Cat Stock Blog

There wasn’t much spring in Caterpillar’s step today, considering the magnitude of yesterday’s sell-off, but things could’ve been far worse, considering that oil futures dipped into the $35-and-change range. Full quote at Yahoo Finance.

Major indexes arrived for work today, but didn’t get much done. Dow, up 0.64%; Nasdaq, up 0.38%; S&P 500, up 0.8%. Wrap-up at Market Watch.

Cat’s volume was about 18 percent below average at 10.4 million … could that signal relief from the punishing volatility of late? We can only hope. Word arriving late in the afternoon that a stimulus package agreement is at hand produced barely a whimper. Feels like we’re sitting at a pivot point; I have no hunches where thing are going, so it’s better to keep my yap shut at the moment and be suspected of idiocy than to say something that removes all doubt.

Engineering News-Record’s correspondents at World of Concrete in Las Vegas have been gleaning folks’ opinions on the prospects for the federal stimulus package. My favorite quote:

Reviews were mixed on the show floor. James Hughes, executive vice president of Little Ferry, N.J.-based exhibitor Doka USA, said “the jury’s still out” on the stimulus issue. “Everyone’s hoping.” But in one of the outdoor booths, Ahern Rentals President Don Ahern said the company is not pinning its hopes on stimulus. Despite a global credit crisis, the Las Vegas-based manufacturer of Xtreme telehandlers is plowing ahead with expansion plans in 2009. “The stimulus package is a joke. I have zero faith in our government,” said Ahern. “We are going to have to stimulate ourselves. Every businessman will have to get it done.”

Hmm, I bet Ahern still flies into airports regulated by the FAA, but his final point bears repeating: all this talk of government bailouts has everybody sitting on their hands playing wait-and-see when they need to be redoubling their efforts to find new markets, find new customers, build better stuff.

Opportunities, much like Cat’s stock, are much cheaper in a down market.

Paul Gordon of the Journal Star notched a scoop this morning: a source is saying Caterpillar CEO Jim Owens will promise at tomorrow’s Obama visit in East Peoria that recently laid-off workers could be rehired if a federal stimulus act passes.

Owens, who will fly into Peoria on Air Force One with the president on Thursday afternoon, will encourage passage of a “significant stimulus package” in the United States and will offer his and Caterpilar’s encouragement for other stimulus packages being considered around the world, said a source familiar with the plans for Obama’s visit to Peoria on Thursday.

Owens, the source said, in his discussions with Obama and his public comments during the visit, will “emphasize that these economic stimulus packages are a critical step toward global economic recovery.”

If the packages are adopted and enacted quickly, it would give Caterpillar the opportunity to begin recalling those employees who have already been laid off since early December and like stave off planned near-term layoffs.

Before we launch the chorus of glory hallelujahs, however, we must keep a couple things in mind:

• Cat has not changed its mind about the plants in North Little Rock, Arkansas, and Sequin, Texas. Jobs eliminated because they’re moving to these locales will most likely stay gone.
• The stimulus package could spike demand for construction and power equipment, but demand for mining machinery would be farther down the road. Cat people in construction and finance could benefit sooner.

I’m still in wait-and-see mode on what gets said at Thursday’s visit. Cat is letting people go because demand is way off and it’s pointless to build machinery and let it stack up in a lot somewhere. Many of the people laid off would get rehired when the economy turns around; the stimulus package simply hurries things up a bit (potentially).

Honest question: how reliable is Gordon’s source? Well, given Cat’s Fort Knox mentality about guarding company information (and carefully telling only what it wants known), it’s safe to assume this was an approved leak. I can’t imagine anybody talking to the press without authorization when the company’s looking for reasons to reduce expenses.

This just in:

PEORIA, Ill., Feb. 11 /PRNewswire-FirstCall/ — Caterpillar Inc. (NYSE: CAT – News) today announced it is offering a voluntary early retirement incentive package to approximately 2,000 production employees in Illinois Caterpillar facilities (Aurora, Decatur, Joliet, Pontiac and the Peoria-area) as well as in Denver, Colorado; Memphis, Tennessee; and York, Pennsylvania.

