After the Jobs Numbers, Time to Short Some Adult Toys 11 comments
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The jobs numbers came out a few minutes ago and even with minimal parsing it is time to go short - or at least get ready to go short. Why? Job losses of 85,000 surprised many people - and were actually much greater as the BLS uses a statistical trick - an accepted one - to add more than 100,000 jobs to the number - as it has since February. The BLS says the birth of new companies creates jobs it misses, bankruptcies kill jobs it misses, and the difference is a net positive, on average in 2009, of over 100,000 per month. In the Great Recession? I don't think so.
At the most macro of levels, the importance of employment, or unemployment, is national income - the amount of money, in aggregate, people have to spend in an economy driven by consumer spending. Ten percent plus unemployment and continuing job losses restrict national income. An average work week that is shrinking or stagnant restricts national income. Stagnant hourly average wages restrict national income. Everyone sees this in part. But the hidden number today was the household survey report which showed a loss of 616,000 people from the work force. This keeps the unemployment rate down - or keeps it steady - but means there are 616,000 fewer people even looking for work which means they are not looking to generate income. Another and a very big hit to national income.
So everything adds up to a hit to national income - which hits consumer spending. And growth - or shrinkage - in the economy. And corporate profits can outpace growth for only so long. So in Q2 or the second half of the year the lack of consumer spending will finally overtake bullish optimism. And that means the time to go short - or at least get ready to go short - is now, if not the indices, selected names.
Start with adult toys - no jokes please. Brunswick (BC), builder of boats. Harley Davidson (HOG), the builder of unnecessary motorcycles with a broken balance sheet. Hovnanian (HOV) another broken balance sheet, a builder of high end homes no one is buying. Blue Nile (NILE), purveyor of diamonds, a great company facing a stagnant or declining market with a P/E north of 60.
Then look at overpriced companies who will blow up the first time they miss an estimate. Blue Nile again; Open Table (OPEN), a front end to a shrinking number of restaurant reservations; Wynn (WYNN), owner of the best casinos in the world with the best CEO in the world but selling at multiples that are unsustainable; and the list goes on.
I maintain, for my subscribers at ChangeWave Shorts, a watch list of potential train wrecks. Do the same for yourself and get ready. The double dip is coming.
Disclosure: None
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Shocking (not) UPS just announced more job cuts today.
FedEx is still posting losses even though they never removed the "surcharges" they implemented when gas was over $4 a gallon AND they forced 20% paycuts on their people.
A lot of jobs lost but not even represented in the numbers.
A Project Labor Agreement (seekingalpha.com/symbo...), also known as a Community Workforce Agreement, is a pre-hire collective bargaining agreement with one or more labor organizations that establishes the terms and conditions of employment for a specific construction project.[1]
Before any workers are hired on the project, construction unions and contractors have bargaining rights to determine the wage rates and benefits of all employees working on the particular project and to agree to prevent any strikes, lockouts, or other work stoppages for the length of the project.[2][3] The terms of the agreement apply to all contractors and subcontractors who successfully bid on the project, and supersedes any existing collective bargaining agreements.[2]
PLAs are used on both public and private projects, and their specific provisions are tailored by the signatory parties to meet the needs of a particular project.[3] PLAs typically require that the contractor hire all workers through union halls, that nonunion workers pay dues for the length of the project and that the contractor follow union rules on pensions, work conditions and dispute resolution.[4] Many PLAs also require that employees hired for the project are referred by the union hiring halls, though most of these allow for alternate hiring mechanisms, including retention of a contractor's "core" or key employees.[2]
On February 6, 2009, U.S. President Barack Obama issued an Executive Order[5] encouraging the use of Project Labor Agreements on Federal projects of $25 million or more. According to the order, Project Labor Agreements promote efficient and timely completion of large-scale construction projects and prevent many of the problems inherent in such construction.[1]
So a private contractor like myself has no right to these taxpayer projects (even though I pay taxes) regardless of my experience, effectiveness or price. With limited competition, Union contractors could charge whatever they want.
