Profits for General Electric (GE:NYSE) fell 35% in the first quarter due to lagging performance from its financial arm, GE Capital.

GE Capital includes mortgage lending, credit cards, aircraft leasing and other financial services, and is the largest non-bank finance company. Its income fell by 58% in the first quarter to $1.12 billion.

But Jeff Immelt, GE’s CEO, said in the earning’s release, “Amid a continued weak economy, we’re performing well and our backlog remains strong.”

Indeed, the company “beat” Wall Street estimates.

Analysts had been expecting 22 cents per share, but the company made 26 cents per share.

And that drop in profits wasn’t nearly as bad as it could have been. Earnings for its energy infrastructure division climbed 19%, and its technology infrastructure segment grew by 6%.

GE’s share price has been seesawing on the news, and views are mixed on what these earnings mean. GE is seen as an economic bellwether, a kind of canary in the mines.

CNNMoney’s David Goldman writes, “With businesses ranging from manufacturing to finance to media, GE is seen by many as a proxy for the broad U.S. economy, and tough economic times have yielded weak profits at the company.”

There have been signs of stability, and even strength, at least comparatively. The company’s backlog is up year over year for the first quarter, and orders from places like the Middle East and China remained “descent,” says Immelt.

In fact, revenue from its industrial operations only fell by 1%, and that could be a good sign moving forward.

But it also begs the question as to why GE has held on to its financial division at such steep losses. Immelt said, “Revenues and profitability declined year-over-year in our financial services business and we continue to experience rising delinquencies. However, we have taken prudent actions to address these challenges, including tightening risk requirements, improving liquidity and reducing leverage.”

And actually, GE never took any of the bailout money from TARP, rather, the company issued about $37 billion in long-term debt, and about $36 billion in commercial paper (short-term loans set up by the government’s Commercial Paper Funding Facility).

Immelt continues to say GE Capital will be profitable this year, and that it isn’t likely to need to raise any outside capital.

GE is betting on the long-term health of this division, which might be more than a sign of loyalty. It could be an “act of faith” that the economy is on the up and up…

Adam Lass, editor of WaveStrength Options Weekly, says, “Over the next few months, [the economy] may very well hammer out a bottom. This may even be the beginning of the end. But it is not yet the new beginning Wall Street is looking for.”

Investors will be happy to find “a way to profit off this smoke,” as Adam puts it.

Buy short-term puts and long-term calls on major market players such as Ford (F:NYSE) and General Electric (GE: NYSE). The puts will allow you to survive the herd’s inevitable disappointment on each episode of false spring. For example, one such set of puts WaveStrength Options Weekly readers are holding gained some 12% [in late March] when their underlying shares dropped 4% as the market began to decipher how it was rooked (again). Gains like that allow you to tolerate losses in the long-term calls that are your bridge to the revival that is, indeed, lurking out there just over the horizon.

Other Related Topics: Economic Growth , Infrastructure , Sara Nunnally , Taipan Insider

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