2008 will be great for those of us who believe homebuilder BKs are necessary to help resolve the new home building and inventory overhang problem. However, it will be awful for the people who work for these companies. I hope they see the writing on the wall and are preparing for new careers.
In September HOV's CFO is named as a defendant in a misrepresentation claim and no FD disclosure is made upon filing the suit in Federal Court but waits 3 months to bury it in the 10K.
SPF approaching similar financial condition as TOUSA and no going concern warning or heads up from analysts.
LEN is getting foreclosed on one of its Joint Ventures outside of Chicago and the only way shareholders find out is through a local newspaper article.
What happend to SarOx? Where are the analysts? How will this be enforced?
2008 will be great for those of us who believe homebuilder BKs are necessary to help resolve the new home building and inventory overhang problem. However, it will be awful for the people who work for these companies. I hope they see the writing on the wall and are preparing for new careers.
Elvis | 12.27.07 - 3:21 pm | #
The worst of all worlds is one where they all race to BK and reset their cost structure and then think everything is now okay for them to keep building like maniacs. Again - not unlike how airlines all went BK (destroying equity), demanded give backs from workers then went about trying to fly the same number of seats all over as always... it was only recently they seriously cut back on flights (within the last year or so)... and with that profitability improved.
This could be a loooooong drawn out affair for HBs and their suppliers. Nothing like having to reinvent the wheel every damned time... doesn't anyone teach economic history in MBA programs?
What happend to SarOx? Where are the analysts? How will this be enforced?
The analysts will be the same place they were the day before Enron and Worldcom went BK. That would be upgrading the builders, right before buzzards descend from the sky to pick the carcasses clean. Anyone remember Abby Joseph Cohen and her infamous S&P 1500 call in 2000?
One can hope that the SEC is currently compiling a watchlist of various individuals and that justice will be someday served. However, I'm too cynical to believe it will.
Watch out for yourself, do your own research, don't let the pigmen take your hard earned money.
I know you've detailed how mortgage applications have been a lousy indicator, but your "Mortgage Insider" link is showing "Mortgage Applications Plummet". Seems like the positive bias in a lot of indicators (e.g., median prices, mortgage apps, employment) is dissipating.
TOUSA believes that the worst case scenario will result in the loss of TOUSA Homes LP's (the subsidiary through which TOUSA holds its membership interest) investment in the Joint Venture of $92.6 million and introduce significant doubt regarding the eventual recoverability of $48.5 million of loans and receivables. This worst case scenario would require an after-tax charge of approximately $89.0 million (or approximately $1.50 per share) by TOUSA. Other scenarios would of course result in lower after-tax charges.
"The worst of all worlds is one where they all race to BK and reset their cost structure and then think everything is now okay for them to keep building like maniacs..."
Dryfly
My guess is that won't happen in the face of 4M home inventory overhang. You could fool the lenders for awhile with the "housing fundamentals are the best ever" line, but, now, the tide has changed and lenders are very afraid of homebuilders. We'll see...
My guess is that won't happen in the face of 4M home inventory overhang.
I would agree with you except if you look at the airline industry they flew empty seats around at discounted fares LONG after it was obvious that was a losing B-Model. Same with auto producers - built cars they couldn't sell, lease or give away zero down liar loan style long after the red ink flowed. Are builders that much smarter?
John Berry: Subprime Fallout Won't be as Bad as Some are Predicting
John Berry says losses from the subprime mess will be big, but "not nearly enough to sink the U.S. economy":
Subprime Losses Are Big, Exaggerated by Some, by John M. Berry, Commentary, Bloomberg: As the U.S. savings and loan crisis worsened in the 1980s, analysts tried to top each other's estimates of the debacle's cost... Much the same thing is happening now with losses linked to subprime mortgages, with figures of $300 billion to $400 billion being bandied about.
A more realistic amount is probably half or less than those exaggerated projections -- say $150 billion. That's hardly chicken feed, though not nearly enough to sink the U.S. economy. ...
There are two reasons why the losses aren't likely to be so large.
First, the mortgages are backed by collateral, a house or condominium, and in a foreclosure a home typically retains significant value. When it is sold, the lender often will get 50 percent to 60 percent or more of the loan amount after foreclosure expenses.
Second, most subprime borrowers aren't going to default. ...
What does that mean for the broader economy, particularly consumer spending? ...
The economic repercussions of the housing bust and mortgage woes are limited to a great extent because less than half of American families own a home with a mortgage... Almost a third of all families rent their house or apartment, almost a fourth own and have no mortgage and the vast majority with a mortgage are current in their payments.
Even with about a tenth of all subprime mortgages now in foreclosure, only a small share of all American families -- about 0.3 percent -- own a home in foreclosure...
Comparisons in dollars of constant value between likely subprime losses and those incurred during the S&L crisis indicate the 1980s hit was significantly greater, though the current episode still has a long way to run. ...
Happy Holidays. I think that a key difference between the airline industry and the homebuilders is that the former is almost a de facto government-sponsored business. Let's face it, it is in the national interest to have several viable US airline companies, as they enable interstate commerce along with other vital economic activity. If 9/11 couldn't wipe them out, nothing short of a calamity 10 times worse will.
On the other hand, you could wipe out every single public homebuilder and I doubt there would be much net effect on the national security, nor on most other industries ability to survive. When housing demand comes back, smaller private builders could easily replace the large public ones that go kaput.
Even the U.S. auto industry has more power and clout in D.C. I recall the Chrysler bailout back in the early 80's was done partially in the "national interest".
Dryfly,
The thing that's different is that this is the first time conditions for HBs have deteriorated this quickly. It's usually several years before the math works out that it is cheaper to abandon than to built out to completion and sell at any cost.
The only local equivalent is probably the oil patch in the 80s. There won't be any build slows, just build anything with value asap and walk away from everything else.
The only local equivalent is probably the oil patch in the 80s. There won't be any build slows, just build anything with value asap and walk away from everything else.
Robert Coté | Homepage | 12.27.07 - 4:22 pm | #
Sounds like a plan. Are we too late to sign up? I'd like to be part owner of a baseball team too. I wonder if we can throw that in. Or become president... But if I had to choose I'd rather own the baseball team.
When it is sold, the lender often will get 50 percent to 60 percent or more of the loan amount after foreclosure expenses
Another way of looking at the prospect is that total NET mortgage borrowing was ~$4,000,000,000,000 2003-2006. If 10% of that net lending goes poof -- and since appreciation was on the order of 100% during this timescale, 10% is if anything a low-ball -- , that's . . . $400B in asset losses.
I'm no expert, but 30% of that four trillion disappearing over the next 4 years wouldn't surprise me one bit.
Re: according to Jean-Francois Robin of the French bank Natixis, "it's not that there is a lack of liquidity (in the global financial system), it's that it is not circulating."
--
Of the top 100 Hopebuilders no more than 10 will remain by 2010. Many will go bankrupt and others will consolidate.
Good news for Hopebuilders is that they are building and starting lot less than "the estimated demand of 1.7M annual rate" and working off the inventory. Pretty soon we will run into a shortage of housing units.
The homebuilders won't follow the airlines model simply because, after they declare bankruptcy, they will have zero access to credit.
Years ago when the airlines were going through BK, the credit markets were still roaring, and when they emerged there were lenders with extra cash willing to take a chance on them, and they could take out some borrowings to get by on their broken model until the next bankruptcy. This time around, the credit window will be shut. Nobody will be lending to a post-bankrupt homebuilder because nobody will be lending to homebuilders, period.
Homebuilders will be looking at a cash-only business following any bankruptcy declaration, and even then the contractors will be looking closely at the bills to check for watermarks. They will continue building--it's what they do, after all--but only as fast as they can sell, which will be, well, not fast.
The homebuilders won't follow the airlines model simply because, after they declare bankruptcy, they will have zero access to credit.
Agreed. These guys have huge amounts of debt, a lot of it is in off-balance sheet joint ventures that come home to roost when they implode (sound familiar?)
Personally, I always felt that a publicly traded homebuilder was problematic. A privately held builder can just contract (if they were smart enough to read the market. But how can a publicly traded business do that?
