Tuesday Oct 10, 2006

Is real estate out of the woods?

Taipan Group's Dynamic Market Alert

-- Is real estate out of the woods?
-- Clowns & Harlots: Trained Professionals

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Is real estate out of the woods?

by J. Christoph Amberger

A few days ago, former Fed Chairman Alan Greenspan thought out aloud that U.S. housing may be almost out of the woods.

I’m sure U.S. homebuilders would love to latch on to that notion. Companies like D.R. Horton Inc., for example, who just had to announce that fourth-quarter net sales orders for new homes dropped 25% from a year earlier. Or companies like KB Home, whose quarterly orders dropped 43% from a year earlier.

But “almost out of the woods” sounds better than it almost certainly would turn out to be. There’s the small matter of real estate inventories, which in many regions have doubled and tripled in less than a year. And there may be yet another infusion of properties entering the “for sale” column of the spreadsheet as the speculative holdings of the weakest investors with the lowest degree of leverage begins to fold.

(After all, property taxes will reflect the most recent -- and sky high -- sales prices for years to come, adding to the cost of holding a property.)

Most important of all, once a group of investors has been burned in a market, it may take decades until greed supersedes caution in any particular asset class. It is unlike that even if demand for properties picks up, the speculative element of the market will reach the same kind of pitch it had over the last couple of years.

Overall, this is not really bad news. Real estate is an asset that is illiquid enough as it is to turn paper losses into real losses. Stagnation or even a slight downturn in property values will have no real or immediate effect on most home owners -- unless they are so overleveraged that they require a constant tapping of home equity.

Then, they have a whole other set of problems.

The removal of the speculative froth in the real estate market, however, means that speculative capital must look for a safer asset class to drift into. And after all the popped bubbles of 2006, there’s one that’s just re-emerging: U.S. blue chips.

Clowns & Harlots: Trained Professionals

By Christopher Corbett
 
The first technician unable to install cable TV service at my house thought it odd that I would wonder why he did not bring a ladder with him.
         
The house is three stories tall, as are nearly all of the other old houses in my Victorian neighborhood.  But he didn’t have a ladder.  “Watch TV downstairs,” he advised.
         
The second technician, sent by the supervisor of the first technician, also was unable to install cable TV service to my satisfaction.  He didn’t have a ladder, either.  We walked around the house a couple of times and surveyed its height.  “I’m not going up there,” he advised.  “No way.”
         
I’d already guessed that.  “You got service on the first and second level,” he scolded.  He radioed back to HQ.  “We have service,” he said, in the same tone he might have used for, “The Eagle has landed.”  He acted offended when I asked to speak to his supervisor. “I’m a trained professional,” he said.
         
The third technician (also unable, etc.) was a big concept man, a trained professional who understood, or so he told me, the parameters of the task at hand.  I like a man who uses the word “parameters.”  I’d have liked this one even better if he’d had a ladder.  But alas, there was a shortage of ladders, and I imagine a lot of folks are watching TV downstairs because of that.
         
Life is a minefield full of trained professionals.  You can hardly find a knife sharpener these days, a tinker, a tailor, a cobbler.  The ancient trades that should sustain society have near-vanished and in their place… trained professionals.
         
Just the other day a gentleman arrived at the manse to clean some rugs.  Quite naturally he revealed himself to be a trained professional, and a stainologist, too!  A licensed stainologist!  (I would not have an unlicensed one on the premises.)  He looked like Wayne or Garth from those old movies.  Heavy metal listener, I should hazard.  Serious butt crack.  Fond of the Krispy Kremes, too, I would guess by the looks of him.
          
I showed him a stain on a rug, a spot about the size of a dime.  He threw himself upon it, displaying, above his jeans line, the crevasse derriere that so often marks the true trained professional.  He fixed one bloodshot eye to the stain at quite close range and began robustly sniffing it.  Both of my cats, admirers of trained professionals whenever they meet one, joined him.
         
He sighed and asked gravely, “What is the stain?”  I told him that I thought it might be coffee, and he nodded sagely in a manner normally reserved for grand rounds.  “Was there cream in the coffee?” he interrogated.
         
