Archive for February 22nd, 2008
I prefer to take economic data and information like I take my sushi, raw with wasabi. In October, we reported the monumental tipping point of going over 10,000 short sales in Southern California. Those days now seem like a distant reality since as of today, there are 16,646 short sales in the Southern California housing market. There are a few graphs that we will be looking at in greater detail since these show the battle occurring in the housing trenches. Short sales are an important bellwether of the health in housing and until there is a slow-down in this area, we can put to rest any notion that we are approaching any bottom. Also, there is this sudden notion that somehow we have been in the housing “slump” for ages and need to do every sort of bailout to keep housing prices sky high. Forget that housing has been on a tear for 10 years. It is as if there was no massive bubble and that only talking about the problem is somehow going to make it worse. In a way, it may shift the market psychology but you can’t make income appear out of thin air like David Copperfield. There lies the caveat. All this talk from politicians fails to address the fact that our economy was founded on conspicuous consumption and housing being in a bubble. Not something that bodes well for income when the punch is taken away.
*Click for closer look at bailout success
The first graph shows inventory and short sales. As you can see, we are now out of the seasonal winter drop and inventory has been steadily increasing. Typically the boom in inventory numbers hits in spring and summer. Currently in Southern California we have 149,946 homes on the market. The chart above excludes San Diego inventory numbers since I do not have data beyond September but the short sale number does include San Diego numbers. According to DataQuick 9,983 homes sold in January. So let us do a bit of back of the napkin math:
Total SoCal Inventory (149,946) / Total Current SoCal Monthly Sales (9,983) = 15 Months
That’s right folks, we have over a year of inventory at the current sales rate and take a look at the short sale inventory. This thing is increasing at an exponential speed. There have been many studies discussing balanced sales figures but suffice it to say that 6 months of inventory is typically a balanced market for housing. We are nowhere close to that. Now let us take a look at another chart:
*click to see the steps of decline
This chart shows that from the peak of $550,000, Los Angeles County is now off its median peak by nearly $100,000. The importance of this chart is that it is an excellent predictor of where things will be heading. As you can see, inventory is increasing. Until inventory starts decreasing or sales start going through the roof, prices will not be going up. Aside from the credit crunch can it be that inventory is growing also because of reluctant sellers not realizing the reality of the current market? Are they swimming in a Freudian dream of housing delusion? Do they not realize that California is in a $16 billion short fall and we are now using cockamamie ideas of balancing the budget such as closing schools (good for our future), firing teachers (higher unemployment), and letting out inmates (more home buyers!). The list of Real Homes of Genius only keeps expanding and the tide is now receding and we are going to be in housing purgatory for a very long time.
The stories only get weirder and more complex as in any bubble. Greed makes people do absurd things. I recall reading a story about a farmer selling his entire livestock for a handful of tulip bulbs during that historical bubble only to realize that the one cow he kept snuck into his home at night and ate the entire tulip stock. In this insane market we have to come to terms not only with high housing prices and defunct mortgage products, but we also have to admit that a majority of the population became speculators with the single biggest asset class in America whether they acknowledge it or not. This is a problem. First it was only a subprime thing. Then it was a subprime and credit market thing. Now it is a national emergency and every homeowner needs to be bailed out with Hope Now, Project Lifeline, Free Money Express, Wal-Mart Vouchers, 7-11 Ice Cream Relief, Mortgage Moratoriums, and every other Orwellian type of concoction you can think of. I won’t be surprised if some of these things fly since Americans are so addicted to credit they will fight tooth and nail once they realize they are maxed out.
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Related Posts:
■The Short Sale Report: Volume 1 – The True Barometer of the Housing Market
■Riding in the Short Bus of Housing: Southern California Short Sale Numbers. 1 in 10 Homes is a Distress Sale.
■The Short Sale Report: Volume 2 – Record 10,000+ Short Sales in Southern California.
