People Are Looking, But They’re Not Buying
Some housing bubble news from Wall Street and Washington. “Homebuilder Meritage Homes Corp. said Wednesday it expects to fall short of its previous 2007 guidance as a result of weaker-than-expected April and May home sales. According to preliminary figures, net sales for the first two months of the second quarter were about 21 percent lower than the same period last year, Meritage said.”
“In addition, cancellations increased to 36 percent of gross orders from 27 percent in the first quarter, the company said.”
The Street.com. “‘We were encouraged by sales and cancellation rates that improved each month of the first quarter, leading us to anticipate relatively stronger second quarter sales results,’ said Steven J. Hilton, CEO of Meritage. ‘But these positive trends ended at the beginning of April, as demand slowed and cancellations rose. The weaker conditions we noted in April when we reported our first quarter results, continued through May.’”
From Reuters. “‘Weaker demand has predictably led to further price competition and margin deterioration, which we believe will prevent us from achieving the guidance we provided on April 25. It also increases the risk for larger associated write-offs of options and impairment charges, which could significantly impact our near-term profitability,’ Hilton said in a statement.”
From Bloomberg. “A 14-year high in the number of homes for sale in April is sapping consumer confidence in the housing market during a time of year that traditionally is the strongest for real estate, said Lawrence Yun, an economist for the National Association of Realtors.”
“A ’sluggish’ spring selling season will help to shave more than a percentage point off U.S. economic growth in 2007, he said.”
“‘People are looking, but they’re not buying,’ Yun said in an interview. Real estate agents report ‘an increase in traffic at open houses, but people are taking their time because inventory is so plentiful.’”
“Sales of new houses probably will drop 18 percent this year, matching last year’s decline, the association said in the forecast. Builders probably will sell 860,000 houses, down from 1.05 million last year. In 2005, a record 1.28 million new houses were sold.”
“The troubles of the U.S. high-risk mortgage markets seem to be contained but it is too soon to say they are over, Federal Reserve Governor Kevin Warsh said on Tuesday.”
“He was cautious on calling the end of the downturn in the U.S. housing market. ‘It would be premature for us to call that chapter complete,’ Warsh said.”
“Mortgage brokers and lenders may be headed for a standoff. The housing slump, now in its second year, is testing alliances between the two, who have become more mutually dependent as the competition for borrowers has intensified.”
“Lenders have been telling brokers to make good on contracts that previously had been ignored, or are refusing to soften contract language that had allowed brokers to wash their hands of responsibility after a loan is closed, brokers said.”
“‘I’ve seen cyclical swings before but I haven’t seen them (lenders) going after the brokers,’ said Eric Weinstein, CEO of one of Carteret Mortgage Corp., the nation’s largest privately held brokers. ‘Lenders make the decisions, I’m just selling what they have out there.’”
“Carteret is rejecting one in every two contracts today, compared with one in 20 a year ago, he said.”
“Lender-broker contracts ‘weren’t particularly strict, nor enforced,’ said Scott Everett, president of Supreme Lending, a mortgage broker in Dallas, Texas. But now he digs out those contracts frequently to fend off lender assertions of liability.”
“‘Two years ago, I never even had (a loan buyback demand) and now I get them every week,’ said Everett, a mortgage broker since 1993.”
“With the incidence of buybacks from investors on the rise, lenders are becoming more litigious, said Douglas L. Davies, a Seattle-based lawyer who represents lenders and brokers. He warned of ‘gridlock’ in the mortgage market.”
“‘As the players become embroiled in litigation, they stop doing business with one another and instead spend scarce resources trying to hash out the issues in court,’ he wrote in a trade publication.”
“The Financial Accounting Standards Board (FASB) is planning to talk with banks directly about frustrations its FAS 140 rule may be causing as they try to fix the subprime mess, a Board member said on Wednesday.”
“‘Our staff has been getting many, many questions about workouts,’ FASB member Leslie Seidman said.”
“‘What has become clear to me is that…if there hasn’t been a free and clear sale, they are unwinding the accounting and putting assets and liabilities back on the books,’ Seidman said. ‘I’ve come to the conclusion that…we’re going in the wrong direction, trying to maintain a standard that’s taking assets off the books when investors view it as economically still associated with the seller.’”
The Associated Press. “Italian lawmakers on Wednesday criticized major U.S. credit rating agencies, saying they ill-served international financiers by failing to properly evaluate the risks of investments tied to residential mortgages.”
“The U.S. ratings market is dominated by three companies: Moody’s Corp., Fitch Ratings and Standard & Poor’s, a division of McGraw-Hill Cos.”
