Economics: A Commentary

I am a person who pretends to know a great bit about a large number of topics. The economy just so happens to be one I actually know a little bit about. In that spirit, I would like to offer a few explanations why the economy appears to be in the crap-hole situation that it is.

I will be using GE as an example. If I was on CNBC, I suppose I would have to disclose that I am a GE stockholder. Be that as it may, I am only using it as an example because I have a more intimate knowledge of it than I do of any others.

The company's stock has taken quite a nose dive over the past 6 months. From a high $38, the price has slid nearly 70% to around $12 where it currently resides. Much of this can be attributed to the global slowdown of the economy, which as we know as caused many large companies to go under recently.

There is something a bit strange about how GE has fallen so much more than the indexes that track it. Take the Q4 earnings report which was just released last Friday. The company reported earnings of $3.7 billion dollars on revenue of $46.2 billion for Q4 2008, meeting analysts expectations. The news sent GE's stock prices down 10% for the day, probably because the headlines of all the articles published about it were to the effect of "GE profit down 46%".

Now, granted, profit for Q4 2008 was 46% less than Q4 2007. But is that really the headline that should have been published? In a time where large companies are struggling to turn ANY profit at all, the headline for earning $3.7 billion in profit over three months is that profits are down? I suppose $15 billion a year in profit just isn't what it used to be anymore.

But yes, we all know that the media thrives on "ZOMG EVERYBODY PANIC, EARNINGS DOWN 46%" headlines because, quite frankly, that is what sells. No body gives a damn when people say things like, "Hey, things are pretty ok".

People on the internet, namely the Google Finance forums, will point out that the reason the stock continues to be in the crapper is because it is basically a "glorified financial stock". The logic being that since GE generates nearly 50% of its profit from it's financial arm and the fact that most of the banks out there right now are having a really hard time that the company will soon be bankrupt. Yes, I said BANKRUPT. A company with nearly $200 BILLION dollars in revenue last year will soon be out of money completely, according to the folks on the internet. Go ahead and check out the comments if you don't believe me.

The fact still remains that while GE's financial arm did see a considerably smaller profit than it did in previous quarters, it still managed to make a profit of $1 billion dollars. Again, chump change, I know.

I guess the point I was trying to get at throughout this entire post is that spreading of fear is one of the biggest reasons many big ticket stocks are in the crapper. I am a strong believer that if the article headlines were spun in a more positive light, there might not be as much panic as there is right now. I am not saying it is not time to panic. I understand that the market is very complex and everyone has a reason for doing everything. It just seems to me that people are more inclined to tell you the sky is falling in order to get you to drive down a stock price in order for them to pick up bargains.

I know I am no economist and you should take everything I say with a grain of sand. But it just seems that people are paying more attention to headlines and crap that gets said on internet forums instead of actually looking at what is being reported.