GE 帝国

 "Lollapalooza effect." ----Munger 总结的现象。就是好几个因素综合发生才会导致一个结果。比如氧气，燃料，温度到了，才能着火。要男人+女人才能生出孩子。要几个心理因素才能发生一个现象，比如sibing rival + scarcity（皇位就一个）才有玄武门事件 （对不起，扯远了）。 

GE的业务有5块，飞机，医疗，Power，capital，再生能源。2019年的飞机业务$7.5Billion 的profit，别的都在亏钱或者不赚钱。

（中文打字太慢，换频道）

I have been following GE for a few years. GE was in trouble when its stock price was at $30 range. That is about the time Berkshire dumped GE stock.

GE Capital

Let us start talking about the biggest problem in GE Capital. As Warren explained over and over again in his annual letters, insurance is a hard business.

1. You got to manage risk well---especially in life insurance. If a company charge $100 but the expected pay-out is $1000, it is a shitty business. 
2. You got to invest well. The premium you have today must be well invested to grow. Otherwise, the insurance business becomes Ponzi scheme. 

(side note): some insurance companies in mainland TODAY are growing like weed. They promised “保证7%”甚至更多的回报率----投资者要谨慎，在我看来基本骗人的。

GE capital messed up the risk part. That means charging $100 for $300 payout. That is why it has to book charges of $15 billions dollars. I remember the sign of trouble actually starts early. Way back in 2016 time range, I noticed that GE's financial reports states 3 different numbers of profit--from different adjustment. That is crazy. The trouble today is smaller with numbers hard to estimate but I do have a rough number on how big hole is still needed to fill from capital side.


GE capital does have another business that is functioning well. GE has a commercial aircraft and engine leasing unit. It has about 1700 aircrafts. It generated $5B in revenue and $1B profit. ----Yet this has changed since the pandemic (A).

GE Power

I admire the technology from GE Power. If you look the gas turbine designed by GE, it is a technology masterpiece. By taking energy out twice (from motion of the turbine and secondary heat), it achieves amazing efficiency. So beside the part that GE overpaid for the french power business; poor time and bad business environment, this is a great business in good time.

Tailwind: technology; market monopoly (2 or 3 competitors); cheap gas; growing need of energy; growing need for energy efficiency.
Headwind: recession; existing contract that sacrificed long term gain (i.e., sell too cheap); global slowing of gas fired power plants; competition from renewable energy.

Renewable is probably the 10X factor. In 2016, worldwide addition of renewables made up 50% of new power capacity. The cost of renewable energy is competitive with fossil fuel.

Will this business die away?---My assessment is not. Renewables cannot make up 100% of our energy needs. Fossil fuel will stay with us for a few decades at least. This is unlikely to be a growth business. The capacity from these 3-4 major players are grappling with most likely diminishing demand.

Aviation

This is the crown jewel of GE. No words to be wasted on its moat. Global air travel is growing at 4-6% annually. You have two choices of aircraft manufactures. No matter which one you are riding, there is a good chance you are flying with a GE engine. 

737Max punched a whole in GE's engine sales. Then the pandemic happens. The ongoing pandemic reduce the travel of air travel by 90-95% for airliners. They have to push back on the delivery of their jet orders. Then GE's engine sales are going to drop. 

Recite the beginning

 "Lollapalooza effect." --- it takes shrinking of global gas power plant demand (GE Power), crash of oil price (GE-baker), grounding of 737Max (Aviation), and a pandemic (Aviation + GE capital's leasing business) to push GE to a market cap of $55 billion. ----All this happened in a short term. 

Will GE survive this pandemic?

High confidence yes. Reason: GE has $50 billion cash in hand. Will it rebound? I have an opinion but not a conclusion yet. 

(To be continued)