Agreed. These guys have huge amounts of debt, a lot of it is in off-balance sheet joint ventures that come home to roost when they implode (sound familiar?)
Well that's the whole idea behind BK - have debt go bye-bye. I agree the credit crunch could complicate things but the miracle of corporate BK is the first to get the slate clean is the one most likely to survive in the 'long run' because theirs is the cost structure made competitive first.
Seriously - that is one of the major flaws with the BK code that WASN'T addressed in the last 'reform'. No surprise since it wouldn't have benefited credit card companies.
MBA's don't study economic history because they are too busy studying Modigliani-Miller (Debt-Don't-Matter) and Black-Scholes (Everything-Can-Be- Arbitraged).
They also don't study micro-economics. Or else, they would know industries with high fixed costs (Airplanes) and minimal barriers to entry will tend to have prices set to cover only marginal costs, not full costs.
They also don't study micro-economics. Or else, they would know industries with high fixed costs (Airplanes) and minimal barriers to entry will tend to have prices set to cover only marginal costs, not full costs.
There's the magic of Corp BK again... turning full cost back into marginal cost... at the expense of stock and bond holders. Of course its benefit is only temporary but then in the long run we're all dead, right?
And I thought this week was going to be quiet! First you have the news about Sallie Mae lsing a forward equity bet in a HUGE way (buy back shares at $45 while they sell now for $20) and all the while the CEO was dumping his shares in Mozillo like fashion. Then you have Goldman Sachs lowering the boom on Citi and pals with a terrible loss forecast. I hope Goldman will not need any help from the other banks anytime soon. My pick for BK builder is BZH of course.
One thought on BK in the homebuilding industry vs. the airplane industry:
I think the airlines came out of BK relativly unscathed since they had near zero real assets (most planes leased) and the creditors only had hope of getting anything back if they let the planes continue flying and producing at least some cash from paying passangers.
Homebuilders have assests the creditors can understand- land, homes-and which can be actioned off piece meal by creditors to raise some cash. They are going to be less willing to just take a haircut and let the builder keep building when they think the assests are worth something when seperated from the company, whereas the airlines' assets are worth nothing seperated from the company.
IMO this is (or will be) happening to everyone, not just HBs. Unusually loose credit leads to unusually high defaults which in turn leads to unusually tight credit, which leads to more defaults, etc. The vicious cycle, you know.
The Fed can let the deflationary journey run its course, as it should, but can also truncate both the length and the severity of the journey by dramatically lowering the risk-free rate of return on cash, while making the stuff very, very abundant.
By doing so, the Fed will lift the intrinsic value of all assets versus what otherwise would be the case, as well as spark animal-spirited buying interest in all assets once they fall below intrinsic value.
BB: Sounds sensible, so we should expect the Fed to do that, right? And what about fiscal policy? Is there a truncate-the-journey role for that policy tool as well?
PM: Spot on regarding the Fed: look for rate cuts at every FOMC meeting for the next two to three quarters, taking the Fed funds rate down to at least three percent, and quite possibly lower.
Paul McCulley giving his new bunny an incomplete description of inflation and what will cause the next bubble. Why would anyone is buying US bonds unless your Japanese is something I just can't understand.
It's not quite fair to talk about the top 10. For example, I remember buying at the money puts on SPf at $35. At that point they probably were in the top 10. I also bought to close my last puts of SPF at < $4 a few weeks ago. Most companies will drop out of the top 10 as they approach BK
if you would take the time to provide an opinion, it would be much appreciated-
In regard to the following statement by Fitch, after reading this, it brings forth the question concerning how a mistake like this could be made in this environment? How in the hell could they miss the strength of an underlying security and issue a downgrade based on their outlook change on the insurer? Only now to reverse the decision two weeks later?
"Classes 1A3 and 1A7 of trust CWMBS 2004-8 benefit from a financial guaranty provided by XL Capital Assurance Inc, a subsidiary of Security Capital Assurance Ltd. (SCA). Fitch placed the 'AAA' Insurer Financial Strength (IFS) rating of SCA and its subsidiaries on Rating Watch Negative on Dec. 12 following the rating agency's updated assessment of SCA's current exposure to RMBS, SF CDOs backed by subprime mortgage collateral and CDO-squared transactions. As a result, classes 1A3 and 1A7 were placed on Rating Watch Negative. However, Fitch has subsequently determined that the classes have sufficient additional credit enhancement to maintain their 'AAA' rating without the financial guaranty. The ratings for classes 1A3 and 1A7 are affirmed and removed from rating watch."
I vote with dryfly. Bankruptcy of a homebuilder will wipe out the stockholders, but leave the management (relatively) unscathed and working for creditors who will want to recover as much as possible from the assets (mostly land) of which they've ended up owners. The only way to do that will be to build homes on that land. (What else might they do with it?) With labor and materials costs far below bubble levels, new construction will easily undercut the prices existing-home owners will be willing or able to accept.
Building is what builders do.
And the banks will lend them money, too. That's how banks make money. What else are they going to do?
Yes, lending standards will be a lot stricter. But some people will still be buying homes, and be able to put 20% down, and they're going to get great deals.
Well that's the whole idea behind BK - have debt go bye-bye. I agree the credit crunch could complicate things but the miracle of corporate BK is the first to get the slate clean is the one most likely to survive in the 'long run' because theirs is the cost structure made competitive first.
They won't leave bankruptcy with any capital, and do you honestly think anyone is going to lend new money to a company wanting to build new houses next year? Banks are going to be choosing who they lend to very carefully over the next year or two. There simply is no market for new homes, and the one asset they have is hugely devalued land that will most likely be sold off to pay creditors. There's nothing left, they have no big factories that are hard to replace, just a slew of semi-skilled workers. I sincerely doubt any of these companies will emerge from bankruptcy.
Airlines, with their rights to gates, aircraft, etc., and a reasonably steady market really aren't comparable at all to what is one of the most cyclical of businesses.
You do know that when things hit rock bottom - whenever that is - vulture investors will scoop up assets for small change on the dollar - and - if they can last for a while - they will do ok. Unfortunately - this kind of investing usually isn't available to average guys like us.
Even the U.S. auto industry has more power and clout in D.C. I recall the Chrysler bailout back in the early 80's was done partially in the "national interest".
Lee Iacocca invoked the national security argument when he went to Washington for the Chrysler bailout. At that time a Chrysler division called Chrysler Military was the prime contractor for the M1 Abrams tank and it being the early 80s, the Cold War was still on, so the money was forthcoming. On the other hand the warrants Chrysler gave the government in exchange turned out to be worth a good amount of money when the time came to cash them in.
And as a final footnote, after the deal was done, Chrysler sold the military division to Litton.
Bob in Massachusetts - I think you are naive. Just about every big deal builder I've ever met who has been around for a while has gone bankrupt once or twice before. It's how the game is played. As someone who's not a "player" - all you want to make sure of is a developer isn't holding your deposit when he walks into bankruptcy court.
Just about every big deal builder I've ever met who has been around for a while has gone bankrupt once or twice before.
Your circle of "bid deal builder" acquaintances is very narrow. Not one of the public builders considered on this thread has either filed for, or emerged from, bankruptcy.
At the end of next year, of course, that won't be true. At least the first part, anyway.
And for those that are still standing, expect balance sheets that are literally torn to shreds.
I'm short CTX and RYL (hello Robyn), and I expect them to be in the second group, but I wouldn't be surprised if they or any number of others (HOV, PHM, LEN) went under. MTH is another one to watch for implosion.
I recall the Chrysler bailout back in the early 80's was done partially in the "national interest".
even apart from the pure military work the skillsets themselves to create every-day motor vehicles is in fact strategically important to a mechanized armed force.
Throwing together concrete, douglas fir, gypsum board, granite, and stucco into living spaces, not so much.
I agree that the shareholders will be the main losers when public builders go ch. 11. The whole point of this type of bankruptcy is usually to allow the company to reorganize and emerge free from debt. However, I'm not so certain they keep on building during the reorg. For one thing, all of their labor is done by contractors and subs who may not be inclined to work for free. If I'm Joe sub-contractor and I pick up the WSJ and read that Beazer is bankrupt, no way am I gonna get in line with all the other creditors and hope to get pennies. I'll take my chances with another builder, find work elsewhere or just sit home and collect unemployment.
