Tuesday, October 29, 2013

Harley-Davidson Accident Bill may exceed $3 billion...

Using estimates from the GAO November 2012 report on motorcycle safety:  

Total bill (direct costs) for motorcycle crashes in 2010 = $16 billion.  Ignoring indirect costs and assuming (as GAO does) that victims and their families cover 25% of those costs, leaves society with a bill of say $12 billion. What fraction of this is attributable to H-D bikes? Conservatively, based on motorcycle registrations and H-D's own sales figures, a guess might be 25%. So, H-D has supplemented $3.8 billion in bike sales with a bill to the public of $3 billion in accident-related costs. The siren call of the open road, hold me back!

57% of 2012 U.S. new heavyweight motorcycle registrations (282,000) were Harleys
Excerpts from the report:   In 2010, an estimated 95,000 motorcycle crashes occurred in the U.S. and 4,423 (4612 in 2011) of these crashes were fatal...while motorcycles accounted for only about 3 percent of all registered vehicles, they were involved in about 15 percent of all fatal vehicle crashes. 
Motorcycle crashes are more likely to be fatal than other types of vehicle crashes...almost 5 percent of the 95,000 motorcycle crashes in 2010 resulted in at least one fatality...according to NHTSA, motorcyclists were about 30 times more likely to die in a traffic crash than passenger car occupants per vehicle mile traveled in 2010.

Studies indicate that the costs of motorcycle crashes are significant, but have only estimated specific types of these costs. We conducted our own analysis ...and estimate that the direct measurable costs of motorcycle crashes—those costs that directly result from a crash and that can and have been measured—were approximately $16 billion in 2010. However, accurately determining the full costs is difficult because some—such as long-term medical costs and intangible costs related to emotional pain and suffering—are difficult to measure. Thus, the full costs of motorcycle crashes are likely higher than our estimate. Victims and their families as well as society—including employers, private insurers, healthcare providers, government, and others—bear these costs. NHTSA estimated that society bears about three-quarters of the measurable costs of all motor vehicle crashes. Society’s share of the costs of motorcycle crashes may be similar or higher, in part because injuries from these crashes are more severe.

Studies we identified on the costs of motorcycle crashes indicate that the costs are significant, but the studies estimated only specific types of direct measurable costs. Direct measurable costs are those costs directly resulting from a crash that can and have been measured. One study, conducted by CDC and Pacific Institute for Research and Evaluation, estimated three categories of costs associated with motorcycle crashes: medical costs, costs associated with the loss in market productivity (lost wages), and costs associated with the loss in household productivity (costs of hiring someone to perform household tasks). The study estimated that the total for these cost categories for all motorcycle crashes nationwide in 2005 was $12 billion. A number of the studies we identified estimated only the motorcycle crash victims’ medical costs. One such study estimated that the total hospital charges for the initial treatment of motorcyclists injured in traffic crashes in Florida in 2010 was $348 million.

Thursday, October 24, 2013


Harley-Davidson is claiming Project RUSHMORE as a new day in their product development approach.   So a company long known for merging their customers into their brand is now involving their customers in a new way? And what way is that?

Well, according to Mark-Hans Richer, Harley-Davidson Senior Vice President and Chief Marketing Officer, Project Rushmore "...we’ve been focused on taking the total rider and passenger experience to the next level. We come together - to quote the Beatles - through a process that uses not just formal feedback, but the kind of input we get from listening to customers out on the road, and then we blend that with our engineering and styling expertise. For years at Harley-Davidson we’ve been saying that we ride with you. Project RUSHMORE elevates that devotion to a higher level."

from H-D's web site: "Project RUSHMORE is the result of an entirely new way to produce motorcycles. In a process that invokes the voice of the customer throughout an accelerated development program, the ideas and dreams of thousands of motorcyclists are allowed to percolate with those of Harley-Davidson employees. "

That's it? Some marketingspeak, a re-branding...how much did the consultants charge to propose that?