■Short Sale Report Volume 3: Another Week and Another Record. SoCal Short Sales up over 12,000.
■Real Homes of Genius: Today we Salute La Mirada. Housing has Entered Stage 2 of the Bear Market. Middle Class Areas $100,000 off in one year.
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Filed under: Alcoa Inc (AA), Barrick Gold (ABX), BHP Billiton Ltd ADR (BHP), Rio Tinto plc ADS (RTP), Freep’t McMoRan Copper (FCX)
Rio Tinto’s above-consensus sale price for its gold mine to Barrick Gold almost certainly increases Rio’s negotiating stance vis-a-vis takeover bids from BHP Billiton or from other potential suitors, an analyst told BloggingStocks Friday.
“Rio’s sale of its gold mine to Barrick for $1.7 billion when the market was expecting something like $570-$700 million is a fundamental data point the market cannot ignore,” independent stock analyst C. Leonard Bauer said Friday. “It will force BHP Billiton and others receptive to a deal to redo their fair-value projections for Rio.”
Rio (NYSE: RTP) has twice rejected hostile buyout offers from BHP Billiton (NYSE: BHP), the last for $147.4 billion, involving at least 3.4 BHP shares for each Rio share, arguing that the bids substantially undervalue Rio. Rio gained 64 cents to $452.89 while BHP gained $1.01 to $72.89 in Friday afternoon trading.
At first glance, the idea of bidding wars for targets appears to be a paradox in the current economic environment. After all, the U.S. economy is barely inching along, and the credit markets can be described, at best, as being cautious regarding potential deals. But the mining sector is another story, Bauer said. Strong economic growth in emerging markets has created surging demand for raw materials, minerals, and commodities. Further, the sector is in the midst of mergers and expansions that will produce miners with global market capabilities.
Iron ore war?
The above demand, particularly from Asia, Bauer said, has offset recent, modest quarterly earnings performance from some miners, and has driven up the value of miners like Rio and Freeport McMoRan (NYSE: FC).
In addition, China’s size and its economic development plan has further increased miners’ value. China, which with Alcoa (NYSE: AA) earlier this year jointly purchased a 9% stake in Rio Tinto through its Chinalco aluminum company, has said it will continue to seek acquisitions of foreign companies, including mining companies, Bauer said. Bauer added that he does not have a rating on any mining company nor own their shares.
“China may ultimately try to outbid BHP because a BHP / Rio union would unite two of the three largest suppliers of iron ore, which China needs for its economy,” Bauer said. “A BHP / Rio union would likely leave China in a weaker negotiating position regarding iron ore prices. So you can see why Rio feels BHP’s offers so far have not valued the company fairly. Rio knows that as long as China grows, it has a commodity likely to increase in value substantially for years to come. And that’s a good place to be in, from a corporate standpoint.”
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Filed under: Home Depot (HD), Berkshire Hathaway (BRK.A), Tiffany and Co (TIF), Wells Fargo (WFC), Bargain stocks, Serious Money
 I’m sure the downtrodden stock market has brought sadness to many people. As someone looking long term I am trying to put the current market into perspective. ‘My pal Warren’ always says that truly astute investors should actually be happy when the market is down because they are able to buy things on sale. I agree, so what to buy?
Three of stocks I have been following fall into very different arenas. One is being severely affected by the housing market and familiar to the average consumer. The second might be a familiar name but not a daily haunt by the average consumer. The third falls into the middle ground and is a solid company and favored by Warren Buffett who owns shares through Berkshire Hathaway (NYSE: BRK.A).
It’s been a while since I wrote about The Home Depot, Inc. (NYSE: HD). My optimism last year about the company proved misguided as the stock tread water most of the year and then took a dive as earnings reports deteriorated. When I originally commented on HD 14 months ago it was trading at $39.73, finishing the year at $26.27 for a loss of 33.88%. It started with a 2.31% yield .