Kara homes (NJ) already went bankrupt last year and I believe that once this happened 1. all work stopped 2. their home sites had to be sold/auctioned off to other builders.
<a href="http://www.hobb.org/index.php?option=com_content&task=view&id=1534&Itemid=197>Kara BK
from houston's link and I told you this was coming-
"Investment banks are cutting back on loans to hedge funds, eliminating some clients and raising borrowing fees for others. The lenders are slimming their balance sheets after heavy losses in the debt markets in recent months. And, after taking multibillion-dollar write-downs, they also are becoming more cautious as the economy slows, according to people familiar with the situation."
looks like volatility rules for awhile and I would guess that you will soon learn what they were short, long, and concentrated in based on the erratic movement.
Seriously though, hedgies having trouble getting caish, means that either the banks are so friggin' insolvent, that they not dare lend, or they've looked at hedgie market activity and think the hedgies will blow up, or it's a combo of the two, or, the banksters are running around in circles in their 50th floor offices saying:
Which bids are knocked out by the hedgie credit crunch? Is it possible FSLR will actually be forced to show a few bucks worth of earnings? Will the Chinese love affair (BIDU and the like) hit a snag?
Seriously though, hedgies having trouble getting caish, means that either the banks are so friggin' insolvent, that they not dare lend, or they've looked at hedgie market activity and think the hedgies will blow up, or it's a combo of the two, or, the banksters are running around in circles in their 50th floor offices saying:
"Why the F! don't these windows open!"
LOL. Queue up that Monty Python youtube replay again.
On the otherhand can you imagine the ice cold glares those uppity bankers will be getting at the country clubs around Stamford and Hamptons? They better take their game to the public links...
Of course a year from now the hedgies might be caddies at the public links but you know, comes around goes around and all that.
LOL! Ya, well, most likely they'll just have to give up their fractional jet membership and (horrors!) fly first class instead. Hope the TSA frisks those Italian suits really well.
If you have any serious money in the stock market that you are counting on for financial goals, such as retirement, you would be very smart to let it retreat into cash for at least awhile.
If the combination of recent events and all the expertise available on this board isn't sufficient to convince you of peril in the days ahead, why are you here?
Pakistan is heading into civil war.
Pakistan is a bitter historic enemy of India, and both countries are still feuding over Kashmir. Both countries are significant nuclear powers.
"On the otherhand can you imagine the ice cold glares those uppity bankers will be getting at the country clubs around Stamford and Hamptons? They better take their game to the public links...
Of course a year from now the hedgies might be caddies at the public links but you know, comes around goes around and all that."
Former Hedgie (FH): Yessir I think a nine iron on this shot.
Public Course Bankster (PCB): From the tee?
FH: Oh yessir, here let me show you on my laptop, I have a derivative model that shows...OW! You hit me with a nine iron!
PCB: Do you feel you are being treated...unfairly?
This is the end result of shrubboy's war pig policy. This is BAD. If that idiot monkey's boss orders an attack on Iran we are toast. Else we may get a delay. The SISMI is not totally Pushtun, so, whilsth violence is a necessary cathartic there..it may abate something worse. A crackdown on Pustuns will be REALLY bad!..That's what we need to look for.
I often wonder about adult supervision in the Imperial city.
The politicians are children, like in Rome. But in Rome Adults actually called the shots...unleast toward the end.
Some idiot has advertised that more US troops will be heading Pakistan way next week. That is the most stupid thing I've heard all week.
Supply lines to Afghanistan run through Pak...if they blow up ... what next. This the most incompetant mal-administration I have ever seen, or read about.
The Pustuns (who for the uniformed make up like 90% of the Taliban) could actually get their hands on some pretty clever nuke devices.
I guess shrubboy having 3 HUGE carrier groups in the gulf is a goood idea, but I've heard Paki missles can reach there.
Sort it out yourselves but do not use SU media sources.
Pakistan is a bitter historic enemy of India, and both countries are still feuding over Kashmir. Both countries are significant nuclear powers.
Short emerging markets now, especially India.
rich
I wdn't disagree about shorting Indian stocks - I'm in-n-out short IBN and HDB - but the political landscape between India and Pakistan has changed dramatically. Sport is a good indicator - Pakistan's cricket team was in India over Nov. and Dec for a full series of 1 day and 5 day games and the games went off without any aggravation. There were even some supporters of Pakistan in the stands - the cameras (Zee Sports) picked them out which is how I know and there was a lot of just good cricket and naught else.
The Kashmir issue seems to be just left alone by both sides at the moment - could flare up any minute sure - but there isn't the continual exchange of gunfire and 4 or 5 deaths a week at the Line of Control any more.
Most important, when the Emergency was declared, for once the Indian govt kept WELL OUT OF IT. The public comments were anodyne, non-descripit. "None of our business" seems to be a mantra that they followed.
Now, if only the freakin' USA and the UK and the rest of the interfering shits stayed out of Pakistani affairs the sooner it will resolve itself. Its NOT a jihadist populace, the Sindhis are much like the Gujarathis, the Punjabis - well - only a recent border and religion separates an cultural unity.
It is becoming the equivalent of one spirtually-unified nation with a common purpose. That purpose is pan-Islamic supremacy, which adherents believe will be achieved in part by the symbolic destruction of Israel.
The problem, for them, is that Israel has the means and motive to wipe ALL OF THEM out in 30 days, if attacked.
This war is coming, sooner or later. The main challenge for the U.S., possibly to be decided in the months ahead, is whether this war will be our war.
In any case, this war and the build-up to it is not good for financial markets.
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Some idiot has advertised that more US troops will be heading Pakistan way next week. That is the most stupid thing I've heard all week.
I've been saying for years (since right after Iraq invasion) that Pakistan would be our next big war NOT Iran. Nuclear Taliban and all that.
I had thought once we got bogged down in Iraq we wouldn't be able to finish the job in Afghanistan and it would morph into a mess in Pakistan. Taliban were born in the Madras in Pakistan - it was natural for them to 'retreat' there. They would naturally find safe harbors.
I somewhat agree with sk on India-Pakistan... but it isn't just 'sport' that unifies its also 'class'. Upper crust Indians and upper crust Pakistani have more in common with each other than with their own street. That goes back to the Raj.
In the recent past (before nukes) the upper crust in both countries played the religious and ethnic cards (Hindu India vs Muslim Pakistan) to keep control... now the upper crust have more to fear from their own street than from each other. I'd look for covert co-operation.
I'd also look for the Islamists to try to stir up India now too. I would if I were them, wouldn't you? Understand that there are more Muslims in India than about any other country in the world - they are just outnumbered by Hindus. That's explosive squared.
I fear our folks in DC are as clueless as Jimmy Carter's advisers were about Tehran 1978. I have friends who were there then - the stories they tell make you cringe.
It is becoming the equivalent of one spirtually-unified nation with a common purpose. That purpose is pan-Islamic supremacy, which adherents believe will be achieved in part by the symbolic destruction of Israel.
That's just nonsense. You can't possibly believe that Osama's screeds reflect the objectives and beliefs of those TOTALITARIAN regimes - as regards the populace - o never mind - especially since the content of your knowledge base shows since you didn't even mention the "real" guys - Saudi Arabia, Sudan, Yemen.
You are right - they all agree to varying degrees, populace and govt, in the destruction of Israel but in addition to the fact that Israel can take care of itself, what's it got to do with me, with the USA, with Europe ?
This is my last contribution on this subject. I don't want this to become a "political blog" anymore than anybody else - so I'll let your rebuttal of any of my points be.
-K
wetzel - we kinda already know the answer to that one don't we? Its not just subprime... But does the wider market know that? And what do they do about it when they learn?
Fellows, I worry that if the conversation turns to gloom and doom on the geopolitical stage, we will project the grim Calculated Risk gallows point of view onto discussion of war when the future is actually bright. Talk of Clinton, Obama, and Edwards secretly forming an alliance and triumvarate to govern the country for the next twenty four years. This will usher in the great era of global peace and prosperity!
On top of all the crap that could come down on top of our overstressed military... nearly all the F-15s on domestic air defense for the Air National Guard have been grounded for "possible fleet-wide airworthiness problems." Supposedly all is well... but when we have to accept help from the Canadian Air Force, you've gotta know it's Three Stooges time.
