KB Home Reports Second Quarter 2007 Loss

Submitted by
CalculatedRisk on Thu, 06/28/2007 - 5:16am (28 comments)
gab wrote on Thu, 6/28/2007 - 5:28 am

The B Berg headline reads, "KB Home has unexpected $148.7 Million Loss..."

When are they going to stop using "unexpected?"

bfatz wrote on Thu, 6/28/2007 - 5:32 am

"We have become ninety-nine percent money mad. The method of living at home modestly and within our income, laying a little by systematically for the proverbial rainy day which is due to come, can almost be listed among the lost arts." ~ George Washington Carver

central_scrutinizer wrote on Thu, 6/28/2007 - 5:34 am

Is it too late to short the homeys? A chart of the HGX (Philly Housing sector index) shows it has broken below long-term support at 215.

I'm getting itchy for some short-term bets against these crooks, but I know that short selling can be real dangerous, especially with all the insider buying and hedge funds out there.

vader wrote on Thu, 6/28/2007 - 5:39 am

Free Trade aka Globalization takes another hit from the right.

The author seems to state at first that comparative advantage does not work in the modern world because the factors of production and labor can move so easily as well as capital.

Then he attacks tariffs as a sign of stupid government.

IMHO, when a religious belief dies, all kinds of strange pronouncements come from it former adherents happen.

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Yal wrote on Thu, 6/28/2007 - 5:40 am

central_scrutinizer ,

the short answer is that I don't know.

If the market woukld crash they and the lenders will fall big.

Think about shorting REITs: JOE, SPG (or go long on SRS) they have not gone down by much. also many lenders are near their highs.

wawawa wrote on Thu, 6/28/2007 - 5:45 am

I was listening to Bloomberge too when I heard the word "unexpected", I said to my self "are these people suppose to be experts or morons!"

Yal wrote on Thu, 6/28/2007 - 5:52 am

For Neal:

Tuesday Morning: Irvine Blogger Goes Inside the Mind of the Bubble | L.A. Land | Los Angeles Times

lama wrote on Thu, 6/28/2007 - 5:54 am

Meanwhile, the party continues elsewhere as lenders continue with risky loans:
Expired

Kevin wrote on Thu, 6/28/2007 - 5:57 am

"We have become ninety-nine percent money mad. The method of living at home modestly and within our income, laying a little by systematically for the proverbial rainy day which is due to come, can almost be listed among the lost arts." ~ George Washington Carver

House members seek pay raise of $4,400

Yahoo! 404 - Page Not Found

But wages qre going up!

James Bednar wrote on Thu, 6/28/2007 - 5:58 am

Hold on.. Hold on..

I just want to be sure I've got this right.

How many homes can a homebuilder build before a home builder builds too much?

"If all those other damn homebuilders would just stop building homes, we'd be doing just fine."

jb

idoc wrote on Thu, 6/28/2007 - 5:58 am

i have been short homebuilders and lenders for over 6mo. initially positive, went big negative during big rally, went positive during feb subprime crisis, negative for shorterm until now; BIG positive. focus on the REAL economy, stick to your convictions and invest accordingly with PATIENCE.

Neal wrote on Thu, 6/28/2007 - 6:05 am

Interview with Robert frank of the Wall Street Journal on NPR:

Frank: Oh, trickle-down, that's right. But what we are seeing is a growing economy built around the wealthy. There is in America today a shortage of yachts, a waiting-list for Ferraris, for gulf-stream jets. The starting salary for a butler today is $80,000. There's so much demand at the high end for services and products that serve the wealthy that it is creating jobs and economies for the rest of America.

idoc wrote on Thu, 6/28/2007 - 6:10 am

i also should add that we are just at the beginning of the housing meltdown. we have a long way to go down.

Detroit Dan wrote on Thu, 6/28/2007 - 6:10 am

vader, Have you been following the series on money and gold at Mish's Global etc. ? The articles by "Trotsky" make some good points and are fun to read. I'm not yet convinced to vote for Ron Paul, however...

charlie wrote on Thu, 6/28/2007 - 6:15 am

I've had some put option on many of the lenders too. I was hurting for a while (got killed by LEND being bought out. Sometimes being right about a POS isn't enough.) and over the last week, have made some gains. My advice, if you want to profit, is buy puts that aren't due for several months at a minimum and wait until it all falls apart. I don't guarantee this will work. It's what I'm doing.

sunlight wrote on Thu, 6/28/2007 - 6:22 am

If you want to listen into the noon earnings conference call, go the KB Homes website. I'm sure the security analysts will love the idea that the company no longer feels it can provide earnings guidance for the rest of this year.

barely wrote on Thu, 6/28/2007 - 6:41 am

scutinizer, it's hardly a sure thing. Any number of events can crush your position if you're short. I have been short and hold PUT positions on lenders and HB stocks since late Jan, with varying expiration dates on PUTS. A lot of obstacles to making money on the short side. I too got hit by the LEND buy-out but still made $ on that trade since I got it early.

Trouble with puts is 1) the premiums, and 2) timing. The reason I took varying expiry dates was to average premiums and perhaps insulate from events like a fed cut that I think will come later this year.

Just the same, I think there's money to be made on lenders and HB stocks as they have more to give back at least until the end of the summer. Anyone's guess what might support the stocks but I think buy-backs by the HBs are now over as they are in survival mode, big time.

Advice - do your own research and ignore the analysts. I was discouraged from taking a position in HOV in May as the analysts talked it up despite what was happening to the trading in their bonds. They are off 40% in June.