“The letter said those agencies failed to accurately assess the risks of bonds backed by subprime mortgage loans. About 13.3 percent of subprime loans were delinquent in the fourth quarter of 2006, according to S&P.”
“‘The established agencies…face little competitive pressure to improve the quality of their ratings,’ the Italians wrote. ‘Many of the leading credit rating agencies are marred by conflicts.’”
“Subprime is not sublime for the prices of U.S. government-backed mortgage bonds.”
“The deterioration of the subprime mortgage market should increase the supply of Ginnie Mae mortgage-backed securities as more consumers turn to government lending programs for their housing needs.”
“‘One of the factors pressuring Ginnie Mae spreads recently has been expectations supply will be increasing as some subprime borrowers find their way into Ginnie Mae securities,’ said Scott Kirby, (who) oversees roughly $25 billion in an array of different mortgage-type securities.”
“‘If that happens, the additional supply will need to be absorbed by the market, and so prices are currently under pressure in anticipation of further supply increases,’ he said.”
“Michael Frenz, chief operating officer at Ginnie Mae, acknowledges the added volume should put price pressure on the bonds.”
“But not everyone is expecting issuance to rise. ‘I don’t expect a lot more Ginnie Mae supply, because the Ginnie Mae borrower and the subprime borrower are not necessarily synonymous,’ said Walter Schmidt, senior VP of mortgage strategy and research at FTN Financial Capital Markets.”
“The benchmark 10-year U.S. Treasury note’s yield surpassed 5 percent for the first time since August after New Zealand unexpectedly raised interest rates, igniting concern other central banks will respond to faster global growth.”
“Interest-rate futures and options showed traders who as recently as December were betting on three quarter-percentage point rate cuts by the Federal Reserve this year boosted bets on an increase in borrowing costs.”
“Yields are rising, led by long-maturity debt, in part because foreign appetite for Treasuries is abating, traders say.”
“‘The great conundrum that Chairman Greenspan spoke about many years ago, driven by global reserves recycling into U.S. Treasuries, is unwinding, leading to higher long yields and steeper curves,’ said Brian Varga, head of U.S. Treasury trading at Countrywide Securities Corp. ‘Yields are competing for capital with equities and other riskier asset classes.’”
“‘Investors took fright at the New Zealand move,’ said Stuart Thomson, who manages 23 billion pounds ($45.6 billion) in bonds at Resolution Investment Management Ltd. ‘Global growth is too strong; yields have to rise. The trend is bearish.’”
‘Both the framing-lumber and panel markets have excess supply, which assures a buyers’ market. As well, there is considerable standby supply, able to start up quickly should prices strengthen. The surge in new capacity was in response to severe inventory and soaring prices late in 2004 and early in 2005. Prices averaged 50% higher than current prices and reach 75% higher for short periods.’
‘Prices in 2008 are likely to average near or even slightly below the 2007 average. There is little risk for several years that buyers will face supply conditions as tight as they were in late 2004 and early 2005.’
So when I hear people tell me material costs as one of the reasons why home prices are justified my BS meter should go off, correct?
Your B.S. meter should have exploded by now with all the crap we’ve been fed the past few years.
tap, tap…now that you mention it the needle has been on “0″ for sometime.
they’re not growing anymore trees
BTW you guys finally talked the markets down
you and the media
Riiiiiiight, it was blogs and the media, not massive mortgage fraud rising interest rate, declining affordability, the widespread use of exotic/toxic/suicide mortgages, appraisal fraud, general greed, and basic market economics.
It was some small group of bloggers and ‘the media’ who caught onto the story 2 years after the correction began.
I think he was being facecious.
LOL at the “not growing anymore trees” comment BTW.
yeah that was pretty fun … I apologize if I missed the snark
“BTW you guys finally talked the markets down”
I guess Wall Street pays pretty close attention to the tinfoil hat crowd, then?
Impossible: markets are rational, Milton Friedspan told me so.
Lumber, yes.
Steel, concrete, copper, oil based goods (PVC, asphalt…), etc. No. There are not shortages of these items, but there is far from a glut of supply that should depress prices.
Also, while labor is in more abundant supply, but the subs aren’t hungry enough yet to really sharpen their pencils. After a feast for the ages, how long has to pass before you get REALLY hungry? Longer than usual.
Home prices are only justified if buyers buy the houses at those prices. The only honest answer for the question “why is the price on your house so high?” is “because I think I can find someone to buy it for that price.”
Everything else is irrelevant.
