The Message of the Stock Market.......

[SHELLY]

Shelly you really bullish on JOE.

In a word, No.

I was thinking of adding to my Oakley instead of JOE. :idontno

Sunglasses aren't my thing but I took a quick peek at OO. Doing a deal with Motorola to combine Blue Tooth and Sunglasses (Stereo Sunglasses)?--How Dorky is That? (will probably be a hit, because those folks who walk around with that appliance sticking out of their ear and yacking into space probably think they look "cool"--add a speedo and there ya go!)

Great sales revenue, but crappy operating income--if you're happy with the way they can 'splain it away....it's your dime.

 

[Bob]

http://articles.moneycentral.msn.co...rnal/TheFedHasVotedForStagflation.aspx?page=2 say it ain't so

 

[goofer]

For those that missed it, there is a front page article in this weeks Barron's recommending buying some of the homebuilders based on a valuation basis. Most are trading around book value. I have been reading more and more articles like these. Remember, the stock mkt is a forecasting mechanism. With all the bad news, negative estimate revisions, and industry comments....the stocks have all traded up recently. They are washed out. Worst case is dead money for six months. Best case 50% gain, or more, in 18months when the Fed starts lowering 1st qtr 2007. http://online.barrons.com/this_week?mod=9_0031 If your are not a subscriber it is worth paying the $4 to buy a copy.

 

[bdc63]

For those that missed it, there is a front page article in this weeks Barron's recommending buying some of the homebuilders based on a valuation basis. Most are trading around book value. I have been reading more and more articles like these. Remember, the stock mkt is a forecasting mechanism. With all the bad news, negative estimate revisions, and industry comments....the stocks have all traded up recently. They are washed out. Worst case is dead money for six months. Best case 50% gain, or more, in 18months when the Fed starts lowering 1st qtr 2007. http://online.barrons.com/this_week?mod=9_0031 If your are not a subscriber it is worth paying the $4 to buy a copy.

Worst case is not just "dead money" for six months.

As an example, earlier this year Toll Brothers traded at $49.10. It's now trading at $26.25. But 5 years ago it was at $9.00. Could it go all the way back to $9? -- I don't know, but I would sure want to understand everything about that stock & the housing market & the economy when it was $9, rather than just look at where the price was 3 months ago and deem that it's "range".

I think that there is quite a bit more downside risk with the builders than you are letting yourself believe (even if the valuations look good today).

 

[goofer]

Only time will tell. Believe me , I do a lot of reading and analysis on the subject of investing. Charts are only a roadmap for me, less than 10% of the tools used. All I am saying is that there is value in housing stocks and that most of the bad news is ALREADY FACTORED IN. I have publicly stated on this forum the stocks I am bidding on and where I have bought them. Throw rocks at me in 6-12 months or congratulate me.......Only time will tell.

 

[goofer]

The action of the housing stocks (joe, kbh, tol, bzh, dhi, hov, phm, ctx ) is telling us the Fed is finished raising rates. The market is also telling us that there will be a recovery in housing in the spring of 2007. The next major move in rates is DOWN. The Fed's work of the last 2 years raising rates has slowed the economy and tempered housing. The economic statistics will contine to deteriorate as well as the housing statistics but make no mistake about it, the recovery is coming in 2007. The Fed will begin lowering rates in the spring to generate growth. We will experience a growth rexession, which means GDP growth of 1-2%. We will NOT have a full blown recession...the FED will make sure of that. The stock market is a forecasting mechanism. The dawn is coming !!!

This post was August 3, BEFORE the FED paused.The mkt, in its infinite wisdom, was telling us the Fed was done. Look at the action of housing stocks since then. There have been land option write offs, negative estimate revisions, negative comments galore from Bob Toll and others and yet the stocks have rallied. The bond mkt has rallied precipitously and consequently rates are coming down. No question, the economy is slowing BECAUSE OF THE 17 RATE INCREASES BY THE FED. The FED is done and as the economy continues to slow , not spiral down, the FED's next move is to lower rates.What does that TELL YOU. We all know the fundamentals suck and that inventories are at historic highs and that there is a housing glut but yet the stocks have begun to rally. The market might be sensing something conventional wisdom has not considered. Just my humble opinion.