Continue reading Serious Money: Pondering: Home Depot, Tiffany & Wells Fargo
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Filed under: Private equity, NIKE, Inc’B’ (NKE)
 Venerable hockey brand Bauer is back in the hands of an ice hockey enthusiast. On Thursday, Nike (NYSE:NKE) sold the brand to private equity investor W. Graeme Roustan, a private equity investor who grew up in Montreal and now lives in Florida. Also involved in the purchase was investment firm Kohlberg & Co. of Mount Kisco, NY.
Nike paid $395 million for Bauer in 1994, betting that inline hockey would grow the brand. That bad bet, and other design mistakes, led Nike to put the company up for sale last fall. Roustan, a self-described “blade guy” paid a reported $200 million.
Over the next two years, the Nike swoosh will be phased out as the brand returns to the focus of ice hockey.
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Filed under: Google (GOOG), Microsoft (MSFT), Time Warner (TWX)
It appears that we are just about a week away from the changing of the guard on the old Browser Wars. If you look on the netscape.aol.com site, you’ll see that the old Netscape Browser support will officially end on March 1, 2008. Even the Netscape Blog advises a switch.
Time Warner Inc. (NYSE: TWX) has been making many changes at AOL and its properties over the last two years. In fact, Netscape, AOL, Advertising.com, AIM, and just about everything else has changed. Unfortunately, some change also means the death of certain parts, and that part appears to be Netscape.
If you will remember back to the 1990’s, this was its own public company with the “NSCP” ticker that had roughly a 90% market share. People even paid for AOL-acquired Netscape when its market share was steadily declining, and Microsoft Corp. (NASDAQ:MSFT) ended up paying out roughly $750 million in an antitrust settlement over search and bundling. Netscape is still loaded up on many PC’s both on its own and via one of those old AOL access dial-up bundle offerings that used to be included with PC’s. Now almost no one uses it. I used to use it exclusively, but those days are long gone. What a difference a decade makes.
Even Linux seller Red Hat (NYSE: RHT) paid money at one point for some of Netscape’s security software.
Frankly, Mozilla’s Firefox has taken the place of Netscape in today’s world and it is now almost an equally-yoked rival to Microsoft’s (NASDAQ: MSFT) Internet Explorer that has been downloaded onto millions of computers. The business of owning a Web Browser is really nothing more than a project. Sure, there are others like Opera, but most web sites only want to support Explorer and Firefox now. Such is life in a world where free is becoming more and more of an expectation.
Even if it is merely for old times sake, “Farewell, old forgotten friend.”
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Filed under: Earnings reports
 Monday, February 25
- Retailers Lowe’s (NYSE:LOW) and Nordstrom (NYSE:JWN) to report Q4 earnings. Lowe’s will hold its conference call at 9:00am, Nordstrom will hold its conference call at 4:30pm.
Tuesday, February 26
- Office Depot (NYSE:ODP) to report Q4 earnings; conference call at 9:00am.
- FCC to hold Open Commission Meeting at 9:30am.
- Macy’s to report Q4 earnings; conference call at 11:00am.
Wednesday, February 27
- FDA to hold Anti-Infective Drugs Advisory Committee Meeting at 8:00am.
- BP plc (NYSE:BP) to hold business update at 9:00am.
- Toll Brothers (NYSE:TOL) to report Q1 earnings; conference call at 2:00pm.
Thursday, February 28
Friday, February 29
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Filed under: Newspapers, New York Times’A’ (NYT), Politics, Presidential elections
 Ever since the New York Times broke the story about John McCain’s close relationship with lobbyist Vicki Iseman, howls of outrage have been heard from one end of the right wing media world to the other. Outstanding Americans including Rush Limbaugh have accused the gray lady of publishing a partisan hatchet job on the Arizona senator who until this moment had been their public enemy no. 2 behind the mainstream media.
