Good morning America, how are you
Said don't you know me, I'm your native son
I'm the train they call the City of New Orleans
I'll be gone 500 miles when the day is done
City of New Orleans
-Steve Goodman
A lot of our work starts at the top down, or what’s commonly referred to as macro analysis. We can take the lens further and further back to get a general picture then zoom in (micro) for details. Much is being made of the global economy, but it’s really about Europe’s perpetual fall from grace and emerging nations’ growing pangs. When it comes to macroeconomics from the industrial side, the best proxy is Caterpillar (CAT) which laid an egg this morning with a disastrous earnings report.
In addition to the earnings flop, CAT has guided the Street lower and company’s CEO was literally begging the Fed not to hike rates this year even as he said everything would be fine at the end of the year. There were a couple of bright spots, like power generation in North America, but for the most part the report is an unmitigated disaster.
Not what we expected at this phase of the recovery.
| Geographic | Revenue | Segment | Revenue | Profit |
| North America | +9% | Construction | -9% | -26% |
| Asia | -16% | Resources | -10% | -67% |
| EAME | +1% | Energy | +11% | +10 |
| Latin America | -13% | Other | -10% | +15% |
If we want to just focus on the United States, I can’t think of a better place to begin than the railroads which serve as a great proxy for the economy. Thus far, earnings from the group have been good, but the details tell us more.
| KSU4Q14 | |
| Automotive | +13% |
| Chemical | +9% |
| Petroleum | +9% |
| NSC4Q14 | |
| Automotive | Even |
| Chemical | +11% |
| Metal/Construction | +5% |
| UNP4Q14 | |
| Automotive | Flat |
| Chemical | +8% |
| Industrial Production | +15% |
From Caterpillar to the rails, the big difference was the sudden hit to oil which caught the entire world off guard. However, the misery is now more than off-setting the pluses as jobs are being lost, construction projects are being abandoned and retirement accounts are moving in the wrong direction. The oil patch itself is beginning to really take it on the chin.
| Crushing CrudeThe Count | Rigs | W/WChange | Y/YChange |
| U.S. (oil only) | 1,317 | -49 | -99 |
| Canada | 432 | -8 | -158 |
| International | 1,313 | -11 | -22 |
| Crushing CrudeBasin | Rigs | W/WChange | Y/YChange |
| Marcellus | 42 | -1 | -1 |
| Eagle Ford | 181 | -4 | -35 |
| Permian | 481 | -6 | -3 |
| Crushing CrudeState | Rigs | W/WChange | Y/YChange |
| North Dakota | 169 | -9 | -22 |
| Oklahoma | 193 | -8 | +6 |
| Texas | 753 | -13 | -86 |
Capping off the morning was a huge miss for Durable Goods. There were massive revisions that point to an inevitable revision to 3Q GDP.
It has to be noted, all Blue-Chip companies that reported after the bell yesterday and this morning are lower- most down huge.
| Company | EPS | Consensus | Revenue ($M) | EPS Guidance | EPS Consensus |
| MSFT | 0.71 | 0.71 | $26,470 | - | FY15 $2.66 |
| TXN | 0.69 | 0.69 | $3,269 | - | FY15 $2.88 |
| UTX | 1.62 | 1.62 | $16,996 | Q1-2015 $0.57-$0.67 | Q1-2015 $0.62 |
| MMM | 1.81 | 1.80 | $7,719 | - | FY15 $8.20 |
| AKS | 0.14 | 0.08 | $1,998 | - | FY15 $0.82 |
| AAL | 1.52 | 1.51 | $10,160 | - | FY15 $10.10 |
| CAT | 1.35 | 1.57 | $14,244 | FY15 $4.75 | FY15 $6.71 |
| GLW | 0.45 | 0.38 | $2,602 | - | FY15 1.58 |
| DD | 0.71 | 0.71 | $7,378 | FY15 $4.00-$4.20 | FY15 $4.47 |
| FCX | 0.25 | 0.35 | $5,235 | - | FY15 $1.61 |
| LMT | 3.01 | 2.85 | $12,530 | FY15 $10.80-$11.10 | FY15 $11.49 |
| PH | 1.84 | 1.55 | $3,130 | FY15 $7.90-$8.30 | FY15 $7.90 |
| PFE | 0.54 | 0.53 | $13,118 | FY15 $2.00-$2.10 | FY15 $2.18 |
| PII | 1.98 | 1.94 | $1,275 | FY15 $7.22-$7.44 | FY15 $7.81 |
| PG | 1.06 | 1.13 | $20,161 | FY15 ~$4.09 | FY15 $4.17 |
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