Sand Spring Advisors LLC

Deer(e) in the Headlights

October 31, 2002

by, Barclay T. Leib

A few days ago, as dusk fell on the bucolic landscape of Harding Township, New Jersey, a deer bounded out of the woods and ran smack into my car. No one was hurt, and insurance covers the auto damage, but the very event reminded us of how today's markets are behaving. The mindset of the investing public is still to stay invested "for the long-term," but surprise events keep popping up to dash any short-term build-up of positive market momentum.

As we move into our November 6-7th cycle window, we do not want to over-anticipate this market. Rather, we want to be attentive for news events and geopolitical events that will set the ongoing tone of this market until our next 8.6-month cycle window in Jun-July 2003.

Among the news events that we would not be surprised to see hit, one could obviously be a new bank debt package emanating from Japan. This might prove disappointing to the market or be well received. Another possible event, from a geophysical point of view and given recent rumblings at Mt. Etna in Italy and Kilauea in Hawaii, might be a major earthquake in some populated global locale. Or maybe Bush will be on the move in Iraq, or the next major corporate accounting scandal will come to light. Or maybe Greenspan will lower rates on November 6th, but the investing public will only be momentarily euphoric, and equity prices will subsequently drop anyway. It's simply hard to tell.

And in this particular technical situation, with the market meandering at a non-descript 895 level on the S&P, it's actually dangerous both psychologically and potentially financially to try to out-guess the market's future path too much. On a general basis,we continue to expect that should the S&P be at or above 928 by the latter part of next week, the new news and tone to the market will likely be bad thereafter. Alternatively, as our less anticipated but still possible path, should the S&P 500 be down near 848 or 807, one might expect the emanating new news and market tone to be positive.

Meanwhile, in anticipation more of the former course, it is important for us to start thinking of new names to potentially short. One of these is Deere & Co. not previously covered at Sandspring.com.

In a recent excellent analysis done by the fine people at Apogee Research (associated with Grant's Interest Rate Observer), a few facts about Deere are brought to light:

  • Deere has recently financed many of its new heavy equipment sales and been forced to accept a flood of used-equipment trade-ins in its fight to maintain earnings. At least two-thirds of the company's revenues now depend upon interest-rate sensitive credit operations. Lower rates in recent quarters have clearly helped Deere's financial performance, but if rates now start to get sticky, this one-off past gain from lower financing costs will not be repeated to the same degree. Much of this dealer-provided financing currently sits on Deere's books as a burgeoning receivables figure. This is even worse given an increasing percentage of Deere's sales that originate from leases. These leases are under Deere's carry costs and have their profitability dependent upon the residual value assumptions of equipment turned back in after leases expire. A glut of used trade-ins will over time also risk cannibalizing future new equipment sales. To us, this sounds like another Sears in the making.
  • Deere trades at a rich valuation (44 times estimated 2002 earnings and 20 times over-optimistic 2003 estimated earnings from the Street) despite languishing fundamentals (poor return on assets and equity as well as decreased margins), and an agricultural environment that despite higher crop prices of late, is still very sick (U.S farm income is expected to reach a 16-year low this year, and rising ag prices have been of little help to farmers with fewer drought-induced crops to sell and more expensive feed-grain prices for livestock. Beef consumption and prices are also in the sewer);
  • Like most old-economy manufacturers with a heavily unionized workforce,Deere has many nasty pension liabilities looming in the future. The company's current 9.7% return assumption on its assets is clearly too high given the degree to which financial markets have fallen in recent years. Any admission of this could cut Deere's earnings by a up to a third, and cut the company's current book value of Deere by 15%. Unless a new bull market suddenly emerges, Deere will soon have to cough up real dough into its pension plan to avoid being deemed underfunded. The company's approximate $3 billion underfunded status represents something on the order of five years worth of Deere's average net income;
  • Overall, Deere has increased its leverage while its interest coverage has deteriorated. With time, this could endanger Deere's dividend that has remained at $.88 per annum in recent years despite non-existent 2001 earnings. Assuming current targets on 2002 earnings of $1.06 are made, Deere's payout ratio remains high at 83%.
Add to all of the above, the Fibonacci chart rhythm shown below that implies a missing low down toward $25.21, and Deere is now on our "hot list" as a potential short sale.


Chart constructed using Advanced GET End-of-Day



Non-subscribers are invited to access this August article, together with our more recent October 4th subscriber-only missive ("The Ancient History of Math, Current Pi Cyclical Rhythms, and The Macro Picture in Europe and Asia in Relation to the U.S") by signing up for a quarterly Sandspring.com subscription below.