 

[destinsm]

This post was August 3, BEFORE the FED paused.The mkt, in its infinite wisdom, was telling us the Fed was done. Look at the action of housing stocks since then. There have been land option write offs, negative estimate revisions, negative comments galore from Bob Toll and others and yet the stocks have rallied. The bond mkt has rallied precipitously and consequently rates are coming down. No question, the economy is slowing BECAUSE OF THE 17 RATE INCREASES BY THE FED. The FED is done and as the economy continues to slow , not spiral down, the FED's next move is to lower rates.What does that TELL YOU. We all know the fundamentals suck and that inventories are at historic highs and that there is a housing glut but yet the stocks have begun to rally. The market might be sensing something conventional wisdom has not considered. Just my humble opinion.

Read this one???
http://www.thestreet.com/_rms/markets/activetraderupdate/10305349.html

Doesn't look like your charts are showing a bottom, as supported by this research... but good luck to ya!

Still Not Time to Move Home, by Dan Fitzpatrick


This column was originally published on RealMoney Aug. 22 at 11:21 a.m. EDT.
This week, the market seems fixated on the housing numbers. Today we heard from Toll Brothers (TOL - news - Cramer's Take). Tomorrow morning we get the July existing-home sales numbers. Yawn. Thursday brings the new-home sales numbers. Key point -- they're not going to be good. Everybody knows that. The question is whether they are going to be as bad as everyone expects. When it comes to the homebuilding stocks, there are three camps -- and two of them are inhabited by bears. First is the aggressive ursine bunch who believe that these stocks are only resting on a cliff before moving much lower. Second are the more wary bears, who still don't like the sector but feel that it's a crowded short. Finally, there are the apologetic, tentative bulls anticipating a sustainable bottom. These are the folks who believe that all the bad news has already been factored into the sector.

I'm still comfortably ensconced in the first camp. I am hearing about a lot of cancellations. High cancellation rates can effectively nullify any new sales. Builders are now taking a cue from their prospective buyers and walking away from land deals. This is not breaking news -- but it's so rampant and widespread that I don't know how it's possible to accurately discount this into the stock price.

For example, when Standard Pacific (SPF - news - Cramer's Take), a California-based homebuilder, posted results last month, it disclosed that it had written off $16.3 million in deposits and due diligence (preacquisition) costs for abandoned or uncertain projects.
Similarly, Hovnanian (HOV - news - Cramer's Take) recently disclosed that it will be walking away from substantial land-option deposits. The company couldn't even quantify the cost in its forecasts.
We are seeing similar expenses incurred by D.R. Horton (DHI - news - Cramer's Take) ($52 million), NVR (NVR - news - Cramer's Take) ($26 million), Pulte Homes (PHM - news - Cramer's Take) ($62 million), Centex (CTX - news - Cramer's Take) ($36 million) and Lennar (LEN - news - Cramer's Take) ($22 million).
Now, it would be a mistake to believe that expenses of this kind will continue. They won't, but they'll persist longer than you might imagine. How could that be? With only so many deals in the pipeline, how many more deposits are left to forfeit? Well, lots of these deals are land-development deals and may not be scheduled to close until 2007. Also, homebuilders make money when they sell finished product, so the continual slowing of construction starts equates to decreasing revenue and profit going forward.
In addition, I have a thesis, based on anecdotal evidence, that divisions are not being straight with the corporate offices. In a slowdown of this magnitude, executives become fearful of losing their jobs if they disclose the "real deal." Employment insecurity reigns supreme in this environment and fosters selective disclosure. Sales agents are being instructed to conceal cancellations until they have resold the unit. That's wrong.
Refundable deposits on units that have not yet received a "final report" are being reported as bona fide sales. That's dumb. Acquisition-related marketing reports are being fudged in order to make deals look better, with the hope that the economy will pick up in time. That's suicide.
So let's take a look at a few of the bigger names. Remember, strong stocks can become overbought and remain that way far longer than most folks realize. Conversely, and more to the point, weak stocks can become oversold and remain that way for quite a while, too.

The Philadelphia Housing Index has been treading water since last month, with no real sign of a turnaround. Notice how oversold the relative strength index (RSI) had become, falling well below 30. That doesn't happen often, and is a sign of extreme weakness. But unless the HGX moves back above 210 or so, I'd look at the current weakness as an opportunity to unload some shares. Let's take a look at a few stocks now.