Yes, I said, there probably was.  He emitted a slight sigh and nodded gravely again.  “Sugar?”  No, I assure him, I don’t like sugar.  His face softened.  “I’m not sure that there would have been anything we could do for you (he tended toward the imperial use of we) if there had been sugar in that coffee,” he announced.
         
The licensed stainologist was in the house for more than an hour, and it was time lost.  I work at home, and this guy was more distracting than four Jehovah’s Witnesses on a hot July morning.  He interrupted me continuously, elaborately explaining every procedure.  (This is part of the psychology of the trained professional.  He suspects you think him a charlatan, a mountebank, a fraud, so there is a lot of hocus pocus involved in his presentation.  The hand is quicker than the eye.) 

The cats followed the licensed stainologist as he moved about the house, fascinated.  He culminated his performance, and it was a performance, by attempting to sell me an exotic chemical stain remover -- not available in stores! -- that smelled like rubbing alcohol to my untrained proboscis.
         
Not a week had gone by when, one morning, I looked out the back door to see a possum the size of Old Yeller sitting atop my grape arbor at the back of the garden.  Without thinking, I called animal control.
         
They used to be dogcatchers.  But now they are trained professionals.  My call was passed around a bit until, finally, I reached the dispatcher and told him my problem.
         
“All the animal control officers are out,” he told me.  “No telling when they might be back.”  He advised me to call again later in the day, when there was a good chance one of the trained professionals in his office would be back.  (There was also a good chance that the possum would be gone then, too.)  He asked me to describe the possum and his whereabouts in more detail.  “He’s in the grape arbor,” I repeated.  The dispatcher said he did not know what a grape arbor was.  “It’s sort of like a trellis,” I added.

“Trellis?” he asked.

“Yes, like a trellis.”

“Sounds like it might be high up,” he said.  “And we don’t have a ladder.”

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Earnings Announcements Wednesday, October 11, 2006

Gannett Company Inc, iGATE Corporation, Lam Research, Lindsay Manufacturing, Media General, Mercantile Bank Corporation, Monsanto Company, Ruby Tuesday, Sealy Corporation, and Yum! Brands Inc are releasing earnings.

Brought to you by http://www.AmericanCapitalist.net

Unlock Dates for October 2006

Wendy’s will distribute its remaining 82.75% stake in Tim Hortons Inc on September 29, 2006.  When these shares flood the market, look for THI to drop.  THI has a PE of 19 as compared to a company like McDonald’s, which trades with a PE of 16, is much cheaper, and has more growth.

10/3/06 – Visicu Inc is unlocking 6 million shares.
10/3/06 – Castle Brands Inc is unlocking 3.5 million shares.
10/4/06 – Sealy Corporation is unlocking 28 million shares.
10/23/06 – Corel Corporation is unlocking 6.5 million shares.
10/31/06 – Delek US Holdings is unlocking 10 million shares.

Brought to you by http://www.vixtrader.com.

Upgrades and Downgrades

Brinker downgraded by Bear Stearns from Outperform to Peer Perform.

Cablevision downgraded by Oppenheimer (from Buy to Neutral) and by Janco Partners (from Buy to Accumulate).

Carnival downgraded by JP Morgan from Overweight to Neutral.

Exxon Mobil downgraded by Goldman Sachs from Buy to Neutral.

Royal Caribbean downgraded by JP Morgan from Overweight to Neutral.

24/7 Media upgraded by RBC Capital Markets from Sector Perform to Top Pick.

Aeropostale upgraded by Matrix Research from Sell to Hold.

DR Horton upgraded by JP Morgan from Neutral to Overweight.

Johnson Controls upgraded by Robert W. Baird from Neutral to Outperform.

Toll Brothers upgraded by JP Morgan from Underweight to Neutral.
 
Brought to you by http://www.gressor.com

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Quote of the Day:

“‘Just get up an hour earlier,’ the miracle coach advises. You don’t say. Why don’t you just shut your know-it-all trap, mister. If I could get up an hour earlier, I would. But it doesn’t work. Because I’m tired in the morning, especially an hour before getting up.”

- Achim Achilles, October 10, 2006

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