- Porter's Daily Journal
- Posts
- The Big Risk That No One Sees
Why Commercial Banks Will Soon Be Selling Treasuries And Buying Gold
Editor’s note: Porter & Co.’s offices, including the Customer Care team, are closed on Monday, in commemoration of Martin Luther King Jr. Day. The Daily Journal will return on Wednesday, January 21.
In today’s Daily Journal, a free e-letter from Porter & Co., we’ll explore:
What went wrong with GE… Bad acquisition after bad acquisition… How it kept its AAA rating!… Coming next: U.S. Treasuries… If you sell first, it isn’t panicking… Banks versus stablecoins… Trump to hyperscalers: build energy plants… Big win for Taiwan Semiconductor… |
I began warning investors about General Electric (GE) in 2002.
The “tell” was simple: my research showed the company was a net-debtor for 25 years in a row.
It didn’t make any sense to me that a prudent company would continually borrow, more and more, every single year for 25 years.
At the time, GE was the largest publicly traded company in the world. It had a rare, gold-plated, AAA credit rating, meaning its bonds were thought to be as safe as U.S. Treasury bonds. This gave the company an incredible advantage over virtually every other business in the world: a vastly lower cost of capital. GE’s borrowing capacity was virtually unlimited.
As I dug further into GE’s books, another trend was obvious: as the size of the company’s assets grew, its returns declined dramatically. What had been a great business in the 1990s had become a below-average business, at best – with return on assets below 6%. What happened?