Weathering a recession- Input from CEO of CAT

I saw an article published on October 31st on what is coming in the economy.  The CEO of Caterpillar thinks that recession is nearly certain for the beginning of next year.  The basic idea is that people buy heavy equipment from companies like CAT before engaging in large projects.  The orders for the big equipment has been petering out in the USA.

“Despite weakness in U.S. markets, our sales and revenues increased 9 percent. We continue to see remarkable growth outside of the United States with particular strength in key industries like mining, oil and gas, electric power and marine engines. The industries we serve are becoming increasingly global, and the investments we are making to achieve our 2010 goals have us well positioned to meet their needs.”

Hey-  This is sounding very familiar.  The US has to accept the fact that we can’t be the cool rich kid on the playground.  We gave all of our money away, and everyone else wants a turn.  To take their turn at living the good life, they need resources.  3rd world nations require resources to become 1st world nations.  The price of copper will remain high as people start putting that delightful electricity in their houses.  The cost of oil will remain high as they continue to buy cars, use plastics, and run factories.  We can expect to see uranium and coal move up as electricity demands increase.  If you are invested in the companies that are serving this growth market (read, international market), you will reap the benefits.

One market that I see suffering a little is the P & G type market.  The prices of raw materials has been skyrocketing all across the board.  The economy is starting to suffer a little, and consumer confidence is poor.  These companies that make consumer goods and food are going to have trouble increasing their prices at rates that will offset their increased costs.  I just Googled for evidence and found this story about Kraft’s weakening profits.  They can’t raise their prices too suddenly, or they will rapidly lose market share, but the cost of commodities trickles down.  Employees will want raises to help offset the higher cost of homes, food, gas, and soon, energy.  The electric power generation will see the higher costs of commodities start to trickle through the system.  Inflation of 2-3% a year can’t be maintained when the cost of many basic commodities is going up.  Many basic commodities have gone up in the last five years, like oil($25 to $96), copper ($.70 to $3.50), wheat and corn nearly doubling.  We are going to see these effects soon.

I am guessing right now we will see a little stagflation.  The US is cash poor due to the debt situation, despite having printed dollars left and right.  Time to pay the piper.


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