“If this comes to fruition, it says a lot of bad things not just for Caterpillar but for the economy as a whole,” Morningstar Inc. (MORN) analyst John Kearney told Reuters.

Because Caterpillar is viewed as an economic bellwether for its connections to the construction and mining industries, its forecast focuses even more attention on the details of President Barack Obama’s $825 billion economic stimulus plan and, in particular, what it might hold for infrastructure spending.

As Money Morning reported yesterday (Monday), the President’s giant stimulus plan heads to the floor of the House of Representatives this week, with House Minority Leader John A. Boehner, R-Ohio, saying many in his party will vote against the package unless significant changes are made.

Grim Forecast for Global Economies

Caterpillar’s forecast takes a dimmer view of 2009 than the company outlined in October, when it predicted world growth of less than 2.5%.

“We expect 2009 will be the weakest year for economic growth in the postwar period,” the company said.

In a wide-ranging statement, Caterpillar predicted 30-year mortgage rates could fall below 4.5%, and U.S. housing starts will top out at 900,000 units, about equal with 2008.

U.S. housing will continue its slide in the first half and then begin to improve later in 2009, the company predicted.

The U.S. should pull out of the recession in the second half of 2009, while the Eurozone and other developed economies will likely experience negative growth for the entire year.  Emerging economies will only grow by 3%, with China expected to grow about 7.5% in 2009, down from 9% last year, Caterpillar projected.

“It’s just a very pessimistic outlook in terms of the world economy,” Tim Ghriskey, chief investment officer of Solaris Asset Management told Reuters. “Clearly the building of global infrastructure has come to a grinding halt.“

After shrugging off the downturn in U.S. housing that sparked the worldwide crisis, Caterpillar and other makers of bulldozers, dump trucks and excavators suddenly face a world of challenges.  The Peoria, Ill., company said earnings slid as their well-heeled energy and mining customers scaled back purchases amid slumping commodity prices, the credit freeze and tough market conditions.

Caterpillar, a component of the Dow Jones industrial average, earned $661 million, or $1.08 per share, during the three months ended Dec. 31, down 32% from $975 million, or $1.50 per share, in the same period a year earlier. Revenue rose 6% to $12.92 billion. Analysts, on average, expected Caterpillar to report earnings of $1.31 per share on revenue of $12.84 billion, according to a survey by Thomson Reuters.

“We knew Caterpillar was going to be a disaster,” said Eli Lustgarten, an analyst at Longbow Research. “We just didn’t know the magnitude of it. And it’s ugly.”

Stimulus Plan Under Scrutiny

Analysts have continued to forecast weak earnings for Caterpillar and other U.S.-based machinery firms until global economies can execute a turnaround – which policymakers are finding both elusive and difficult.

The news from Caterpillar comes amid rising criticism from Republicans about a spending plan proposed by President Barack Obama that may not boost equipment demand from infrastructure improvements anytime soon.

The stimulus package calls for massive infusions of funding for public works projects, reminiscent of efforts following the Great Depression.  But the bill may get bogged down in Congress, as concerns are raised about its effectiveness in creating jobs.  A lobbying spree by potential recipients extolling the advantages of specific projects in their region or state, could also slow the process.

Obama spent most of his Saturday radio address trying to build public support for his plan and put pressure on recalcitrant lawmakers.

“If we do not act boldly and swiftly, a bad situation could become dramatically worse,” he said.

But Republicans contend the devil is in the details.

“You go through a whole host of issues in this bill that have nothing to do with growing jobs in America and helping people keep their jobs,” said Boehner.

Boehner led a chorus of critics concerned about how long it will take for the money to actually be spent.

As Charles Krauthammer, a conservative syndicated columnist told Fox News, “More than half of the infrastructure stuff with the bridges and roads will not be spent until two years hence…and it will only add to inflation, not jobs.”

Source: Caterpillar Predicts Zero Economic Growth for 2009 – Sheds 20,000 Jobs

• Pfizer Inc. (PFE), the world’s No. 1 drug maker, said yesterday (Monday) that it would acquire U.S. rival Wyeth (WYE) for about $68 billion in a strategic buyout that diversifies its revenue base. To help finance the deal, Pfizer said it would cut its dividend and use about $22.5 billion in debt that it raised from a consortium of global banks. The deal is key because it will help Pfizer cope with a major revenue gap that will emerge in 2011, when its blockbuster cholesterol-treatment drug, Lipitor, will begin to face U.S. generic competition, Reuters reported. Next year, Wyeth loses patent protection on its own top drug, the anti-depressant Effexor XR.

• Two measures of U.S. economic performance unexpectedly turned positive in December Bloomberg reported.  The National Association of Realtors said sales of existing homes rose 6.5%, propelled by the biggest slump in prices since the Great Depression. Also, the index of leading economic indicators increased 0.3% reacting to an expansion of the money supply, the Conference Board said.  The positive numbers are a sharp contrast to the tens of thousands of layoffs announced yesterday (Monday) which may accelerate the pullback in consumer spending and deepen the longest recession since 1982.

• McDonald’s Corp. (MCD) reported softening in some overseas markets, but still managed to produce a quarterly profit that handily topped Wall Street estimates, Reuters reported. The company posted a 5.8% rise in worldwide sales in December at restaurants open at least 13 months, despite a U.S. recession that has spread to global economies.  The world’s biggest hamburger chain reported a slowdown in its German business due to price hikes and slower same-store sales in China, where growth has been red-hot. McDonald’s said it was also hit by a stronger dollar in foreign markets, including Canada, Europe, Britain and Australia.

• Plummeting metal prices led Freeport McMoran (FCX) to lower projected copper and molybdenum sales targets for both 2009 and 2010 as it posted a gigantic net loss of $13.9 billion, or $36.78 per share yesterday (Monday), Reuters reported.  But its shares rallied on Wall Street as the losses were primarily blamed on $14 billion in noncash charges, including writedowns of inventory values and goodwill from the acquisition of rival Phelps Dodge. Still, citing the worldwide construction slump, Freeport lowered its forecasts for copper sales by 9% and cut its outlook for molybdenum production by 25% for 2009.

• After posting five straight declines in quarterly profit, Lincoln National Corp. (LNC), the Philadelphia-based life insurer, said yesterday (Monday) that it is cutting 5% of staff, or about 540 jobs. North American insurers have announced more than 5,000 job cuts over the past two years as the industry reported at least $125 billion in losses and writedowns tied to the collapse of the U.S. mortgage market, Bloomberg reported. The insurer’s third-quarter net income plunged 55 percent to about $148.4 million. Fourth-quarter results are scheduled to be released Feb. 9.

• General Motors Corp. (GM) said it will eliminate shifts in the second quarter at Ohio and Michigan plants, a move that will shed about 2,000 jobs. The carmaker will also cut production at 13 other U.S. and Canadian plants, Bloomberg reported.

• Brazil’s state-controlled oil company, Petroleo Brazileiro SA (ADR:PBR), said it will seek to cut costs by as much as $4 billion annually. Officials said the move is necessary for its plans to double output and develop the Americas’ largest oil-field discovery in the past three decades, Bloomberg reported.

• Halliburton Co. (HAL) will pay $559 million – $382 million to the Department of Justice and $177 million to the Securities and Exchange Commission – to end an investigation into its KBR Inc. unit. The unit allegedly bribed Nigerian officials for as much as 20 years, Reuters reported.

Source: Global Investment News Briefs, Tuesday, January 27th, 2009