Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

What Caterpillar’s Warning Means for Your Investments

Stock-Markets / Financial Markets 2012 Aug 23, 2012 - 06:46 AM GMT

By: InvestmentContrarian

Stock-Markets

Sasha Cekerevac writes: With the global economy continuing to limp along, we’re all looking for some signs of a rebound. GDP growth has been lackluster in the U.S., negative in Europe, and decreasing in China. After so many years with a weak global economy and trillions of dollars in monetary stimulus failing to provide the spark yet, GDP growth is still not able to accelerate.


An additional sign of the weak global economy are the comments made by CEOs of international companies. As they have operations in multiple locations, their infrastructures are usually quite adept at picking up on signs regarding the health of the global economy.

While many are hoping for a pickup in GDP growth, Doug Oberhelman, CEO of Caterpillar Inc. (NYSE/CAT), poured cold water on that theory. He recently commented in an article in The Financial Times that he believes the global economy is more uncertain now than in 2008, although he doesn’t believe the situation is as dire.

He commented about the increased level of uncertainty, especially in Europe and China. It’s always difficult for GDP growth to accelerate in a climate of uncertainty. With companies not even sure if the European Union will stay together, this makes planning almost impossible.

Oberhelman made an insightful prediction regarding GDP growth, believing that it will take at least five years before Europe has economic growth once again. This does not bode well for firms with a large exposure to that part of the world. While many investments have exposure to the global economy, Europe continues to be a huge worry for economists and business leaders alike. I would look closely at the level of European exposure a business has and pare back those allocations.

While the lack of GDP growth in Europe wasn’t a real shock, what did surprise Caterpillar was the drop-off in GDP growth for China. The company overestimated the country’s level of GDP growth and, as a result, now has far too much inventory in that region. Caterpillar announced that it is moving approximately 2,300 excavators from China to other parts of the global economy, including the Middle East and Africa.

For a company that has proven to be quite good at forecasting the global economy, such a misallocation is a surprise. This also means that the lack of GDP growth is far worse than the official numbers posted by the Chinese authorities, which isn’t really a surprise. We all know that those numbers are questionable at best, but it still is a worry, as China is a very important part of the global economy.

One additional worrisome sign is that the firm is able to meet its earnings targets, but is reducing revenue guidance. This means that the earnings targets will be met most likely through cost-cutting. The last thing the global economy needs is further job layoffs, but that is how many companies are meeting or exceeding their earnings guidance figures. If GDP growth does not accelerate soon, we could see many more firms laying off workers to meet earnings guidance estimates, putting further pressure on the global economy.

While this is just one company’s view of the global economy, I think it sends a strong message. In my opinion, I would continue reallocating investments away from Europe and China until some signs of GDP growth emerge. There’s no reason to try to call a bottom in the global economy; it would be better to wait in defensive names until positive signs of GDP growth are evident.

Source: http://www.investmentcontrarians.com/debt-crisis/what-caterpillars-warning-means-for-your-investments/551/

By Sasha Cekerevac, BA
www.investmentcontrarians.com

Investment Contrarians is our daily financial e-letter dedicated to helping investors make money by going against the “herd mentality.”

Copyright © 2012 Investment Contrarians- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in