Commodities: Caterpillar in Massive Layoffs

Caterpillar, the huge mining and construction equipment maker, announced today it was going to lay off about 20,000 people in response to a worst than expected quarter, as plunging commodity prices caused mining companies to cut back on equipment acquisitions.

According to Caterpillar, their net profit in the fourth quarter plunged by 32 percent to $661 million from the same time a year ago.

The performance was so bad for the equipment maker that they said 2009 will be their poorest year since World War II. Earnings for the fourth quarter came in at $1.08, in contrast to the estimated $1.31 analysts were looking for.

Caterpillar CEO Jim Owens concurred with the outlook, saying it's going to be a very tough year for the company.

Much of the poor performance came from mining companies, as they cut back on equipment purchases as commodity prices fell in a big way in the last part of 2008.

This is unfortunate, as it looks like with gold and silver prices rising, the last half of 2009 will probably be a good one, as money starts flowing to acquiring equipment again. But the battering on Caterpillar forces them to make these moves in order to survive.

Looking ahead, Caterpillar cut its 2009 sales and earnings guidance from $51.3 billion and $5.66 a share, to $40 billion and $2.50 a share.

The first half will be brutal for the company, but as I said, the second half will bring some recovery, but it won't be nearly enough or in time to offer any short-term support to the company or stock.

Why this is significant, especially in the commodities sector, is Caterpillar is a bellwhether for the overall economy; both nationally and internationally. Taking this big of a hit has brought optimism back to reality, and tells us things will be tough going ahead.

For investors, this should be a sign that gold and silver will continue to be good places to put their money in 2009, as the U.S. dollar will weaken and diminish as a place of safety, and gold especially will start to be the place people look for for safety, as it usually is in times like this.