Commodity Contagion Rocks Markets

With earnings out from heavy equipment manufacturer Caterpillar (ticker:CAT) this morning markets will be getting off to a rocky start. Cat reported earnings 25% below last year and warned that with the price of oil “2015 will be a tough year”.  It is not just oil which is causing a headache for many companies, but commodities of all sorts–from corn to zinc, most of these markets are down sharply in the last 2 years. Can the experts get it any more wrong than they have once again? Almost to an individual all the experts could do is gush how the fall in oil prices would bring a multitude of wealth to consumers and to companies that serve the consumers. Well, we think the consumer, unfortunately, will be receiving pink slips from companies paying a good wage like Catapillar and instead will be sitting at home watching Dr Phil on TV.

If it wasn’t so serious one would have to laugh at the highly paid forecasters spewing balony. We had written many, many times that we thought the benefits to be received would not outweigh the job losses etc that were going to occur. Everyone is anxious to jump on a theme that they miss the downside ramifications.

With the DJIA off near 300 pre-market it has once again started to move the 10 year interest rate lower.  The 10 year had been stuck for a few days, but now is off 3-4 basis points. Certainly if conditions go soft or get softer it will kind of rain on Yellens parade–how do you justify raising interest rates (even short term rates) with conditions softening. Further flattening of the yield curve is on the way. Of course this is all confirmed by the durable goods order number today which was just released at down 3.4%.

Hang on–this too shall pass.