No one seems to be taking into account that the builders will stiff their subcontractors before they take a loss. In fact, the banks encourage them to do so. One of those dirty secrets no one likes to talk about.
So Buffett is starting up a new bond insurer. They probably cannot get big enough fast enough for the demand out there for someone solvent? Can previously issued bonds get reinsured? Have they already paid their premiums?
"Countrywide and other lenders tightened their lending standards last summer to ensure borrowers could afford loans after the interest rates adjusted upward.
Had those guidelines been in effect previously, Countrywide recently said, it would have rejected 89% of the option ARM loans it made in 2006, amounting to $64 billion, and $74 billion, or 83%, of those it made in 2005"
the mind boggles that one single lender could have lent 138 billion in loans in two years only, that its borrowers cannot afford at the full rate after reset.
and another factor to this is that as more and more people who previously did not have to work realise they have to go seeking work to pay the mortgage then wages might actually fall in a high inflation environment. There is just no good news in this. Just bad bad bad.
There is a big difference between airlines and homebuilders. The airlines perform an essential function that cannot be replaced by small, privately-owned local companies. The same cannot be said of the large public homebuilders.
This brings up someting that has always perplexed me. I understand the need for large publically-traded corporations in complex global enterprises like building airplanes, developing drugs and finding, transporting and refining oil. But why do we need global corporations to build houses or make hamburgers or pizza? Local mom & pops seem to be able to do these tasks quite well.
Turns out I was right about everything except my expectation this was a great short. I didn't think it was relative to other builders. The stock is down ~50% since that April call.
W - I suspect an issuer could buy insurance on existing bonds - but why would it? The purpose of the insurance is for the borrower to borrow at a slightly lower rate - and to induce people to buy the bonds. Once the bonds are sold - and trading only on the secondary market - what does the issuer care?
Insuring an entire portfolio of bonds is a different matter - but I don't think that's what this new Buffett company is talking about doing.
Aheadofthecurve - You don't need large corporations to build houses. And I'm sure that a substantial percentage of houses are still being built by mom and pop builders. Or - for example - when you see a name like Arthur Rutenberg - it's a franchise operation.
OTOH - when you look at a company like Lennar - it started really small - in Miami - over 50 years ago. And it grew - and grew.
I think one major cost advantage the big builders have had historically was their ability to buy up large tracts of land at reasonable prices - develop the land - and then sell at a profit. Another cost advantage was repetition - mass production. It is more cost-effective to do the same thing 500 times than once - or even 5 times. My father is a retired builder - and although he was a small builder - he tried to build between 100-300 houses a year.
Also - larger builders usually have the capital to put in the infrastructure which is necessary to develop new areas.
Of course - this model assumes a rising market where people are buying - and the housing market has - in general - been rising for decades - with a few bumps on the way. New communities with thousands of houses have sprung in dozens of areas. In my county - which only has a population of a little over 100,000 - there are currently approved plans for about 30,000 new houses. One development alone - Nocatee - is supposed to have 14,000 houses. All these houses will be built eventually - just not tomorrow (thank goodness).
I don't agree with your POV which seems to say that small and local is better than big and national. If you don't believe me - stop at random in a strange small town and try to get a decent meal. Odds aren't better than 50-50 that it will be ok. Which is why people prefer their Big Macs (a predictable product). Ditto with building. Mass-produced houses may be mediocre - like Big Macs - but they usually aren't disasters. I have seen many homes built by small builders that were.
This will be like the airlines - they'll all be 'considering' BK before long. Just to stay 'competitive'.
This will be like the airlines
Bubble Kaput Airlines... Arrive in worse shape
dryfly, yeah, I'm sure many others are "considering" BK. I expect some top ten builders to do under in '08.
Best Wishes.
2008 will be great for those of us who believe homebuilder BKs are necessary to help resolve the new home building and inventory overhang problem. However, it will be awful for the people who work for these companies. I hope they see the writing on the wall and are preparing for new careers.
Anybody want to start a pool: which of the top ten go BK and in what order?
What is going on in HB world?
In September HOV's CFO is named as a defendant in a misrepresentation claim and no FD disclosure is made upon filing the suit in Federal Court but waits 3 months to bury it in the 10K.
SPF approaching similar financial condition as TOUSA and no going concern warning or heads up from analysts.
LEN is getting foreclosed on one of its Joint Ventures outside of Chicago and the only way shareholders find out is through a local newspaper article.
What happend to SarOx? Where are the analysts? How will this be enforced?
Wally - put me down for Beazer.
2008 will be great for those of us who believe homebuilder BKs are necessary to help resolve the new home building and inventory overhang problem. However, it will be awful for the people who work for these companies. I hope they see the writing on the wall and are preparing for new careers.
Elvis | 12.27.07 - 3:21 pm | #
The worst of all worlds is one where they all race to BK and reset their cost structure and then think everything is now okay for them to keep building like maniacs. Again - not unlike how airlines all went BK (destroying equity), demanded give backs from workers then went about trying to fly the same number of seats all over as always... it was only recently they seriously cut back on flights (within the last year or so)... and with that profitability improved.
This could be a loooooong drawn out affair for HBs and their suppliers. Nothing like having to reinvent the wheel every damned time... doesn't anyone teach economic history in MBA programs?
Wally,
Standard Pacific might go next.
Speaking of airlines, you all heard of the MaxJet BK, right?
2008 will be BK city -- I'm figuring a number of HBs, airlines and automakers to all be filing at some point this coming year.
Ryland
What happend to SarOx? Where are the analysts? How will this be enforced?
The analysts will be the same place they were the day before Enron and Worldcom went BK. That would be upgrading the builders, right before buzzards descend from the sky to pick the carcasses clean. Anyone remember Abby Joseph Cohen and her infamous S&P 1500 call in 2000?
One can hope that the SEC is currently compiling a watchlist of various individuals and that justice will be someday served. However, I'm too cynical to believe it will.
Watch out for yourself, do your own research, don't let the pigmen take your hard earned money.
After Standard Pacific, it might be Hovnania
CR,
I know you've detailed how mortgage applications have been a lousy indicator, but your "Mortgage Insider" link is showing "Mortgage Applications Plummet". Seems like the positive bias in a lot of indicators (e.g., median prices, mortgage apps, employment) is dissipating.
Pulte only because Ryland is taken.
Citi may face $19 billion writedown & Goldman Sachs said bank may cut dividend 40% to preserve capital. (What capital?)
Business, financial, personal finance news - CNNMoney.com
Darn, someone took Ryland. Can I add 1 dollar to Ryland like they used to do on The Price is Right?
TOUSA believes that the worst case scenario will result in the loss of TOUSA Homes LP's (the subsidiary through which TOUSA holds its membership interest) investment in the Joint Venture of $92.6 million and introduce significant doubt regarding the eventual recoverability of $48.5 million of loans and receivables. This worst case scenario would require an after-tax charge of approximately $89.0 million (or approximately $1.50 per share) by TOUSA. Other scenarios would of course result in lower after-tax charges.
Which banks have the highest exposure to home builders?
"The worst of all worlds is one where they all race to BK and reset their cost structure and then think everything is now okay for them to keep building like maniacs..."
Dryfly
My guess is that won't happen in the face of 4M home inventory overhang. You could fool the lenders for awhile with the "housing fundamentals are the best ever" line, but, now, the tide has changed and lenders are very afraid of homebuilders. We'll see...
Which banks have the highest exposure to home builders?
The ones with either vowels or consonants in their name.
Which banks have the highest exposure to home builders?
Those in the steamroom with them...
My guess is that won't happen in the face of 4M home inventory overhang.
I would agree with you except if you look at the airline industry they flew empty seats around at discounted fares LONG after it was obvious that was a losing B-Model. Same with auto producers - built cars they couldn't sell, lease or give away zero down liar loan style long after the red ink flowed. Are builders that much smarter?