How Your Articles Are Delivered
Upon the processing of your credit card or the receipt of a personal check, Sand Spring will e-mail you the articles requested as a Word attachment, and also provide you with a WWW address and password to view the article on the web without using Word should you so desire. Confirmation of your order will be immediate, and the actual article will follow by e-mail typically within a few hours and in all cases before the opening of NYSE trading on the following day.

Ordering by Credit Card:
Our shopping cart is designed for both physical and subscription products, so do not be confused too much when it asks you for a shipping address. A correct address is important only for credit card authorization purposes. Your e-mail information is the most important piece of information to us for proper delivery of your article(s).

Disclosure Statement

Sand Spring Advisors provides information and analysis from sources and using methods it believes reliable, but cannot accept responsibility for any trading losses that may be incurred as a result of our analysis. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities, and should always trade at a position size level well within their financial condition. Principals of Sand Spring Advisors may carry positions in securities or futures discussed, but as a matter of policy will always so disclose this if it is the case, and will specifically not trade in any described security or futures for a period 5 business days prior to or subsequent to a commentary being released on a given security or futures.


  • 72,22,7 -- The Ancient Language of Mathematics, Upcoming Pi-Related Cyclical Rhythms & The Macro Picture in Europe and Asia in Relation to the U.S...October 2002...
    This is an updated overview of how we see 2003-2004 developing, and offers specific date clusters related to pi rhythms that should be of particular importance to the financial markets. For those interested in the history of pi mathematics through ancient times, much historical context is also offered....
    Available for Purchase at $45. THIS INCLUDES ALL ARTICLES BELOW FOR FREE.

    • The New Era of Government, Debt Default & Weakening Consumerism...August 2002...
      This article offers a long-term look at interest rate trends and its anticipated interplay with the now sagging U.S. consumer and retail sector.
      Available for FREE with purchase above.

    • Biotech Bottom?...July 2002...
      Within this article we anticipated a tradeable rally developing in the Biotech sector between July and November 2002. Several security-specific chart patterns are examined. A second update to this piece, published in mid-July, further elaborated on the broader market indices. We eventually got our bounce in these broader indices post July 23rd, but the Biotechs were quite honestly a disappointment.
      Available for FREE with purchase above.

    • A Coincidence of Time...June 2002...
      Within this article we consider a variety of cycle timing techniques that upon occasion form important date clusters.
      Available for FREE with purchase above.

    • In Search of Survivable Themes...May 2002...
      Within this article we consider survivable investment themes in today's markets, and two small-cap stocks from down under that may fit this bill.
      Available for FREE with purchase above.

    • Pension Asset & Liability Blues...March 2002...
      Within this article we explore much misunderstood and underestimated ERISA and FAS accounting that could cause a two-decade long malaise in corporate profitability. We also update many of our previously espoused long and short views.
      Available for FREE with purchase above.

    • Complicated Moves...February 2002...
      A temporarily bullish look at the DJIA, written in late February 2002, together with a discussion of several value stocks that we like within this market.
      Available for FREE with purchase above.

    • Zig-Zag Markets, and What Will Go Thud that Hasn't Already...January 2002...
      In this article, we discuss the path we expect into our important November 2002 cycle date, and several specific short selling opportunities in industries as far afield as trucks to bread...
      Available for FREE with purchase above.

    • 2002: A Golden Year? ...December 2001...
      In this article, we explore the cyclical rhythm of the gold and gold equity market, and what it portends for next year. Several stock-specific charts and fundamentals are examined...
      Available for FREE with purchase above.

    • Kasriel to Greenspan: Farewell Soon? ...November 2001...
      In this article, across 17 chart-filled pages, Northern Trust chief economist Paul Kasriel scathingly exposes many of the flaws of Alan Greenspan's Fed, and how Greenspan may actually have set the economy up for the 2000 Tech-Wreck...
      Available for FREE with purchase above.

    • The Cycle of War & The Agony of Debt...October 2001...
      In this article, across 12 chart-filled pages, we explore how relative geo-political calm can suddenly digress to a temper-filled period of war, as well as current fundamental pressures on the U.S. economy from excessive corporate and household debt burdens...
      Available for FREE with purchase above.

    • Perspectives on Where We Are, and Why ISDA Documentation Will Not Prevent Derivatives Accidents, September 2001...
      An update on prior views and prognostications, as well as a discussion of a new market sector now potentially coming to life on the long side. We also examine how easy it might be for a major bank such as JP Morgan to someday suffer a serious derivatives accident
      Available for FREE with purchase above.

