General Electric Co. (NYSE: GE) trades at a 4% conglomerate discount. A conglomerate owns many different businesses -- which do not share resources. The rationale for conglomerates was that they allow investors to buy a diversified earnings stream -- when one business is up the other is down and vice versa. In theory this makes earnings smoother.

Finance theory suggests that conglomerates should trade at a discount to the stand alone value of those businesses. The reason for the conglomerate discount is that investors are able to construct a portfolio of stocks that will achieve the diversification themselves. Thus all the overhead needed to manage these diverse businesses under one umbrella adds cost without creating offsetting investment value.

One way to test this theory is to compare the weighted average price/earnings (P/E) ratios of the industries in which GE competes with GE's overall P/E. When I did this, I found that if each of GE's business units was a stand alone public company, its industry P/E weighted by its proportion of operating earnings to the total, averaged out to 19.9. This is substantially above GE's P/E of 19.1, suggesting that GE trades at a 4% conglomerate discount.

I estimate that General Electric Company's (NYSE: GE) GE Money segment is worth between $29.6 billion and $54.7 billion.

GE Money, which constituted 13.3%, 13.1%, and 11.7% of GE consolidated revenues in 2006, 2005, and 2004, respectively, provides financial services to consumers and retailers in 50 countries. GE Money offers private-label credit cards; personal loans; bank cards; auto loans and leases; mortgages; corporate travel and purchasing cards; debt consolidation; home equity loans; deposit and other savings products, and credit insurance.

GE Money enjoyed 15% revenue growth and and 5% operating profit growth in the first half. Unfortunately, it also had a subprime mortgage business -- $3.7 billion worth of which GE sold at a loss. GE Money continues to hold $1.1 billion worth of subprime mortgages. To me the biggest concern about GE Money is that comparable companies -- see below -- have low P/E ratios -- around 10. Thus this business could be dragging down GE's corporate valuation.

Assuming that GE Money generates net income of $3 billion in 2007, here are the range of valuations based on the Price/Earnings ratios of the following peer companies:

• Bank of America Corp. (NYSE: BAC) P/E: 9.9. $29.6 billion
• Capital One Financial Corp. (NYSE: COF) P/E: 11.3. $33.8 billion
• American Express Co. (NYSE: AXP) P/E: 18.3. $54.7 billion

Next: Breaking Down GE Healthcare

Peter Cohan is president of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter. He owns General Electric shares and has no financial interest in the other securities mentioned in this post.

I estimate that General Electric Company's (NYSE: GE) Commercial Finance segment is worth between $43.5 billion and $64.1 billion.

GE's Commercial Finance segment, which constituted 14.6%, 14.0%, and 14.5% of GE's consolidated revenues in 2006, 2005, and 2004, respectively, offers loans, leases, and other financial services to manufacturers, distributors, and end-users for a variety of equipment and major capital assets. These assets include industrial-related facilities and equipment; commercial and residential real estate; vehicles; corporate aircraft; and equipment used in the construction, manufacturing, telecommunications, and health care industries.

GE Commercial Finance looks to me like it's benefiting from the surge in orders for GE Infrastructure.commercial finance profits were up 18% in the second quarter. While developing countries use GE Commercial Finance to purchase capital equipment, the risk in this business is in lending to commercial and residential real estate which seems far from bottoming out.

Assuming that GE Commercial Finance generates net income of $4.5 billion in 2007, here are the range of valuations based on the Price/Earnings ratios of the following peer companies:

• CIT Group Inc. (NYSE: CIT) P/E: 14.3. $64.1 billion
• Citigroup Inc. (NYSE: C) P/E: 11. $49.3 billion
• JPMorgan Chase & Co. (NYSE: JPM) P/E: 9.7. $43.5 billion

Next: Breaking Down GE Money

Peter Cohan is president of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter. He owns General Electric shares and has no financial interest in the other securities mentioned in this post.