Rental Watch Good take, owners of the folllowing homes said the same thing ,we can wait to find a willing buyer> example, have three homes near me all “were” 1 to 1.3 million all took about 9 months to 1.2 years but as of i month ago all sold. The avg closing price saw a reduction avg of 5% to 8 %, all these people waited to find somebody who had a million + to spend on a home it took longer but they are all gone now?
The people in the market right now are primarily trading equity from home to home, and given the more difficult lending environment, the pace has slowed dramatically since any one sale and price is dependent on another sale and price, etc.
Unless there is significant activity for people buying second homes, the continued development of homes with sales at lower prices and lack of appreciation for the new buyers, the move up market is going to be continue to die over the next couple of years.
“Steel, concrete, copper, oil based goods (PVC, asphalt…), etc. No. ”
YOu are spot on there, still plenty of demand for road building, state government projects, commercial construction, etc…
“Also, while labor is in more abundant supply, but the subs aren’t hungry enough yet to really sharpen their pencils.”
I’m very curious to see how this all plays out. When the subs were making money had over fist, did they set aside for a rainy day or spend like there was no tomorrow? How long will it take for subs to capitulate?
“A ’sluggish’ spring selling season will help to shave more than a percentage point off U.S. economic growth in 2007, he said.”
Goldilocks may be bald by Q4
Yes! The Baldilocks Economy.
Globalization. The Worst. Idea. Ever.
Is it an idea or an inevitability?
An idea. A REALLY, REALLY bad one, if you look at its effects. NOT an inveitability, the seeds of its own destruction are contained therein.
It’s stupid, because right now various groups and entities (financial organizations, countries, religious sects, cultural groups) have their boxers in a bunch trying to jockey for position to see who is going to “rule the world”. Posturing like a bunch of gorillas or orangutans slapping the ground, beating their chests, drooling and swaying back and forth.
Right now, looks like the big plum is the US. LMAO! Fooled ya all! Nothing here but a bunch of lazy consumers, just like they said. No oil, no water, very little arable land, no mineral resources. Just a bunch of crappy structures as far as the eye can see.
Well, I don’t argue against the imperial notions we have.
I guess where I was going with it is, if I’m a corporation and I can hire someone for 1/5th the cost and get close to the same result wouldn’t I do that? The reality might be different from that but I’m concerned about where the living standards in this country are headed based on what I’m witnessing in the manufacturing industry.
“where the living standards in this country are headed based on what I’m witnessing in the manufacturing industry.”
Yep, everybody wading in each other’s waste, like in China, India, Brazil, you name it. If that’s what globalization is, how is that a reasonable model for life?
Well. My brother was sent from Houston to a hugely popular manufacturing/outsourcing country in the pacific rim, and he was assigned 10 people that he needed to train. On paper they all looked great. All had college degrees, and some had advanced degrees. The reality was quite different. They had no clue. None, Nothing, Nada…. It seems that in order to work in the US, you need to be highly competitive, not only with your peers but with the whole world. To work in these 3rd world countries, you only need good connections, and most resumes, including college are highly embelished (not that it does not happen here, but at least here once you get into a company, they expect you to know your stuff….If not sayonara.).
Some US corporations are finding out the hard way that the pool of qualified candidates over seas, is just not as deep, and as usual the first ones there got the best fish, but recent arrivals, and others that are willing to go there are finding it increasingly difficult to achieve the results of the first ones to the point that they are looking back in the us, and bringing back a lot of functions that were once unthought of coming back.
Also, I am P*ssed off at the quality of everything that I get now. I feel like I am getting the cast off institutional chinese dregs when I go to places like Gap, or Banana. Clothes are cheaply made and last one or two washes before being relegated to being used to clean my car… Same with Dockers. what is up with that?
(frowning head, while looking down….)
Marketplace, on NPR, had a story on the Largest outsource company in India, TaTa. The demand for skilled engineers and IT cannot be met in India and faced with rising wages TaTa is outsourcing it’s outsourced work to Mexico.
At least the jobs are coming back to North America if not the US.
@ pinch-a-penny:
I’m also hearing these stories as well. Former colleague in CA works in automation and for the products he competes with overseas the engineers aren’t that creative. All theory, not much practical knowledge.
I also keep hearing about software development projects coming back due to the hand holding that managers in the US have to do. Lots of hidden costs not taken into account up front.
pinch-a-penny:
I work at a relatively small engineering firm in Ca, and we have had exactly the same experience. That’s not to say all foreign talent is useless, but the phenomenon of which you post is certainly real in my experience.
