“On August 1st, This Once Iconic American Retailer Will Stun Shareholders”
That’s how the latest teaser ad from Harry Dent gets us interested — Dent has been around for a long time, and his predictions and books and newsletters have usually had their basis in demographics … stuff like predicting that the market would boom in the 1990s and crash in 2010 because of the Baby Boomer retirement wave.
So much of his stuff will sound perfectly compelling, and does have that basic rationale of demographic change behind it — but of course, as we’ve seen from the last 20 years there’s a lot more to “bubble and bust” than relatively simple demographic changes. I haven’t read any of his things over the last couple years, but he has a promo out now predicting the demise of a couple iconic firms who are going to be victims of the next “shakeout.”
And naturally, I thought you’d like to know who they might be. So we dug into the clues.
He’s trying to sell subscriptions to his Boom & Bust service … here’s how he positions the ad for you:
“… we believe the Main Street media and many Wall Street pundits are setting millions of hardworking Americans up for huge financial losses.
“They want you to believe the worst is over… that, except for a few bumps in the road here and there, we’re well on the road to recovery.
“Let me warn you: that’s NOT what my research says…That’s why I’ve prepared this urgent presentation.
“But please also understand there’s a tremendous upside to what’s about to unfold over the next decade and beyond.
“After all, when you’re able to know what’s coming – and position yourself accordingly – the years ahead could be very prosperous times.”
He’s talking about a ‘historic economic shift’ underway now that will impact investors for decades — and drive three big name companies into bankruptcy this year. Here’s more, in his words:
“I believe these three companies will announce they’re bankrupt in 2013.
“The first announcement that I see coming will take place on Thursday, August 1.
“And this will be just the beginning of a wave of corporate failures that will send the economy into a tailspin and the Dow plunging.
“Why am I so certain?
“Because the one thing – that’s about to devastate these companies – is the most powerful and destructive economic force known to man….
“A ‘survival of the fittest’ battle is coming that will determine the leaders for decades to come…
“A few companies I expect to survive and thrive through the shakeout include Amazon, Wal-Mart, Kia and Toyota.
“… we are rapidly reaching “high noon” for a handful of companies and industries that have become inefficient and have overcharged us for far too long.”
The “big picture” part of this is a theory of cycles that he shares with us — there are, we’re told, “seasons” to the cycles of the global economy … and naturally, right now it’s “Winter” … here’s how he puts it:
Well, if that’s true then it’s certainly been an interesting Winter, and it doesn’t seem like the seasons are anywhere near being equal lengths if we’re going by the last ten years or so, but it does give one a certain comfort that there’s a logic to the cycles of the economy. Maybe false comfort, I don’t know, but sometimes I’ll take whatever flavor of comfort I can get.
“Right now we’re five years into what I call ‘The Winter Season.’
“It’s a time to hunker down, regroup … a time to ‘shake out’ the excesses of the previous boom so that a new ‘Spring Season’ can begin.
“Nature has an order of things.
“And as I’ve learned through my 30 years of researching economic cycles and demographic dynamics – so do the markets and the economy.
“Every cycle we have studied in history has four seasons – just like our weather.
“And for several centuries these seasons have been as easy to predict as the annual weather cycle.
“They contain two very different booms and two very different busts.
SPRING: The Innovation BOOM.
SUMMER: The Inflationary Bust.
AUTUMN: The Maturity BOOM.
WINTER: The Deflationary Bust.”
So that’s the basic pitch — this deflationary bust is making way for the next innovation boom, and it’s going to take some companies down with it. He expects the Dow to plunge and says to get out by the end of June, and to get out of gold and silver before the deflationary bust that is apparently still part of this winter that’s been five years chilling us already. His other big picture advice includes selling any extra real estate, downsizing your life right now, convert foreign currencies to dollars, refinancing any real estate you’re keeping, and look at municipal bonds if you want income … though he thinks that US Treasury Bonds will be the next great investment, starting as early as next year. That’s pretty contrarian, given recent optimism about the economy, so we’ll let you chew on that on your own.
