Risk and Return

Dale Franks gives his rundown on what to look for going forward from the economy, and the implications for investors:

We’ve dropped off about 20% from the stock price highs of October, so we’re about due for a rally. Especially with the Fed obliging everyone with rate cuts. At this point, though, I’d look askance at any rallies in stock prices over the near term. bear markets, after all, have rallies too, which turn out to be fuel for a little hope before reversing in crushing disappointment. Don’t get sucked in by a bear-market rally, especially if the rally is sharp and quick. Chances are that it’ll just be a spike in a general downward trend for stock prices.

In fact, there were three rallies of 20% or more in the last bear market. Each hailed as the beginning of a new bull by the professional cheering class.

The highlight for me however is his own personal bellwether:

One earnings report to watch this week, though, is Harley-Davidson (HOG). It’s a solid company with a loyal customer base—I’m one of them actually—but, motorcycles are a luxury item. For every guy like me that rides practically every day, and uses a motorcycle as their primary transportation—there are about 10 guys that ride for maybe 2,000 miles a year. Or less. Those people are gonna stop riding—and buying—new motorcycles.

In fact, if the rumors are true, they already have, and Harley’s results for last quarter will be below analysts estimates. In the last year, Harley sold substantially fewer motorcycles than in 2006. Also, Harley’s stock has already lost about half of it’s value in the last year already, and disappointing earnings for last quarter won’t help.

The thing is, Harley is an interesting proxy for luxury buying. If Harley’s sales are looking bad on the 24th, when earnings are announced, that’s a pretty good indicator that consumers are shutting off buying non-essentials, a good indication of belt-tightening, and general economic cooling.

Dale also provides a list of what he is watching as far as the data on housing, employment, credit, etc.

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Technorati Tags bear market, consumer spending, Dale Franks, Economics, Federal Reserve, Harley Davidson, markets, motorcycles, Slackernomics, stocks

Tags: bear market, consumer spending, Dale Franks, Economics, Federal Reserve, Harley Davidson, markets, motorcycles, Slackernomics, stocks

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