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Caterpillar now on Goldman Sachs “conviction sell” list

One of the reasons Caterpillar’s getting pounded this morning is Goldman Sachs adding it to a “conviction sell” list. What they mean:

“We see an absence of catalysts near term, with Caterpillar earnings per share likely to bottom later (2010) than most industrials (2009) given high exposure to commodity producer capex,” Goldman analysts wrote in a note.

The analysts also said the company’s 2009 earnings outlook of $2.50 a share was “risky.” Goldman expects $2 a share. However, CAT Financial’s outlook of a 50 percent drop in earnings is reasonable, Goldman said, and added that the downturn may encourage the financial unit to de-lever.

Have to say I’m a bit dubious about the $2.50 EPS number myself; it felt rather arbitrary.

(Homework assignment: Find out how much leverage Cat Financial is carrying.)

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Tom Mangan posted at 8:01 am January 30th, 2009 |

Today’s close: Down 3.48%

Caterpillar set a dreaded 52-week low today as dismal news on durable goods, new home sales and unemployment blistered the bulls. Full quote at Yahoo Finance.

Broader markets took the news about as expected: Dow, down 2.7%; Nasdaq, down 3.24%; S&P 500, down, 3.31%. Today’s wrap-up at Market Watch.

Cat’s volume of 14.4 million shares was notch above normal, but not really enough to tell us much. Selling inched the support level down but did not blast through it, which seems at least borderline positive. Still waiting for that Obama bounce everybody promised.

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Tom Mangan posted at 1:19 pm January 29th, 2009 |

Caterpillar at center of opposition to “Buy American” language in stimulus bill

Democrats passed the federal stimulus bill yesterday without a single Republican vote. Caterpillar, meanwhile, is trying to talk Congress out of protectionist language designed to prevent U.S. infrastructure dollars from flowing overseas. From today’s Washington Post:

“There is no company that is going to benefit more from the stimulus package than Caterpillar, but I am telling you that by embracing Buy American you are undermining our ability to export U.S. produced products overseas,” said Bill Lane, government affairs director for Caterpillar in Washington. More than half of Caterpillar’s sales — including big-ticket items like construction cranes and land movers — are sold overseas.

“Any student of history will tell you that one of the most significant mistakes of the 1930s is when the U.S. embraced protectionism,” Lane said. “It had a cascading effect that ground world trade almost to a halt, and turned a one-year recession into the Great Depression.”

Just an example from my own experience. I drive a 2006 Honda Element that was built in Ohio by American workers. This car has no nationality, nor do most of the other products bought and sold on this planet. People understandably want trade to produce all winners and no losers, but they might as well try to mint one-sided coins. OK, rant over, back to the headlines.

The New York Times has an informative assessment of how fast the stimulus package, in its current form, can start doing some good. The tax breaks and direct cash aid for extended unemployment and food stamps programs will start helping right away. The aid to states facing crushing deficits will prevent massive layoffs. But what about the infrastructure provisions?

The greatest prospect of delay in spending is on infrastructure. The bill provides $30 billion for highway construction and tens of billions more for other transportation projects, water projects, park renovation, military construction, local housing projects and more.

A Congressional Budget Office analysis found that only 64 percent of the bill’s spending would be completed within 19 months, and spending on construction projects was among the slowest.

If the economic recovery is slow, that timing could work out perfectly, giving the economy a jolt just when faster-acting components are wearing off. But if there is a quicker-than-expected rebound, many of those projects could start just in time to compete with renewed private spending.

Political junkies should keep an eye on what comes next in the Senate. House Republicans who voted against the package obviously expect it to fail badly enough that they can bash Democrats with it in the 2010 elections. The Senate doesn’t have enough Democrats to block a filibuster by Senate Republicans, but the Senate is where the grown-ups live in the U.S. Congress, so they will presumably put the nation’s welfare first (while putting the nation on welfare, essentially) while covering their own hides from responsibility for making the recession worse.

We don’t even want to think about what the markets will do if the stimulus package fails.

I sympathize with the sentiment that reckless debt-chasing got us into this mess and seems unlikely to get us out of it. The critics are all saying “you can’t borrow your way to prosperity,” which sounds sexy but is plainly false. Everybody who took out a mortgage and retired rent-free or bought a car on a loan to get to work and back borrowed his way to prosperity. Any loan you can afford to pay off is not a problem.

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Tom Mangan posted at 9:00 am January 29th, 2009 |

Today’s close: up 2.10%

Caterpillar gapped up a couple percentage points at the open and took a long winter’s nap the rest of the day, drifting downward to close a bit off its high for the day. Full quote at Yahoo Finance.

Financials led the broader markets higher as traders convinced themselves the bad news is all priced in. Dow, up, 2.46%; Nasdaq, up 3.55%; S&P500, up 3.36%. Wrap-up at Market Watch.

Cat’s volume was back to normal at 12.9 million shares. Two small up days in a row feel like a playoff win after what we’ve been through. I’m skeptical of any bull run led by the financials, which got is into this mess and will not get us out, but there’s good cheer in the tech stocks outperforming. That’s at least a semblance of normalcy.

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Tom Mangan posted at 1:18 pm January 28th, 2009 |

Florida Caterpillar dealer says inventory down by a quarter

Hernando Today, a fine Tampa Tribune product, quotes a Caterpillar dealer on how things are going in Florida’s comatose construction sector:

Hernando County’s lone Caterpillar dealer, Ring Power Corp. in Brooksville, has been scaling back considerably during the past two years.

The construction market has crashed in Hernando County and that has affected Ring Power. Vice President Mick Fields said the company’s warehouses haven’t been as packed lately. That is typical among most Caterpillar dealers these days, he said.