    • Long_Term Equity, Gold, and K-Wave Cycle Thoughts, August 2001...
      A long-term look at our own cycle theories and how they may potentially interact with the famous Kondratieff cycle
      Available for FREE with purchase above.

    • The Importance of June 2nd, May, 2001...
      A cyclical look at the 8.6 month cycle at work in the current equity market, and one financial stock with a nasty looking "pattern match" to a historical chart pattern
      Available for FREE with purchase above.

    • Expert Short Picks, May, 2001...
      A discussion of the fundamental thoughts of short selling hedge fund manager James Chanos within a technical framework
      Available for FREE with purchase above.

    • Four Themes for 2001 & Beyond, April, 2001...
      A variety of issues we see growing in importance over the year 2001, with a particular emphasis on certain issues within the U.S. food chain.
      Available for FREE with purchase above.

    • Portfolio from Hell, January 20, 2001...
      a close critique of a major mutual fund manager and a technical look at the individual equity components of their go-go portfolio.
      Available for FREE with purchase above.

    • Positive for Now, January 4, 2001...
      If the DJIA were to vault to new highs, where would the imbedded Fibonacci rhythm of its price action lead?
      Available for FREE with purchase above.

    • Time to Start Accumulating the Golds? - Dec. 2000...
      We take a close look at four gold-related stocks that we favor.
      Available for FREE with purchase above.

    • Don't Look for a Bottom Until..., Nov. 2000...
      An update of some Fibonacci thoughts on eight selected stocks.
      Available for FREE with purchase above.

    • Diamonds in the Sky, Oct. 2000...
      A close technical look at the Dow Jones Industrial Average and the implications of the formation it has made.
      Available for FREE with purchase above.

    • The Signficance of Oct 27- Nov 1, Oct. 2000...
      This analysis did not pan out quite as we expected, but is a good example of how we examine the world in Fibonacci terms.
      Available for FREE with purchase above.

    • M&A Currency Imbalances, Oct. 2000...
      An interview with a well known fund manager and economic thinker, we explore some of the macro-imabalnces as they exist in the world today.
      Available for FREE with purchase above.

    • Failed Accounting Standards, Mmm Mmm Good, and Where (if at all) to Invest in Bandwidth, July 2000...
      A three-part article outlining some of the balance sheet fun and games of today's financial world, one old-world stock, as well as our vision of the potential fallout and opportunities in the bandwidth market
      Available for FREE with purchase above.

    • Cyclical Commodity Turns, May 2000...
      As we entered the summer-time harvest season, this was a cyclical look at the world of wheat, corn, gold, and the CRB. Much of the analysis proved premature, but it still leaves us with some long-term cyclical dates to now keep in mind.
      Available for FREE with purchase above.

    • E-Commerce: A Paired Approach, April 2000...
      This is a more fundamentally oriented article examing the likely winners and losers as e-commerce increasingly invades the transactional side of Wall Street.
      Available for FREE with purchase above.

  • Subscribe to Sandspring.com on a quarterly basis and receive all of the the above articles, and all that follow them (a minimum of 3 more per quarter), plus all Chart du Jours (some of which would otherwise be pay-per-view) for just $85. THIS INCLUDES OUR November 9th article -- "Iceberg Risk: A Rumbling Earth & The Mortgage Market Malaise." The article spends much time discussing Fannie Mae and the growing volatility of U.S. fixed income markets. Also highlighted are certain chart patterns that we deem particularly strong short-selling candidates at the current time.

If you order by credit card, your credit card will be billed as "Sand Spring Advisors LLC"

Should you have any ordering problems, please contact us at
973-829-1962 or by email at the address below:

information@Sandspring.com


Take me back to the Sand Spring Home Page


Comments or Problems


Thank you for visiting Sand Spring Advisors LLC, Inc. We hope to hear from you again soon. For more information on Sand Spring Advisors actual programs, services, or to request a copy of a Disclosure Document, please phone us at 973 829 1962, FAX your request to 973 829 1962, or e-mail us at
information@Sandspring.com

Corporate Office:
10 Jenks Road,
Morristown, NJ 07960
Phone: 973 829 1962
Facsimile: 973 829 1962

Best Experienced with
Microsoft Internet Explorer
Click here to start.

The material located on this website is also the copyrighted work of Sand Spring Advisors LLC. No party may copy, distribute or prepare derivative works based on this material in any manner without the expressed permission of Sand Spring Advisors LLC

This page and all contents are Copyright 2002 by Sand Spring Advisors, LLC, Morristown, NJ