to be off on traditional analysis of the oil markets.”
Reader Guerry B. thinks there’s still more room for crude prices to fall, though, saying: “It takes time for closing down rigs to matter. There will be a spurt when prices increase. But companies will then start back producing oil from already drilled wells, which will flood markets again. Oil will bottom at $30.”
Meanwhile, Reader Tommr noted that he owns BP Plc (BP, Weiss Ratings: C-) and is unsure what will come next. His comments: “I own BP stock that I bought up when it was on its back after the Gulf spill. I am holding it because of my large effective yield. I would like to see it bought out at a premium, but I think it is too big for any other company to buy. I’m not sure it is all that cheap, either!”
Thanks for sharing your views. I’ve staked out my views on oil and energy stocks in several columns over the past few months. Now it’s a question of watching to see if oil and gas prices can make their big turn. I’m optimistic on that score. But I always welcome your input at the website — whether you agree or disagree!
|Other Developments of the Day|
Today is the day the Apple (AAPL, Weiss Ratings: A+) Watch makes its debut! Do you care? It seems like crowds at retail outlets were relatively sparse in London, Hong Kong, Beijing, and Sydney, though a bit larger in Paris.
The main issue: You can only try out the watch in stores at this time, rather than take one home. Ordering it online is the only way to get one until April 24, and lengthy delivery delays are being reported.
Import prices fell 0.3 percent in March, bringing their year-over-year decline to 10.5 percent. Export prices are also down 6.7 percent in the past 12 months. Those are the worst readings since 2009, showing how the dollar’s massive rally is importing deflation here.
Spring tornadoes are wreaking havoc in the Midwest again, with at least one killed and seven injured in Illinois overnight. The town of Fairdale about 80 miles northwest of Chicago was flattened, and overall bad weather in the metro area caused 850 flights to be cancelled at O’Hare International Airport.
The war of words between Iran and Saudi Arabia is heating up, with Iran lambasting the Saudis for their two-week bombing campaign in neighboring Yemen. Sunni-led Saudi Arabia is trying to blunt advances by Shiite Houthi rebels in the fracturing country, but they are gaining ground nonetheless.
The key question now is whether the Iranians launch more than just rhetoric at Saudi Arabia. We’ll also have to see if they make their surreptitious aid of the rebels more explicit — inflaming the conflict further.
Want to share your thoughts on these news stories, or any others? Here’s that useful link again.
Until next time,