This company-initiated incentive is being offered in accordance with Caterpillar’s Non-Contributory Pension Plan. Eligibility for this package is based on a combination of age and credited service.

The incentive plan announced today is in addition to other previously announced workforce reductions related to production employees. Consistent with previously announced plans, and depending on business conditions, more voluntary and involuntary workforce reductions may be required as the year unfolds.

Hmm. let’s see, my 401(k) is down 40 percent so, yeah, I want to retire as soon as possible to start cashing in my winnings.

I posted a few questions about Caterpillar from an investor’s perspective at Heavy Equipment Forums and got some insightful replies. What really, truly sets Cat apart from the crowd? It’s not the paint color or the triangle-shaped tracks.

SERVICE SERVICE SERVICE. Cat’s got the dealer network and parts stores to keep their equipment serviced and running when down time costs money that matters most. Their field service and support fleet is unrivaled.

CAT has become the gold standard. When reading parts or service specs its not unheard of to see the term “CAT or equivalent.”

What’s the first thing Cat should do to improve its stock price?

That’s one of my pet peeves about corporate America in general: too much pressure from the shareholders wanting instant gratification with ZERO foresight into the future. Right now I think Cat should be focusing on INNOVATIONS and improvements to the existing product catalog. There’s not a whole lot they can do besides try to stem losses in the current economic climate.

Read more here.

Caterpillar got trampled Tuesday as Wall Street showed blood-red displeasure with both the U.S. Treasury secretary’s paint-by-numbers scheme to save the banks and the U.S. Senate’s gazillion-dollar scheme to save the rest of the economy. Full quote at Yahoo Finance.

Indexes looked like the floor of a MASH operating room: Dow, down 4.62%; Nasdaq, down 4.20%; S&P 500, 4.91%. Wrap-up at Market Watch.

Caterpillar’s volume of 17 million shares was about 30 percent above normal, not good but not nearly as ugly as some of the days we’ve seen since the Q4 earnings report. Large moves to the downside are more typical at the beginning of a bear market than the middle, when the slope-of-hope grinds on for months. Today’s bloodbath could be a sign of worse days to come, or it could simply be a profit-skimming correction of the rally of the past couple weeks. Perhaps traders bought the rumors and sold the news, as they’ve always done.

Major banks around the world hold trillions worth of “toxic” securities that they need to get off their balance sheets. The U.S. government thinks it might be able to rescue U.S. banks by finding a market for these securities. Here’s the problem: Most of this paper is deeply illiquid — when it was written there was most likely only one plausible buyer and one plausible seller — and the transaction was a function of the inflating credit bubble.

Here’s an analogy: Imagine you invested $100,000 in a hotdog cart on Wall Street, reasoning that with thousands of hungry traders passing every day, you’d have a constant stream of customers and profits. This is a highly liquid transaction because any sane capitalist would be glad to take this business off your hands and earn the same money you were earning. Here’s the thing: the constant stream of customers is a fundamental function of the transaction: without it there is no business.

Say al-Qaida sets off a dirty bomb on Wall Street and makes the area poisonous to human occupation. Your $100,000 hotdog stand is still sitting there, waiting for customers who will never return. Your 100 grand is now 100 percent illiquid, and you have to write off the investment because the conditions enabling the original transaction don’t exist anymore.

My theory (refutations welcome): the recently collapsed credit bubble was the stream of customers that enabled the market for these now-toxic securities. No credit bubble, no market for toxic paper.

Everybody on Wall Street knows this, especially the banks. They know they have to write these assets off as lost causes, but they cannot bear the damage such write-downs will inflict on their credit ratings, because if their credit ratings sink too low, they risk a run on their assets that are still worth something.

In a way I’m glad that I can visualize simplistic, hotdog-stand scenarios that seem to make sense. In reality, these securities are a radioactive Brillo pad the size of Manhattan. Think about being charged with trying to clean that up for awhile and you’ll be first in line for the next opening for a greeter at Walmart.

Now the trick is reconciling the House and Senate versions, Washington Post reports. Obama thoughtfully reserves the best quotes for himself:

“When the town is burning, we don’t check party labels,” Obama said. “Everyone needs to grab a hose!”

