Harry S. Dent Jr.'s Blog, page 16

Do Cowboys Dream of Electric Trucks?

The title of this piece is a play on a book, but the question stands: Will cowboys, or anyone else who buys a truck, be interested in an electric version? Ford and GM are betting their companies on it, which could be a huge mistake.

A Truck-Loving Family

Somewhere along the way, we became a truck family. My wife wanted a small 4×4 to navigate flooded streets, which makes sense given where we live. She ended up with a Chevrolet Colorado, and couldn’t be happier. For whatever reason, my younger daughter always wanted a Ford F-150, so she drove off to college in a jacked up, 4×4 SuperCrew. Granted, it was used, but still pretty cool.

And then, after living in Colorado for a couple of years, my son got a Toyota Tacoma 4×4.

No one in our family works on a ranch, or even works outdoors. We can’t claim to “need” trucks, but obviously we like them. That will change when they go electric, which GM and Ford claim isn’t that far in the future.

The Problem with an Electric Truck 

Electric vehicles are more expensive than gas-powered vehicles, and not by a little. The much-vaunted Tesla 3, noted as the everyman’s electric car, starts in the mid-$30’s, but only if you wait forever to buy it. The company loses money at that price point, so it delivers higher-priced, feature-rich models first.

Trucks already are expensive, so paying more for an electric version doesn’t sound like a good idea.

The good news is that, because of their size, trucks can carry more batteries, which could eliminate range anxiety and give drivers 300 to 400 miles of travel before requiring a charge. Still, this won’t eliminate the hassle of charging on a trip, when drivers will have to find a recharging station, wait for anyone ahead of them, and then spend 30 minutes or more when they finally are able to connect.

Ford says the company will invest $11.5 billion to electrify many vehicles by 2022, adding 16 fully electric vehicles to the lineup. It anticipates every model to be profitable.

Color me skeptical.

It’s All About Profits 

Electric cars sold in the U.S. today are not profitable, and have to be nudged out the door by government subsidies. Even if Ford and GM are able to eek out a profit on electric trucks, will it be enough to replace the profits they earn on such vehicles today? That seems highly doubtful.

The average Ford F-150 goes out the door at just over $49,000, and earns the company a cool $10,000 in profit, or 20%.

Unless Ford either earns 20% on every electric truck, or only sells electric trucks to new, marginal buyers that would not have bought a traditional truck, then the company loses. Put another way, every buyer who would have bought a traditional truck but instead buys an e-truck will cost the company money.

And Then There’s the Question of Longevity

A great thing about trucks is that they last so long. Getting to 100,000 miles is sort of the get-to-know-you period. But the battery packs in electric vehicles last about 10 years, and then lose their ability to charge. Today we’re seeing Toyota Priuses from 2010 grind to a halt and need a $3,000 battery replacement. In the next couple of years, we’ll see the first group of Teslas from the early 2010s need their batteries replaced, a repair estimated at $7,000 or more.

Who wants to buy a truck that, just as it gets broken in, will need an almost $10,000 repair?

It’s possible the industry will change in the next couple of years to make electric trucks more practical. If it doesn’t, then the market for these vehicles will most likely be limited to enthusiasts wanting novel vehicles. Cowboys, and even casual drivers like my family, will stick with the tried-and-true versions.

As for the book reference in the title, the original is “Do Androids Dream of Electric Sheep,” written in 1968 by Philip Dick. It was the basis of the 1982 movie Blade Runner.

IES Interview with David Stockman

Today we wrap up our trio of Irrational Economic Summit preview interviews with Dent Research Senior Research Analyst Dave Okenquist. We began with Dr. Lacy Hunt and continued Monday with U.S.-China expert Gordon Chang.

This final installment features a conversation between Dave and IES’s keynote speaker, David Stockman. David is the former congressman, author of Peak Trump, and perhaps most notably, budget director under Ronald Reagan. David also edits the monthly Stockman Letter, providing the most cutting edge analysis of everything money from Washington DC to Wall Street.