Fed Chair Ben Bernanke may be regretting the speeches he gave which tried to comfort investors with the idea that problems in the subprime mortgage market were contained. Yesterday, I posted about how banks, already nervous about subprime loans, are stiffening terms for other borrowers -- like those in private equity.

Today, the Wall Street Journal [subscription required] reports that bad loans are growing in a new category -- commercial mortgage-backed securities (CMBSs). CMBSs are packages of mortgages made to companies which buy real estate for operating their businesses -- such as retail stores in malls. CMBS delinquencies rose 13% in the second quarter to $1.65 billion from $1.46 billion in the first quarter, according to Standard & Poor's, which attributes the rise to overaggressive loans -- e.g., interest-only loans, which allow borrowers to forgo paying down loan balances -- made in 2006, as well as increased problems in the retail sector.

This is the first I've heard of the problem. And it suggests that there is even more trouble ahead -- commercial borrowers took out more loans than than their properties were worth in the second quarter of 2007 -- 117% more than their properties' values to be precise. What is probably going on here is that bankers generate such high fees making the mortgages and selling them that they loosen their credit standards so they can add even more new loans to their portfolios. The problem comes when the unsuitable borrowers can't repay.

Maybe Bernanke is trying to project confidence when he makes these statements. But when reality is at odds with what he says, that confidence evaporates.

Peter Cohan is president of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter.

While the Boston Red Sox are leading the American League East by 8 games, the commodities fund managed by one of its owners is a big loser. In Hedge Funds -- Managed Futures: Changing Course: Becalmed No More [subscription required] Barron's notes that Red Sox principal owner John Henry's commodity fund is suffering a three year, 40% decline in value.

More specifically, On March 31, the John W. Henry & Co. Financial and Metals Portfolio was down almost 20% for 2007 and in the midst of a three-year, 40% slump that was the longest and one of the deepest in its 22-year history. The decline and resulting investor redemptions, cost the firm -- controlled by John W. Henry -- more than 80% of its assets, which now stand at $500 million.

But there is a bit of light at the end of this tunnel. In 2007's second quarter, the portfolio surged 25%. Ironically, Merrill Lynch & Co. (NYSE: MER) ended a long-term relationship with Henry in April and pulled its mostly retail investors' assets out of his fund -- almost exactly at the portfolio's lowest point.

So I'll keep rooting for the Red Sox to repeat their 2004 World Series win. As for Henry, I would not bet my money on his trading skills -- such managed futures funds have high costs, high risk, and heavy reliance on black-box trading systems. I like to sleep at night and don't know how Henry can pull that off.

Peter Cohan is president of Peter S. Cohan & Associates He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned in this post.

At $45.12, Whole Foods Market, Inc. (NASDAQ:WFMI) has fallen from grace. WFMI trades 42% below its December 2005 all-time high of $77.39. Analysts expect it to post a 2% increase in earnings for the fourth quarter. Is this achievable?

WFMI was one of the best performing stocks in The Cohan Letter for 2005 -- rising 73% from $44.71 on January 31, 2005 to $77.39 by the end of the year. This stock did much better than The Cohan Letter's 2005 average of 23%. I picked the stock because my wife liked shopping there (and still does) and because its revenues and profits were growing at a brisk pace. But WFMI fell victim to rising expectations. Its great financial performance led to a higher P/E ratio. Eventually, it fell short of higher earnings growth expectations and the stock tumbled.

WFMI has performed well financially but not as well as in previous years. For the last 12 months, its revenues grew 19% to $5.6 billion and its net income increased 339% to $204 million. This revenue growth is less than the five-year average revenue growth of 19.8% -- while the last year's profit growth was an unusual event given its 31.6% five-year average profit growth.

But future expectations are drastically below WFMI's past performance. Twelve analysts surveyed by MSNMoneyCentral expect WFMI, whose fiscal year ends in September, to post Q1 2007 EPS of $0.41, up a mere 2.3% from the same period in 2006. These analysts expect WFMI to post 2007 EPS of $1.49, up a paltry 7.4% from 2006.