Sleeples: funny that you say that. I have never been involved much in software engineering, but one of my former companies was a telecom equipment provider, and had most of their “bugware” written in India. By Tata in fact, as they were the “best and brightest” They even had me analize a T1 to India (hideously Expensive, and extremely unrealiable). at the end the product that came back needed significant rework, and an engineer that was an expert was hired to fix it. needles to say, he spent 3 months “fixing” what TAta had done in 1 month… Cost 4 times as much, and instead of starting from scratch, the manager tried to salvage the Indian programming (he was from there) at all costs…. It was a bad product, that eventually doomed many an employee to the dustbin, as money ran out due to having to develop yet another fresh product to replace this…..
All in all bad choices, and even worse “ego” decisions.
I can relate to these posts. I have had trouble managing folks who were born and educated in India and now work in the US. If the requirements are not exactly what you want to the letter, they throw their hands up and can do nothing. Also, no capacity for creative thought. You have to tell them the what and the how, while with US-educated programmers you tell them what you want and they go off and figure out how to get it done. Hand-holding is really annoying.
A relative used to work for Disney’s IT department and they outsourced one of the big project to India and in the end the project was over budget and didn’t deliver all the functionalities. My relative said many of functions could be done in the U.S. and wouldn’t cost more. The project manager was canned.
My take on this is that American managers haven’t had to do much traditional management in decades. Not to say they haven’t been busy, but it’s mostly been program management work making sure the workers got what they needed to get the product ready to produce. The workers that actually need “managed” in their daily activities usually don’t survive the next layoff in high tech.
So yeah, we’ve gotten pretty efficient in brain-powered industries because the workers were generally self-managed. This means that if the dollar tanks to the point that we can actually make money manufacturing stuff again using J6P who doesn’t self-manage well to do the work, the only people with experience in real, old-fashioned, motivational/supervisory/hardass work will be from the military and low-end service industries.
Due to the falling dollar, mfg is one of the few areas I actually have a bit of cautious optimism. If we don’t starve first…
I have to agree with most of the posters here.I am Indian and I have degrees from both India and the US.I have a number of old friends and acquintances who work on offshoring/outsourcing projects.Mostly the quality of coders is quite overrated.
I know tons of extremely driven and talented people in India who work for companies like google and MS but sadly a majority in outsourcing companies like Tata are mechanical code robots.
In the end,it made a lot of sense 10 years back but with rising wages back in India and a lack of allround training(business,communication,cultural),it doesnt make sense to outsource.I think tons of IT managers are under pressure to outsource due to peer pressure and pressure from stockholders.
I agree. It was by no means pre-destined to happen. Globalization was/is pushed by the free-trade fundamentalists in both political parties. Back when Clinton was President (supposedly working for the middle-class), federal agencies were giving companies all the incentive they could to help them relocate to cheaper labor markets.
I read in several analyses that there was an explicit trade-off, that said, in effect, “we’ll give you our industrial/manufacturing jobs, if you’ll open your financial markets to us” (meaning to Wall Street, I assume).
Not to be too tinfoil hat about it, but I always wondered why/how H. Clinton became a resident/senator of NY.
I find myself in the position of hoping that Peak Oil hits sooner rather than later, mainly because it will put an end to this globalization crap!
Peak Oil will bring an end to globalization…..life will get VERY LOCAL then….because you are going to be unable to transport them 5 cent a hour goods from Crapostan to Walmart’s Warehouse On Wheels….hehehe..
Hillary became senator because Rudy got Cancer……..
it would have been a very close race, but i think she would have lost by less then 1% at the very most 2%
Peak oil has hit.
it will put an end to this globalization crap!
never gonna happen my friend.
It won’t stop the wheels of commerce, but the salad days of buying, say, a cloth and metal collapsible fold up chair, with cloth drawstring bag… for $6.99
Might be strictly numbered~
I’m back!
I have to agree, the last time “globalization” was undone was smoot-Hawley tariff act. Trade is a job multiplier. Undoing trade destroys jobs very quickly. Building domestic industries to replace imported goods… bad.
As to Indian software quality, I have to agree. However, some of the “right” companies do very good jobs. Love it or hate it, its here to stay.
Got popcorn?
Neil
Alan Blinder, who under Clinton was the globalization guru…pushing offsourcing as a great good for all, has now begun to revamp his opinions. Too late, so much damage has been done to this country.
” Love it or hate it, its here to stay.”
Nope. Massive failure. I’m buying local more and more and know many others doing the same. Accepting globalization is like accepting hemorrhoids.
Got Preparation H?
