Morning Coffee: Housing Falls Further
(Stocks in article: NYSE: SPY, NYSE: DIA, Nasdaq: QQQQ, NYSE: TOL, NYSE: HOV, NYSE: BZH, NYSE: DHI, Nasdaq: GOOG, NYSE: C, NYSE: HBC, NYSE: BRK.A, NYSE: BRK.B, NYSE: GCO, NYSE: MYL, NYSE: PFE, NYSE: SGR, NYSE: WMT)
A day after the world shaking assassination of Pakistani opposition leader Benazir Bhutto, oil is moving even higher. Supply draw yesterday and escalating protests on the street in Pakistan have crude approaching $98. I think this is it folks. I think we finally have the catalyst to get over $100 unfortunately, and for as long as unrest reigns in Pakistan, there should be solid oil price support. A few important data points are also impacting the market this morning.
Economic Data Analysis
November New Home Sales fell off of a cliff, reported this morning down 9%. Mind you, there was not too far to fall, after having bounced off a few other ledges already this year on our way down. Sales were running at an annual pace of 647K in November, versus expectations for a 720K run rate. Even with prices still tanking, buyers are unwilling now to enter into a situation where their home equity might immediately lose value after purchase. It's just an unnecessary risk to take, and the market should not improve now until prices stabilize. This will not happen until inventory drops, and with foreclosures still running hot and buyer concern mounting, this should still take a while to begin.
The already well-beaten housing sector just can't bleed much more before dying, and stock movement this morning reflects that. Beazer Homes (NYSE: BZH) immediately moved 2% lower; D.R. Horton (NYSE: DHI) fell 1%; Toll Brothers (NYSE: TOL) eased 0.4%; Hovnanian (NYSE: HOV) was off fractionally. It's a sign that these babies are just about sold out. Investors holding these shares look to keep holding from here, and buy support should come along soon. However, some may go bankrupt anyway, so be careful. I was early to call the move lower, and I'm happy to be first to call a mini-rally in these stocks in January. No portfolio managers wanted to have these shares on their Statement of Holdings going out to fund holders this year-end, but now, there seems value to be had. I would avoid BZH and HOV, but look to add TOL, the best in class in my opinion.
A Greek Story
I want to share a little tidbit from a job interview, an interesting story. A portfolio manager I was speaking with told me he had to hold stocks for diversification's sake, and so he was continuing to hold home builders. This was back in the late summer or fall of 2006. I told him this didn't make sense to me, because there were other options. He had to hold them because everyone else was; if he went out on a limb, he would put his neck at risk. Now let me ask you, would you invest in his fund?
There were plenty of other places to find sector participation while avoiding the clear industry risk that was apparent to me back then. Let me just add another point. I believe in the same interview, with the Director of Research, he asked me what I thought of the retail space. I said, "with tougher times apparently on the way, I would look to high-end retailers and avoid the rest." My view was far from consensus at that time, and he didn't hire me. I'm sure his assets under management are significantly lower this year, and there would seem to be a high likelihood that these PMs are either unemployed or fooling also unwise superiors by blaming their mess on the market. I, however, do not regret speaking my mind over copping consensus views to get a job.
Midwest Activity
Chicago - PMI for December came in above expectations at 56.6, versus much lower expectations. Chicago area manufacturing did not follow the route of the Northeast, where regional data showed softness. Trends don't usually all follow a direct path simultaneously folks, so don't go getting your hopes up based on this report...
Receive Wall Street Greek FREE via email by subscribing here. (disclosure)
A day after the world shaking assassination of Pakistani opposition leader Benazir Bhutto, oil is moving even higher. Supply draw yesterday and escalating protests on the street in Pakistan have crude approaching $98. I think this is it folks. I think we finally have the catalyst to get over $100 unfortunately, and for as long as unrest reigns in Pakistan, there should be solid oil price support. A few important data points are also impacting the market this morning.
Economic Data Analysis
November New Home Sales fell off of a cliff, reported this morning down 9%. Mind you, there was not too far to fall, after having bounced off a few other ledges already this year on our way down. Sales were running at an annual pace of 647K in November, versus expectations for a 720K run rate. Even with prices still tanking, buyers are unwilling now to enter into a situation where their home equity might immediately lose value after purchase. It's just an unnecessary risk to take, and the market should not improve now until prices stabilize. This will not happen until inventory drops, and with foreclosures still running hot and buyer concern mounting, this should still take a while to begin.
The already well-beaten housing sector just can't bleed much more before dying, and stock movement this morning reflects that. Beazer Homes (NYSE: BZH) immediately moved 2% lower; D.R. Horton (NYSE: DHI) fell 1%; Toll Brothers (NYSE: TOL) eased 0.4%; Hovnanian (NYSE: HOV) was off fractionally. It's a sign that these babies are just about sold out. Investors holding these shares look to keep holding from here, and buy support should come along soon. However, some may go bankrupt anyway, so be careful. I was early to call the move lower, and I'm happy to be first to call a mini-rally in these stocks in January. No portfolio managers wanted to have these shares on their Statement of Holdings going out to fund holders this year-end, but now, there seems value to be had. I would avoid BZH and HOV, but look to add TOL, the best in class in my opinion.
A Greek Story
I want to share a little tidbit from a job interview, an interesting story. A portfolio manager I was speaking with told me he had to hold stocks for diversification's sake, and so he was continuing to hold home builders. This was back in the late summer or fall of 2006. I told him this didn't make sense to me, because there were other options. He had to hold them because everyone else was; if he went out on a limb, he would put his neck at risk. Now let me ask you, would you invest in his fund?
There were plenty of other places to find sector participation while avoiding the clear industry risk that was apparent to me back then. Let me just add another point. I believe in the same interview, with the Director of Research, he asked me what I thought of the retail space. I said, "with tougher times apparently on the way, I would look to high-end retailers and avoid the rest." My view was far from consensus at that time, and he didn't hire me. I'm sure his assets under management are significantly lower this year, and there would seem to be a high likelihood that these PMs are either unemployed or fooling also unwise superiors by blaming their mess on the market. I, however, do not regret speaking my mind over copping consensus views to get a job.
Midwest Activity
Chicago - PMI for December came in above expectations at 56.6, versus much lower expectations. Chicago area manufacturing did not follow the route of the Northeast, where regional data showed softness. Trends don't usually all follow a direct path simultaneously folks, so don't go getting your hopes up based on this report...
Receive Wall Street Greek FREE via email by subscribing here. (disclosure)
posted by The Greek | 11:00 AM
0 Comments:
Post a Comment
<< Home