Caterpillar Earnings Report April 12, 2012
Wall Street Journal Business Report 3:12 PM March sales of construction excavators in China look ugly, plunging 47% Y//Y to 23.3K units, with Caterpillar (CAT) sales off 51%. The numbers may not bode well for CAT Q1 earnings (report date 4/25), or the DJIA, over which the stock has a large influence.
On March 1, 2012, we noted that Investment Analysts had made Infrastructure Equipment Manufacturers, such as Caterpillar, top picks.
Large Equipment Manufacturers – Another Example of Relying on Outdated Theories
We cautioned investors that buying a stock because the company or the stock, did well last year, or the year before, was not a wise way to invest. Looking at the current headlines makes our predictions look quite accurate.
Infrastructure Spending and The Business Cycle
We suggested that business cycles come and go, and there are reasons companies do well at certain periods in each business cycle. We suggested that infrastructure spending by governments climbs dramatically in lean years, but as the business cycle turns, these stocks lose their “darling” status.
Capitalism You Can’t Solve a Debt Crisis With More Debt
The published results of Caterpillar are a prime example. Here we have one of the largest companies in the US Stock Market (DJIA) , and its results are dramatically affected by government interference in the the Free Market. When the Chinese government was pumping money into their economy, Caterpillar recorded stellar results. As a result, because most Investment Advisors look at the numbers and not the reason for the numbers, Caterpillar became widely recommended as a top pick.
Caterpillar is a great company, but it was an out performer because of government interference in the market. The US Quantitative Easing boosted Caterpillar sales also. When the economy falls, governments invest in infrastructure and large equipment is required to build infrastructure – hence Caterpillar does well.
As we have said so many times, the last cycle has bottomed out and the next cycle is beginning. Economic cycles have been with us since the start of the Industrial Revolution, and investors need understand them.
Gold and Prediction of the Price of Gold
A few months ago, the price of gold hit $1,900 per ounce. That is by far, the highest price that gold has ever been.
Pundits everywhere were predicting $2,200 gold by the end of 2011. Price estimates ranged from $2,100 to $5,000 per ounce of gold. Taxi drivers were buying gold and pontificating on the future price of gold.
We cautioned them, and we caution now, that the price of gold is subject to many factors. We suggested that a number of factors had to be considered, including the oddity that when taxi drivers become experts in anything, the end of that price rise is near. We suggested that buying gold at $1,900 was a large gamble.
Gold fell in stages to the current price of $1,600 and is now somewhat range bound.
Where Will the Price of Gold Go
There remain many gold buffs around the world. People still watch the massive debts being accumulated worldwide. People see the Europeans now printing money, and the Chinese instituting Quantitative Easing.
People fear that money everywhere will lose its value, and only gold can be trusted.
But there is a difference today. A very large difference from prior cycles. The world truly has changed. Communications for the first time in recorded history have become instantaneous. Money flows around the world instantaneously. News flows around the world instantaneously.
If we have inflation, it will flow around the world much quicker and much more severely than every before.
If you look at history, gold did not do well in periods of inflation, and did not keep its value. In fact it lost value. If you look at the price of gold in 1980 when gold hit $800 per ounce and subsequent, you will see that gold down-treaded for most years until it started it recent relentless increase in value.
We caution again, that even though gold has fallen from $1,900 to $1,600, it remains a large gamble, and it can as easily lose value as gain value.
The views expressed in this blog are opinions only and are not investment advice. Persons investing should seek the advice of a licensed professional to guide them and should not rely on the opinions expressed herein. This blog is not a solicitation for investment and we do not accept unsolicited investment funds.
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