Caterpillar (NYSE: CAT) Braces for “Nuclear Winter”

The numbers of newly laid-off employees this week are staggering: 19,500 at Caterpillar (NYSE: CAT), 2,000 at General Motors (NYSE: GM), 8,000 at Pfizer (NYSE: PFE), 5,000 at Microsoft (Nasdaq: MSFT), 6,000 at Intel (Nasdaq: INTC), and 8,000 at Sprint Nextel (NYSE: S). With the amount of companies announcing major layoff growing, thoughts of an economic “nuclear winter” start to creep into the discussion.

Nuclear winter is often thought about as the consequences of nuclear weapons release and the resulting environmental impact. But its current reference is economic, and for good reason.

Companies are remembering the lessons from the 2000 dotcom bust. Those that laid staff off quickly and severely were the ones who survived. Companies that waited, or that did smaller lay-offs, didn’t make it.

Looking around at the severity of the layoffs, it starts to become clear. These companies are planning for what they believe will be the absolute worst-case scenario – an economic nuclear winter.

The benefit to those firms will be survival. Unfortunately, the detriment is that they may be losing too much of their human capital in the process. And ultimately, any company that is overly focused on capital preservation isn’t going to be focused on capital appreciation.

Companies mentioned in this article: CAT, GM, PFE, MSFT, INTC and S.

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