Beazer Homes (BZH - news - Cramer's Take) took a 50% haircut from the January high, but it doesn't appear as if it was enough. A series of lower highs and higher lows after a sustained downtrend is typically a continuation pattern -- not consolidation. I'd look for more downside if the stock falls below the support line I've drawn above. I would not be surprised to see the stock test $30 before this is through. (Let the hate mail fly).

D.R. Horton is showing the same type of pattern we saw in Beazer. Notice how long the price-by-volume bar is at the $22 level? A lot of stock has been changing hands here. I'd look for additional supply to push the stock lower. If the price drops below $20, it's probably not a good idea to stick around.

MDC Holdings (MDC - news - Cramer's Take) has been trying to find a bottom around $42. RSI is showing extreme weakness. It's not even faking a bounce. I'd be a seller on any move below $42, and if you're looking for a better reference point than this weekly chart, then zoom out to a monthly chart.

This is for those who keep saying, "The homebuilders just can't go down any more." Enough said.

Want to see a strong homebuilding stock? Go south of the border to Mexico. Desarrolladora Homex (HXM - news - Cramer's Take) is the strongest of the bunch, but seems stalled at $40. I wouldn't be a buyer until this stock breaks through resistance.

That's my current take on the homebuilding group. If you want to know when these stocks are likely to turn around, I'll let you in on the best "tell" for this industry: It's you! When you start seriously thinking about buying a new house -- or hear your friends talking about it -- then you've got a pretty good idea that you're getting in on the ground floor of a meaningful advance. I just don't see that happening for many, many moons. Be careful out there.

 

[goofer]

BDC 63

5 years ago the Fed went on an unprecedented mission of lowering rates after 9/11 to keep the wheels greased. They continued until Fed Funds bottomed at 1 %. Consequently because of cheap money and easy terms, real estate prices bubbled up from speculative demand. The fact that Fed Funds went from 5/12% to 1% is why TOL went from 9 to 60 and other housing stocks followed suit. In the SUMMER OF 2005 the music began to stop and the stocks started their year long slide. The STOCK MARKET sensed the top was at hand.
This was not yet apparent to most in the the real world real estate mkt as the speculators continued to gorge. ( Agent comments )? Now as all the chickens have come home to roost because of the excesses, the stock market is sensing the worst maybe behind us. Certainly there will be further estimate revisions downward but IMO the stocks will rally because the mkt senses the next move by the FED is to LOWER rates setting the stage for the next cycle . The subsequent cycle may take longer to begin because of all the inventory but the seeds will have been planted. I am a patient investor because I feel I will get a very good return over the next 2-4 years owning a package of housing stocks.

 

[bdc63]

BDC 63

5 years ago the Fed went on an unprecedented mission of lowering rates after 9/11 to keep the wheels greased. They continued until Fed Funds bottomed at 1 %. Consequently because of cheap money and easy terms, real estate prices bubbled up from speculative demand. The fact that Fed Funds went from 5/12% to 1% is why TOL went from 9 to 60 and other housing stocks followed suit. In the SUMMER OF 2005 the music began to stop and the stocks started their year long slide. The STOCK MARKET sensed the top was at hand.
This was not yet apparent to most in the the real world real estate mkt as the speculators continued to gorge. ( Agent comments )? Now as all the chickens have come home to roost because of the excesses, the stock market is sensing the worst maybe behind us. Certainly there will be further estimate revisions downward but IMO the stocks will rally because the mkt senses the next move by the FED is to LOWER rates setting the stage for the next cycle . The subsequent cycle may take longer to begin because of all the inventory but the seeds will have been planted. I am a patient investor because I feel I will get a very good return over the next 2-4 years owning a package of housing stocks.

So, your arguement is that the Real Estate bubble (which was created when the Fed crashed rates to 1%) has now burst, and this will cause the Fed to step in and drop the rates back down, which will in turn recreate an asset bubble in Real Estate?

A couple of problems that I have with that:

1). With the dollar index below 85, there's no way the Fed can take rates back to 1% without turning the dollar into toast.

2). Frequently when one asset bubble bursts it is replaced by another (most recently, tech stocks to real estate). But never in history (that I am aware of) has the same asset class that just burst been the one to rise out of the ashes. Asset bubbles require an element of irrational exhuberance, and that is tough to revive after a bust.

To me the exciting prediction is not when housing will rebound, but rather what asset class will take its place.

But you are obviously committed to your strategy and I wish you luck with it.

 

[Jellyfish]

To me the exciting prediction is not when housing will rebound, but rather what asset class will take its place. .

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