ebook essays pieces of the puzzle
Wednesday, August 24th, 2011
the earth moves

So I found myself hundreds of miles away from the puzzle cave, in an office building near Virginia, when everything around me started to shake.  So much for the desire to be in the flow — the cave never looked so good.

We soon found out that this hadn’t happened in decades, which explained why even the natives weren’t prepared for it.  It reminded me about how markets every so often give us a ride that we hadn’t expected, and that we then go back looking for previous occurrences to put it in perspective.  I was going to do that for today’s pix as an analogy, but even the charts on expensive market machines don’t go back all that far, so I couldn’t show what I wanted to — we think we have a sense of history, but our scope is rather limited.

I first thought that something had hit the building yesterday, perhaps a large piece of yellow equipment bearing the Caterpillar (CAT) name.  You can see above that the company’s stock has done well over the last many years (the top panel shows it relative to the S&P 500).  Margins (middle panel) have snapped back since the slowdown induced by the financial crisis and revenues (the bottom panel shows the year-over-year growth in revenues) have as well.

These days, when the earth moves (economically speaking), CAT does too.  It’s a bellwether — is it poised to rebound or to fall further as hopes for emerging economies falter?  It lost three-fourths of its market value in less than a year the last time around, and has dropped almost a quarter of it since May.  For a big company, it’s a volatile play on global growth.

Are expectations too rosy or too grim?  For money managers, it’s one of those stocks that will likely work for you or against you in the relative performance derby, and in a meaningful way.  Take your pick.  (Chart:  Bloomberg terminal.)