A Real Mess

His conversation covered the “real mess” we’ve gotten ourselves into by not focusing on a full recovery after the Great Recession in 2008-09, and the looming troubles to financial sectors should we elect Elizabeth Warren to the White House. David isn’t looking forward to the financial prospects that the next eight to 10 years may hold. And you can be sure he’ll have a lot to say about it when he addresses the Irrational Economic Summit October 10-12 at the National Harbor in Washington. (Find more info and ticket details here.)

We’re excited to see which elements he brings to the conversation next month.

Oil Prices and Drones

My home sale recently took a weird turn when the original buyer came back to the table. Expressing regret, he has offered to make a deal better than the one I have on the table, close earlier, and remove all requests for repairs.

I’m tempted, and not just because the terms make better sense.

This is Oil Country

Living in the heart of oil country, we’ve got a front row seat to the ebbs and flows of energy in the U.S. By all accounts, these are years of plenty.

According to preliminary data from the International Energy Agency, the U.S briefly upended Saudi Arabia as the largest oil exporter in the world in June. This comes after the U.S. became the largest energy producer in the world last year. Our exporting prowess is courtesy of the Obama administration, which lifted a ban on exporting oil that reached back to the days of Jimmy Carter.

We’ve built numerous natural gas liquefaction plants in the U.S., which allow us to export that fuel as well.

But I’m not bullish on energy companies, which confused one of our subscribers. He asked if so much energy was flowing through and out of the country, then why won’t energy companies benefit?

It all comes down to price.

The Effect of Fracking 

For most of my life, we bought ever larger quantities of oil from other countries, and built refineries tailored to handling their grades of crude. The more we bought, the more money we shipped out of the country, which increased our current account deficit. Because energy was a net cost to the nation, we cheered when oil prices plummeted, like in the late 1990s when the price touched $10 per barrel. Pain at the pump was shared by pain as a country.

But fracking changed all that.

As we found new ways to extract oil, we dramatically increased our proven reserves and drove the growth of domestic energy companies large and small. We still import oil for various practical reasons, but imports are down and exports are growing, which helps our current account deficit and reduces our dependency on other nations

Our newfound oil riches also put consumers across the table from energy companies. As prices fall, consumers pay less at the pump, but energy companies earn less revenue, which brings me back to my house.

The Energy Sector

Our area lives and breathes with the energy sector. Sure, we’ve got a few NASA types hanging around because Johnson Space Center is across the lake, but the main driver of prosperity is energy. When prices fall, employers scale back, workers get fired, and home prices get mushy.

The growing U.S. energy sector has capped prices on the international market, ruining the plans of OPEC-plus, the oil-producing nations that are trying to prop up prices by restricting supply. It’s not hurting my feelings that bad-acting nations around the world, which we used to send cash by the boat load, are suffering with lower prices for their exports. But we have to keep an eye on our local companies as well.

Harry has long pointed to fracking companies as a weak link in the economy because many of them don’t earn profits, they just plow revenue back into drilling. If prices drop significantly, these firms won’t earn enough to pay their debts, which could drive returns in the sector even lower than they have been for the past year.

Donald Trump and Iran

President Trump threw the oil markets into turmoil last week when he suggested he might ease some of the sanctions on Iran. The nation has some of the largest oil reserves in the world, and before U.S. sanctions it exported more than three million barrels of oil per day. That number has dwindled to less than 200,000 by some estimates.

If Iran is allowed to sell oil, which it desperately needs to do so it can obtain hard currency for trade, then we’ll see even more supply hit the markets.

On the flip side, there’s always the prospect of war, even if on a very small scale.

Yemen vs. Saudi Arabia 

Houthi rebels in Yemen took responsibility for a drone attack deep inside Saudi Arabia last weekend, although U.S. officials believe it was the work of Iran. The 10 drones targeted two oil facilities that process almost 8.5 million barrels of oil per day. Saudi officials said that 5.47 million barrels of daily production were offline after the attacks, and could remain so for months.