But we’re heading back to the headline — the one stock he says is going to declare bankruptcy in a matter of months. Who is it?
“You know this business well
“If you drove by a shopping plaza or walked through a mall lately, you’ve seen this business.
“You’ve probably bought something from them before.
“It’s been a vital cog in our economy for over 90-years, and has over 4,400 locations in the United States alone.
“In short, it’s one of the largest companies in America – with operations in all 50 states and over 34,000 employees.
“But on August 1st, it will reveal that it’s looming bankruptcy.
“You see, that’s the day a $375 million loan that it likely won’t be able to payback comes due.
“Already, the company eliminated its dividend last July.
“It’s replaced its Chief Executive Officer… its Executive Vice President of Operations… and its Executive Vice President of Strategy.
“It has negative net profit margins… negative free cash-flow… and earnings that don’t even cover interest expenses…There’s just no way it can come up with the money by August 1st.”
Well, that one is not a name that will surprise most of you: RadioShack (RSH), a disaster of a company that’s been through a few makeovers and reorganizations over the years (including one that was temporarily successful in 2005-2007), and is now mired in trouble again.
They do have more than 4,400 locations (a lot more, if you included dealers and “store within a store” wireless phone shops) and 34,000 employees, and they’re unprofitable, and their debt is about equal to their market capitalization, and business looks pretty weak no matter what metric you use. As you’ve probably noticed if you’ve walked by a RadioShack lately, these days they mostly sell electronic novelties and cell phones, and if they don’t sell a lot of extended warranties and extra batteries for those cell phones, which are the same ones sold in the Verizon store or the AT&T Store or the (also in trouble) Best Buy or online, then they can’t possibly make any money. So unless the demand for remote-controlled frogs and helicopters spikes among the mall-strolling populace, it’s hard to see a bright future for RadioShack.
I haven’t been following the company closely, but from what I can tell there isn’t much of a turnaround plan in place — and even if there were, it’s hard to see them implementing it very successfully in such a competitive marketplace and with a brand of such rapidly declining importance. Electronics and accessories are just such an overwhelmingly competitive sector, with ubiquitous availability, that they’d have to develop something really new to stand out — and they don’t seem to have the cash or the DNA to move that quickly or aggressively. They recently lost their Target “mini stores”, but on the plus side they did also ink a deal to get some of their brands into College bookstores to try to boost revenues — investors seemed to like that deal, and the deal to get back to the DIY electronics business a bit more with their collaboration with Maker Media, though it’s hard to see either one of those deals being monumental enough to shake up the company’s trajectory.
So yes, they’ll probably go out of business if they don’t have a big makeover in the next couple years — I don’t know if it will be with this next debt maturity, which is indeed August 1, since the stock did just pop in recent months as folks are apparently betting that the company won’t disappear overnight … but I wouldn’t bet on the long-term future. You could sell the stock short or buy put options against the shares if you’re convinced that the stock will collapse, but with interest rates so low and their huge retail network there’s always the possibility that someone will either want to take them over or rescue them to keep that network up and running, or even that the banks and bondholders will roll the debt over.
They already have a huge short position, with 40% of the float sold short, so it might be tough to short it even if you wish to — but if you think the stock will fall by more than 30% before August there are plenty of put options you could buy to bet on that possibility, and they’re not as expensive as you might guess for a stock with a short interest this high (it’ll cost you eight cents a share to buy a $2 put option for August, which would mean the stock has to fall in half by mid-August to make you a profit).
I wouldn’t lend them money, but that doesn’t mean someone else won’t. Their 2019 bonds have been rising in price over the last few months as the stock market rose, so they now trade at $80 or so for a 10% yield — which is certainly “junk” territory, but it’s not where you’d expect to see a bond trade that’s in imminent danger of bankruptcy.
So that’s one of Harry Dent’s predictions — the imminent demise of RadioShack. I’d agree on the basic trend for that company, but don’t know if their next debt maturity will really bring bankruptcy in August … I’ve run out of time for today, but we’ll dig into his other two “Shakeup” victims tomorrow if you’re interested. Whattya think, anyone want to invest in or bet against Radioshack?