David White

7 'Babies with Bathwater' and 20 'Dogs with Fleas' for the Week

Chevy announced an mpg spec on the Volt of 230mpg, which Chevy called conservative. Volt will have a 300 mile range. This is likely to hurt HOG, which is now more obviously a "gas" HOG.

7 'Babies with Bathwater' and 20 'Dogs with Fleas' for the Week

Dr. Roubini now forecasts below par growth for the US of about 1% for both 2010 and 2011. If he is right, this likely means there will be no upturn for HOG anytime in the near future. It also means continued high unemployment for a long time, which means trouble for HDFS’s loans. HOG had trouble getting the money for HDFS to continue to operate in 2009 (about $1B). HOG will have even more trouble getting money in 2010 and 2011. It's credit rating (lowered to BBB recently) is likely to get lowered further. The loans the HDFS is now holding "for investment" may go into default in large chunks. This will further increase HOG's problems.

Supporting Dr. Roubini's thesis, Paul Krugman, a Nobel Laureate economist, is now saying that the world needs a second stimulus to avoid a lost decade (such as Japan's of the 1990's).

Notably both the US Congress and President Obama have said they have no plans for a further stimulus at this time. Obama insists that the current stimulus will start to be felt more as time goes on.

Congress does keep approving more money for things like cash for clunkers. However, this doesn't really help HOG. This program applies only to cars.

7 'Babies with Bathwater' and 20 'Dogs with Fleas' for the Week

Another factor which may play into the market direction may be the recent crackdown by the SEC on illegal short sellers. Apparently on Wednesday this led to the heavily shorted stocks outperforming the non-shorted stocks to the upside fairly dramatically. See the following article by Bespoke:
seekingalpha.com/artic...

HOG short interest is 19.47% of the float. GMCR short interest is 33.65% of the float. MAR short interest is 12.64% of the float. This SEC factor may provide some short term distortions of what one might normally expect from the stocks performances. Longer term it likely won't matter.

7 'Babies with Bathwater' and 20 'Dogs with Fleas' for the Week

Automakers have done better of late due to the "cash for clunkers" program. Don't think HOG will do better just because the automakers have picked up (due in no small part to this program). "Cash for clunkers" does not extend to motorcycles. HOG is out of luck.

7 'Babies with Bathwater' and 20 'Dogs with Fleas' for the Week

Let me add a further important note:
CreditSights says GE Capital (GE +6.9%) may need as much as $14.7B in additional capital over the next two years to cover $65.5B in losses if if the economy deteriorates more than expected. (Bloomberg) Some are citing this report as the reason for the sudden selloff in the final half hour today, 7-30-09.

The same would be true of HDFS (HOG's finance arm), except the amounts would be proportionately smaller.

7 'Babies with Bathwater' and 20 'Dogs with Fleas' for the Week

Good article. Thank you. In substantiation of HOG being a dog with fleas, let me add the following:

Ford is offering $1.75B in 3 year notes with a rate of 10.875%. David Kiley of Business Week says Ford could have $40B in debt on its books in just 2 years.

If David Kiley is even close to correct about Ford, HOG will be in deep financial trouble too.