This is obviously a big deal and drove prices higher by 20%, although they later pulled back. The world will have to pull oil from reserves, like the U.S. Strategic Petroleum Reserve, unless we want to see oil shortages and price spikes before Saudi production fully resumes or other producers make up the difference.

But the strike did more than cause an immediate issue, it revealed a vulnerability in the industry.

The countries that make up OPEC-plus are giving up $600 million per day in revenue as they try to drive up prices. A rag-tag rebel group showed that it could be done for less than $15,000 worth of drones. If other groups start using such tactics, they could wreak havoc on the international oil markets, leading to volatility at the pump, and even affecting real estate prices in my neighborhood.

Then there is the aftermath. If frackers increase supply to fill the hole left by the Saudis, what happens to oil prices when the Saudis come back on line? The price of oil could drop dramatically in a few months when we once again find ourselves awash in the black gold.

Interview with Gordon Chang

As I mentioned last week, we’ll be running a few interviews in Economy & Markets in advance of the Irrational Economic Summit. Which this year is taking place October 10-12 at the National Harbor in Washington, D.C. (Find more info and ticket details here.)

Today, Dent Research Senior Research Analyst Dave Okenquist sits down with Gordon Chang, a featured speaker. Gordon is a writer, pundit, author, and lawyer, and a renowned expert on China and the country’s relationship with the United States. Which, let’s face it, is no small topic these days as Trump continues to drop tariffs in the Far East power.

Trade Talk with Gordon Chang

The two talked about the current state of Chinese trade – both domestically and internationally – and Xi Jinping’s intention to create a government-run state of trade. Not surprisingly, Chang does not think that China will adhere to any agreement the country makes with Trump’s administration. Which bodes poorly for a negotiation that already appears to be off the rails. Chang also offered his thoughts on the upcoming election in 2020 and what it means for international trade.

We’re excited to host him in Washington in October. And stay tuned for more from Dave and our featured speakers. On Wednesday, we’ll host an interview with David Stockman, Director of the Office of Management and Budget during the Reagan years and our keynote speaker at the Irrational Economic Summit next month.

This is What Ignites the Final Rally

The market reaction to the ECB announced they are going full throttle on stimulus. That tells you everything you need to know about where we find ourselves.

European stocks, along with the euro, couldn’t figure out which way to go immediately following ECB President Mario Draghi’s speech on Thursday. Investors should be squeamish at the sight of Draghi throwing everything he’s got at the specter of a painful global recession. He definitely hasn’t got much to throw.

The picture overseas is terrifying. Japan is about to fall into recession after unbelievable stimulus. And Germany and Italy already have dipped into contractionary territory. And let’s not forget all the leading indicators at home – under performance of retail and financial sectors, home construction peaking years ago along with RV sales…

But there is still potential for a series of events to ignite the Final Dark Window rally that we’ve been talking about all year.

Donald Trump is urging the Fed very strongly to step on the gas pedal here. If the markets keep weakening and gold prices keep going up that’s going to scream “slowing.” That will give Fed Chair Jerome Powell enough of a reason to pull a Draghi and that could ignite a final rally.

Remember, as I explain in more detail in this week’s video, there are two scenarios. But the Final Dark Window rally is still a distinct possibility.

Bursting Bubbles and Irrational Economics

Another week closer to IES 2019…and the end of this ludicrous bubble. Harry Dent tackles the tough subjects of a shifting market, the trade war, & over-stimulation of a flailing economy. Don’t forget to register for our upcoming conference where you can learn how to read and react to the markets like a pro. Sign up for Boom & Bust here: https://pro.dentresearch.com/m/1051908 Register today for IES 2019: https://pro.dentresearch.com/m/1322195

Posted by Economy and Markets on Friday, September 13, 2019

I See Babies

Part of it has to do with where we live. South Central Texas is a thriving, job-creating area, and it draws millions of young workers, so children seem to be everywhere. If you’re looking for a place with adult-friendly restaurants and theaters, this isn’t it.