Welcome back, Neil. Hope you had a great wedding and honeymoon!
” Love it or hate it, its here to stay.”
Nothing is forever. A Black Swan event is always possible.
With you on buying local & not having “free trade” with countries who don’t have equivalent environmental and labor standards as we have here.
The only ones who’ve benefitted from the kind of free trade we’ve been engaged in are the corporations (and there is no “trickle down”).
Globalization, in its current form, is a massive failure, IMHO.
I’ll gladly be the one wearing the black hat here. I am a globalist. I am for free trade. I do think we should have higher tariffs though. There is some unfairness going on in that area. Either that or demand other nations to reduce tariffs against our products. We need to jack up the tariffs so that other countries stop dumping cheap goods on us - those countries that put outrageous tariffs on our stuff. At the same time we should abolish all taxes on American citizens. The problem is who decides what level of tariffs is the best level so that the other nations do not retaliate against the U.S? Trade wars are what got us into the Great Depression. I especially am worried about some comments I have seen from people who seem to think they should have their jobs protected so that their inefficiencies can be subsidized. If an Indian can do my job better than I can at a lower pay, it makes more sense for the Indian to be hired. The left over savings can be used to promote more efficiencies in the market.
This news about lumber prices declining is very good - I’m thinking about adding a ~280 sqft room onto the side of my house, and had one contractor in early 2006 estimate the job at $120 per sqft. I ended up not doing it last year, but I wonder what the bids would look like now - $80 per?
you would be probably be surprised to find bids relatively unchanged or even above 2006 levels. It is all about expectations. Subs grew to expect 10%+ annual pay increases so while they now complain about slowing business it still doesn’t occur to them that they have to cut their charges.
Lumber costs have dropped more than half since 2005 but in my neck of the woods construction costs have risen double digits the past two years. Yeh, must be the cement right?
Yun is a freaking genius! People are looking and not buying, what is next from this economist? People are not looking but they are buying, or people are buying with out looking…wait wait wait…people are not buying and not bothering to look any more. How the HELL does this guy know if people are looking and not buying, how do you track lookers? Oh wait…silly me…this comes from the kenuder machine that will give them the other facts, like it will stay flat and it will recover at the end of the year. Mr. Yun, you have a future in horoscopes - and even more close to your heart fortune cookie fortunes writer.
Funyun™ is just a used car salesmen like Liarreah.
Now is the time to coin the snappy nickname for him while he’s new. In a year all the ‘good ones’ will have been invented already!
I claim Funyun™ !!
mmmm……Funyuns….
http://www.fritolay.com/fl/flstore/cgi-bin/Nutrition_ProdID_3049.htm
ever tried the wasabi flavor? really good.
OOOO…..I love Funyuns……
Funyuns, Funyuns….yah,yah,yah….
Is that kind of like “bunion”?
“kenuder machine”
What’s a kenuder machine? I tried to google it and google asked me if I wanted “kinder machine”.
Kneuder is a phonetic spelling on what people would goof about when they would charge for extra repairs and say, “Oh the kneuder valve was defective so I replaced it on on your car” I think it came from Tool Time the TV show. So I figured we had a kneuder machine at the NAR pumping out facts and figures, too bad we can’t post pictures of what their super computer fact regurgitation looks like. =)
Thanks. I like that. Kenuder machine. Good one. Sounds like what we used to call a Rube Goldberg contraption.
The knuder valve is a non-existent item, but it sounds technical enough to fool an unquestioning person that it does exist and needed to be changed (and charged for). Rube Goldberg contraptions actually exist - complex devices with lots of unnecessary moving parts to complete a simple (such as turning on a TV) task.
Its probably an old TRS-80
Commodore 64 is better….
“I adore my 64, my Commodore 64!!”
One of my favorite Simpson’s episodes was the one with the sweaty computer salesman telling the school “It doesn’t get any better than a Coleco!”
ok thats funny… gotta love the trash-80 comment.
anyone else have a Franklin Ace 1000? Apple II clone. All my friends made fun of me but it worked just fine.
“Commodore 64 is better….”
Oooooooh! Burn! Colorado, you got burned!!
In my day, those mystery parts were usually called “Benson Bars” or “Fratostats”.
No automobile repair is complete unless you have been charged cost plus a markup plus installation labor for some part that you did not need.
This is why I ride a bicycle. The most I ever paid for labor was $12.
Parts are another story … necessary parts like chains are pretty cheap, and used/pull parts are a bargain too, but anything optional besides the old bell has been bid up big time by the weekend Lance Armstrong or Xtreme Sports wannabees.
