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Dallas, TX
April 7, 2008, 08:00 EST |
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Dr. Joe Duarte's Market I.Q. |
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The Internet's Intelligence Digest
Intelligence, Market Timing, And Trading Strategy For Traders and Investors
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Is Harley Davidson A Sign Of Worse To Come?
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What's Hot Today: |
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U.S. stocks index futures were rallying in pre-market trading as a big rally in
Asia spread to Europe.
Today's Economic Calendar: 3:00p.m. Feb Consumer Credit. Expected: $6.0B. Previous: $6.9B. Sources: The Wall Street Journal and Marketwatch.com.
News For Thought
Apartment rents continued to climb as demand for rental homes increased due to the subprime mortgage crisis.
Foreign central banks are holding on to their U.S. Dollar reserves, says the Wall Street Journal.
Four airlines closed their doors last week. Skybus, a closely held Ohio based discount carrier joined Aloha Airlines, ATA Airlines, and charter airline Champion Air in stopping operations. All cited higher fuel costs as the major reason. |
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Is Harley Davidson A Sign Of Worse To Come?
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Consumer Bellwether Sends Mixed Messages
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Harley Davidson NYSE: HOG) may have a negative earnings surprise ahead, according to some. And one columnist and his sources suggest that the HOG economy is a good bellwether for the trend in discretionary spending. So, if the end is near for Harley, then why is the stock seeming to have bottomed and looks to be forming a base?
Chart Courtesy of StockCharts.com
Harley Davidson shares have clearly seen better days. The stock is down some 38% over the last eight months, when the S & P 500 is down just 8.9%.
According to Herb Greenberg, who is usually bearish, but does a very credible job of exposing irregularities in companies whose share prices are not in sync with the reality of their situations, Harley Davidson's current situation is a microcosm of what may be underlying the U.S. economy's current credit issues.
Harley's sales, says Greenberg, dropped 14% " in the fourth quarter alone," prompting the company to go out on a limb and self-finance a rising number of loans for cycle purchases through its in-house financing operations. According to Greenberg, citing SEC filings by the company "55% of Harley's sales last year were financed by its in-house credit operation. That compares with 48% the year before and 45% the year before that. That is more than double the role that internal financing has played since 2001."
In fact, that seems to be part of a trend, as Federal Reserve figures "show that equity withdrawals, which are defined as refinancing and home-equity borrowing, peaked in the second quarter of 2006, as housing prices started to roll over. By last year's fourth quarter, home-equity withdrawals fell by nearly two-thirds." But that didn't stop Americans from borrowing.
According to Greenberg "Americans turned increasingly to other forms of credit. As home equity began to sputter, all types of other consumer and bank loans, which had been piggy-backing the home-equity boom since early 2005, filled the gap. By last year's fourth quarter, they hit a level surpassed only in the post-technology boom fourth quarter of 2000 and more than double 2005 lows."
So how does this affect Harley? According to Greenberg, Harley's dealers are essentially forcing the company to "make it easier to do business," which can be translated to mean that dealers are pressuring the financing arm of the company to take on loans from buyers that perhaps other lenders wouldn't.
The net effect, according to Greenberg is that Harley's "delinquencies and loan losses continue to edge higher." Meanwhile, the used motorcycle market is "booming," as supply has risen due to attractive pricing from the rise in supply that has developed as the inability of buyers to make their payments has also risen.
Yet, something doesn't add up. Harley, if we believe Greenberg, is making risky loans in order to make sales. Harley dealers are pressuring the company to make bad loans. The supply of used Harleys is on the rise, and demand for them is on the rise. And Harley shares seem to have bottomed, instead of collapsing further.
Greenberg does add an interesting touch to the whole thing by noting that "because with cash sales, nobody knows for sure where the cash is really coming from."
Conclusion
The Harley Davidson angle is interesting. If Greenberg is right, then the company, barring a miraculous turn around in the economy and in the fortunes of those who can spend their discretionary income on motorcycles, is in trouble.
Yet, unless the market responds to the story, which was published on Marketwatch.com over the weekend, negatively, there is something else going on.
Which brings us to the rest of the market, which looks ready to jump through the roof, unless things change by the close of trading today. The market, and global markets as well, seem to be betting that the massive influx of liquidity and the Fed's creative use of the Discount Window, along with the bailout of Bear Stearns, might do the trick and keep the economy from rolling over severely.
For Harley Davidson's shares, it could mean that a rising tide will lift its boat too. We'll be hog watching for a while.
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Technical Summary: |
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Chart Courtesy of StockCharts.com
Stocks Hold Up Despite Weak Employment Data
The employment report did not break the market's back. This means that the market now has to deliver on a resumption of the rally in order to keep prices from driftingl lower.
Another round of interest cuts is now more likely as the job picture continues to deteriorate.
Our growth stock list is starting to expand. Our SPY model is long.
For now, patience is still important, but it's a good time to start building long positions.
Chart Courtesy of StockCharts.com
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Market Moves - Stock Of The Day
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I-shares Trust Nasdaq Biotech ETF (AMEX: IBB) Closes In On Key Level
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The I-shares Trust Nasdaq Biotech ETF (AMEX: IBB) is emerging as a quiet leader in a turn around market.
Chart Courtesy of StockCharts.com
Biotech stocks have been in the dog house for several years, often trading to their own beat, despite market trends. This has been mostly due to the lack of blockbuster products from the industry, and the fact that most of the older generation of blockbusters has seen their earnings plateau or be affected by cost cutting measures from Medicare and private health insurers.
In past booms, the biotech sector has tended to rise and fall in unison, with the trend carrying most, or at least many of the viable company share prices higher or lower in similar intervals.
With the recent stock market bottoming process playing out, we've noticed that biotech stocks are starting to act like a sector once again, which makes IBB an excellent vehicle, given the difficulty of picking individual stocks in the sector.
It's too early to figure out why biotech is rising. There is probably some deeply held belief among fund managers that a new trend is on the way, with some therapy starting to gain prominence in clinical trials, or some device starting to gather momentum inside the halls of some lab.
From our standpoint, although we'd like to know what the buzz is, the only thing that matters for now, is that the sector is starting to show some strength. And that means that owning shares of IBB makes sense.
And that means that what happens at the 200-day moving average, near 80 on IBB, is a big deal right now. |
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