Ric wrote on Thu, 6/28/2007 - 7:17 am

I love KB.

One of their latest moves in the Las Vegas market was to pay 6% commissions to outside brokers and dropping their prices $20,000 across the board on low end ($200k=/-)houses and now they complain about "intensified pricing pressure."

Let us sympathize with the patricidal orphan.

Yal wrote on Thu, 6/28/2007 - 8:05 am

lama,

it is not exactly biz as usual as now the teaser rate starts at 5% (not 1.5%)

idoc wrote on Thu, 6/28/2007 - 9:40 am

this is why i don't play options; you're squeezed out by the timing. i use simple shorts b/c if i have the balls to go short its b/c i have conviction that it will work out over the med/longterm. wall st will play all sorts of games like short squeezes, false upgrades, etc etc to try and get you to fold your cards. most ppl do. if you look at the data, keep up with truth sites like this and subscribe to some good newsletters that tell it like it is, your shorts will work out eventually at least in this housing arena. its plain as day; just don't did obfuscated by the media and wall st.

idoc wrote on Thu, 6/28/2007 - 9:43 am

sorry; meant to say "just don't get obfuscated"

quartz wrote on Thu, 6/28/2007 - 10:16 am

lama,

Loved Professor Yezer, he only accepts as fact information from articles in peer reviewed journals; he see the crux of the problem as lying with some borrowers were irresponsible--you just can't protect people who can't be bothered; and he has infinite trust in mortgage brokers as a class--they are closely regulated, adhere to the highest prudential standards, and look after the best interest of borrowers steering them away from sub-prime to prime mortgages.

Where on earth did they find that man?

lama wrote on Thu, 6/28/2007 - 11:14 am

quartz,
Wow, that guy has a PhD and everything! He must know his stuff. And here I was believing Tanta, MoM and others on this un-peer reviewed blog.

central_scrutinizer wrote on Thu, 6/28/2007 - 11:47 am

Thanks yal, barely, charlie, idoc for the input. I'm looking right now at a 5 year chart for RYL ... classic head and shoulders with a negative slope on the neckline ... mmm, tempting !

bacon dreamz wrote on Thu, 6/28/2007 - 11:52 am

Fitch Ratings has taken the following actions on classes from Countrywide Asset-Backed Securitizations (CWABS) series 2006-SPS1:

--Class A rated 'AAA', placed on Rating Watch Negative;

--Class M-1 rated at 'AA+', placed on Rating Watch Negative;

--Class M-2 rated at 'AA+', placed on Rating Watch Negative;

--Class M-3 rated at 'AA+', placed on Rating Watch Negative;

--Class M-4 rated at 'AA', placed on Rating Watch Negative;

--Class M-5 rated at 'AA-', placed on Rating Watch Negative;

--Class M-6 downgraded to 'BBB-' from 'A', remains on Rating Watch Negative;

--Class M-7 downgraded to 'BB+' from 'A-', remains on Rating Watch Negative;

--Class M-8 downgraded to 'C' from 'BB+' and assigned a Distressed Recovery (DR) Rating of 'DR6';

--Class M-9 downgraded to 'C' from 'BB' and assigned a Distressed Recovery (DR) Rating of 'DR6';

--Class B downgraded to 'C' from 'BB-' and assigned a Distressed Recovery (DR) Rating of 'DR6'.

The above trust consists entirely of second liens extended to sub-prime borrowers on one- to four-family residential properties and certain other property and assets. CWABS purchased the mortgage loans from CHL and deposited the loans in the trust, which issued the certificates, representing undivided beneficial ownership in the trust.

The negative ratings actions of all classes in the trust reflect the deterioration in the relationship of credit enhancement (CE) to future loss expectations and affect $189.6 million in outstanding certificates.

The impact of the slowdown in the housing market has been particularly evident in highly leveraged subprime borrowers, and delinquency and losses to date for series 2006-SPS1 have been significantly higher than initially expected. After 12 months of seasoning, losses to date as a percentage of the original pool balance are 9.86%. Approximately 14% of the outstanding pool balance is delinquent. Due to the high percentage of losses to date, the cumulative loss trigger will likely fail for the life of the transaction. The failed trigger will generally maintain a sequential allocation of principal with the exception of principal cashflow from the subsequent recoveries of charged-off loans, which may be allocated to subordinate bonds. Fitch expects the amount of principal cashflow from subsequent recoveries to be limited.

While the subordinate classes are expected to incur principal writedowns - as reflected by their distressed ratings - the failed triggers and sequential principal allocation should help mitigate some of the risk of the weak collateral performance for the senior classes. Fitch will closely monitor the delinquency trends and roll rates in the coming months to assess the credit risk of the mezzanine and senior classes.

Place bets now! how long until this deal is downgraded again???

Yal wrote on Thu, 6/28/2007 - 12:32 pm

"Countrywide subprime bond classes cut, one to junk"

ssm wrote on Thu, 6/28/2007 - 1:14 pm

I wish i could sell my PC for a premium, but the damn PC builders won't stop building cheap PC's from china.

Bill wrote on Thu, 6/28/2007 - 1:17 pm

Puts can be tricky, but I have been piling on 3-4 month out puts on the weakest builders--mth, hov, ctx and phm, as well as ggp, spg and roth IRA positions in SRS.

The Hov and GGP positions are up nearly 300% and I will probably keep them until Aug expiration.

I got burned on HB puts last fall and made alot last spring/summer. Now few are saying that the HB's will recover until at least late 2008, so they seem fairly safe for puts. I like to buy a couple of dollars in the money. This blog suggests that the RE market will be much worse by late summer

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