I'll believe the build slows when I see it.
to the dude who posted about the "worst case scenario" being an $89m after-tax loss. That's a $140m pre-tax loss, and they have
John Berry: Subprime Fallout Won't be as Bad as Some are Predicting
John Berry says losses from the subprime mess will be big, but "not nearly enough to sink the U.S. economy":
Subprime Losses Are Big, Exaggerated by Some, by John M. Berry, Commentary, Bloomberg: As the U.S. savings and loan crisis worsened in the 1980s, analysts tried to top each other's estimates of the debacle's cost... Much the same thing is happening now with losses linked to subprime mortgages, with figures of $300 billion to $400 billion being bandied about.
A more realistic amount is probably half or less than those exaggerated projections -- say $150 billion. That's hardly chicken feed, though not nearly enough to sink the U.S. economy. ...
There are two reasons why the losses aren't likely to be so large.
First, the mortgages are backed by collateral, a house or condominium, and in a foreclosure a home typically retains significant value. When it is sold, the lender often will get 50 percent to 60 percent or more of the loan amount after foreclosure expenses.
Second, most subprime borrowers aren't going to default. ...
What does that mean for the broader economy, particularly consumer spending? ...
The economic repercussions of the housing bust and mortgage woes are limited to a great extent because less than half of American families own a home with a mortgage... Almost a third of all families rent their house or apartment, almost a fourth own and have no mortgage and the vast majority with a mortgage are current in their payments.
Even with about a tenth of all subprime mortgages now in foreclosure, only a small share of all American families -- about 0.3 percent -- own a home in foreclosure...
Comparisons in dollars of constant value between likely subprime losses and those incurred during the S&L crisis indicate the 1980s hit was significantly greater, though the current episode still has a long way to run. ...
dryfly,
Happy Holidays. I think that a key difference between the airline industry and the homebuilders is that the former is almost a de facto government-sponsored business. Let's face it, it is in the national interest to have several viable US airline companies, as they enable interstate commerce along with other vital economic activity. If 9/11 couldn't wipe them out, nothing short of a calamity 10 times worse will.
On the other hand, you could wipe out every single public homebuilder and I doubt there would be much net effect on the national security, nor on most other industries ability to survive. When housing demand comes back, smaller private builders could easily replace the large public ones that go kaput.
Even the U.S. auto industry has more power and clout in D.C. I recall the Chrysler bailout back in the early 80's was done partially in the "national interest".
Dryfly,
The thing that's different is that this is the first time conditions for HBs have deteriorated this quickly. It's usually several years before the math works out that it is cheaper to abandon than to built out to completion and sell at any cost.
The only local equivalent is probably the oil patch in the 80s. There won't be any build slows, just build anything with value asap and walk away from everything else.
Panicker "After Standard Pacific, it might be Hovnanian"
I agree, but really any builders with notes to roll soon are in trouble.
Mar 28, 2007 I predicted these guys would be the first large builder to go bust:
Implode-Explode Forums :: View topic - Builder Implode-O-Meter
It sounds to me that John Berry has not looked closely enough at this issue to know what he is talking about.
Panicker, no fair - Standard Pacific isn't in the top ten.
The only local equivalent is probably the oil patch in the 80s. There won't be any build slows, just build anything with value asap and walk away from everything else.
Robert Coté | Homepage | 12.27.07 - 4:22 pm | #
Sounds like a plan. Are we too late to sign up? I'd like to be part owner of a baseball team too. I wonder if we can throw that in. Or become president... But if I had to choose I'd rather own the baseball team.
When it is sold, the lender often will get 50 percent to 60 percent or more of the loan amount after foreclosure expenses
Another way of looking at the prospect is that total NET mortgage borrowing was ~$4,000,000,000,000 2003-2006. If 10% of that net lending goes poof -- and since appreciation was on the order of 100% during this timescale, 10% is if anything a low-ball -- , that's . . . $400B in asset losses.
I'm no expert, but 30% of that four trillion disappearing over the next 4 years wouldn't surprise me one bit.
BZH will be next..
"John Berry"
Maybe he should tell his buddy helicopter Ben to lighten up on the rate cuts then all those things in the off budget CPI are kicking my ass.
Re: according to Jean-Francois Robin of the French bank Natixis, "it's not that there is a lack of liquidity (in the global financial system), it's that it is not circulating."
Hmm, sounds like a Katrina thing?
--
Of the top 100 Hopebuilders no more than 10 will remain by 2010. Many will go bankrupt and others will consolidate.
Good news for Hopebuilders is that they are building and starting lot less than "the estimated demand of 1.7M annual rate" and working off the inventory. Pretty soon we will run into a shortage of housing units.
Jas
The homebuilders won't follow the airlines model simply because, after they declare bankruptcy, they will have zero access to credit.
Years ago when the airlines were going through BK, the credit markets were still roaring, and when they emerged there were lenders with extra cash willing to take a chance on them, and they could take out some borrowings to get by on their broken model until the next bankruptcy. This time around, the credit window will be shut. Nobody will be lending to a post-bankrupt homebuilder because nobody will be lending to homebuilders, period.
Homebuilders will be looking at a cash-only business following any bankruptcy declaration, and even then the contractors will be looking closely at the bills to check for watermarks. They will continue building--it's what they do, after all--but only as fast as they can sell, which will be, well, not fast.
The homebuilders won't follow the airlines model simply because, after they declare bankruptcy, they will have zero access to credit.
Agreed. These guys have huge amounts of debt, a lot of it is in off-balance sheet joint ventures that come home to roost when they implode (sound familiar?)
Personally, I always felt that a publicly traded homebuilder was problematic. A privately held builder can just contract (if they were smart enough to read the market. But how can a publicly traded business do that?
Agreed. These guys have huge amounts of debt, a lot of it is in off-balance sheet joint ventures that come home to roost when they implode (sound familiar?)
Well that's the whole idea behind BK - have debt go bye-bye. I agree the credit crunch could complicate things but the miracle of corporate BK is the first to get the slate clean is the one most likely to survive in the 'long run' because theirs is the cost structure made competitive first.
Seriously - that is one of the major flaws with the BK code that WASN'T addressed in the last 'reform'. No surprise since it wouldn't have benefited credit card companies.
dryfly:
MBA's don't study economic history because they are too busy studying Modigliani-Miller (Debt-Don't-Matter) and Black-Scholes (Everything-Can-Be- Arbitraged).
They also don't study micro-economics. Or else, they would know industries with high fixed costs (Airplanes) and minimal barriers to entry will tend to have prices set to cover only marginal costs, not full costs.
They also don't study micro-economics. Or else, they would know industries with high fixed costs (Airplanes) and minimal barriers to entry will tend to have prices set to cover only marginal costs, not full costs.
There's the magic of Corp BK again... turning full cost back into marginal cost... at the expense of stock and bond holders. Of course its benefit is only temporary but then in the long run we're all dead, right?
Not sure how I missed Ryland. How did they sneak in there?
...in the long run we're all dead, right?
Not if you studied under Professors Ghoulardi and Elvira, then you would know that zombies never die. They go on and on and on...
And I thought this week was going to be quiet! First you have the news about Sallie Mae lsing a forward equity bet in a HUGE way (buy back shares at $45 while they sell now for $20) and all the while the CEO was dumping his shares in Mozillo like fashion. Then you have Goldman Sachs lowering the boom on Citi and pals with a terrible loss forecast. I hope Goldman will not need any help from the other banks anytime soon. My pick for BK builder is BZH of course.
One thought on BK in the homebuilding industry vs. the airplane industry:
I think the airlines came out of BK relativly unscathed since they had near zero real assets (most planes leased) and the creditors only had hope of getting anything back if they let the planes continue flying and producing at least some cash from paying passangers.
Homebuilders have assests the creditors can understand- land, homes-and which can be actioned off piece meal by creditors to raise some cash. They are going to be less willing to just take a haircut and let the builder keep building when they think the assests are worth something when seperated from the company, whereas the airlines' assets are worth nothing seperated from the company.
barely: "I agree, but really any builders with notes to roll soon are in trouble."
Yep. And those builders who default on covenants, forcing them to roll early.
Next to go down could be LEN.
Joint Ventures May Bury Builders | Real Estate | Financial Articles & Investing News | TheStreet.com
This time around, the credit window will be shut.
