As part of our "Ask a Fool" series, Fool analyst Brendan Byrnes answers a question from our Facebook page, "Is Jim Chanos Right in Shorting $CAT?"
Much of Chanos' short thesis is predicated on China. He believes that the commodities supercycle built on the back of the China infrastructure boom is ending. Chanos has long been a China bear, so this isn't surprising. He also points to the big writedown that Caterpillar recently had to take after accounting problems with its deal to acquire China-based Siwei.
While any slowdown in China equipment demand is obviously important to global demand, it's also important to remember that Caterpillar still only gets around 3% of its revenue from China.
Ultimately, the problem with Caterpillar has always been that so much of its future prospects of success or failure is out of its hands. The global economy, mining equipment demand, and commodity prices are just a few things that have a big impact on the company. Making matters worse, these are very difficult to forecast.
That doesn't mean that it makes Caterpillar a short; the company still boasts competitive advantages in the form of a strong brand name, quality dealer and service networks, and size advantages. As Brendan notes in the video below, this is a stock that he thinks both long and short investors should avoid for now until the picture becomes more clear.