Monday Aug 21, 2006

Remodelers and the living dead real estate

Taipan Group's Dynamic Market Alert

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Remodelers and the living dead real estate

by J. Christoph Amberger

If real estate is dead in the United States, some people might have missed the obituary.

Take the guy who just bought my first house. From glimpses we caught driving past this modest Cape Cod, he’s a gone-to-pot single dude in his late twenties or early thirties, with longish hair and apparently a dull razor. He drives a not-so-new VW Jetta and likes to keep the blinds closed even on his picture window. A normal single guy, it would seem, moderately well off, with a bit of room at the top.

How he can afford to pay three times the money we did for the place fifteen years ago is beyond me.

So is half the population of North Beach, Maryland: Here, at the shores of the Chesapeake Bay, tiny, one-level shacks the size of a trailer home can go for a cool quarter mil (that is, if you’re happy to walk a mile for the boardwalk). Given the average local we saw this weekend, I’d be surprised if there was one whose monthly paycheck would suffice for his annual property tax bill.

But if there’s a group of professionals for whom real estate is still alive and kicking, it’s remodeling contractors.

The best wife of ‘em all and I have been prospecting for a contractor to build a sunroom on our pool deck. Nothing fancy, mind you, just walls of windows that would provide sufficient reason for you to sit “outside” a bit longer than the five months a year that the pool is open. So we did what any reasonable buyer is supposed to do.

We commissioned estimates.

I started out with the naive notion that this would be a $20k-35k affair. The first contractor’s secretary informed us that, typically, their line of work would come in at $35-40k. Which is why their rep quoted me $60k or $55k if I’m willing to sign right here, right now and give him a 10% down payment, thank you very much.

The next contractor was more honest. He told us that his company usually didn’t tackle this kind of project for less than $100,000. My face remained inscrutable. After all, maybe there was a design slumbering in the mind of this man that might indeed be worth that.

Last Thursday, we inspected the drafts. They were all right, if you were planning to put a miniature version of a tasteful fast-food joint onto the pool deck. And after careful consideration of 27 pages of itemized costs (including the rental of three port-a-pots for two months), we arrived at the total projected budget. Which you can look at from several perspectives:

It worked out to roughly $10,000 a square foot. You might either hire a surgeon for a year to whittle the addition out of two-by-fours with his scalpel. Or you could get a high-school principal to take a three-year leave of absence. Or have a senior partner in my attorney’s law firm spend six 40-hour weeks devoted to the project.

And that was the low estimate... to which we should add the potential of 20-30% cost overrun.

I thanked him for his work. But I pointed out that this was predominantly a moral problem for me: I would consider it blasphemous to pay almost twice as much for a sunroom as I paid for my first house.

It’s back to the drawing board for us.

-- The WaveStrength team writes in its Market Trends:

“This morning’s slight loss could only the beginning: The Dow Jones Industrial Average is trading down roughly 38 points, taking back most of Friday’s gains. Since lower indicators are falling, I expect to see more weakness tomorrow. Falling price verification will prompt me to reissue Dow puts.

“According to The Stock Trader’s Almanac, now is the best time to protect your portfolio. The ‘summer rally’ hype we experienced last week is historically the weakest, resulting in a strong correction.

“Additionally, the end of August has proven ‘murderous’ six of the last nine years, with an average loss of 2.9% on the Dow during the last five trading days. August 30 has only closed up once in the last 10 years.

“All good reasons to be looking for a protective downside position.”

And Material Profits’ telegenic editor S. R. Nunnally added:

“Protective downside positions should be taken, but it’s not the only way to protect your portfolio. With the dollar weakening this morning, it might be prudent to hedge some of your portfolio with gold. You all know my favorite play: StreetTracks Gold Shares ETF (GLD:NYSE) is up more than 1.5% this morning.

“If you read any of my Market Reports last week, you know that I’ve been expressing skepticism about the big market rally we experienced last week. At the open of today’s trading, U.S. stocks began the week in the red, followed by the theme of ‘traders lock in profits after last week’s rally.’ I will maintain my bearish thesis here in the short term -- and look for any downside opportunities this week.”

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Earnings Announcements

Borders Group Inc, CDC Corporation, Frontline Ltd, Harris Interactive Inc, Intuit Inc, Medtronic Inc, Perry Ellis International, and Toll Brothers Inc are releasing earnings.

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Unlock Dates for the Remainder of August 2006

8/21/06 – Mariner Energy is unlocking 33.3 million shares.
8/22/06 – Liquidity Services is unlocking 7.6 million shares.
Brought to you by Extreme Volatility Speculator

Upgrades and Downgrades

Apollo Group upgraded by Stanford Research from Hold to Buy.

CACI International upgraded by Stanford Research from Sell to Hold, and by Morgan Stanley from Underweight to Equal Weight.

China Mobile upgraded by Citigroup from Sell to Hold.

Illumina upgraded by Caris & Company from Above Average to Buy.

Johnson Controls upgraded by Matrix Research from Hold to Buy.

The Knot upgraded by Merriman Curhan Ford from Neutral to Buy.

Mills Corporation upgraded by RBC Capital Markets from Sector Perform to Outperform.

Nektar Therapeutics upgraded by Morgan Stanley from Underweight to Equal Weight.

Aeroflex downgraded by Deutsche Securities from Buy to Hold.

Cost Plus downgraded by Wedbush Morgan from Buy to Hold, and by DA Davidson from Neutral to Outperform.

Dell downgraded by Goldman Sachs from Neutral to Sell, and by UBS from Neutral to Reduce.

Gap Inc downgraded by CIBC World Markets (from Sector Outperform to Sector Perform), by Susquehanna Financial (from Positive to Neutral), by Prudential (from Overweight to Neutral), and by Jefferies & Company (from Buy to Hold).

Marvell downgraded by Global Crown Capital from Overweight to Neutral.

SanDisk downgraded by Matrix Research from Buy to Hold.

Brought to you by GRESSOR.com

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Quote of the Day

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