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17Apr09


Amid stock market rebound, GE sings cautious tune


Judging by the 30 percent rebound in the Standard & Poor's 500 index since early last month, investors are ready for a prompt end to this global recession.

But General Electric Co Chief Executive Jeff Immelt is not counting on an economic rebound any time soon.

After the largest U.S. conglomerate on Friday posted a 36 percent drop in profit that was less severe than analysts had forecast, Immelt sounded a guarded note on overall prospects, suggesting the current downturn could last another two years.

"While we were seeing some positive indicators globally, we continue to be cautious," Immelt said. "We are positioning the company to excel as we come out of this in 2010, 2011 or whenever that takes place."

The positive indicators he cited included relatively strong demand in China, the Middle East and Latin America, as well as massive stimulus spending plans in the United States and China.

Investors were warmed over the past week when big U.S. banks including Goldman Sachs Group Inc and J.P. Morgan Chase & Co posted better-than-expected quarterly results and said they were ready to pay back capital the federal government had pressed them to accept in October.

While those reports suggest the financial system is working better than it had been late last year, investors note that that in itself does not mean the economy's problems are solved.

"The visibility short-term is still very poor," said Wayne Titche, co-manager of the AHA Diversified Equity Fund at AMBS Investments in Grand Rapids, Michigan, which owns GE shares. "People are hoping that the second half is getting better, but I don't think anyone has much confidence in that. And even those that are talking about it being better are talking about it in the sense that it's going to be better because the comparisons are easier. I don't think you're hearing people talk about a boom time."

Less Bad not the Same as Better

GE's fellow blue-chip industrial United Technologies Corp, for instance, last month told investors that it expected its results to improve in the latter part of 2009 -- but only because of aggressive cost-cutting including 18,000 layoffs through 2008 and 2009.

U.S. stock indexes' sharp rebound, with the broad S&P 500 bouncing back from a 13-year low, could suggest the slump is coming to an end, one investor said.

"If the stock market is doing what it normally does and it's doing it correctly, then the recession should be starting to come to a conclusion in late summer, early fall, six months or so," said Peter Klein, senior portfolio manager at Fifth Third Asset Management in Cleveland, Ohio, which holds GE shares.

But the question of how long the worst recession the United States has seen in a generation will last confounds even policy-makers at the U.S. Federal Reserve.

On Thursday, two top Fed officials took different tacks in speeches in New York, with the head of the Atlanta Fed saying the downturn could bottom out by the year's end, but his counterpart in San Francisco warning that it is still difficult to tell how much further the economy will decline.

Immelt's cautious words came after a quarter when GE's shares fell to an 18-year low below $6 and likely reflected a desire to bring some stability to its stock price, which has since doubled, investors said.

"Through March it was just the opposite; they were saying: 'The sky's not falling. Is it tough? Yes, but it's not Armageddon,'" said Perry Adams, vice president and senior portfolio manager at Huntington Private Financial Group in Traverse City, Michigan, which owns GE shares. "Now here it's saying just the opposite: 'Put the brakes on a little bit.' I think they're just trying to manage expectations as best they can."

The tone also reflects a change in GE's communication style in the year since it stunned Wall Street with an unexpected first-quarter 2008 profit drop, which set the stage for the 63 percent fall in its stock price over the past 12 months.

"The change in tone versus a year ago was dramatic," said Titche. "The GE swagger and arrogance is gone."

For his part, Titche said he largely agrees with Immelt in not expecting the economy to improve dramatically in the near future.

"We have not changed our positioning," Titche said. "We're still relatively cautious that there's still going to be a lot of bad news in the economy."

[Source: By Scott Malone, Reuters, Boston, 17Apr09]

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