I was talking earlier in the week with a colleague in the construction business in Orange County. He currently has work but tells me that “he has no pending projects lined up after this one is done.” There is a decorum that we have and I don’t go telling everyone about the housing decline or yelling at him, “get thee to another industry!” In fact, I rarely comment on the housing market to those unless they ask (that is, aside from the blog world of course). He’s a good guy and a very hard worker and I’m sure he will land on his feet. You’ll be amazed how many people at various Christmas parties last year were telling me about their personal journey to housing Mecca and how they made $100,000 in equity by simply adding a diamond studded doggy door. It’ll be an interesting Christmas party this year. Yet this guy isn’t your paper equity real estate mogul wannabe flaunter but a very hardworking individual with a family to take care of. Unfortunately he took on more debt than he knew what to do with and now is starring a reset straight in the face. How often has this story been told this year? As we talked, I’m pretty sure he has no idea what the mortgage backed security market has to do with slowing construction or how inflation is creeping into every corner of the economy and as he aptly stated, “this housing market sucks.” As he opened up a bit, he told me what kind of mortgage he had and was wondering what his options were. Sadly there isn’t many. With his current income he would squeeze by on the reset but as he and many now know, there will be a large contraction in many industries next year especially those tied to the hip to housing. As someone once told me, “what the hell do I care if it costs $1 million or $1 if I don’t have a damn cent!”

Black & Decker got hit today by a double whammy (BusinessWeek):

“Black & Decker isn’t expecting a very jolly holiday season this year. The manufacturer of power tools and other household accessories announced a product recall on Dec. 14 and also slashed its fourth-quarter profit forecast, citing worse than expected market conditions in North America.

The Towson (Md.) company said it will recall certain DeWALT XRP cordless drills produced during the past 18 months, which will result in a pretax charge of $25 million in the fourth quarter of this year. The charge includes estimated costs to repair products returned by customers, as well as the hit from sales returns from distribution channels, but doesn’t account for anything potential recouped from a component supplier. No injuries related to these products have been reported, it said.”

Obviously any recall is going to hurt your bottom line but we are now seeing staples of the housing and construction industry being severely impacted by the housing decline. This has been going on for the large part of the year. Take a look at year to date performance for a few players in the housing industry:

The trend for declining home retailers such as Home Depot and Lowes has been going on since the start of the year. Black & Decker, with a drop of 8.5 percent today wiped out an entire year’s gain in one trading day. What we are now noticing is the velocity of drops are occurring at a much quicker pace and I expect with the resets next year, stagnant inventory, and tighter credit that this will only accelerate. Yes, Black & Decker had a specific issue that drove their stock down at a faster pace but how much of this drop was due to the recall and how much was due to the revised slow down in housing? We are now into a debate between which came first, the chicken or the egg.

Since we are approaching the end of the year, we can get a clear idea of what has happened to other large players in the housing market:

It would be one thing if these companies were your fly by night mortgage operations but many of those are no longer trading since they have imploded. These companies are the most heavily involved in the housing credit game. Their one year stock performance is astounding considering the Dow Jones Industrial Average is up 7 percent for the year.

Now going back to my colleague in construction, during the boom times I remember all the new tools he would be adding to his truck. Whenever we saw each other, he would have a new gadget that fixed faux granite counter-tops or tools that would make installing jet powered tubs (a hot seller) more convenient. Now that the demand for remodeling is declining by the clear drop in mortgage equity withdrawals, larger projects are taking a back seat. Instead of expanding a regular bedroom into a master bedroom people are deciding to add a touch of decorations or repainting their room. This cuts into the bottom lines of Home Depot and also the companies of high end housing products. Projects are on a tighter budget. Taste change when your budget can’t afford caviar. Your psychology is also different when you are adding items to a home that increase its flipping potential; when it is your own home you typically won’t spend unless you have the disposable income to do it. It is becoming more apparent in everyday life how this credit bubble will impact a large portion of our society, especially in bubble areas like here in Southern California. As BusinessWeek put it, Black & Decker isn’t the only one getting drilled this year.

Did You Enjoy The Post? Subscribe to Dr. Housing Bubble’s Blog to get updated housing commentary, analysis, and information

Share This

Share This

Filed under: Television, Politics, Federal Reserve

Jim Cramer is the probably the most crazy and rational man on CNBC, and Ron Paul holds a similar position in politics.

Last night on CNBC’s Mad Money, the two spent seven minutes trashing the Federal Reserve. Regardless of whether you think they’re right, they’re certainly bringing up a topic that hasn’t gotten the attention it deserves.

