Industrials Got Way Ahead of the Downturn

New thesis: The garden-variety depression was all financial. But the actions of the companies to the depression were all drastic.

Isn't that how Caterpillar (CAT - commentary - Trade Now) just blew away numbers? Or how PPG Industries (PPG - commentary - Trade Now) blasted its way higher? Or how United Tech (UTX - commentary - Trade Now) is going to be just fine? Or how Eaton (ETN - commentary - Trade Now) turned out to be unsinkable? Who knows what Ingersoll (IR - commentary - Trade Now) will do? Or Emerson (EMR - commentary - Trade Now), or Honeywell (HON - commentary - Trade Now)?

DuPont's (DD - commentary - Trade Now) typical. They took drastic action -- huge costs taken out -- and now many markets are showing improvement so the normalized earnings model for this company could understate dramatically what is about to happen in the future, particularly if the dollar were to continue to go lower.

Companies didn't know what hit them when the Lehman depression began. They made a decision that we were going to have a long, hard depression where credit would not return.

Then Ben Bernanke created credit. Now he is on the firing line, which is pretty ridiculous given that his Fed created credit that is now producing what we see, which is revenues returning and the gross margins exploding because the companies simply did not stop restructuring, they did not stop firing. Which is how Caterpillar could have light revenues and bizarrely huge profits.

Which is also why when revenues come back, the normalized earnings models are going to be way wrong. The profitability will be amazing.

A read-through of CAT shows nothing good. Orders down. Dealers not buying. No lift anywhere.

And they still made a gigantic amount of money.

The decline was artificial.

The rally is real.

At the time of publication, Cramer was long PPG Industries, Emerson and Honeywell.

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