“Shakeout Victims” From Harry Dent

Harry Dent says an upcoming bankruptcy could make you rich

“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.”

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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:

“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.

“They are:
SPRING: The Innovation BOOM.
SUMMER: The Inflationary Bust.
AUTUMN: The Maturity BOOM.
WINTER: The Deflationary Bust.”

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.

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?


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archives2001
Irregular
archives2001
May 29, 2013 9:27 pm

Recent comments from Lindsey Williams;
” The Elite Want To Drown The World in Debt Before Collapsing the Global Economy”
” We Will See The Collapse of All Paper Money in a Period of two years Maximum The Elite are working for a date of the collapse of all paper currencies , it could be in a year or in a year and half , what happened to the banks in Cyprus will happen to New Zealand Japan Australia Canada and even America , you better get your money from your pension fund bank account retirement account , IRA , 401K or you will lose it all overnight
-The Federal Reserve is making some huge financial moves that will drive the USA deep into debt and decrease the buying power of the dollar. They will take them and use them as an investment in the derivative market. “They will hedge the derivative market.” They will fractionally reserve all the mortgages and turn the $40 billion into $360 billion and make $1 trillion of off mortgage debt in 3 months. The banks receiving the $40 billion will turn around and take this money and buy treasury bills. It will go towards paying the debt of the US, not to improve the economy. Basically, the FED gives the bank money which they give back to the FED and the FED ads fees and interests which drives up the debt more.

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auriasis
Member
auriasis
May 30, 2013 8:14 am

Every year I visited Radio Shack very close to Christmas to pick up nineteen $5 stocking stuffers for our family gathering. The salesmen would haul out stuff from the storage room that I had never even dreamed of before. He always had one of something interesting and two of something else. Now where will I go?????? I can’t search Amazon for items I don’t know exist.

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Truman Roper
Member
Truman Roper
May 30, 2013 8:41 am

And I miss going in for my Free Battery each month. I went in, got my battery and spent $10 on junk because I felt guilty taking one of their batteries for free. Somebody ressurect Lafayette Radio and Heathkit, please… and make catalogs to dream about stuff you have to have.

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Steve
Irregular
Steve
June 8, 2013 12:33 pm

The Onion had a great article about Radio Shack back in 2007 with the title “Even CEO Can’t Figure Out How RadioShack Still In Business” – one of the funniest pieces I’ve read. I just searched for it online and read it again and still laughed. The interesting thing is that it seemed as relevant then as it does now. I know it’s The Onion but the article makes sense and doesn’t seem far-fetched to believe that’s what then new CEO really thought or what the new one might be thinking, I just wonder how they weren’t gone shortly after I saw the article the first time.
If they want to stay in business they need to let you buy a $2 capacitor or resistor without spending 15 minutes at the register (and that’s if there was no line when you walked up to it!).

archives2001
Irregular
archives2001
June 10, 2013 4:10 am
Reply to  Steve

“If they want to stay in business they need to let you buy a $2 capacitor or resistor without spending 15 minutes at the register (and that’s if there was no line when you walked up to it!)”
SPOT ON!
Probably the biggest reason they’re going under.

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stp479
Member
stp479
June 10, 2013 3:21 pm

Fond memories of scrimping and saving for my DX160-looking at the RS catalog dreaming of the day when the entire world could be listened to with my shortwave and a long wire. Nothing romantic at all about the internet.

ken
Member
ken
October 31, 2013 2:47 pm

I remember when radio shack first came to town in Flint, Mich. They carried everything and had generally decent prices. Things remained that way until they ran every other small electronics store out of town. Then they started raising prices and eventually cut their inventory to the bone. I do not like radio shack and maybe stop once or twice a year if they are the last resort. No tears here for their failure.

jchere
Member
jchere
January 22, 2014 10:43 pm

What ever happened on Aug 1?
I must have built 2 dozen Heath Kits, may still have a few in storage somewhere. Every thing from resistor substitution boxes to 150 watt audio amps and 5″ triggered sweep oscilloscopes. I was sad to see them go. When Chinese labor made it cheaper to buy a finished product than to build a kit no one noticed that you lost the knowledge gained when building a kit, but then who uses that knowledge any more?

AnnuityMD
Member
October 2, 2014 8:49 pm

Harry Dent has been WRONG all along. He predicted Dow 40,000 and I can’t believe he has the AUDACITY to say he predicted the bust in 2000!!! Here is an excerpt of one of his predictions:

“Baby boomers move into high gear. Dent expects the “incredible earning, spending and productivity cycle of the massive baby boom generation” to continue driving the whole world as the “unprecedented economic boom of the past 25 years” races to a frenzied peak in 2009 … before another bust.
These five trends will drive the boom to Dow 40,000 by 2009, creating what Dent calls “The New Millionaire Economy,” a time of such great prosperity you can expect a 50 percent increase in the number of American millionaires. How’s that for optimism and opportunity, my fellow Americans!”

HE IS FULL OF IT!!!

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archivesDave
Irregular
archivesDave
October 2, 2014 11:36 pm
Reply to  AnnuityMD

I pretty much agree…
However, here’s a note I just fired off to ‘Broken Clock Harry’…

“Thnx Shannon but Harry needs to fess up and come clean on the fact that
his timing has been ATROCIOUS.
Yeah, sooner or later I think he may be proven partially correct but jeez, he needs to
at least admit his timing can be compared to the boy who cried wolf.
Oh, and another scenario he isn’t discussing much at all:
The IMF has barely begun to start their fiat QE when the Fed Res finally
does run out of bullets.
I predict it’ll be ‘Katy bare the door’ and they may come up
with some type of globalized 50 yr ‘uber bond’ or industrial (carbon?)tax
pre or post a reset or ‘jubilee’…. SDRs could also be in the mix.
I’d have a lot more respect for Harry’s credibility if he would at least
discuss alternatives to his dogmatic one track thesis. If he doesn’t,
he’s gonna have a hellava lot of crow to eat and egg on his face when
things don’t come down exactly the way he adamantly commands!

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AnnuityMD
Member
October 3, 2014 8:53 am
Reply to  archivesDave

Great note! Yes, you know a