Continue reading Ron Paul and Jim Cramer trash The Fed — together!

Read | Permalink | Email this | Comments

Share This

Filed under: Presidential elections, Videos, Federal Reserve

On December 5, I drew our readers’ attention to a YouTube video that features congressman and presidential candidate Ron Paul chewing out Federal Reserve Chairman Ben Bernanke during his testimony before Congress.

I was surprised by the amount of traffic it received and the passion that it inspired on the part of our readers — 21 of you saw fit to leave comments.

Now the USA Today is taking a look at the Ron Paul videos: “Video clips of Paul — who supports the gold standard and has sponsored a bill to abolish the Fed — ripping into Bernanke at congressional hearings are getting hundreds of thousands of hits on the video-sharing website YouTube.”

While the videos are not getting the views that polished campaign videos from top-tier candidates like Barack Obama, they’re getting a ton of hits for clips of a second-tier candidate arguing with the Chairman of the Federal Reserve.

Permalink | Email this | Comments

Share This

Filed under: Film

I just watched a terrific movie (based on a true story) about Dan Mahowny, a compulsive gambler who defrauded the bank he worked for to feed his habit. It’s a must-see for anyone who is a student of white collar crime — which is something all investors ought to be.

Philip Seymour Hoffman stars as a socially awkward, up-and-coming assistant manager at the Canadian Imperial Bank of Commerce. Having developed a serious gambling addiction that started when he was a pre-teen, he finds himself owing a few thousand dollars to a bookie, but he doesn’t have the money. So he opens up a phantom account with the bank for a fictitious person, and establishes a line of credit to pay off his gambling debt. He doesn’t get caught, so he begins to use that account and others to gamble. By the time he was caught, he had embezzled over $10 million from his employer in a span of just 18 months.

Continue reading Movie review: Owning Mahowny

Permalink | Email this | Comments

Share This

Filed under: Coca-Cola (KO), Rich in America, Entrepreneurs

In 2005, hip-hop star 50 Cent (née Curtis Jackson) appeared in a loosely autobiographical film, Get Rich or Die Tryin’. Two years prior, the Eminem protégé had released his debut album of the same name. The album was a critical and commercial success; the same can’t be said for the movie. Either way, while nine bullets legendarily attempted to fell Jackson in his youth, it’s safe to say 50 has achieved his goal of impressive wealth. In September, “Fiddy” appeared second on Forbes list of “Hip-Hop Cash Kings,” banking $32 million in 2006 alone.

In May 2007, Coca-Cola (NYSE: KO) purchased a little company called Glaceau, which makes Vitaminwater. The soft-drink giant’s $4.2 billion cash and stock purchase translated into a payout of $400 million for 50 Cent, who held a sizable stake in the brand (his estimated profit after taxes was around $100 million). Other 50 Cent projects include the G-Unit record label, a clothing line, a sneaker line through the Reebok brand, ring tones, and video games — to name only a few.

Continue reading Money Winners of 2007: 50 Cent parlays H2O into serious dough

Permalink | Email this | Comments

Share This

Filed under: Management, Marketing and advertising, Entrepreneurs

Several friends have asked me for my opinion of American Apparel (AMEX: APP), a clothier that recently became public through its acquisition by Endeavor Acquisition.

First a little bit of background: American Apparel was founded in 1997 by Dov Charney, and is known for its simple, high-quality clothing, and its unique practice of not plastering its logo on everything it sells. Browse through their merchandise on the company’s website. The company also avoids outsourcing, manufacturing its clothing in Los Angeles where it is headquartered.

In 2006, the company had revenue of just over $264 million, an increase of 37.7%. The increase was driven by the opening of 41 new stores, but the company still reported a loss just about $1.6 million as SG&A expenses climbed.

Sales are growing quickly and the company turned a profit in its most recent quarter. American Apparel certainly has the potential to turn into a very hot retail growth stock — it’s already up big over the past few months. But there are a couple things to worry about. First, saying that founder and CEO Dov Charney is uninhibited is like saying that Alan Greenspan can ramble a bit. In 2005, the New York Times did a story on Charney’s — er … unique management style. Here’s a quick sampling:

Continue reading Time to try on American Apparel? Perhaps, but watch out for the CEO

Permalink | Email this | Comments

Share This

Filed under: Marketing and advertising, Next big thing

With a $15 billion valuation for Facebook, it seems that social networking is destined for huge monetization opportunities. Yet, a variety of venture capitalists have expressed some skepticism lately. Basically, it’s not easy advertising to the social networking crowd (as seen with Facebook’s Beacon initiative).