Mitch McConnell, the Republican senator from Kentucky, summarized what must’ve been on a lot of people’s minds, even those of us who don’t listen to Rush and company:

In debate before today’s Senate vote, Republican leader Mitch McConnell (Ky.) sought to distance the legislation from Obama, who is riding a wave of post-inauguration popularity. He said Republicans had expected Obama to be the author of the stimulus plan. Instead, “it ended up being written by some of the longest-serving Democrats in the House of Representatives, and it showed,” McConnell said.

The outlines of the plan I’ve seen seem primarily larded up with Democratic pet projects. Perhaps the GOP objections have been overblown for partisan purposes (imagine that) — the money will get spent; it’s not like it’s being fire-hosed into space — but I need to see more evidence that borrowing all this money gets the gears of the economy moving again.

Traders slammed the Dow this morning, apparently disappointed that a Messiah did not spring from the head of Timothy Geithner and declare that good times are just around the corner. Actually, the indexes bounced to the same place in their trading range last week where sell-offs have ensued every time since last September. Strength getting sold in the midst of a bear market? Who’da thunk?

Actually this AP story reveals what really happened: the Treasury secretary said nothing new — implying uncertainty over the strength of the financial industry endures — and one key economic indicator tanked, giving everybody a ripe excuse to cash last week’s profits.

A government report that wholesalers cut back on their inventories in December by the largest amount in 16 years also weighed on the market. The reduction means wholesalers ordered fewer new goods, leading to reduced production and potentially more job layoffs.

The Commerce Department said wholesale inventories plunged by 1.4 percent, nearly double analysts’ expectations of 0.8 percent. It also was the fourth straight monthly decline.

Unfortunately, headline risk doesn’t go away till the news starts getting better.

Caterpillar is among the prominent NASCAR sponsors that have to be asking themselves how much they really need to spend keeping racing teams afloat, especially in light of this Forbes magazine article highlighting just how far NASCAR has fallen from fan favor in the past five years. The woes: Cars look the same. Drivers look the same. Races look the same. And NASCAR is tightly controlled by the family that owns it.

Says the three-time reigning Sprint Cup champion Jimmie Johnson: “The best thing to be is NASCAR, the second best a driver and the last thing a team owner.”

Team owners assume the lion’s share of the risk by investing heavily in people and equipment but get a pittance from broadcast revenue and none of the ticket sales, which go mainly to the track owners. It can cost $10 million to recruit a winning driver and $25 million a year to race one car. Most teams raced two or three last year, and 90% of their operating budget came from corporate sponsors. The rich sponsorship deals signed during the fat years earlier this decade are expiring, and new sponsor money is drying up. Domino’s Pizza, a primary sponsor of Michael Waltrip Racing, and Eastman Kodak, a sponsor of Penske Racing, threw in the towel after last season. Also gone are Coors Light and Tide.

Sponsors still committed to the sport, such as Caterpillar, Diageo and UPS, are flocking to winning teams or spending their money at the track. Winning brings in money, and the money funds the ability to win. The haves are pulling away from the have-nots. The four richest racing teams filled all 12 positions in the sport’s Chase for the Cup playoff format last year. Most of the 43 drivers at this weekend’s Daytona 500 will start their engines knowing they have a slim chance of cracking the top 10. Some won’t even bother to complete the race.

Teams are folding, merging or taking bailouts from plutocrats. Seven-time NASCAR champion Richard Petty sold his Petty Enterprises team last year to the private equity firm Boston Ventures because he could not raise enough sponsor money. (Boston Ventures recently sold Petty’s name to the team owned by multimillionaire businessman George Gillett.) In 2007 Jack Roush sold half of his team to Fenway Sports Group, a firm controlled by the company that owns the Boston Red Sox. Morgan-McLure Motorsports shut its doors last year after 24 years on the circuit because of a lack of sponsors. Ditto Bill Davis Racing.

Team owners want a franchise system like pro baseball and football teams have. NASCAR says no dice. Sponsors have lots of sway in pro racing … can’t help speculating that Cat and its brethren might have something to say about whether the team owners get what they want.

Cat sponsors Richard Childress Racing with Jeff Burton in the No. 31 Chevrolet. Cat’s racing page is here.