The Contrarian

“In the investment markets, what everyone knows is usually not worth knowing.”

RV Sales as Indicator of Market Top

The last toy in a stock market boom by people who were fortunate to make some good speculative profits is usually the purchase of an RV, either fully contained like a large bus, or smaller ones that you pull behind and SUV.

I have witnessed this over the past 4+ decades. Those who made good money during the stock market boom suddenly believe it is “romantic” to get an RV, drive into the wilderness, sleep in the RV at campgrounds or wherever.

They are fooled by their imaginations. They don’t realize that most of this romanticized vacation usually ends in a nightmare of headaches. Eventually they realize that staying at a nice 4 or 5 star hotel is a much greater pleasure.

However, now we are once again near an important market top in our work. RV sales are going through the roof again, the typical warning signal.

Here is an excerpt from CNBC about the RV boom:

(CNBC) – RV shipments are expected to surge to their highest level ever, according to a forecast from the Recreation Vehicle Industry Association.

It would be the industry’s eighth consecutive year of gains.

Thor Industries and Winnebago Industries posted huge growth in their most recent earnings report.

Those shipments are accelerating, and should grow even more next year, the group said. Sales in the first quarter rose 11.7 percent from 2016.

Much of the growth can be attributed to strong sales of trailers, smaller units that can be towed behind an SUV or minivan, which dominate the RV market. The industry also is drawing in new customers.

As the economy has strengthened since the Great Recession, and consumer confidence improved, sales have picked up, said Kevin Broom, director of media relations for RVIA.

Two of the major players in the industry, Thor Industries and Winnebago Industries, both manufacturers of RVs, reported huge growth in their most recent earnings report. Thor saw sales skyrocket 56.9 percent to $2.02 billion from last year. Winnebago’s surged 75.1 percent last quarter to $476.4 million.

Gerrick Johnson, an analyst at BMO Capital Markets, attributed much of that growth to acquisitions. Thor bought Jayco, then the No. 3 player in the industry, last June; Winnebago bought Grand Design in October.

Thor stock has experienced strong growth over the past year of almost 40 percent. Winnebago tells an even better story: Its shares are up 56 percent over the past 12 months.

“They’ve done massively well because they’ve made massively creative acquisitions,” said Johnson. “Wall Street didn’t realize how creative those deals were. Each quarter they came through. The RV space is on fire, and the demand metrics are quite positive.”

Here is the chart of RV sales. Note that each top in sales occurred at a bull market top, such as 1988, 1999, 2007. Currently, you may agree that this chart looks more like an approaching top than a bottom:

Let me tell you about my experience with this RV sales indicator. Right out of Graduate School, I started investing in the local (Minneapolis) stock market. It was hot. New local companies were going public in the local over-the-counter market, underwritten by small upstart brokerage firms, which were something akin to boiler rooms, just not that flagrant.

Many IPO’s would double or triple in price in a short time. I met one trader who quit his high-paying job at Control Data, at the time a leading US computer company, just to trade the markets full time.

I started participating in this bubble market. I would call the CEO’s of the company and ask what I thought were some good questions.

I soon found out that CEO’s of companies are just P.R. guys. You can’t trust what they say. They may not lie, but they omit all the negative parts. In that respect, they are very much like used car salesmen.

Therefore, I then started calling the CFO’s instead. They were much more honest.  They are accountants and often CPA’s. Most have a standard of ethics. Even today, I still put financial TV on ‘mute’ when a CEO is interviewed. You will never hear anything useful, and much more often just hear things that will cost you painful investment losses.

One of IPO’s I bought into was a new local company that was going to build RV’s. The small brokerage firm had done a number of other IPO’s and had a compelling prospectus about this firm. I bought the stock on the offering. It immediately went up over 50%.

So I decided to pay a visit to the facility where they made the RV’s. I found it was in a small industrial park on the outskirts of Minneapolis, you know, where guys making window screens, or repair bumpers of cars have their small operation. I was starting to wonder about this ‘investment.’

Soon I found the facility. It had a big sign with the name of the firm. I looked at all the other small shops around it and was wondering if this was it. I parked and saw that the big roll-up door was open. There were 4 people sitting around a cheap table sipping coffee. There was no other activity.

I said I would like to meet the president of the firm. One guy, who looked like your local plumber, said; “You’re looking at him.” To his right was a woman who reminded me of the cleaning lady who would come to my parents’ house once per week. She was the V.P., the wife of the president.

The four were the top executives. They looked more like the people coming to fix your roof. I thought, well, maybe they are ‘hands-on’ people.

After I introduced myself as a ‘shareholder,’ I asked to see their manufacturing. They said, ‘you’re looking at it.’ I saw what looked like a crude mockup of a small camper that you can pull behind your Yugo. It was just a frame of 2×4’s with some cheap siding attached to it. I was surprised …and shocked.  

I asked how many they could produce per month. The answer was very evasive. He said that now that they had the IPO money, they could really expand. For some reason I envisioned my money ending up in Belize or the Bahamas. The next day, I sold all my stock in that firm.

It was close to the top of the bull market in stocks at the time. A year later, the market was in a serious bear market. The RV company went out of business. The ‘expansion’ never occurred. I don’t know in which tax haven the money ended up. I don’t think they had any sales. The small brokerage firm got their fee for the IPO launch, and also went out of business. The shareholders who didn’t sell lost everything.

Since that time, I have paid attention to RV sales as an indicator of an approaching and important market top. It’s a sign of totally reckless investor behavior. I had a good acquaintance who made a billion dollars in the 1990’s tech bubble with his company. His company never had any earnings…nor sales. He bought a million dollar RV bus. I think he used it once or twice. Thereafter, it just cluttered up his parking lot. A hotel is so much nicer.

Talking about reckless investment behavior, the crypto-currency market is another great sign. Even intelligent friends of mine have asked how to participate in it. I give them my warnings, but I quickly realize that greed is much more compelling than my words of caution.

Bull market tops and bear market bottoms are functions of human behavior. And that determines the major market trends, not vice versa, contrary to popular opinion. When no one wants to listen to caution produced by solid facts, I know that the end is near.

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