I may have to bend and spread ‘em, but least buying a new helmet is cheaper than buying a new automobile tire.
I think he’s mostly just shooting from the hip and not doing any new analyses… just rerunning the same old formulas that DL did with new inputs.
A better question perhaps is how long they can keep revising their numbers and retain any credibility at all… it’s revising earnings with at least the output side under your control, it’s predicting markets.
oops, it’s NOT LIKE revising earnings…
“Italian lawmakers on Wednesday criticized major US credit-rating agencies [for] failing to properly evaluate the risks of investments tied to residential mortgages.”
We here on this board have continually asked one another who the ultimate bagholders would be. Italians have just let a cat out of the bag their constituents are holding.
Wow, that’s heavy. Man, when it comes to finance, ya just can’t trust ANYTHING coming out of the US. That oughta shake confidence in the dollar.
Really. Just imagine a series of hearings like that all over the world.
There is contagion for you — those who have savings (ie. those outside the U.S.) get burned by mortage bond losses and therefore are unwilling to invest in other U.S. assets.
This isn’t the first time Italians have bought a bunch of bonds from a foreign source that turned out to be worthless. I read an article several years ago basically about the same thing except the Italian’s had bought bonds in some third world country rather than the US.
The Italians got burned when their investments in Argentina went sour, due to hyperinflation in 2002…
The value went down 3/4’s, in just a few months time
http://en.wikipedia.org/wiki/Argentine_economic_crisis_(1999-2002)
I’d suspect that the USA is begining to look a lot like their immediate past experience?
I was just about to add similar comment. Italian’s don’t have much luck when it comes to investments.
Mamamia.
Let the ECB raise rates a few more times, have Oil states move off the dollar peg and watch the slide begin. The MBS will not make headlines.
Italy eh, they can’t even get rid of the garbage:
http://news.bbc.co.uk/2/hi/programmes/from_our_own_correspondent/6727215.stm
Aaaaah yes… those Italians. They could learn a thing or two from us.
http://www.cdnn.info/news/eco/e060814.html
Good. Now Don Corleone and Luca Brasi are learning how they got screwed. Watch them force some of these American banks to take back bad loans foisted on Italian investors.
“Either your brains or your signature are going to be on that contract”.
Pulte Homes (PHM) is breaking down thru its 52 week lows. Finally cashing in on my Jan 08 PUT options. Plunge Protection probably ran out of funds, and Pulte has no more money to buy stock back.
Pulte sold for $5 a share during last recession. Do I smell a repeat?
My thanks to the person on here who pointed to the ETF known as SRS. Having a good day today anyway…
Ohhhhh … I’ve been looking for that sort of investment vehicle. Might just hold up for a bit after today’s runup though.
Buy now or be priced out forever….
You need underpants on steel in SRS as it is 2x leveraged. I hold it and talked about it to a collegue last week. It dropped from $85′ish to $73′ish in a few days. I’m glad it’s up as he is now speaking to me
Pulte’s last quarterly financial is interesting. At Dec 31, they had $9.9 billion in inventory under current assets. The March 31 balance sheet shows zero(!) in inventory and $9.9 billion in Property, Plant and Equipment(which was zero at Dec 31). That changed up all of their ratios bigtime. The cash flow statement shows that they eliminated $530 million of debt during the quarter, and their cash on the balance sheet is down to only $116 million. The price they are at today is pretty much equal to book value. Without looking at the footnotes in the financials, with the cost cuts they announced, they might be able to hunker down and service their debt for the next few years and make it to the next upturn.
“The troubles of the U.S. high-risk mortgage markets seem to be contained but it is too soon to say they are over, Federal Reserve Governor Kevin Warsh said on Tuesday.”
The use of the passive voice, as in “seem to be contained,” begs the question, who is containing the troubles and how?
“We a no speak-a da English”……Itallian Bagholder, after reading prosectus on MBS spilling out of US markets.
Yeah, its contained, GLOBALLY.
Mistakes were made, but no one actually made them.
Now, the Italians are weighing in on the travesties of the American financial system while the New Zealanders are raising interest rates and the stock market is starting to tank.
The world is recognizing what this blog has been saying for some time now.
Should we collectively start cornering the “tin foil hat” market or are we too late?
Everything people have been predicting here for a while has started.
might be a good time to buy, prices seem to have finally leveled of after the great Y2K bubble
symbol
METH
Homebuilder Meritage Homes Corp. said Wednesday it expects to fall short of its previous 2007 guidance as a result of weaker-than-expected April and May home sales
Their stock symbol is METH? Like methamphetamine?