Oh, and one of the eight "extraordinary" bikes "that will recalibrate the expectations of the touring motorcyclist" is the 2014 CVO Road King which was, taking "devotion to a higher level", offered for $1500 less than the 2013 model but stripped of lower fairings, front and saddlebag speakers, 8GB iPod, and 200W audio amp, items easily worth > $2000.

Tuesday, October 22, 2013


Please note that the Idea Mechanic Report on Harley-Davidson has been updated to reference the failure of Harley-Davidson to 8-K the $600 million issuance of medium-term notes in September 2012 (rather than the $400 million issuance in December 2012, as previously written). Also, please note that references to Buffett are intended to include Berkshire Hathaway.

Monday, October 21, 2013

Idea Mechanic Report on Harley-Davidson


Amazon concedes the dedicated e-reader market to Kobo and Barnes & Noble

This year's Amazon Paperwhite is similar to last year's with a brighter light on its 6-inch display. There is still no memory card slot or headphone jack and continues to not support both audiobooks and open source EPUB files. Ads cost $20 to remove. (it does obviously support the two Kindle proprietary formats AZW and AZW3, and with some fiddling, Acrobat, txt, Word, and mobi files.

Based on the pricing and functionality it is clear that Amazon has shifted its focus to the tablet market. Unfortunately, Apple, Google and Samsung all have arguably better tablets for the price. 

Sunday, October 20, 2013

Trick Rather than Treat? Why the Fed [SHOULD] Taper in October.

(Updated 10/31: indeed the Fed continued it's current bond-buying program. The market dropped, though. Right for the wrong reasons.)

Occasionally politics and the Federal Reserve intertwine, like on the eve of a Presidential election, a government shutdown, or the confirmation of a new Fed Chairwoman. So, here we are, mere days away from Yellen's confirmation hearings and a Fed board meeting. What, oh what, will the Fed do?

Considering the whole context, the Fed would be smart to start tapering its $85 billion (per month) bond buying program in October. Here's why:

1. In her confirmation hearings, Yellen will be questioned by Republicans about her 'easy money' philosophy. If the Fed plans to delay a taper until 2014, these questions will drag on and on and the confirmation hearing will be a painful snoozefest and will be used by certain Senators to do a little grandstanding. If the Fed tapers a little bit in October, these questions will be more easily dismissed. (And it doesn't matter how the market responds to the taper -- Yellen can say either, 'see, easy money is needed considering that the market tanked after a small taper', or 'see, I'm not about easy money, I am about the right amount of money, e.g. this taper that we just did successfully'.)

2. The Administration needs ammo in the upcoming budget negotiations with Republicans, and the  kind of ammo they want is: "see, government isn't that big, and we're making it smaller!"

3. The Fed almost tapered in September, but decided otherwise at the last minute, presumably to hedge against the government shutdown/default risks. As it turned out, the market didn't care much about these risks, and now the stock market is at a terrifying height.  Furthermore, Shiller just won the Nobel Prize (and Yellen's husband and Shiller are buddies), so it's hard to imagine that the Fed could stomach a stock market bubble for more than an instant.

4. The Administration has made it clear (and Republicans have too) that the government will not shut down in January.

5. The Fed likes surprises, e.g. last month.

6. The Fed knows how to get the data it needs. The shutdown isn't going to prevent it from managing the economy.

7. Delaying the taper means that the Fed might have to do a larger initial taper when it finally decides to do so, and a large initial taper doesn't seem like either Bernanke's or Yellen's style.

