General Electric Feels Mark-to-Market Pressure
is taking a hit today after a Deutsche Bank analyst lowered his profit forecast estimate for the company because of concerns about the GE Capital division.
This analyst action follows General Electric's warning last week that 2008 earnings may be as much as 15% lower than it had earlier forecast. The Deutsche Bank analyst is predicting a 28% decline in GE Capital's earnings, mainly due to mark-to-market writedowns on some of the unit's holdings. GE Capital accounts for nearly 45% of the company's total earnings.
The mark-to-market controversy has quickly taken center stage, quite possibly affecting this bellwether company, and rumors are circulating that the
may be contemplating a rule change. It will be interesting to see if this sort of headline will convince the SEC to make a quicker move to reset accounting standards back to their old ways. Our guess is that it will. As for GE, we would like to see the stock sustain itself above these 52-week lows before getting back into the shares.
General Electric is not a recommended dividend stock at this time, holding a Dividend.com rating of 3.4 out of 5 stars.
The Fed Will Ensure Citigroup Does Not Fail
The positive action in
and other top financial stocks today is quite telling.
The market is giving us indications that Citigroup's acquisition of
businesses must survive. A lot of liquidity is being pumped into the markets, and with hedge funds trying to keep up with redemptions, it is likely that Citigroup has the full support of the
. Any other explanation is difficult to fathom, especially considering what happened after the original bailout vote failed.
Our hope is that liquidity is being pumped into the right institutions and that this isn't a case of throwing good money after bad. It would probably be a good idea for Citigroup to get an equity offering priced on any significant strength. We would stay on the sidelines for now and let the markets give us a better picture of who will survive this debacle.
Citigroup is not a recommended dividend stock at this time, holding a Dividend.com rating of 3.0 out of 5 stars.
A Harsh Lesson in Insider Buying
Following insider buying has always intrigued investors as a potentially good strategy. The people on the inside, however, can often be in denial about the true state of their companies.
When you look at the amount of equity that has disappeared in companies such as
, Wachovia and
Ambac Financial Group
( ABK), you have to wonder what the insiders who were recently buying big into these shares were thinking. Top Wachovia executives were even buying blocks of WB shares at $11 or more as recently as two weeks ago.
This phenomenon illustrates that there are no sure methods of investing success, and that each stock must be analyzed thoroughly and independently.
In the same vein as following insider buying, investors often simply look for the highest-yielding dividend stocks. We always advise that most stocks with double-digit dividend yields should be considered extremely risky. We're a company based on dividend stock coverage, but that certainly doesn't mean all dividend stocks are good!
Investors need to understand that market strategies are constantly changing, and that no one method or style can bring guarantees for success. The key to success in investing is taking charge of what's in your portfolio, staying disciplined and keeping losses small.
Why Aren't Gold and Silver at New Highs?
That's the trillion dollar question right now. Demand for gold and silver is rising rapidly, but the market prices of these commodities doesn't seem to reflect it.
The first thing we always tell investors is that the market is the best indicator (in the short term, at least) for where prices should be. Over the long term, however, markets tend to change course to reflect demand.
The anecdotal causes for future jumps in precious metals prices are abundant. The Federal Reserve is continuing to inject enormous amounts of liquidity into the system to prevent new government debt from swamping the bond markets, and thus sending interest rates sharply higher. It may seem to some that the Fed is intent on printing more money to inflate the debt away.
We spoke to one of our gold and silver coin experts about what is happening on the retail side, and he told us that demand on the street for gold and silver coins was strong, but supply is tough to come by. Yet
StreetTracks Gold Trust
iShares Silver Trust
are well off their 52-week highs.
is a market-indicator name that we have often mentioned, but look at the weakness of the shares -- AUY is down over 20% since Sept. 23.
The usual conspiracy theorists believe there are games being played in the precious metals markets, but it's more likely that the market is telling us that inflation may not be the real concern at the end of the day, regardless of how much money the government is printing. The true answer may be what the Fed fears the most, and that's domestic deflation. We'll certainly be watching out for more signs of deflation as we move forward, as investors need to be prepared if that is the case.
Yamana Gold is not a recommended dividend stock at this time, holding a Dividend.com rating of 3.0 out of 5 stars.
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At the time of publication, the author had no positions in stocks mentioned, although positions may change at any time.
Tom Reese and Paul Rubillo are senior editors of Dividend.com. Visit Dividend.com for more dividend stock ratings, picks, news, and analysis for long-term and income-seeking investors.