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Is The Worst Yet to Come?

 April 11, 2008 11:16 AM

You do not think the credit crisis is over just like that? A few weeks of ups and downs, some presses releases, and some rule changes and the economy is fixed. Get real. This mess is just getting started.

For proof, just take a look at one of the nation's strongest bellwethers, General Electric. To say its earnings announcement this morning was disappointing is an understatement. It is a disaster. When a company with as much economic breadth as GE takes such a surprising hit, it becomes obvious this crisis is impacting more than a handful of banks with shoddy loan practices.

Some bogeys on the radar

Today's announcement from GE is not typical of the company. It rarely lowers guidance and rarely misses its forecasts. But not this time. That is what is so scary. Analysts were expecting earnings per share (EPS) of 51 cents. The company surprised them with a report of just 43 cents.

[Related -General Electric Company (GE) Q4 Earnings Preview: Feeling The January Effect]

And to prove to the Street that this is not a short-term problem, the super-conglomerate lowered its yearly guidance to a range of $2.20 to $2.30. Analysts were anticipating full-year EPS of $2.43. You can bet they already had plans of an economic slowdown priced into that forecast, which makes today's news even more unnerving.

For some reason, the boys of Wall Street have had blinders on for the past two months. They are just now realizing there is some sort of "pattern" developing amongst the nation's corporations.

I thought it was obvious. Nearly every company in the nation is having a rough time. As more first-quarter earnings reports hit the wire, the news of widespread problems is only going to get more damaging.

[Related -General Electric Company (GE): GE Shares At An Inflection Point]

There she blows, capt'n

Over the last two weeks, Wall Street has been calm and collected. I would use the tired analogy of being in the eye of the hurricane, but we are far from halfway through this storm. The market is merely inhaling as it gathers enough breath to blow earnings forecasts away. If you haven't already, I would start boarding up your windows.

Fortunately, the activity over the last few weeks has created some good opportunities to flee towards safety. Unless you don't need it for at least a year or two, get your money out of speculative positions and find safety. Right now, you can find safety hiding in the equities markets in sectors like biotechnology and emerging markets. If you need your money soon, cash is king.

We cannot forget Wall Street is often very shortsighted. It is a club of good ole boys. And right now, one of the leaders is hurting. GE's pain is going to cause the herd to panic. Do not stand in their way.

Go around then and take advantage of what they leave in their wake. The "fertilizer" a spooked herd leaves behind can help things blossom into a real profit opportunity.



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