Here’s a link to another amusing article:
http://www.startribune.com/535/story/1230511.html
Subject is how adjusting payments are really starting to hurt. Features a 72 with over 200k mortgage that he re-financed into a neg-am loan, now it has reset and they are in trouble.
I guess the answer to my question over the past few years of “who can afford to buy these homes?” is “not very many people, actually.”
They rented them from the bank at high rates.
“The Financial Accounting Standards Board (FASB) is planning to talk with banks directly about frustrations its FAS 140 rule may be causing as they try to fix the subprime mess, a Board member said on Wednesday.”
“‘Our staff has been getting many, many questions about workouts,’ FASB member Leslie Seidman said.”
“‘What has become clear to me is that…if there hasn’t been a free and clear sale, they are unwinding the accounting and putting assets and liabilities back on the books,’
————–
I think this may be tremendously important, but I’m not sure I understand it. Can anyone elucidate?
what I THINK might be happening, is the reverse of what occured before.
Before, a lender would make a crappy Option ARM loan, the FB would pay the minimum payment, and the rest is tacked onto the loan, but through accounting wizardry is counted as EARNINGS in a sort of Mark-to-Market way.
Now, I think the lenders are having to undo the loans, which means they have to TAKE AWAY the earnings, and put the loan back on their balance sheet… Thus, their true liabilities are exposed.
Obviously, if they have to do this, the game is up. Their investors will scream murder, but more importantly those liabilities go against their reserves, decreasing how much the bank can lend.
AM I RIGHT HERE???? If I am this could be huge.
HIC
It sounds like that is what is happening. One reason to do a workout, rather than foreclose, is to take a lot of little losses (less return every month) instead of one big one. But if they have already booked future revenues as past revenues and now have to book a loss, let alone declare a loss on the whole mortgage, whammo.
You have it right.
definitely a topic I’m being educated on today.
Makes sense… man this could unravel… fast!
Got popcorn?
Neil
“The Financial Accounting Standards Board (FASB) is planning to talk with banks directly about frustrations its FAS 140 rule may be causing as they try to fix the subprime mess, a Board member said on Wednesday.”
To many fixes guarantee the subprime market will be broken beyond repair.
“Too many…”
My understanding (such as it is) is that this is dealing with the issue of loans that are sold (usually to be securitized). When the bank sells the loan, it books its gain or loss and the loan is taken off the bank’s balance sheet. However, FAS 140 says that in order to do this, the sale must be free and clear. If the bank retains some rights or obligations regarding the loans, then the bank must treat the “sale” as a financing arrangement (meaning that the loan stays on its balance sheet).
The banks are running into trouble because they apparently have certain rights or obligations regarding these loans that they “sold.” We see this when a bank buys back a loan (either because it wants to, as Bear Stearns is accused of doing by the HFs in order to manipulate the credit default swaps, or has to, because of a repurchase obligation) from a securitized pool, or otherwise attempts to modify the loan’s terms (through a forebearance or full-blown modification).
If the bank had truly “sold” these loans, then they would not and could not do anything to them. The fact that they are getting involved seems to indicate, therefore, that the bank did not really sell the loans (for accounting purposes - rather the transaction was merely a financing). If these were financings, then the banks must keep the loans on their balance sheets, and the banks don’t want to do that.
I don’t know what it would mean from a practical standpoint to the banks if they have to keep all of these loans on their balance sheets. But that is at least my understanding of what all of the fuss is about regarding FAS 140.
“He was cautious on calling the end of the downturn in the U.S. housing market. ‘It would be premature for us to call that chapter complete,’ Warsh said.”
This might be the understatement of the decade.
I believe that’s economist speak for “If you were stupid, lube required.”
Where is Auger-Inn when you need him.
Got popcorn?
Neil
wow it is looking really ugly on wall street today!! dow down almost 180pts. and tx chick the s&p is under 1500
Damn it, the Kneuder valve got stuck on Ben’s helicopters today.
Luckily the PPT got their gold-task done before it happened.
Gold down on USD dead cat bounce today.
former goldbug
http://www.financialsense.com/metals/greenspan1966.html
Gold down even further today $645 range. I’d buy if I wasn’t saving instead for the ten year note next week. This is looking like a good gold-buying summer and into Fall.
As goes New Zealand, so goes the world?
Hard to believe that a tiny country with just 4 million people, could cause such a ruckus…
“The benchmark 10-year U.S. Treasury note’s yield surpassed 5 percent for the first time since August after New Zealand unexpectedly raised interest rates, igniting concern other central banks will respond to faster global growth.”
