Fewer Caterpillars in Yards in 2007

We’ll see fewer Caterpillars on raw land in the months ahead. And no, I’m not talking about the types that become beautiful butterflies. I’m talking about those huge machines that move dirt to make way for roads and communities… the earth diggers made by mammoth Caterpillar, Inc.

Caterpillar, the world’s biggest heavy-equipment maker, said on Friday it expects a slower 2007, forcing CAT to cut its 2007 forecast. The company warned a weakening U.S. housing market will result in a slow down in sales for the company.

Caterpillar is the bellwether stock when it comes to heavy earth moving equipment. The company sells about $10 billion a quarter in heavy duty equipment. When interest rates were falling, and housing demand was strong in the U.S., Caterpillar stock was moving steadily higher with the new home building stocks.

In May of this year Caterpillar stock hit a record high of $82. Today, the stock’s down to $59.


I’m really surprised CAT stock didn’t tank earlier in 2006 when the home building stocks got hit. I believe what the stock market is telling us, by shaving so much value off Caterpillar stock over the past five months, is that the U.S. housing cool down will be more severe than most predicted… hitting many different aspects of the economy.

Caterpillar stock: just one more indicator telling us the housing market will continue to soften in 2007. Are retail stocks next to fall as consumers start to tighten spending in the midst of a housing slowdown? With the Dow Jones Industrial Average hitting new record highs, it looks like the market has one eye closed. Personally, I believe it’s just a bear winking before he comes out again.

NEWSFLASH–Poor Richard Grasso. The former chairman of the NYSE has to repay $100 million of the $190 million he got when he left the NYSE. Grasso still leaves with a hunk of change in his pocket. This episode reminds me of that old story about the investor walking in a yacht club and being shown all the big brokers yachts before asking “Where are the investors’ yachts?” Wall Street… it’s a great business for people who “work in it”… less so than those “investing in it.”