But part of it is my age – or more specifically, my stage of life, although the two go hand-in-hand.

Grandparent Fever 

Everywhere I look, I see babies and toddlers. I want one. But not to keep. I’ve got a bad case of grandparent fever.

I want the kid I can spoil and give back. I want one who will think I’m awesome, no matter what. I want one I don’t have to discipline, one I can see as it suits my schedule.

My own children are well aware of this, and so far, aren’t interested in my needs.

For years I’ve told them that the day they produce a grandchild, I’ll buy an Airstream. I want a 27-footer, big enough for a bedroom, enclosed shower in the bathroom, and a decent living area that can double as an office. I intend to drive it to wherever the grandkid lives, and then park it out front of their home.

I don’t want to be in the house with my kids, that seems intrusive for them and a pain for me. But I do want to be close enough to have grandkid access.

It’s sort of a joke. Sort of.

None of this is surprising. I’m in my early 50s and my kids are in their mid 20s. We’re progressing just like our demographic and consumer spending research suggests , which is what makes the information so powerful. Unfortunately, whatever I’m doing next is the wrong place to focus, because my particular generation isn’t big enough to make a difference. We’re Gen-X’ers. It’s the Boomers before us, and then eventually the Millennials, that drive things, and RV’s are a great example.

On the Road Again

From 2009 through 2017, RV sales exploded. Part of it was a rebound after the financial crisis, but in large part the Boomer drove the growth as they reached the peak age for RV demand, 59 years old. With peak Boomer births in 1961, we expected RV sales to increase as we moved closer to 2020, the year in which the largest number of Boomers would turn 59, with the biggest growth in the later years.

In our Boom & Bust portfolio, we held Thor Industries (NYSE: THO) during some of the high-growth years in the mid-2010s, and made good money on the stock. But in 2018, the industry started to roll over. After explosive growth, RV sales dropped 4.1%. This year, sales will tank by 20% or more, and have notched 13 consecutive months of annual declines.

Industry watches blame the Trump tariffs for increasing costs by 5%, and fearful consumers who expect a recession. But we know there’s something else going on. The large generation of the Boomers are moving past the peak age for buying RVs, so the industry is losing its best customers. The same thing happened to Harley Davidson in the mid-2000s when the Boomers past age 45, the peak point for purchasing motorcycles.

This information is incredibly useful on two fronts. When investing, we can focus on industries that are in the sweet spot of their demographic-driven demand, like owning Harley before 2006, and owning Thor Industries several years ago. We can potentially squeeze the most profit out of stock by holding it when the most people want to buy the company’s product.

Changing Lanes

In Boom & Bust, we’re no longer looking at RV companies. Last Spring we bought Weight Watchers Company (NYSE: WW) because the peak age for dieting is 60, which would put the peak demand for this company in 2021. We can’t know exactly when it will peak, but we want to own it when the demand should be highest. At last check, we were up 60%.

As consumers, we can use this information to time purchases. Knowing that RV demand should peak in the late 2010s, I could temper my enthusiasm a bit, comfortable in the knowledge that I’d probably get a much better deal by waiting until the end of the decade to buy one. If you look at RV classifieds, they’re full of people trying to unload the things, which is good for people like me.

This sort of research works for hundreds of products and services, from clothing to housing. All you have to know is where to look, which is why Harry published his Spending Waves book which includes the latest consumer demand research, and it’s part of what we’ll discuss at the Irrational Economic Summit next month in D.C.

Now, if only I could get my kids to comply by giving me a grandchild.

Interview with Dr. Lacy Hunt

Today I’m going to turn my column space over to Senior Research Analyst Dave Okenquist. He just the other day conducted an exceptional interview with Dr. Lacy Hunt.

Lacy is an old friend of mine and the Executive Vice President at the Hoisington Investment Management Company. He’s also a featured speaker at this year’s Irrational Economic Summit. The event is happening October 10-12 at the National Harbor just south of Washington, D.C. (More info on the conference can be found here.)

Where Will we be in 2020?