This week, eMarketer published a study that forecasts that social networking advertising is expected to reach $4 billion by 2011 (on a global basis).

Keep in mind, though, that research firms don’t have clear-cut crystal balls. It’s not uncommon for them to get too aggressive on these estimates. Also, in the realm of the frothy Internet, the $4 billion figure does seem a bit muted — especially in light of some of the recent valuations.

Something else: eMarketer thinks that about half of all online adults will be on social networks by 2011. Really?

I can certainly understand that teens will remain avid. But, adults have other things to do besides social networking (such as making a living, taking care of kids, and so on). In other words, if eMarketer is counting on adults for social networking riches, it might want to think again.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates DealProfiles.com.

Permalink | Email this | Comments

Share This

Filed under: India, Entrepreneurs, Housing

Mukesh Ambani is the chairman, managing director, and largest shareholder of Reliance Industries, India’s largest private sector enterprise. With its wide-ranging operations, Reliance Industries has been called India’s General Electric (NYSE: GE), and Ambani’s personal stake in Reliance Industries is around 48 percent.

Ambani’s net worth of US $20.1 billion early in the year made him the world’s 14th richest person and the second richest person in India after steel tycoon Lakshmi Mittal. However, by October, Ambani’s net worth had more than doubled, making him the richest Indian, and number four in the world, just behind Warren Buffett. In fact, a strong, temporary share price rally for Reliance at the end of October brought Ambani’s net worth to $63.2 billion, making him briefly the richest man in the world.

But that isn’t the only highlight for Ambani in 2007. Construction also began on his home, which is expected to cost US $1 billion, and be one of the tallest structures in Mumbai (formerly Bombay), the equivalent of a 60-story building. The glass tower will include a plush movie theater, a health club with a pool, gardens and terraces, and parking for 168 automobiles, as well as an in-house garage to service them. Living space for the family near the top will have a view of the Arabian Sea, and the roof will have three helipads. It will take a domestic staff of 600 to run the place, which was designed by an architecture firm from Chicago to be reminiscent of the Hanging Gardens of Babylon, one of the Seven Wonders of the Ancient World.

Yes, it’s been a very good year for Mukesh Ambani, and also for his wife, to whom he gave an Airbus 319 as a birthday gift.

Be sure to check out more Money Winners of 2007.

Continue reading Money Winners of 2007: Mukesh Ambani — home sweet home

Permalink | Email this | Comments

Share This

Filed under: Scandals, Stocks to Sell

Garbage stocks come in many different flavors. One of my favorite kinds is the stock that sports a super dividend yield that isn’t backed by earnings and is therefore unsustainable. Add to that a business model and valuation that is completely unattractive without the yield, and you have a stock that is definitely one to skip — think Novastar Financial (NYSE: NFI) a year ago.

Star Buffet (NASDAQ: STRZ) filed its 10-Q on Friday and falls squarely into that category. Star Buffet owns and operates buffet-style restaurants, including some with which it acts as a franchisee under several different brands. For the quarter ended November 5, Star Buffet had revenue of just over $15 million, and a net loss of a little over $1 million after adjusting for an income tax benefit. On a pre-tax basis, the company’s loss more than tripled.

But there’s one thing about the stock that some investors may find attractive: the dividend yield of 10.5%. Given the company’s market cap of $18.1 million, that works out to about $1.9 million per year being paid out as dividends.

Continue reading Star Buffet: A high-yielding stock to avoid

Permalink | Email this | Comments

Share This

Filed under: Columns, Business of sports

Yesterday, I praised Adam Piatt for his admission of steroid use and efforts to assist former Senator George Mitchell in his efforts to investigate performance enhancing drug use in professional baseball. I wrote that “Hopefully the media will treat him well in light of his revelations as a sign to people in all industries that, no matter how badly you screw up, there is redemption to be found if you do what you can to fix it.”

Now, free agent catcher Gary Bennett, who played for the St. Louis Cardinals in 2007, admitted in a phone interview with the Washington Post that he used human growth hormone: “As far as the report is concerned to me, it’s accurate… Obviously, it was a stupid decision. It was a mistake. It was something that quite obviously, you regret now. And beyond that, I just don’t know.”

I would congratulate Bennett for his honesty — more than a few players are insisting on their complete innocence in spite of strong evidence to the contrary. How are the fans reacting? This is just a small sample, but most of the comments left on the Washington Post blog post were very positive:

Permalink | Email this | Comments

Share This