General Electric Was a Ponzi Scheme Too

GE was a Ponzi scheme. Prove me wrong or prove me right. That are some great insights out there regarding GE. Feel free to link them in.

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21 thoughts on “General Electric Was a Ponzi Scheme Too

  1. From the link:

    “It was in no small part this debt load that allowed Jack Welch to post his legendary (and eerily consistent) earnings numbers over his 20 years at GE’s helm”

    Here we go with this theme of steady, consistent returns again. Why is it that so many of these companies/funds that crash have this? Anyone who complains about drawdowns needs to think long and hard about that!

  2. Ken, I wouldn’t go that far. Wal-Mart and Microsoft have the same pattern of earnings as GE, are they going to go under next?

  3. Right on that Andre, problem is that most folks thought GE was making money on industrial/intellectual goods. Instead they built solely on intellectual goods i.e. faux economic theories.

  4. Andre, what is MSFT’s all time high? Where are they now? What percent drop? Same with GE … how far have they dropped? Walmart is doing well last I checked?

  5. Type ‘general electric ponzi’ into Google. This thread is alone and it should not be.

  6. Andre, MSFT is down 75% from it’s high. They grew by being a monopolist, not because of their products. Once the internet came along they were doomed. They’ve never been able to compete in the internet space. And Wal-Mart? they are basically a “labor arbitrage” company. You can only ride that trend for so long too.

  7. Ken, Microsoft has a big user base and have over 60 billion annual revenue & are preparing to build big cloud farms. Corporate world today still heavily relies on M$ products and will keep doing it because it is simplest to keep old habbits. If you look at IT industry you will see that almost everyone is downtrending. If Microsoft had started trading derivatives or it had bought Yahoo (that company simply does not who wears it’s head) then i would be worried.

  8. Patrick, you miss Ken’s point. Look at the chart. Your forecasts may or may not shake out, but that chart is telling us something. The internet is indeed biting into tech firms like MSFT.

  9. Patrick what if corporate world wakes up one day and decides they don’t need a fancy typewriter called WORD from MSFT? Aren’t there freeware word processors galore? Play that thinking out in the middle of an economic meltdown. How many jobs from those businesses you mention that use MSFT products are being axed? Doesn’t that decrease further the need for MSFT products? This thing is feeding on itself in a remarkable way. Maybe the entire tech boom was never really worth what we thought it was in a $ sense?

  10. The longer this downtrend continues, the more Madoff’s (especially the legal ones) will come out. It will be interesting to see. The lesson seems to be to ride the trend and KNOW WHEN TO QUIT!!!

  11. You are right Michael, trend is certainly destructive towards them – Microsoft is at it’s declination point. Although they have big coffers they can’t even produce a decent search engine (they renamed Live search engine to some other name), Windows Mobile is in shambles although it is best mobile OS for business users (it has most applications that are on market for years). Long term every company must die at one point, Microsoft is middle aged company and will dissolve sooner or later (natural law).

    Interesting thing is Nvidia that is in problems but stil has upwards trend for some time.

    http://finance.yahoo.com/q/bc?t=my&s=MSFT&l=on&z=m&q=l&c=nvda

    M$ vs Oracle:

    http://finance.yahoo.com/q/bc?t=my&s=MSFT&l=on&z=m&q=l&c=nvda

    someone mentioned charts of Berkshire & Microsoft

    http://finance.yahoo.com/echarts?s=BRK-B#chart3:symbol=brk-b;range=my;compare=msft;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined

    Google vs Microsoft

    http://finance.yahoo.com/echarts?s=GOOG#chart4:symbol=goog;range=5y;compare=msft;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined

  12. are preparing to build big cloud farms

    And Google is building even bigger cloud farms. Only one difference, people want Google’s internet products and they don’t want MSFT’s. MSFT is also opening retail stores, how much sense does that make? MSFT is lost.

    Corporate world today still heavily relies on M$ products and will keep doing it because it is simplest to keep old habbits

    Decades ago the corporate world relied on IBM products because they wanted to keep old habits too. That story didn’t end well for IBM, I doubt it will end well for MSFT.

  13. Ponzi scheme? Do you even know what the definition of a ponzi scheme is? GE has legitimate and useful products. The industrial side of the company is fine. It’s the finance arm that is f*cked. They took on a boatload of bad debt over the years. That just means they made bad loans. It doesn’t mean they are or were a ponzi scheme.

    If you need help understanding this I will elaborate. A ponzi scheme is when you take money from new investors to pay old investors. GE is doing no such thing. They may be ignorant when it comes to loan underwriting and credit products, but that is not illegal. A ponzi scheme is an illegal business. You clearly don’t know the definition.

    Stick to your charts where the lines move from the bottom left to the top right. You’re MUCH better at understanding that sort of stuff.

  14. So if a company takes on a massive amount of debt so they can massage and smooth earnings to make it look like they are growing like crazy in order to attract new investors and drive up the stock price so that the early investors can then cash out at the top, that is not Ponzi? And then they just claim ignorance about it all? Come on, you’re drinking the Kool-Aid.

  15. Nicely worded Ken. Of course that is the issue and we are going to look back years from now and realize that is exactly what happened.

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