Chuck Ponzi August 9th, 2007

This was the headline of some financial reasearch issued by Joseph Hargett of Schaeffer Research on March 27th, 2007.

I’ll let you decide how prudent that advice was by viewing the top homebuilders’ stocks from that date until today measured against the S&P 500.

I’m predicting that even with all of the price declines, I believe there’s still a lot more.

Here is what Joseph had to say:

It seems you can’t talk about the housing sector these days without mentioning the “S” word. Subprime, yes I said it, has even wormed its way into the vernacular of many Fed watchers and Fed members - not to mention the warning shots fired from the sidelines by former Federal Reserve chief Alan Greenspan every other week or so. This morning, the Fed sounded yet another gloom and doom note for the housing sector, as Sandra Braunstein, the director of the Fed’s division of consumer and community affairs, stated that borrowers could see “more difficulty” in the next one to two years. In particular, those borrowers with recently originated adjustable-rate mortgages are likely to experience more delinquencies and foreclosures, Braunstein said.

and

Admittedly, the situation is not very flattering for the U.S. housing market. However, I think that the hype over the popping of the so called “housing bubble” is being overplayed just a bit too much. Just take this quote from a March 18 New York Times article titled “On the Homefront”: “In many quarters, Greenspan was essentially accused of cheating the country out of the depression we deserved: instead of allowing the swooning Nasdaq to bring down the United States economy and punish us for our sins, he had rolled the tech bubble into a housing bubble and allowed the party to go on.”

Blaming Greenspan seems convenient at this point, especially with Bernanke’s Fed in a holding pattern. And comparing the “Dot-com” bust to the current situation in housing seems rather irresponsible. After all, betting on virtual real estate seems a far cry from betting on housing prices and “real” real estate. I mean, can you really compare the long defunct Pets.com and WebVan to Lennar ( LEN: sentiment, chart, options) and Hovnanian (HOV: sentiment, chart, options) ?

I have sat on this article for 5 months to see if my research was right on where they were headed… in an effort to dispel any myths. He was dead wrong, and worse than that, revealed poor research on the underlying fundamentals of the housing problem. It is and still is an affordability crisis. The decline in sales will not abate until that affordability standard is reachieved. At current course and speed, that won’t be for another 2 years at the minimum.

I believe that we will still see some of these builders declare bankruptcy (ch 11) before this bust is through.

• Bubble , Contrary Indicators , Housing Costs , Housing Crash , Inventory , Mean Reversion
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Chuck Ponzi February 26th, 2007

The slow news days the past few days in SoCal has given me an opportunity to take a trip around the area. This last weekend I failed to post because I was visiting locations in Orange County, Riverside, San Bernardino, and Victor Valley. Needless to say, for me it was busy.

For real estate in SoCal? Not so much, especially when sewage backups in Tijuana are basically front page news. Isn’t there constantly sewage coming across the border from TJ? Sorry, no references to immigrants please. The place is just dirty, and is constantly polluting San Diego beaches because the Mexican government fails to do just about anything about environmental protection besides limiting ownership of land by non citizens. Pretty much sums up the problem with the Mexican government (er, politics)anyway… does nothing.

Which, sometimes isn’t all that bad.

For example the former Fed chairman Alan Greenspan (a politician, but alas not currently with the US government) declared today that we might slip into a recession later this year. This was as much of a contrary indicator that fellow blogger Barry Ritholtz of the Big Picture could take. It might make him change his economic forecast since Al has been wrong on so many occasions. Of course, the change in opinion was made in jest (I think), so there’s little chance of a major rally (or is there?).

Continue Reading »

• Bubble , Contrary Indicators , Mean Reversion , SoCal
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Chuck Ponzi February 9th, 2007

For many perusing the site, you’ll appreciate what a strong contrarian indicator mainstream media can be. For the rest of us, the mainstream media often acts as a blubbering beaurocratic beheamoth. No offense intended, just stating the obvious.

It is for this reason that by the time ideas come to print, they are often outdated and decidedly deceptive. Just such a cover comes our way. (Hat tip and thanks to JMF of immobilienblasen, or “real-estate bubble” for non-German speakers, for bringing this to my attention)

The article “It’s A Low, Low, Low, Low-Rate World: Money is cheap. And some experts say it could stay that way for years. That’s creating opportunity—and brand new risks” is here.

This is the cover of the current issue of Business Week:
How accurate you might ask, has the mainstream media been in predicting so far in the housing bubble? Consider, for example, the cheerleading piece Time magazine published in June 2005, at the near exact top of the housing bubble:
Not surprisingly, when you go to BusinessWeeks homepage, you’ll see this little one (the arrows are mine)
If you don’t see the irony in how the 2 issues impact each other, here it is:
1. Rates are low and credit available because there is low percieved risk. Risk is perceived as low because housing prices were rising.
2. Housing prices are supported by low rates and available credit. If rates go up, housing prices will go down. They are “priced to perfection”

Reminds me of something Alan Greenspan said:

Any onset of increased investor caution elevates risk premiums and, as a consequence, lowers asset values and promotes the liquidation of the debt that supported higher asset prices. This is the reason that history has not dealt kindly with the aftermath of protracted periods of low-risk premiums.

• Contrary Indicators , Debt , SubPrime
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