Over and over, I’ve stressed a cautious, careful and defensive investment stance since early last summer.
CarMax (KMX) sells more used cars and trucks than any other dealer in the U.S. It owns 161 locations in 79 markets, from California and Arizona in the Southwest, to Massachusetts and Pennsylvania in the Northeast, to Florida and Tennessee in the Southeast.
That makes it a pretty good bellwether for the credit-cycle-driven auto business. And judging from its earnings report this week, that business is breaking down big-time.
The firm missed earnings targets for the third quarter in a row. It missed revenue targets by $60 million, with sales growth slowing to its worst pace in six years. And it warned of rising costs and lackluster profit from auto lending. The stock dropped another 5%, bringing its 12-month losses to a hefty 29%.
Then there’s Werner Enterprises (WERN), a key cog in the trucking and transportation industry. You’ve probably passed or have been passed by its yellow-on-blue trucks on an interstate highway somewhere.
Well, the company just warned that second-quarter earnings would miss analyst estimates by a country mile — coming in at as little as 21 cents per share versus forecasts of 40 cents per share. The culprit? "More challenging market conditions" in the freight shipping business and a lousy market for used, heavy-duty trucks. FedEx (FDX) followed up with its own profit warning hours later, though it blamed some of its problems on rising pension and network expenses.
|Multiple earnings warnings have been issued by some of the nation’s largest REITs.|
As for commercial real estate, the Wall Street Journal was the latest to report on trouble there — particularly in the multifamily sector. The problem? Developers have been building thousands and thousands of apartments in cities all over the country, using cheap, easy money to do so. But with construction activity running at more than double the historical pace, and demand slowing, renters are increasingly demanding (and getting) concessions. That’s leading to multiple earnings warnings from some of the nation’s largest real estate investment trusts (REITs).
I’ve said before that the credit cycle and the economic cycle are inextricably linked. When credit gets tighter for business borrowers, or commercial real estate borrowers, or auto borrowers, companies can’t spend as much, developers can’t spend as much, and consumers can’t spend as much. Result: The economy starts grinding to a halt.
The latest news from Corporate America shows this isn’t some hazy forecast about the distant future, one that may or may not be confirmed. It’s happening in the here and now, and it’s gathering momentum every day.
So yes, the Brexit vote is getting a ton of press this morning — and I’ll be sure to update you on the implications later today. But in the bigger picture, the turn in credit is the single-most important factor that will drive the economy and markets over time.
The way I see it, you can do one of two things as a result. You can lose money on stocks like CarMax and Werner and apartment REITs like Equity Residential (EQR) as the "hidden hand" of the credit cycle wreaks havoc on them. Or you can go on the offense, and use the credit cycle to rack up potentially large profits.
That’s exactly what I’ve been doing in my All Weather Trader service over the past several months. Thanks to my credit cycle analysis, my subscribers had the chance to rack up gains of as much as 122%, 140%, 203%, even 269.7% last fall and earlier this year.
Now, the methodology I discuss in my new e-book is suggesting even-bigger potential profits are coming down the pike. So make sure you give it a read here, and take action on the recommendations you’ll find in it. Then stay tuned — I’ll have much more for you in the days and weeks ahead.
Until next time,