IMO this is (or will be) happening to everyone, not just HBs. Unusually loose credit leads to unusually high defaults which in turn leads to unusually tight credit, which leads to more defaults, etc. The vicious cycle, you know.
ot
The Fed can let the deflationary journey run its course, as it should, but can also truncate both the length and the severity of the journey by dramatically lowering the risk-free rate of return on cash, while making the stuff very, very abundant.
By doing so, the Fed will lift the intrinsic value of all assets versus what otherwise would be the case, as well as spark animal-spirited buying interest in all assets once they fall below intrinsic value.
BB: Sounds sensible, so we should expect the Fed to do that, right? And what about fiscal policy? Is there a truncate-the-journey role for that policy tool as well?
PM: Spot on regarding the Fed: look for rate cuts at every FOMC meeting for the next two to three quarters, taking the Fed funds rate down to at least three percent, and quite possibly lower.
The page cannot be found
Paul McCulley giving his new bunny an incomplete description of inflation and what will cause the next bubble. Why would anyone is buying US bonds unless your Japanese is something I just can't understand.
slightly off topic
the story is getting more hilarious at the the other GSE Sallie Mae
They are now buying back stock at twice the current value because they entered into an equity forward contract.
I predict the the CEO Lord will take his hundreds of millions into retirement.
And there is probably a government bailout somewhere along they way.
Isnt there a implied tax payer guarantee ?
As per CEO in his last earnings call
"lets get the f*** out of here"
Bad Bet Bites Sallie Mae - Forbes.com
It's not quite fair to talk about the top 10. For example, I remember buying at the money puts on SPf at $35. At that point they probably were in the top 10. I also bought to close my last puts of SPF at < $4 a few weeks ago. Most companies will drop out of the top 10 as they approach BK
Tanta-
if you would take the time to provide an opinion, it would be much appreciated-
In regard to the following statement by Fitch, after reading this, it brings forth the question concerning how a mistake like this could be made in this environment? How in the hell could they miss the strength of an underlying security and issue a downgrade based on their outlook change on the insurer? Only now to reverse the decision two weeks later?
"Classes 1A3 and 1A7 of trust CWMBS 2004-8 benefit from a financial guaranty provided by XL Capital Assurance Inc, a subsidiary of Security Capital Assurance Ltd. (SCA). Fitch placed the 'AAA' Insurer Financial Strength (IFS) rating of SCA and its subsidiaries on Rating Watch Negative on Dec. 12 following the rating agency's updated assessment of SCA's current exposure to RMBS, SF CDOs backed by subprime mortgage collateral and CDO-squared transactions. As a result, classes 1A3 and 1A7 were placed on Rating Watch Negative. However, Fitch has subsequently determined that the classes have sufficient additional credit enhancement to maintain their 'AAA' rating without the financial guaranty. The ratings for classes 1A3 and 1A7 are affirmed and removed from rating watch."
404 - Centre Daily Times | State College PA & Penn State News
I vote with dryfly. Bankruptcy of a homebuilder will wipe out the stockholders, but leave the management (relatively) unscathed and working for creditors who will want to recover as much as possible from the assets (mostly land) of which they've ended up owners. The only way to do that will be to build homes on that land. (What else might they do with it?) With labor and materials costs far below bubble levels, new construction will easily undercut the prices existing-home owners will be willing or able to accept.
Building is what builders do.
And the banks will lend them money, too. That's how banks make money. What else are they going to do?
Yes, lending standards will be a lot stricter. But some people will still be buying homes, and be able to put 20% down, and they're going to get great deals.
I'll take Toll Bros. in the dead pool. I don't really think they'll be next but I always thought the guys were kind of snarky. So be it. Toll.
Well that's the whole idea behind BK - have debt go bye-bye. I agree the credit crunch could complicate things but the miracle of corporate BK is the first to get the slate clean is the one most likely to survive in the 'long run' because theirs is the cost structure made competitive first.
They won't leave bankruptcy with any capital, and do you honestly think anyone is going to lend new money to a company wanting to build new houses next year? Banks are going to be choosing who they lend to very carefully over the next year or two. There simply is no market for new homes, and the one asset they have is hugely devalued land that will most likely be sold off to pay creditors. There's nothing left, they have no big factories that are hard to replace, just a slew of semi-skilled workers. I sincerely doubt any of these companies will emerge from bankruptcy.
Airlines, with their rights to gates, aircraft, etc., and a reasonably steady market really aren't comparable at all to what is one of the most cyclical of businesses.
hopeinsd opines that the homebuilders' creditors can auction off the land.
But there's not going to be much of a market for those lots except among people who intend to build homes on them.
Interesting article re Miami condos:
Related considering fund to buy-up condos - South Florida Business Journal:
You do know that when things hit rock bottom - whenever that is - vulture investors will scoop up assets for small change on the dollar - and - if they can last for a while - they will do ok. Unfortunately - this kind of investing usually isn't available to average guys like us.
"When there's blood in the streets, buy property". Jodie Foster in "Inside Man"
We just have some pinkish stuff in the gutters so far.
Even the U.S. auto industry has more power and clout in D.C. I recall the Chrysler bailout back in the early 80's was done partially in the "national interest".
Lee Iacocca invoked the national security argument when he went to Washington for the Chrysler bailout. At that time a Chrysler division called Chrysler Military was the prime contractor for the M1 Abrams tank and it being the early 80s, the Cold War was still on, so the money was forthcoming. On the other hand the warrants Chrysler gave the government in exchange turned out to be worth a good amount of money when the time came to cash them in.
And as a final footnote, after the deal was done, Chrysler sold the military division to Litton.
Bob in Massachusetts - I think you are naive. Just about every big deal builder I've ever met who has been around for a while has gone bankrupt once or twice before. It's how the game is played. As someone who's not a "player" - all you want to make sure of is a developer isn't holding your deposit when he walks into bankruptcy court.
Didn't see this mentioned anywhere...
Citi May Write Down $18.7B, Analysts Say
Expired
So much for the sheik cure.
NVR
Given what's happening all around, the balance sheet looks too good to be true.
Just about every big deal builder I've ever met who has been around for a while has gone bankrupt once or twice before.
Your circle of "bid deal builder" acquaintances is very narrow. Not one of the public builders considered on this thread has either filed for, or emerged from, bankruptcy.
At the end of next year, of course, that won't be true. At least the first part, anyway.
Well, number2son, the envelope please (prediction?)..
barely,
These will most certainly be gone:
And for those that are still standing, expect balance sheets that are literally torn to shreds.
I'm short CTX and RYL (hello Robyn), and I expect them to be in the second group, but I wouldn't be surprised if they or any number of others (HOV, PHM, LEN) went under. MTH is another one to watch for implosion.
What happens to the 10 year warranties, that they provide, to new home buyers ?
Unfortunately, home warranties becomes as worthless as the builder's stock and bond equity.
I recall the Chrysler bailout back in the early 80's was done partially in the "national interest".
even apart from the pure military work the skillsets themselves to create every-day motor vehicles is in fact strategically important to a mechanized armed force.
Throwing together concrete, douglas fir, gypsum board, granite, and stucco into living spaces, not so much.
I agree that the shareholders will be the main losers when public builders go ch. 11. The whole point of this type of bankruptcy is usually to allow the company to reorganize and emerge free from debt. However, I'm not so certain they keep on building during the reorg. For one thing, all of their labor is done by contractors and subs who may not be inclined to work for free. If I'm Joe sub-contractor and I pick up the WSJ and read that Beazer is bankrupt, no way am I gonna get in line with all the other creditors and hope to get pennies. I'll take my chances with another builder, find work elsewhere or just sit home and collect unemployment.
Kara homes (NJ) already went bankrupt last year and I believe that once this happened 1. all work stopped 2. their home sites had to be sold/auctioned off to other builders.
<a href="http://www.hobb.org/index.php?option=com_content&task=view&id=1534&Itemid=197>Kara BK
hedge funds having credit problems...
Hedge Funds Feeling Pinch on Credit, Too - WSJ.com
Good for you number2son - where's the rest of your portfolio invested (it's important to be diversified)?
most cash from fed auction goes to NY area banks...