Larry Goldilocks Kuntlow has a lot of explaining to do today. Goldi is bending over big time
And affordable housing ain’t all it’s cracked up to be:
http://www.azstarnet.com/sn/related/186462.php
Entertaining comments follow the story…
How can they say on June 6th that the guidance they gave on April 25th is not valid and yet have anyone listen to any guidance again? What the hell is guidance anyway if it can be shown worthless with such little additional data?
Looks like the stock market is finally reacting to the mortgage mayhem. S&P is off 1.2% as of 11:45
“”We are being overwhelmed by mortgage-related selling,” said Thomas di Galoma, head of Treasury trading at Jefferies & Co. in New York.”
Why does this remind me of March 10th 2000.
http://en.wikipedia.org/wiki/Dot-com_bubble#Thinning_the_herd
One possible cause for the collapse of the NASDAQ (and all dotcoms) were massive, multi-billion dollar sell orders for major bellwether high tech stocks (Cisco, IBM, Dell, etc.) that happened by chance to be processed simultaneously on the Monday morning following the March 10th weekend. This selling resulted in the NASDAQ opening roughly four percentage points lower on Monday March 13 from 5038 to 4,879-the greatest percentage ‘pre-market’ selloff for the entire year.
The massive initial batch of sell orders processed on Monday, March 13 triggered a chain reaction of selling that fed on itself as investors, funds, and institutions liquidated positions. In just three days the NASDAQ had lost nearly nine percent, falling from roughly 5050 on March 10th to 4580 on March 15th.
“In just three days the NASDAQ had lost nearly nine percent, falling from roughly 5050 on March 10th to 4580 on March 15th.”
Luckily at that point the worst was over and they were close to the bottom.
“We’ve had a global interest-rate structure that’s been trading extremely rich to historical norms for years and years…driving a repricing of the global interest-rate complex back to areas that are still rich but somewhat more reasonable.”
Call me when the 10-year treasury is around 6%, with a decent risk premium for other assets above that. Anything else is unreasonable.
Want to see some truly wretched excess? I don’t think our hedge fund masters of the universe can top this one.
http://www.luxist.com/2007/06/05/billionaire-plans-skyscraper-home/
600 live in helpers lol
he msut have 50 a**wipers alone!!
It sure is snazzy looking!
It seems fairly clear that taxes in India aren’t high enough…
Does India have a security system to prevent jet planes from flying into skyscrapers?
Strategy that works… has a way of reappearing…to other targets of interest…how close is India to Afghanistan / Pakistan?
From the Old Man’s School of learning:
“Amass a store of gold and jade, and no one can protect it.
Claim wealth and titles, and disaster will follow.”
Just wondering along…where the earth curves…
The building will cost 5% of his net worth. At least he’s living well within his means unlike, oh, 80% of Americans.
Yeah, heaven forbid he give any of it away in his own country where abject poverty is a realty for a majority of the people.
Well, firstly we don’t know that he isn’t giving any away, and secondly, even if he spread a billion dollars cash around to his countrymen, they would each get what, a dollar, and many would squander it on hookers and blow.
I kid, I kid.
Hey, working girls gotta make a living too!
Well, who actually needs 600 employees in a dwelling? In Indian culture, this is a way of giving back, as he has given 600 people jobs. There’s a sort of obligation thing. In addition to a small wage, they typically receive food, sizeable bonuses, and sometimes lodging.
Of course, as an American, I could see much greater value in building infrastructure such as water treatment, irrigation, railways, etc, etc. This would help many more people than just 600 and their families.
Why is it that the skyscraper part of the story “stood out” for me…must be an echo from 9/11…I really think that people actually believe… that this type of behavior… will only occur in the good old US of A!
http://www.bloomberg.com/apps/news?pid=20601087&sid=a_yNs2tU1d1I&refer=home
When “save the whales” becomes less important than “save the homeowner” … you’ll sure to see a tipping point in public attention.
I’ve found that in the US of A that whales and homeowners are pretty much the same thing, especially in the midwest.
That’s only because in the midwest they were the giveme-pigs of corporate america’s “$1.00 value menu” first.
Where exactly is McDonald’s corporate headquarters?
Sorry if this was posted already.
Foreclosure sales may affect market
http://tinyurl.com/2mup2y
No one mentioned the article on the Broker-Lender contract situation. The impact can be significant for the market because of the large percentage of all loans originated by brokers. The outcome can have a significant impact on the future of these relationships, depending on how bad the losses get.