Wednesday, June 11, 2008

About RYL, or any homebuilders in general:

That's it fellas, single digit RYL.


Fitch Ratings-New York-10 June 2008: The housing downturn
continues to have 'legs', and most of the statistical data
reported so far in 2008 are discouraging, according to Fitch
Ratings. The spring selling season was a 'bust'. Although it
does not appear likely that the year-over-year declines in
major metrics such as starts, new home sales, and existing home
sales will continue at the current pronounced pace throughout
this year, the decreases are likely to be greater than Fitch's
prior projections. Perhaps more important, initial projections
for 2009 are for further slippage in starts and new home sales.
The three specters: poor buyer psychology, easing pricing, and
excessive inventories, are likely to mitigate other modestly to
moderately positive developments. Tightened credit standards
should continue to largely offset improving affordability.
Fitch concludes that operational and financial pressures will
persist and, possibly, intensify for the public homebuilders
during 2008 and into next year.


Greenie said...

Plosser says in CNBC today - raise rate preemptively. Seems like these guys are serious.

I also heard that Bernanke is preparing a new speech - "Inflation -making sure "it" doesn't happen here"

MTGSPY said...


There are 3 types of trading styles:

1. Fundamentals/Insider Info (the stronger type of fundamentals)

2. High-Low / Charting (the stronger type of High-Low)

3. Sentiment.

My sin is #1. Denninger is #2. Your vice is #3. The best trading strategy is to be cognizant of all 3 but we're all only humans, of course.

However, believe me this time there is no other way than to hike the rates. Either 3-5x now or 20+x later in 2009 as the prices increase at rates that you can't catch with incremental rate hikes.

LEH has dropped 33%. Is the economy still here? YES. I would say a 50% drop from here and the economy WILL STILL be here.

This is different than if they print money, but then the liability and asset just blows up in equal proportion and since it was negative equity to start with, inflation doesn't solve the problem at all. This is in addition to the "small" problem that as IBs die out, all the "little" people of USA die with them. The choice is very obvious to me.

D said...

The shorts are all worried about getting blown out by a tape bomb and the bulls don't think the Fed will raise rates, nor do they want the Fed to raise rates until 2009. Risk correlations are being blown out across the board...

I believe non-monetary policies will be attempted FIRST to curtail the crude oil speculation before any monetary policy hammer is brought down like my brasil brother mtgspy is calling for.

The "right thing" to do is irrelevant as it relates to what they are going to do. The bankers have shown an affinity for doing the WRONG thing.

I was scheduled (canceled) to have dinner with a Chicago fund manager tonight and here are his words from yesterday when I asked him what XXXXX thought about Fed policy actions:

"They were talking about rates raising later this year due to some inflationary pressures. I don't think it'll happen before the elections for sure, however, those economist make me laugh talking about inflation and acting surprise. HELLO, gas is at $4, food inputs have skyrocketed, hell yeah there is inflation. So you are gonna shock the market into a huge downturn? Highly intelligent and thoughtful thinking by the Fed. Morons.

Long way of saying maybe next year but I don't believe this year."

The reason we are supposed to take our pain early is because it is small. The Fed has chosen to delay the pain and as a consequence have diversified the problem into problems. When the capital markets take a 30% + haircut it will be game over as the only remaining metric of prosperity for the bulk of the population shows failure.

We know the fundamental story blows, right now the charts are not over extended, and sentiment is not excessively bearish. One thing I do know is that we are charting a path exactly like 1927-1928. Few people have done their homework to have a suitable reference point for perspective.

When the short list of people I care about ask me what they should be doing with excess cash, I tell them to accelerate repayment of any corporate/personal debts and not worry about the market. I had one client that in November wanted me to get him $25mm in mezzanine financing to buyout a competitor...big regional retail company with limited tangible assets, banks don't loan to those situations.

He listened, sat on his hands and we will probably pick up the competitor for a fraction of the $25mm and run them through chapter 11 to renegotiate leases.


Greenie said...

Well Mr Spy, you do not understand my style. Sentiment is not my primary method. I speak about it often because it is colorful :). Primarily I use internals and inter-market divergence.

And I agree with you that we are now in that phase of the IT cycle, where one should stay short and forget.

Greenie said...

"However, believe me this time there is no other way than to hike the rates."

Check Fisher's speech that I posted on my website. These guys are in no hurry to raise rates.

MTGSPY said...

What Fisher says is the "jawboning" as one last attempt to stave off what everyone and their textbooks already know the answer for when prices trajectory are splitting apart from the interest rate. Have a nice day.