The two talked about recession fears, what’s causing them – at home and throughout the world – and also a bit about what Lacy thinks will happen politically and economically in 2020.

Dave’s got a few more interviews with IES speakers in the queue. On Monday, we’ll have Gordon Chang, who will certainly have plenty to say about the ongoing negotiations between the Trump administration and China. And on Wednesday, we’re excited to run an interview with David Stockman, Director of the Office of Management and Budget during the Reagan years and our keynote speaker at the Irrational Economic Summit next month.

Millennials, real estate, and the disconnect between the two

A couple of weeks ago, I wrote about the tribulations associated with selling a home. We were in the thick of inspections, appraisals, etc. As we sold our home, and worked on a separate home purchase at the same time.

Then our home sale fell through, which killed my purchase. While I might not be heeding Harry’s advice to be real estate free, I’m also not so bullheaded as to own two homes that function as primary residences.

Just like baseball, there’s no crying in real estate. We wiped the slate clean and started over. A new buyer showed up within 10 days.

We came to an agreeable price quickly, but he needs to sell his home. It’s a more conventional property than mine, so it shouldn’t be an issue. But the new contract came with some interesting provisions.

During his option period, the buyer wants to get an inspection, which is common. He also wants a separate roof inspection, separate HVAC inspection, and separate stucco inspection, which I didn’t know was a thing.

I don’t have to bear the financial burden of these items, but I was curious as to how much he’s shelling out to get separate reports. A little homework told me that he’s adding $1,500 in specialized inspection reports on top of the traditional $600 general report.

Everyone Needs a Safety Net

Welcome to the latest iteration of the safety net society, where people want stronger guarantees that they will succeed, or at least not fail, and look to outside sources for those assurances.

On an individual basis, everyone gets to choose how much they’re willing to spend for peace of mind. But when we move from our personal purchases to society at large, things change. The cost moves from the individual to the entire group.

In the August issue of Boom & Bust, I outlined how voters are changing as we move into the 2020 election cycle and beyond. I’m not talking about an individual voter changing her mind on issues, I’m referring to the fact that the electorate is getting younger as a large number of Millennials go to the polls for the first time and overtake Boomers and members of the Silent Generation as the dominant force in the American electorate.

GenX’ers, as you might imagine, don’t count as much because of their relatively small numbers.

Everyone is Getting Younger Again

In the 2018 mid-term elections, more voters under 50 years old turned out than those over 50, the first time that’s happened since at least the early 1970s. In the 2020 election, Boomers and older generations will be just 40% of voters, down from 70% in 2000.

As the younger groups go to the polls, they will pull the levers that correspond to their priorities, looking for answers on things like healthcare, student loans, and climate change. The answers put forth to address these issues have one thing in common – they’re all expensive, and require everyone to pay.

Maybe this is the logical outcome of the Great Recession and diverging experiences of younger workers and their parents. The rising class of voters came of age in a time of uncertainty, and then watched asset prices run away from them as wages grew slowly.

And the college-educated Millennials got the joy of entering the labor force with the added burden of student loan debt. No one forces you to take loans, but the outrageous growth of the cost of college made attending all but unaffordable for many without taking on debt.

The combination of fewer opportunities and extra headwinds is probably difficult for a group that was told by parents they were all winners, particularly when you consider that the rules of the game changed through no fault of theirs.

I’m Not Knocking Millennials

I know the snowflake stereotypes, but as the parent of a couple of them, I also know there are many who work hard, save, and try to build their lives on their own.

I’m recognizing that their priorities are different from mine and many of the people that came before me. Where my generation wanted a level playing field and for the government and all others to get out of the way, the younger group seems to want a backstop when possible.

Maybe that’s just the way of the future. Maybe the couple buying my home is on the cutting edge of getting ever more specialized inspections and check ups before major purchases and life changes, and building social safety nets wherever possible.

It might be the smart way to go, but it sure adds layers of cost to my personal transaction and society at large. Out of all of this, one thing seems obvious – if you build an industry around looking for problems, you’ll certainly find them. When you do, then you’ll have to figure out how to pay for them. And that’s where the fight starts.

