Yesterday’s GE Drama Underscores Market Fear

Yesterday at 3:40 aheadline passed that was contributed to a statement by GE’s (GE) CEO Jeff Immelt. It sent the Dow (.DJI) down from +300 to -74 in 15 minutes…

At a dinner in France Immelt was asked what he would do it sales dropped 10% to 15% next year (2009). He simply replied that he would “ask his managers to at least keep their profits equal to last year”.

That is it. It was reported that he said revenue would drop 10% to 15%. If revenues at GE did drop by that much, the effect on the overall economy would be bad as GE is involved in so much of it. But, Immelt never insinuated they would, he simply answered a hypothetical question.

Immelt said later that his statement was “taken way out of context”.

What was lost in it all was that current estimates are for a fall in GE profits in 2009. So, for Immelt to say with a 10% to 15% revenue fall he would ask for the same profit numbers from his managers, it was actually a very bullish statement.

One could deduce from that that should revenues come in near 2008 in 2009, recent and proposed cost cutting move may internally at Ge be expected to lead to an earnings increase in 2009.

This is a hair trigger market with its finger on the sell button. Since we know that, if one has a long time frame, this is far from the time to panic. It is, the time to be buying quality names and sitting on them. Ben Graham, Berkshire’s (BRK.A) Warren Buffett’s mentor said that “in the short term the market is a voting machine, in the long term is is a weighing one”.

Simply put the market on a daily basis votes on how it feels that day. The farther you go out, eventually to the fundamentals of a business eventually take precedence over the daily outlook.

Now we are in a period of extreme pessimism. That will lead to irrational action like yesterday’s sell-offs. Just be ready for them because they are not over. When they happen, buy your favorites at dirt cheap prices. Long term, you’ll be glad you did.

Disclosure (“none” means no position):Long GE, none
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