Fed Auction's Biggest Interest Comes From Wall Street Area - WSJ.com
from houston's link and I told you this was coming-
"Investment banks are cutting back on loans to hedge funds, eliminating some clients and raising borrowing fees for others. The lenders are slimming their balance sheets after heavy losses in the debt markets in recent months. And, after taking multibillion-dollar write-downs, they also are becoming more cautious as the economy slows, according to people familiar with the situation."
risk capital,
Cutting off hedge funds? Think that could impact the markets just a lil' bit?
Map of TOUSA Homes development locations...
:::: TOUSA :: Breaking new ground ::::
Looks like many of the usual suspects (LV, PHX, TX, FL plus the mid-Atlantic).
tj-
looks like volatility rules for awhile and I would guess that you will soon learn what they were short, long, and concentrated in based on the erratic movement.
freakin goody
Houston,
we have a problem.
"Banks aren't in a position to be accommodating at the moment," said Michael Hintze, chief executive of CQS"
Unless they're making equity deals with China/SEA/Arabs. Then they'll sell their souls.
Cheers,
sheik-en bake
OK,
I'll bite.
We've had
Sheik-en not stirred.
Sheik-en bake
How's about Sheik-en in their boots.
Cheers,
Seriously though, hedgies having trouble getting caish, means that either the banks are so friggin' insolvent, that they not dare lend, or they've looked at hedgie market activity and think the hedgies will blow up, or it's a combo of the two, or, the banksters are running around in circles in their 50th floor offices saying:
"Why the F! don't these windows open!"
Cheers,
Sheik-down?
Which bids are knocked out by the hedgie credit crunch? Is it possible FSLR will actually be forced to show a few bucks worth of earnings? Will the Chinese love affair (BIDU and the like) hit a snag?
Unless they're making equity deals with China/SEA/Arabs. Then they'll sell their souls.
Souls come cheap when priced in yuan.
risk capital,
Did you see the last contraryinvestor post? Great stuff on NYSE margin debt that dovetails nicely.
Seriously though, hedgies having trouble getting caish, means that either the banks are so friggin' insolvent, that they not dare lend, or they've looked at hedgie market activity and think the hedgies will blow up, or it's a combo of the two, or, the banksters are running around in circles in their 50th floor offices saying:
"Why the F! don't these windows open!"
LOL. Queue up that Monty Python youtube replay again.
On the otherhand can you imagine the ice cold glares those uppity bankers will be getting at the country clubs around Stamford and Hamptons? They better take their game to the public links...
Of course a year from now the hedgies might be caddies at the public links but you know, comes around goes around and all that.
LOL! Ya, well, most likely they'll just have to give up their fractional jet membership and (horrors!) fly first class instead. Hope the TSA frisks those Italian suits really well.
dryfly,
Never a problem bud...Happy New Year:
YouTube -
Cheers,
If you have any serious money in the stock market that you are counting on for financial goals, such as retirement, you would be very smart to let it retreat into cash for at least awhile.
If the combination of recent events and all the expertise available on this board isn't sufficient to convince you of peril in the days ahead, why are you here?
Pakistan is heading into civil war.
Pakistan is a bitter historic enemy of India, and both countries are still feuding over Kashmir. Both countries are significant nuclear powers.
Short emerging markets now, especially India.
dryfly,
"On the otherhand can you imagine the ice cold glares those uppity bankers will be getting at the country clubs around Stamford and Hamptons? They better take their game to the public links...
Of course a year from now the hedgies might be caddies at the public links but you know, comes around goes around and all that."
Former Hedgie (FH): Yessir I think a nine iron on this shot.
Public Course Bankster (PCB): From the tee?
FH: Oh yessir, here let me show you on my laptop, I have a derivative model that shows...OW! You hit me with a nine iron!
PCB: Do you feel you are being treated...unfairly?
Cheers,
rich,
This is the end result of shrubboy's war pig policy. This is BAD. If that idiot monkey's boss orders an attack on Iran we are toast. Else we may get a delay. The SISMI is not totally Pushtun, so, whilsth violence is a necessary cathartic there..it may abate something worse. A crackdown on Pustuns will be REALLY bad!..That's what we need to look for.
Cheers,
This is BAD.
Timing could not have been worse considering the global economic situation & the lack of adult supervision in Washington. Anything could happen.
Sheik-en not stirred.
Sheik-en bake
How's about Sheik-en in their boots.
Marks adds Sheik-down...
Keep the list running all!
Cheers,
dryfly,
I often wonder about adult supervision in the Imperial city.
The politicians are children, like in Rome. But in Rome Adults actually called the shots...unleast toward the end.
Some idiot has advertised that more US troops will be heading Pakistan way next week. That is the most stupid thing I've heard all week.
Supply lines to Afghanistan run through Pak...if they blow up ... what next. This the most incompetant mal-administration I have ever seen, or read about.
The Pustuns (who for the uniformed make up like 90% of the Taliban) could actually get their hands on some pretty clever nuke devices.
I guess shrubboy having 3 HUGE carrier groups in the gulf is a goood idea, but I've heard Paki missles can reach there.
Sort it out yourselves but do not use SU media sources.
Cheers,
Pakistan is a bitter historic enemy of India, and both countries are still feuding over Kashmir. Both countries are significant nuclear powers.
Short emerging markets now, especially India.
rich
I wdn't disagree about shorting Indian stocks - I'm in-n-out short IBN and HDB - but the political landscape between India and Pakistan has changed dramatically. Sport is a good indicator - Pakistan's cricket team was in India over Nov. and Dec for a full series of 1 day and 5 day games and the games went off without any aggravation. There were even some supporters of Pakistan in the stands - the cameras (Zee Sports) picked them out which is how I know and there was a lot of just good cricket and naught else.
The Kashmir issue seems to be just left alone by both sides at the moment - could flare up any minute sure - but there isn't the continual exchange of gunfire and 4 or 5 deaths a week at the Line of Control any more.
Most important, when the Emergency was declared, for once the Indian govt kept WELL OUT OF IT. The public comments were anodyne, non-descripit. "None of our business" seems to be a mantra that they followed.
Now, if only the freakin' USA and the UK and the rest of the interfering shits stayed out of Pakistani affairs the sooner it will resolve itself. Its NOT a jihadist populace, the Sindhis are much like the Gujarathis, the Punjabis - well - only a recent border and religion separates an cultural unity.
Lets just stay out of that place.
-K
Iraq, Iran, Syria, Afghanistan, Pakistan.
It is becoming the equivalent of one spirtually-unified nation with a common purpose. That purpose is pan-Islamic supremacy, which adherents believe will be achieved in part by the symbolic destruction of Israel.
The problem, for them, is that Israel has the means and motive to wipe ALL OF THEM out in 30 days, if attacked.
This war is coming, sooner or later. The main challenge for the U.S., possibly to be decided in the months ahead, is whether this war will be our war.
In any case, this war and the build-up to it is not good for financial markets.
sk
My point above is that the US is NOT going to stay out of it....that's the REALLY bad thing.
Cheers,
http://www.fakepaycheckstubs.com is the website to goto In these times of economic woes, i say if you cant beat them, join them! Get the car or home loan you deserve! GET THE COMMISSIONS
YOU DESERVE! Bad credit or not http://www.fakepaycheckstubs.com you can get approved by any bank for any amount......
rich,
Let Isarael do it and show to the world what the are.
I refuse to be a party to it.
And yet still someone will want to hit the US as well.
Gah!...
Cheers,
Some idiot has advertised that more US troops will be heading Pakistan way next week. That is the most stupid thing I've heard all week.
I've been saying for years (since right after Iraq invasion) that Pakistan would be our next big war NOT Iran. Nuclear Taliban and all that.
I had thought once we got bogged down in Iraq we wouldn't be able to finish the job in Afghanistan and it would morph into a mess in Pakistan. Taliban were born in the Madras in Pakistan - it was natural for them to 'retreat' there. They would naturally find safe harbors.
I somewhat agree with sk on India-Pakistan... but it isn't just 'sport' that unifies its also 'class'. Upper crust Indians and upper crust Pakistani have more in common with each other than with their own street. That goes back to the Raj.
In the recent past (before nukes) the upper crust in both countries played the religious and ethnic cards (Hindu India vs Muslim Pakistan) to keep control... now the upper crust have more to fear from their own street than from each other. I'd look for covert co-operation.