Another Wacky IPO: Sign of a Top Coming

Simon Black at SovereignMan.com recently put out an interesting expose about WeWork, the co-working (fast becoming co-everything) company, and its astronomically valued IPO. He calls it “the latest sign that absolutely nothing makes sense anymore.”

There is clearly a long list of such things at this point. My favorite is the broad chorus of chants – “This is not a bubble!” – when stocks have already exceeded the percent gains and time period of the most recent bubble from 1995-2000, and even the Roaring 20s bubble from 1925-29.

WeWork vs. Regus

But back to WeWork. Black calls it “a real estate company that owns practically zero real estate.”

The business model is actually simple. They lease large tracts of commercial real estate long term and then sublease those tracts to smaller businesses shorter term. No problem with that…

Except that there is another company doing the exact same thing that is highly profitable at $350 million for the first half of 2019. WeWork lost $1 billion in the same six-month period. Regus (OTCMKTS: IWGFF) has 60 million sq. ft. and growing, while WeWork only has 10 million.

But here’s what’s insane: While Regus is valued at just under $5 billion, this money-sucking startup will be valued at $50 billion – 10 times that of their competitor!

What’s the Difference?

Black sees the secret difference as being that WeWork’s founder was able to convince investors that this is a technology company, not a mere lessor of office space. But there is nothing about its “technology” in the offering and promotion. Where’s the R&D budget? Or is the money just going to B.S. marketing?

The ultimate marketing catch phrase for the company is its mission “to elevate the world’s consciousness.” They are, of course, “creating community” for people and small businesses. I heard a cryptocurrency expert say the same thing for its ultimate mission.

That’s what happens in a bubble. More and more people invest simply because stocks or whatever are going up at a high rate. The fundamentals don’t matter. Profits don’t matter.

Most dot-coms had little sales and no profits. Larger ones that did like AOL got up to 400 times earnings per share. No larger company could grow fast enough, long enough to remotely fulfill such valuations.

This makes Snapchat look down to earth!

Just as I was finishing writing this article, the co-founder and CEO suddenly started talking about dropping the valuation from the original $65 billion down to as low as $20 trillion – or even postponing it. So, reality is already hitting for this overblown IPO. It comes next for the over-amped tech stocks and FAANGS!

My rough forecast: The tech-laden Nasdaq makes a final rally to as high as 10,000 by early 2020, then collapses to around 1,100 by late 2022 or so. Just like happened in the crash of 2000-02, only worse this time.

Since this is the final bubble, its crash should be more like 1929-32.

Then you can buy this B.S. company and help it elevate consciousness, if it still exists.

Crisis Unavertable

The markets rallied a little on Thursday, up 400 points on the Dow. But Friday’s jobs report was low, and we’re not seeing any indications that we’ll be getting off this collision course with a recession any time soon. Even with the 400 points, it’ll still take a climb up to 28,000 for me to believe we’re breaking into this final Dark Window rally I’ve been talking about for the past year.

Recession calls were not as loud this week, but we’re continuing to see slowing everywhere – in countries and in industry. Housing and construction indexes are trending down, RV sales, retail, financials…

We’ll need to watch what the Donald does. He’ll certainly try something, and many say his next effort will be to distribute money directly to consumers. But that’s a band-aid, and hardly a sustainable one at that. By late 2020-21, we’ll be in a recession for sure, though I still think we’ll be in it by mid-next year.

A crisis is coming, and for me, the sooner the better. Time to get it over with.

“The Greatest Crash of our LIfetime Will Begin”

Even though the markets rallied this week, Harry Dent is still concerned about the future as we continue to see troubling indicators on the rise. Watch now to get the latest on the disappointing jobs report, slow global economic growth, & more. Check out Harry’s latest bestseller, Dark Window, here: https://pro.dentresearch.com/m/1142369

Posted by Economy and Markets on Friday, September 6, 2019