The story that McCain’s aides tried to protect him because they were worried that their boss was having an extramarital affair with lobbyist Vicki Iseman struck a nerve. My colleague Aaron Katsman called it a “hit job”, and investors who have long ago soured on newspaper stocks sent shares of the New York Times Co. (NYSE: NYT) downward. Meanwhile, a potential proxy fight looms with dissident shareholder Harbinger Capital.
But lost in the hoopla is the fact that the central theme of the story that aides were worried about McCain’s relationship with Iseman during the 2000 campaign has been proven. In fact, other news organizations, including the Washington Post , were able to match the story. In fact, the Post is reporting today that McCain has some cozy relationship with other lobbyists even though he bad-mouths the profession all of the time. Both McCain and Iseman deny they had an affair or that she received any preferential treatment from the senator. Nonetheless, some former McCain aides were clearly worried about the lobbyist.
Continue reading Media World: New York Times may have done John McCain a favor
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Filed under: Apple Inc (AAPL), Adobe Systems (ADBE), Options
Apple(NASDAQ:AAPL) is recently trading down $3.22 to $118.33. AAPL call option volume of 60,675 contracts compares to put volume of 35,477 contracts. AAPL March option implied volatility of 43 is below its 26-week average of 47 according to Track Data, suggesting decreasing price movement.
Life Time Fitness(NYSE:LTM) is recently down $8.14 to $32.43. LTM announced inline Q4 EPS of 48c. LTM sees FY08 EPS of $2.05-$2.08 vs. consensus of $2.19. LTM operates 71 fitness centers in 16 states. LTM May option implied volatility of 64 is above its 26-week average of 43 according to Track Data, suggesting larger price movement.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
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Filed under: Earnings reports, Analyst upgrades and downgrades, Technical Analysis, Stocks to Buy
Forward Air Corporation (NASDAQ: FWRD) provides time-definite surface transportation and related logistics services to the North American deferred air freight market. The firm typically receives freight that has been transported by plane, sends it to a sorting facility, then dispatches it by truck to a terminal near its destination. Forward Air operates through a network of 85 terminals near major airports in the United States and Canada, contracting to cargo airlines and air freight forwarders.
The company surprised the Street last week, when it reported Q4 EPS of 43 cents and revenues of $114.5 million. Analysts had been looking for 38 cents and $104.8 million. Management also guided Q1 EPS to 32-36 cents (33 cent consensus). William Blair subsequently upgraded the issue to “outperform”.
Continue reading Forward Air Corporation (FWRD): Shares forming bullish ‘flag’
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Filed under: Newsletters, Boeing Co (BA), Commodities, Oil, Stocks to Buy, Green Stocks
“Despite the recent economic slowdown, Hexcel (NYSE: HXL) is seeing its market for carbon-fiber-based aerospace products and parts boom,” says energy sector expert Elliott Gue.
The contributing editor to Personal Finance explains, “And in addition to growing aerospace demand, the firm has growing markets in wind power and nuclear power.” Here is his review.
“Hexcel makes lightweight carbon-fiber parts used on modern aircraft designs. New aircraft designs such as the 787 incorporate far higher carbon-fiber content than older planes, so Hexcel is becoming an increasingly important supplier.
“The aerospace demand cycle isn’t directly tied to demand for air travel. Airlines and aircraft leasing firms typically plan their purchases of new planes many years in advance; the aerospace cycle is highly visible and longer-term in nature.
“Currently, demand for modern fuel-efficient aircraft such as the 787 Dreamliner from Boeing (NYSE: BA) is booming. Hexcel recently reported fourth quarter results and offered management’s outlook for the year ahead. Just over 50% of the company’s total sales come from the commercial aerospace market.
“The market is booming: Sales surged more than 21% compared to the fourth quarter of 2006 in constant dollar terms. Hexcel sells to both Airbus and Boeing which have a combined acklog of nearly 7,000 planes that have been ordered but not yet delivered.
Continue reading Carbon fiber fuels Hexcel (HXL)
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