Update General Electric (GE) in my dividend income portfolio

Shares of General Electric (GE) popped today, May 16, on news that its finance unit GE Capital will resume paying dividends—to parent General Electric. GE Capital suspended its dividend payments to GE in 2009 in midst of the global financial crisis. (I added General Electric to my dividend income portfolio http://jubakpicks.com/jubak-dividend-income-portfolio/ on February 3, 2011.) GE shares closed up 3.3% after the announcement.

The dividend to GE from GE Capital is a chunk of change even for a company as big as GE. GE Capital will make a $475 million quarterly payout in the second quarter of 2012 and pay a special dividend of $4.5 billion in 2012. Excluding the special dividend, the goal is to pay out 30% of GE Capital’s earnings in 2012. Read more

When lightening struck the plane of newly elected French President Francois Hollande yesterday while he was on his way to meet with German Chancellor Angela Merkel, I had a sudden dark thought that nothing would ever go right in the global economy every again. But Hollande’s plane safely returned to Paris and the French President, bundled onto a new plane, arrived in Berlin for his talks with Merkel.

And today the U.S. government announced that industrial production in the United States had climbed more than forecast in April. Output at factories, mines and utilities increased 1.1% in the month, the biggest gain since December 2010. That follows on a 0.6% drop in March. Economists surveyed by Bloomberg had expected a 0.6% gain for April.

Auto sales were the big driver for the better than expected numbers. First quarter motor vehicle sales were the strongest in the last four years. Increased sales lead to increased production with motor vehicle production rising 3.9% in April after a 1.2% increase in March. Auto sales in the first quarter averaged an annual rate of 14.5 million units. That’s the highest annual rate since the first quarter of 2008

The U.S. economy also provided good news on the housing front. Housing starts in April climbed 2.6% to a 717,000 annual pace. That was up from March’s 699,000 annual rate, which itself was revised upwards this today’s data release. However, building permits, an indicator of future housing starts, declined in April from a three-year high.

The financial markets’ faith in the world central banks would be touching if it weren’t so scary.

In the late 1990s we had what was called the Greenspan put. In the dark days when the collapse of a hedge fund portfolio at Long-Term Capital Management threatened global financial markets, then Federal Reserve chairman Alan Greenspan led a massive intervention to stabilize the markets. Investors studying Fed policy concluded that the Fed would intervene to prevent any future collapse in asset prices and that therefore piling on risk was a good investment strategy. We all know how well that ended.

What progress we’ve made! It looks like we’ve replaced the Greenspan put with a global put backed not just by the U.S. Federal Reserve but also by the central banks of the United States, the EuroZone, and the People’s Bank of China. You’re entitled to worry about how this will end. Read more

So far the directional assumption seems to be right, but there are increasing questions about the pace.

The assumption is that the more China’s economy indicates that it is slowing, the more steps Beijing will take to stimulate the economy. The action this weekend indicates that’s still a reasonable assumption.

In data released Friday the government reported that industrial output grew at an annual rate of just 9.3%.  That was the slowest growth rate since April 2009. New bank lending for April, at $108 billion, came in almost 13% below projections and 30% below March levels. Money supply growth, measured by M2, was just 12.8% when economists were looking for 13.3%.

In response to this data—and to the growth rate of China’s economy slipping to 8.1% in the first quarter of 2012 (the fifth consecutive drop in growth)–the People’s Bank cut bank reserve requirements this weekend by another 0.5 percentage points to 20%, effective May 18. It was the third reduction in reserve requirements in six months but the first since the People’s Bank moved in February. A reduction in the reserve ratio of this dimension frees up about $65 billion on bank balance sheets for lending.

But the pace of government moves to stimulate the economy is slower than most, myself included, had expected. After moving aggressively in February, the People’s Bank had been quiet until this weekend’s action. That’s March and April on the sidelines as the economy continued to slow.

One increasingly popular explanation is that the hesitancy on economic policy has been a result of continued turmoil among China’s leadership after the ouster of Chongqing party chief Bo Xilai. That power struggle seems to have claimed another casualty with the sidelining of Zhou Yongkang, China’s chief of domestic security and a Bo supporter on the nine-man standing committee of the Politburo that essentially runs China.

The theory is that without clear direction from the top China’s traditionally cautious bureaucrats are reluctant to take any initiative. And that may be why the People’s Bank, a relatively independent body, has been the first to add more stimulus to the economy.

Whatever the reason a number of banks and economists have moved their estimates for when growth in China’s economy will bottom from the second quarter of 2012 to the third quarter.

Update Home Inns and Hotels (HMIN) on first quarter earnings

I’d call the first quarter report from Home Inns and Hotels Management (HMIN), delivered yesterday after the close of markets in New York, very reassuring. Apparently, the stock market as a whole agrees: as of 2:45 today, the shares are up 5.1%. (Home Inns and Hotels Management is a member of my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ )

The quarter just concluded was indeed as messy as anyone expected. (See my post http://jubakpicks.com/2012/05/09/update-home-inns-and-hotels-hmin-in-my-jubaks-picks-portfolio/  ) China’s largest hotel chain missed earnings projections by 5 cents a share, reporting a loss of 9 cents a share on higher pre-opening costs and the costs of integrating the Motel 168 brand acquired in 2011.

So where’s the reassurance? Read more