“We’ve cut our inventory pretty drastically over the past two years,” Fields said. “It’s all based on customer demand. We’re off by about 25 percent … maybe more.”

That squares with what Cat brass said during the conference call the other day: the company actually wants dealers to avoid letting the tractors fill up their lots if there are no buyers.

(Disclosure: I worked for the Tampa Trib for five years a long time ago).

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Tom Mangan posted at 9:40 am January 28th, 2009 |

Surprise: Caterpillar wants nothing to do with Satyam all the sudden

Caterpillar, which I presume has lots of company in this regard, now wants out of its relationship with Satayam, the disgraced Indian outsourcing firm, according to one report.

The company may terminate the contract on stability concern after some key employees engaged in the project left Satyam, the newspaper reported.

Cat officials are mum (another surprise).

Previously: Satyam could fail, InfoWeek says

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Tom Mangan posted at 7:16 am January 28th, 2009 |

Will states use stimulus funds to close their budget deficits?

Dan Walters, a columnist with the Sacramento Bee, wrote that California, which will be $40 billion in the hole over the next 18 months, might be able to make up some of the difference with federal stimulus dollars.

California’s share of direct spending in the package has been calculated at $21-plus billion, and Jed Kolko, an economist for the Public Policy Institute of California, told an economic seminar in Sacramento Monday that about $14 billion of that could underwrite state education, medical care and other spending programs over the next two years.

What’s this got to do with the fate of giant yellow earthmovers? Well, if California can spend two-thirds of its stimulus bonanza on spending that was going to happen anyway, doesn’t that water down the stimulus effect quite a bit?

I heard the other day that the state of Texas, which usually runs a pretty tight ship, has an $8 billion deficit on its hands. With state budgets drowning in red ink from coast to coast, I can’t help wondering how many are going to be tempted to use Obama’s billions to clean up their balance sheets rather than launch a bunch of big construction projects.

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Tom Mangan posted at 11:35 pm January 27th, 2009 |

Court rejects Cat retirees’ claim to lifetime health benefits

U.S. district court in Tennessee said union-represented employees who retired while no contract was in effect in the mid-1990s aren’t entitled to lifetime health benefits, which were provided in a contract that expired amid a protracted labor dispute. From the Peoria Journal Star:

… their right to receive those benefits did not vest until they actually retired, not when they became eligible for the benefit but continued working, the U.S. Court of Appeals for the 6th Circuit ruled in a majority decision.

Also, the court said Tuesday, most of the 4,000 plaintiffs retired when there was no labor contract in effect between Caterpillar and the United Auto Workers. The 1988 contract granting the benefit had expired in 1991, and the 1998 contract did not grant the benefit.

The court’s ruling, written by Judge Boyce Martin Jr., sent the case back to U.S. District Court Judge Aleta Trauger and directed her to dismiss any claims in the lawsuit that hinge on the plaintiffs’ theory that retirees’ medical benefits vested before actual retirement.

That, the court said, could resolve the vast majority of the claims. In other words, it could gut the plaintiffs’ case.

Not much to say here without taking sides, so I’ll just skip it.

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Tom Mangan posted at 10:52 pm January 27th, 2009 |

Today’s close: Down 1.07%

Caterpillar looked like it might spend the day in the green till a dive in crude oil futures sent it back underwater. After yesterday’s mauling, though, 1 percent down feels like a day off from school. Full quote at Yahoo Finance.

Broader markets are acting like they’re chained to a Cat D11, but managed to close positive. Dow, up 0.72%; Nasdaq, up 1.04%; S&P 500, up 1.09%. Wrap-up at Market Watch.

Cat’s volume, 20 million shares, was a sharp drop-off from Monday, but still almost twice the average. It feels like the market’s ready for a breather. Cat could catch a bid from pure seller exhaustion in the next few days, I suppose.

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Tom Mangan posted at 1:20 pm January 27th, 2009 |

What’s next with the U.S. stimulus plan?

We know the U.S. stimulus plan won’t realistically help Caterpillar or the construction industry for several quarters, but what’s happening inside the Beltway today can set the tone for the entire Obama administration. Right now the Republicans have gotten religion on fiscal discipline after eight years of living it up. They still have only one answer to all that ails the nation: cutting taxes.

This article in the San Francisco Chronicle offers a nice overview of the horse-trading over the stimulus package.

Obama’s efforts to reach out to the opposition party are unlike anything witnessed in the last administration or even those before it. He is trekking to Capitol Hill again today for Republican-only meetings in the House and Senate. He has already incorporated large tax cuts in the stimulus to lure GOP support. Obama is looking for two things: at least partial Republican ownership of a risky, costly policy experiment, and avoidance of the kind of partisan rupture that nearly killed a much smaller and less critical effort by President Bill Clinton in 1993.

“We don’t have any pride of ownership,” said White House press secretary Robert Gibbs.

Republicans face risks of their own. While attacking what they call pork and overspending, they do not want responsibility for killing what is now the government’s last, best hope to reverse or at least slow an alarming worldwide economic decline.

So far, Obama’s living up to his promise of a “reach across the aisle” presidency. The final result will be pug-ugly no matter what, but Obama has a canny knack for getting what he wants despite long odds. As much as the Democrats want to say “screw the GOP, we beat ’em fair and square,” they need to be able to avoid culpability in the next election if all goes wrong. Getting the GOP to go along is like insurance (though the GOP could make the cynical calculation to stand aside, let things go to hell and blame it all on the Democrats in 2010. Let’s hope they behave more like grownups.)

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Tom Mangan posted at 8:51 am January 27th, 2009 |