Another example of squandered tax dollars and bribery.
Try convincing your wife or girlfriend (or both) that a diamond is a mere "toy"... I did (with the gf-- no wife!) and failed miserably. (Of course, you'll have no problem convincing her that a Harley is.)
You single guys have it made.
Harley is very likely to survive, given its iconic trade name, quality machines, and loyal niche following, but is it way overpriced relative to current circumstances and fundamentals?
The U.S. market is eroding for the foreseeable future and the company has been forced to take on significant debt ... and expansion into India and China, although promising in the long run, will take several years of development. The Harley store near me currently looks like a morgue, mausolem, or museum, rather than a place of commerce.
I believe that the weak earnings estimates I have seen are overstated, and I see HOG fairly valued around 15 in today's market. I am stunned that the stock has been trading recently between 25 and 30.
I agree fully with a financial blog post by Marc Lichtenfeld that I ran across recently, in which he states:
Overvalued Stocks: Don’t Touch These Bloated Investments With a 10-Foot Pole: Harley Davidson (NYSE: HOG) .....
"In an economy where everyone is worried about the job market, it’s no surprise that big ticket, discretionary items like a new motorcycle are low on the priority list.
Harley Davidson’s results prove this. Revenue is expected to fall by 22% in 2009 and shrink another 1.3% in 2010, according to estimates. The stock currently trades at 27 times earnings, 20 times forward earnings and 137 times cash flow. The company is also loaded with debt. Right now, its bikes represent better value than its shares."
You can get a decked out, crazy BMW touring bike for less than a full-size Harley. The fit and finish of Harleys have declined, IMO.
They bilked customers hypnotized by the brand, but they have abused the brand through overexposure. How many clothes and doo-dads can they emblazen with their logo?
I think it will be very ugly. Still a great short opportunity.
Don't get me wrong, cheap Chinese labor - and quality - have brought our public companies huge gains in sales, dropping labor costs and good times. It has been one heck of a ride.
I just question how it cannot eventually end.
These are some of my reasons why.
China always retains majority ownership in the company. Many times we put up all the capital, for 49% or less, of ownership. China can declare 100% ownership anytime they want. In their borders, under their control.
China, if they possibly can, will only allow for a small handful of outside workers. Within the past two years, Visteon (Ford spinoff to try and get rid of the union - didn't work too well) built an R&D "campus" in China. Shortly before opening, instead of allowing Visteon to import Americans to do the jobs and train the locals - as was planned - they were notified that no more than 5% of employees could be non-Chinese.
China manipulates their currency, which keeps their working class incomes artificially low, especially in comparison to ours. The Chinese working class can make huge gains in income before they will get close to ours.
China, as we love to ignore, is a Communist country. China still executes business executives for mistakes. China, vowed to destroy us without firing a shot. China still attempts to control their citizens' thoughts and lives.
When China decides that their middle class has grown to the point that it can sustain their infrastructure and manufacturers, all China needs do is to re-value the yuan.
That's it. Closing in on 2 BILLION consumers, why will they need us? They have been steadily raising prices on necessities that they have the lock on manufacturing. Few have noticed because they do it sporadically, on manufacturing parts (like the hex nuts on your American made car) and through quality/quantity cuts.
When the Chinese get serous, how much is your Harley stock going to be worth then? That is my fear, maybe far-fetched, maybe not. Time will tell, but I refuse to gamble my hard earned money on it.
However, investing in the Chinese markets may be a brilliant plan, especially if that pesky yuan rises in value. Unless, they blatantly turn against the US.
biz.yahoo.com/bw/10011...
just saying...
Some form of straddle trade might make sense here. If the news next week is better than expected (and 4Q expectations are muted), then the stock could (stupidly) move back toward $30. If 4Q 2009 is reported to have been poor, then the stock should move back toward the teens.
What is difficult to see is HOG staying at $25 per share over the next several months.