Our president, a puppy... Geithner cheerleads housing... Homebuilders holding the bag... Oil refining profits collapse... 1,578 U.S. jewelers gone... WSJ touts recovery...
My wife named our energetic new Yorkie puppy Jax. Last night, though, she joked about having second thoughts... Maybe our hamster-sized terrier should be called Obama, she said, because he's only been here a week but he's already taken over every aspect of our lives and he ruins everything he touches.
She has a point, but I'd rather keep calling him Jax (even if he is named after a General Hospital character).
Ah, the U.S. government. Demonstrate total incompetence, remain out of touch with reality... and still get paid. Take Treasury Secretary Tim Geithner (please!). Today, Geithner says the $8,000 tax credit for new homebuyers "brought new families into the housing market and contributed to three consecutive months of rising home prices nationwide."
Geithner paints a pretty picture, but it doesn't resemble reality. More new families got into the housing market the last few months because home sales always rise during the warmer months. This happens every year without fail and is totally unrelated to the tax credit. In fact, it appears the normal seasonal weakness has set in early, and it's portending the worst housing market in 28 years... New home sales last month were the worst September going all the way back to 1981.
And Geithner's cheerleading failed to mention new foreclosures are dwarfing new home sales. In September, an average 1,500 new homes sold each day in the U.S. In California alone, 2,000 new foreclosures are set in motion every day.
I'd hate like hell to be a homebuilder stuck with lots of inventory right now. Unfortunately, that seems to be the position most of them are in... Toll Brothers, Ryland, Meritage, D.R. Horton, Lennar, M/I Schottenstein, and Pulte all have inventory valued higher than their equity. In other words, a writedown to inventory will destroy a large portion of shareholders equity.
Some are in really miserable straits: Beazer has inventory valued at nearly nine times its equity. Standard Pacific and KB Home have more than three times their equity in inventory. NVR and MDC Holdings are much better positioned, with 0.3 and 0.5 times equity worth of inventory, respectively.
I've never stopped telling my readers to avoid banks and homebuilders. Through the rally since March, that looked like a mistake. I say screw the rally. A 50% rise in share price just makes them better short-sale opportunities. Nearly all the major homebuilders are now trading at premiums to book value, even though their equity value is about to take it on the chin. The rally has raised the prices of stocks, bonds, and other paper assets, but it hasn't made the homebuilders' inventory any more valuable.
The oil refining business is struggling, too. ExxonMobil reported 68% lower quarterly profits, though that's in comparison to last year's third quarter, when it reported the largest corporate quarterly profit in history. Profits shrank due to lower oil and gas prices and weak refining margins.
The biggest independent refiner in North America, Valero, also reported brutal collapses of as much as 70% in refining margins for gasoline, heating oil, and diesel.
With essential goods like homes and petroleum struggling, and discounters like TJX Companies and Wal-Mart doing well, businesses selling pure luxuries have been decimated this year. According to Egan-Jones Credit Ratings, 1,578 U.S.-based jewelry retailers, wholesalers, and manufacturers failed from January through September of this year.
Bad news be damned, the Wall Street Journal won't be kept from fulfilling its mandate as the appointed No. 1 bullish mouthpiece in the market... The Journal's website this morning trumpeted, "GDP Data Suggest Recession Is Over." The data also said inflation fell last quarter, from 2% annually to 1.4%.
The Fed's balance sheet nearly triples, excess bank reserves soar thousands of percent, gold makes new highs... and still the press swallows the reported inflation data without question. If the Wall Street Journal were worth anything, it would have its own interpretation of each of the popular reported economic statistics. Instead of trusting the government, it would seek out reality.
But that's only if the Wall Street Journal were worth anything...
Read the Wall Street Journal with us and send an e-mail when you find evidence it's writing stories whose primary purpose is to keep markets propped up: feedback@stansberryresearch.com.
"His name is President Obama, or Mr. Obama. His name is not OBAMA! That is disrespectful of the leader of the United States, no matter what your opinion of him or his policies may be. I don't expect you to blindly agree with everything, or anything, he does, but I do expect you to show him proper respect. You can rail against him, you can lambaste his policies and ideas all you want in your column, and I will continue to read your publications, because you are entitled to your opinion, even if I may not agree with you all the time. However, I cannot financially support, through my subscription payments, anyone who willingly and maliciously disrespects the person who holds the highest elected office in the United States." – Paid-up subscriber Tom Olsen
Ferris comment: You've made two huge errors here, both of which make it hard to take you seriously...
First, you mixed political views with financial decisions. What would happen if we bought and sold Berkshire Hathaway based on Warren Buffett's absurd views on things like the estate tax? Buffett is stupid enough to think your children will automatically become better people (on the mythical "level playing field") if the government steals half your net worth when you die. But he's a great investor, so you buy the stock when it's cheap enough (like now).
Second, no one is ever immune from having to earn respect. If Komrade Obama extended his hand to me, I would consider it my patriotic duty not to shake it, and to tell him exactly what I think of him. When Komrade Obama earns my respect, then and only then will I give it to him. You should know better than to fall for phony titles.
Regards,
Dan Ferris
Medford, Oregon
October 29, 2009