Barnes & Noble's Bookstore Earnings should hit $3 in 2014

Think of Barnes and Noble bookstores like Starbucks coffee shops, not your local independent coffee place, but a reliable, ubiquitous, safety net of retailing. B&N is the dominant creative force in the printed book retailing. As an innovator B&N stands to continue to benefit from printed book sales. The American Booksellers Association reported earlier this year that sales at independent bookstores rose about 8 percent in 2012 over 2011. 90% of Americans who have bought eBooks continue to buy traditional books as well. (Bowker Market Research)
As people move to tablets for reading e-books, the battle between e-readers is becoming moot. In April, the Book Industry Study Group announced that multi-function tablets were the preferred e-reading devices, exceeding the use of dedicated e-readers. Just as iTunes spread to every type of device, so e-book apps are now ubiquitous. The use of an open source ebook publishing format does favor B&N over Amazon.  (Not surprisingly, most of the growth of eBooks has been in people reading novels)
Don’t underestimate the ability of B&N retail stores to generate e-book sales for B&N. The competition with Amazon is receding as Amazon has moved way beyond books in their marketing. If you think Amazon is out to drive B&N out of business remember 1997 when Microsoft (to keep Apple healthy and lessen the risk of anti-trust charges) agreed to support Office for macs as well as invest $150 million in AAPL.
Almost all of BN's bookstores were profitable last year, and, leaving out the Nook, net income per share was at least $2.50. With Len Riggio back at the helm, expect to see some low-performing stores closed and a series of new stores in underserved areas. There have been suggestions (similar to Walmart’s announced strategy) of the development of satellite stores.

Wednesday, October 16, 2013

Walmart to Adopt a proposed Barnes and Noble marketing approach.

Wal-Mart has announced plans to open more small stores with logistical support provided by nearby Supercenter stores. This plan, announced at Walmart annual meeting on Tuesday, will "tether" smaller stores to the larger ones in a push to fill in the retail "ecosystem." The Idea Mechanic report on Barnes and Noble has proposed a similar framework of smaller Barnes and Noble stores to take advantage of the logistical flexibility that smaller (down to Starbucks size) stores would offer the retailer. A key feature of this approach for B&N would be the creation of new spaces for community social activities, a traditional attraction of small independent bookstores.

Monday, October 14, 2013

Bookstores remain centers of community life.

Community support is a critical factor in the resurgence of Barnes and Noble. Ironically the independent bookstores that were threatened by the rise of the big box B&N and Borders stores over a decade ago are now leading indicators of the future of B&N.  Sales at independent bookstores are rising(8% y-o-y) due to a number of factors including the demise of Borders, the tepid economic recovery with limited discretionary income, and a decline in the novelty of reading a book on a tablet. It appears that e-book sales can grow along with the sales of printed books. 
 "I think the worst days of the independents are behind them," says Jim Milliot of Publishers Weekly magazine. "The demise of traditional print books has been a bit overblown. Everybody is a little anxious, but they are starting to think they've figured it out for the time being."
How does this benefit Barnes & Noble? Oddly, B&N stores are now key local resources and are no longer seen as the enemy of the local bookstore...they are the local bookstores. 

Tuesday, October 8, 2013

A Rising Tide at Year's End?

Suggestive more than anything, but the last two years of daily returns suggest that October is volatile but on the average up, while November and December are more consistently up. 

Sunday, October 6, 2013

BKS begins its climb to world dominance?

As behavioral finance teaches us, even our blind spots have biases with additional blind spots. This is a good thing for the stock picker in a sideways market because the institutional investor herd is prone to react to an ever changing set of fears, rumors, scenarios, etc. There is a lot of sector rotation, jumps in and out of emerging markets and hot stocks, until finally, looking back, it is hard to distinguish much real change. With all the current anticipation of news on interest rates ("tapering") , federal budgets, and debt ceilings, occasionally a situation does jump out as truly reflecting a change in a company's fortunes. As an example, Barnes and Noble (BKS) shares jumped on Friday (October 4) over 10 percent on high volume.  As there has been no real news from or about the company for weeks (other than a late September Goldman price target of $17) I would suggest that this is a sign of a shift in the realities of book selling occurring just as company architect Len Riggio returns to run things. He built it once and given BKS's near-monopoly position in the US bookstore world, should be able to expand with stores in both smaller US communities and under-served retail environments in Europe and Asia.

