CATERPILLAR: THERE WILL BE NO GLOBAL RECESSION

The massive industrial company and economic bellwether says the outlook in 2012 is better than most presume.  Specifically, they say there will be no global recession.  Some highlights via this morning’s earnings:

  • We expect improving world economic growth to increase demand for commodities.  Our outlook assumes most commodity prices will increase slightly in 2012 and continue at levels that encourage investment.  We expect that copper will average over $4 per pound, Central Appalachian coal about $75 per ton and West Texas Intermediate crude oil about $100 per barrel.
  • In the developed economies, capital investment recovered much faster than did overall economies.  This better performance occurred primarily because businesses had improved cash flow and better access to credit.  In addition, businesses let capital stocks depreciate significantly during the financial crisis of 2008 and 2009.  We anticipate business investment will continue to outperform other economic sectors in 2012.
  • While U.S. economic activity is improving, the recovery has been slow by historic standards, and unemployment remains high.  If economic growth does not accelerate, it may take several years for unemployment to reach pre-financial crisis levels.  In our view, this would signal the potential for a prolonged period of continued growth in the United States.
  • The Eurozone public debt crisis has been a lingering negative, but it is unlikely to trigger a worldwide recession.  The Eurozone will likely have at least two quarters of weak, possibly negative growth, but should begin to improve in the second half of 2012.  For 2012, our outlook assumes economic growth for the Eurozone near zero and growth of about half of a percentage point for Europe in total.
  • We expect economic growth in Asia/Pacific will exceed 6.5 percent in 2012, about the same as in 2011.  Growth should improve in Australia and Indonesia, the result of recent interest rate cuts.

Risks to their outlook:

  • In our opinion, the risk of a worldwide recession has diminished significantly over the past quarter, but we remain concerned that central banks, particularly in developed economies, will react to the first signs of better growth by tightening economic policies.  Even modest premature tightening could significantly slow economic growth.

You can read more here.

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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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Comments

  1. CATs earnings rose right into the recession in 2008
    http://www.wikinvest.com/stock/Caterpillar_(CAT)/Data/Earnings_Per_Share/2007/Q2
    http://www.wikinvest.com/stock/Caterpillar_(CAT)/Data/Earnings_Per_Share/2008/Q3

    If I remember correctly their Q2/2008 conference call CAT said NA was weakening but the rest of the world was growing strong and there was little chance of a global recession.
    http://seekingalpha.com/article/86304-caterpillar-inc-q2-2008-earnings-call-transcript

  2. Mr.Smith,

    Great links. Very interesting.

    CAT, a great company, will either be the signal for the current peak of the economic cycle or a bellwether.

    The LEI revisions this morning give a better picture as to why economic performance was so choppy last year. We had two negative months of LEI, Aug and Sept, and now a rebound which could either be an echo or the start of a rebirth of the cycle.

    Good luck.

  3. So how are all those copper shorts doing from $3.20?? Did you guys cover yet?

    When everyone really analyzes supply and demand and how much time it takes to get new supply online, please post another commodity analysis.

  4. Seems like deja vu. Same as last spring, up on good news up on bad news. Maybe there won’t be a recession but in all seriousness should markets be this high when the consumer is neck deep in the water?

  5. Companies manage primarily 1-2 quarters out now. How many 3-5year plans or longer do you see out there? Last quarter only Cisco and iRobot gave 3-5 year plans in companies I follow, and I follow over 1000. Short-termism is blinding and doesn’t allow you to look out and see the bigger picture. In a market that doesn’t invest but trades, no one wants longer term plans and now companies have abandoned them.

    Check out Boeings guidance and the massive hit they are going to take related to pension funding. That will be an issue at a lot of these companies as most are severely underfunded.

    The global economy is so short-term focused that it is fine until it isn’t. When it rolls over next time it will somehow manage to blindside investors…

  6. Cat probably knows what they’re talking about. The global ZIRP-and-QE orgy, this should be fun but I don’t think they’re using protection. Hope they don’t spread anything. Me? I’m short right now.

  7. Lance is right. Corporate forecasts are a joke. I am sure more than one reader in here has been part of the quarterly annual format joke. BTW, I doubled up my spx 1300 June 16 put position. I am now leveraged to about 70% short. I also shorted apple stock, I am 10% short on that one. At least on a one day basis I did well as I shorted this morning when the sp500 was still slightly green.

    I has not been this short the market since 2008. Not hoping at all for the same type of breakdown.

  8. What, but no copper shorts???!!! hahahaha, why don’t you double down and we can revel in your genius. I’ll still take your money on the other side of that trade…

  9. You and I can take that $$ all day, for every buyer there is a seller. lol.

  10. But all trades are eventually closed*, or left to you heirs, and datz the moment of truth. Datz what I was referring too when I mentioned half the time..l

    *option trades close on expiration date.

  11. Gotcha, and the original post was not originally directed to you, but the rest of certain posters on here that were just so convinced commodities were in a bubble.

  12. US growth for 2011 has just been revised downward to 1.7%. When you factor in inflation we are already in recession.

  13. I do not make forecasts, especially about the future. I just will not rely on CATs numbers alone. CAT is an amazing company and amazing companies grow.

  14. He’s right: there will be no world recession. It is called compressive contraction and there will be no ‘recession.’ Please don’t take this first quater 2012 “we’re saved!” rally as reality. There will be no long term recovery; wealth will just evaporate along with the economy. Period.