I'd also look for the Islamists to try to stir up India now too. I would if I were them, wouldn't you? Understand that there are more Muslims in India than about any other country in the world - they are just outnumbered by Hindus. That's explosive squared.
I fear our folks in DC are as clueless as Jimmy Carter's advisers were about Tehran 1978. I have friends who were there then - the stories they tell make you cringe.
Credit Crisis? Just Wait for a Replay
Dryfly
Let us hope that the troops sent understand the arena...if they don'e...this is gonna hit the s*it fan hard.
Cheers,
Iraq, Iran, Syria, Afghanistan, Pakistan.
It is becoming the equivalent of one spirtually-unified nation with a common purpose. That purpose is pan-Islamic supremacy, which adherents believe will be achieved in part by the symbolic destruction of Israel.
That's just nonsense. You can't possibly believe that Osama's screeds reflect the objectives and beliefs of those TOTALITARIAN regimes - as regards the populace - o never mind - especially since the content of your knowledge base shows since you didn't even mention the "real" guys - Saudi Arabia, Sudan, Yemen.
You are right - they all agree to varying degrees, populace and govt, in the destruction of Israel but in addition to the fact that Israel can take care of itself, what's it got to do with me, with the USA, with Europe ?
This is my last contribution on this subject. I don't want this to become a "political blog" anymore than anybody else - so I'll let your rebuttal of any of my points be.
-K
What if its not just subprime?
wetzel - we kinda already know the answer to that one don't we? Its not just subprime... But does the wider market know that? And what do they do about it when they learn?
Asia mostly down and Pakistan markets remained closed. US futures UP however. Gotta juice those final 07 statements, somehow...
sk
"specially since the content of your knowledge base shows since you didn't even mention the "real" guys - Saudi Arabia, Sudan, Yemen."
What about them? They still get their money tyhe esy way."
Cheers,
Heck, it's never been just about subprime. That's just the superficial view that's been foisted on J6P by TPTB to keep him in line and fully invested.
Fellows, I worry that if the conversation turns to gloom and doom on the geopolitical stage, we will project the grim Calculated Risk gallows point of view onto discussion of war when the future is actually bright. Talk of Clinton, Obama, and Edwards secretly forming an alliance and triumvarate to govern the country for the next twenty four years. This will usher in the great era of global peace and prosperity!
wetzel,
You cause me fear...and I'm done for the night.
Cheers,
Floyd Norris: Credit Crisis? Just Wait for a Replay
HIGH & LOW FINANCE; Credit Crisis? Just Wait For a Replay - NY Times
"The problem, for them, is that Israel has the means and motive to wipe ALL OF THEM out in 30 days, if attacked."
Except Russians are now in Syria, establishing a permanent military base there. That had made smug Israeli generals screaming like crazed monkeys.
Sheik-cago Cubs win the World Series
umber2son, on MTH, do you think 1H08 is likely? More than 30% probability? I know none of us knows, but just give your best guess, if you can oblige.
On top of all the crap that could come down on top of our overstressed military... nearly all the F-15s on domestic air defense for the Air National Guard have been grounded for "possible fleet-wide airworthiness problems." Supposedly all is well... but when we have to accept help from the Canadian Air Force, you've gotta know it's Three Stooges time.
The article requested is no longer available.
Found that bit of capital that's no longer available to the hedgies.
this war and the build-up to it is not good for financial markets
. . . but I wouldn't short LMT
)
No one seems to be taking into account that the builders will stiff their subcontractors before they take a loss. In fact, the banks encourage them to do so. One of those dirty secrets no one likes to talk about.
So Buffett is starting up a new bond insurer. They probably cannot get big enough fast enough for the demand out there for someone solvent? Can previously issued bonds get reinsured? Have they already paid their premiums?
LA Times
Prime loans seeing rise in defaults - Los Angeles Times
"Countrywide and other lenders tightened their lending standards last summer to ensure borrowers could afford loans after the interest rates adjusted upward.
Had those guidelines been in effect previously, Countrywide recently said, it would have rejected 89% of the option ARM loans it made in 2006, amounting to $64 billion, and $74 billion, or 83%, of those it made in 2005"
the mind boggles that one single lender could have lent 138 billion in loans in two years only, that its borrowers cannot afford at the full rate after reset.
and another factor to this is that as more and more people who previously did not have to work realise they have to go seeking work to pay the mortgage then wages might actually fall in a high inflation environment. There is just no good news in this. Just bad bad bad.
Remember all that talk about how the US wasn't Argentina...
FT.com / Comment / Analysis - America faces a diplomatic penalty as the dollar dwindles
credit deleveraging spreading to hedge funds:
Hedge Funds Feeling Pinch on Credit, Too - WSJ.com
repo rates went from +10bps to over 100bps on HY
personally could comment IBs don't like to close out CDS if it results with cash outflow. most of the stuff is done T+0 vs T+3 just half a year ago.
size of leveraged HF asset base is compareable to a large industrialized country and they are huge in CDS.
This will be like the airlines
Bubble Kaput Airlines... Arrive in worse shape
A double whammy for Grace L. Ferguson inc.: Fuel prices are up on the airline side and sales are down for stormdoors.
There is a big difference between airlines and homebuilders. The airlines perform an essential function that cannot be replaced by small, privately-owned local companies. The same cannot be said of the large public homebuilders.
This brings up someting that has always perplexed me. I understand the need for large publically-traded corporations in complex global enterprises like building airplanes, developing drugs and finding, transporting and refining oil. But why do we need global corporations to build houses or make hamburgers or pizza? Local mom & pops seem to be able to do these tasks quite well.
http://www.weblinks247.com/indexes/idx24_usd_en_2.gif
Bucky getting the beat down it so richly deserves.
STOP THIS MADNESS, FOR PETE'S SHEIK!!!!
Saudia Arabia has always been sheiky but Cheney still wants to sheik rattle and roll on Iranian movers and sheikers but the NIE is sheiking its head.
patientrenter, what I know about MTH is that they have extremely dishonest management.
I used to post conference call notes on this company until the summer, when they fell off a cliff with the rest of the HBs.
Here's my last summary:
Yahoo! Message Boards - Meritage Homes Corporation - Conference call notes
Turns out I was right about everything except my expectation this was a great short. I didn't think it was relative to other builders. The stock is down ~50% since that April call.
W - I suspect an issuer could buy insurance on existing bonds - but why would it? The purpose of the insurance is for the borrower to borrow at a slightly lower rate - and to induce people to buy the bonds. Once the bonds are sold - and trading only on the secondary market - what does the issuer care?
Insuring an entire portfolio of bonds is a different matter - but I don't think that's what this new Buffett company is talking about doing.
Aheadofthecurve - You don't need large corporations to build houses. And I'm sure that a substantial percentage of houses are still being built by mom and pop builders. Or - for example - when you see a name like Arthur Rutenberg - it's a franchise operation.
OTOH - when you look at a company like Lennar - it started really small - in Miami - over 50 years ago. And it grew - and grew.
I think one major cost advantage the big builders have had historically was their ability to buy up large tracts of land at reasonable prices - develop the land - and then sell at a profit. Another cost advantage was repetition - mass production. It is more cost-effective to do the same thing 500 times than once - or even 5 times. My father is a retired builder - and although he was a small builder - he tried to build between 100-300 houses a year.
Also - larger builders usually have the capital to put in the infrastructure which is necessary to develop new areas.
Of course - this model assumes a rising market where people are buying - and the housing market has - in general - been rising for decades - with a few bumps on the way. New communities with thousands of houses have sprung in dozens of areas. In my county - which only has a population of a little over 100,000 - there are currently approved plans for about 30,000 new houses. One development alone - Nocatee - is supposed to have 14,000 houses. All these houses will be built eventually - just not tomorrow (thank goodness).
I don't agree with your POV which seems to say that small and local is better than big and national. If you don't believe me - stop at random in a strange small town and try to get a decent meal. Odds aren't better than 50-50 that it will be ok. Which is why people prefer their Big Macs (a predictable product). Ditto with building. Mass-produced houses may be mediocre - like Big Macs - but they usually aren't disasters. I have seen many homes built by small builders that were.