Friday, October 4, 2013

Thursday, October 3, 2013

Is Performance Becoming Reality? Washington Channels Mickey Rourke.

The Hazard of Fighting over the Deck Chairs as the Ship Sinks

The lively performance this year of that theater of the absurd classic "The Annual Federal Budget Negotiations" has captured our attention while the more nebulous (yet potentially catastrophic) event, the default of the U.S. government on its debt, is looming ever closer. The so-called debt ceiling is a self-inflicted limit (see excerpt of Treasury Secretary Lew's October 1 letter to Congressional leaders  below). In any case, if the bankruptcy of Lehman taught us anything it is that the world is a lot more connected than we expect it to be. For an overview of the possible fallout: https://www.dws-investments.com/EN/docs/research/I-32798-1_Government_Shutdown_Risk_and_Debt.pdf

CBO and other agencies and analysts estimate that the Treasury could have until Halloween before the ceiling is hit but the default occurs when the Secretary and the President say it does.
October 1, 2013
I am writing to follow up on my previous letters regarding the Department of the Treasury's responsibility to finance the government and to protect the full faith and credit of the United States. In May of this year, the U.S. government reached the statutory debt limit, and Treasury began taking certain extraordinary measures to be able to continue, on a temporary basis, to pay the nation's bills. Today, I am writing to inform Congress that as of today Treasury has begun using the final extraordinary measures. There are no other legal and prudent options to extend the nation's borrowing authority. The impact of these measures was incorporated into the forecast that I shared with you last week, and Treasury continues to believe that extraordinary measures will be exhausted no later than October 17, 2013. Each of these measures is authorized by law, and each has been used by previous Secretaries of the Treasury during past debt limit impasses: Treasury will suspend, as necessary, the daily reinvestment of the portion of the Exchange Stabilization Fund that is invested in Treasury securities. Treasury will enter into a debt swap with the Federal Financing Bank and the Civil Service Retirement and Disability Fund (CSRDF), which will lead to the elimination of a limited amount of debt that counts against the debt limit...It is important to note that once the final extraordinary measures are exhausted, no later than October 17, we will be left to meet our country's commitments at that time with only approximately $30 billion. This amount would be far short of net expenditures on certain days, which can be as high as $60 billion.  

Wednesday, October 2, 2013

Will the non-payment of workers keep the debt ceiling at bay for a while?

A good starting point is the graph below from the Bipartisan Policy Center. For an order of magnitude calculation, let's say 2 million federal employees and contractors aren't paid (maybe a bit high) until the debt ceiling issue is resolved. If the average daily cost to the government per employee or contractor is $200 a day (maybe a bit low) then about $2 billion a week is deferred. Then if we assume the federal deficit of about $2 billion a day (The non-partisan Congressional Budget Office estimated the FY2013 deficit would finish up at about $640 billion), it takes a work week of salary deferrals to buy a day delay of the collision with the debt ceiling...which is not a lot. So, starting now,  the Administration has to negotiate both issues because the clock is ticking with or without a "government shutdown".

Tuesday, October 1, 2013

US Government Closed for Ceiling Repairs

Regarding the government shut-down, the administration and the Republicans are on separate lonely islands, like Gilligan and Crusoe (or Piggy and Jack Shepard). Neither party sees a way to rejoin civilization without egg on its face.

So, the stalemate will continue (and Boehner will live in his red hat) until they start negotiating the debt ceiling. The debt ceiling is the bridge home, egg free.

Spoiler alert! The final chapter of this drama is that the administration will make a small adjustment to the Affordable Care Act that doesn't delay its funding (e.g. a repeal of the medical device tax) in exchange for a comfortable increase in the debt ceiling.

If the markets think otherwise, they're wrong.