Trannies Begin New Leg Down
The Trannies look like death warmed over, down another 1.36 2.3%.
Dow Transports, 2 Year
click for larger chart
Note that since we last looked at them, they have started a new leg down.
Wednesday, August 09, 2006 | 11:35 AM | Permalink
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Comments
Trannies are scary in general, regardless of if they have their legs up or down....
:)
Posted by: Rdub9000 | Aug 9, 2006 12:42:03 PM
How about this on the housing market by Robert Toll:
“It appears that the current housing slowdown ... is somewhat unique: It is the first downturn in the 40 years since we entered the business that was not precipitated by high interest rates, a weak economy, job losses or other macroeconomic factors...”
Posted by: Michael C. | Aug 9, 2006 12:56:35 PM
Sorry about all those posts. My connection was lagged, and I pressed the post button more times than I should have. Please delete. Thanks.
Posted by: Michael C. | Aug 9, 2006 1:04:18 PM
It Tolls for thee....
Posted by: Ned | Aug 9, 2006 1:19:33 PM
Michael C.,
Wow, talk about Toll being in denial and/or clueless. So did he say what he thinks precipitated the downturn?
Posted by: glenn | Aug 9, 2006 1:23:54 PM
That was some pathetic move off the 11am buy proggies - everything gone and it isn't even 2pm yet.
I think the bulls are getting spent. Still, I think the market won't tank until after the options expiration in a week and a half.
Posted by: Craig H | Aug 9, 2006 1:24:23 PM
"Wow, talk about Toll being in denial and/or clueless. So did he say what he thinks precipitated the downturn?
Posted by: glenn | Aug 9, 2006 1:23:54 PM"
UPSIDE MOVE EXHAUSTION. THERE WAS NO ONE LEFT TO SELL TO.
Posted by: Mark | Aug 9, 2006 1:37:13 PM
The most important thing to take away from the TOL confession is the part about walking away from options and having to write down the assets.
This is key because it means: THEY WILL BE LOWERING THEIR BOOK VALUE.
Foolish bargain hunters are looking at the homies and thinking, "Hey, I found a stock trading at book value. What a bargain I've found! I'm a freakin' genius!"
Nope.
The book values on the homies are inflated with overpriced land and options that costs them money in interest on their loans and in property taxes - and they can't unload it for what they paid for it.
They'll have to mark it down on their books.
I expect the homies to trade down to 50-70% of what they currently say are their book values. That's what happened in the last big housing crash. That means there's another 30-50% downside to the stocks, which would take them to their 2002 price ranges.
Then there are the ones that could go Tango Uniform, like DHOM. Looks like it's already being priced for a funeral.
Posted by: Craig H | Aug 9, 2006 1:43:36 PM
CraigH-
So 8/22 TOL gets to begin the public write down process. I wonder if everyone will begin to see it then? Nah. Still hopin' for that cushy pillow to land on.
Posted by: Mark | Aug 9, 2006 2:07:53 PM
Craig, they're not even trading at book yet but around 1.3x (at least the ones I'm tracking including TOL). Your larger point is spot-on.
Posted by: Alaskan Pete | Aug 9, 2006 2:23:55 PM
Expect book value to drop.
Posted by: BDG123 | Aug 9, 2006 2:30:07 PM
B!
Where have you been?
As to your point, EXACTLY. I am polling my contacts to see how stupid people were with land inventories. It's one thing writing off option money. It's a couple magnitudes larger when you have to take land values and slash them by 50%.
Posted by: Mark | Aug 9, 2006 3:09:13 PM
Are you proposing courtship? lol. I hack away on my own blog now until I bore of it as I did with my last blog. Plus, I'm much more busy at work.
Florida real estate is destined to drop significantly. St Joe's, symbol JOE, one of if not the largest land holder in FLA, is already down 40%. Some markets have just reached the tipping point of going YOY negative on the pricing comps for homes.
Posted by: BDG123 | Aug 9, 2006 3:19:26 PM
The biggest tipoff for me on the weakness of the market is the number of stocks that have passed my buy parameters. Currently, that number is 5. At the end of December, that number was thirty, and in 2002 it was in the 100s. The fact that I can only buy small cap value stocks, not to mention that there are only five, was one of my best cues to take that short position Friday.
Posted by: Bynocerus | Aug 9, 2006 3:25:39 PM
From the Arizona Republic this morning: “Home builders went on a buying spree last year when a record $7.7 billion was spent on residential land across the [Phoenix] metropolitan area. Instead of buying land now, some home builders are trying to sell sites to other builders or are even walking away from deposits on big parcels.
Craig H has the pulse. That raw land was purchased on margin or with options. Taxes will run $77m per year for each 1% taxation rate for metro Phoenix alone. The options will expire worthless. The comercial lending rates for even the best HBs for raw land has got to astronomical. This will resolve very badly for the HB stocks. They drank their own kool-aid.
Posted by: Robert Cote | Aug 9, 2006 3:31:33 PM
"Wow, talk about Toll being in denial and/or clueless. So did he say what he thinks precipitated the downturn?
Posted by: glenn | Aug 9, 2006 1:23:54 PM"
UPSIDE MOVE EXHAUSTION. THERE WAS NO ONE LEFT TO SELL TO.
Once upon a time we called that the free market. People have had their market hand fed to them by the fed for so long I'll bet they don't even recognize what a free market looks like any more.
I'm picturing grown adults looking like kids around a campfire with ghost story type eyes as we begin to educate them about how a big bad scary free market works. "You mean we have to think for ourselves?!" oooooh! Spooooky!
Posted by: DavidB | Aug 9, 2006 3:43:39 PM
Also, you know it has to be an ugly day when there's no trolling from Johnny Damon and The Brown Shirt (SS. Honestly, who would take the handle of SS? )
Posted by: Bynocerus | Aug 9, 2006 3:45:16 PM
and "walking away" is what we're likely to be seeing before long among homeowners in many places who find they are underwater and diving deeper on value/purchaseprice and paying twice as much in interest as they could rent the same house for.
Posted by: Bob A | Aug 9, 2006 3:45:43 PM
It's not as easy to walk away these days as in the past -- many home mortgages are now no longer "no-recourse" loans that you can walk on.
Posted by: T | Aug 9, 2006 3:50:20 PM
There are a lot of recent homebuyers out there who have basically no assets but their home. They face bankruptcy and renting for several years for the tradeoff of hundreds if not thousands per month in savings of interest/rent. The same logic they used to finance vacations and hottubs with refinancing will tell them renting is the way to go.
Posted by: Bob A | Aug 9, 2006 3:55:46 PM
B-
Bookmarked it. (I was hoping it was that trader porn site.) :)
Posted by: Mark | Aug 9, 2006 4:06:30 PM
Hadn't thought of the "non-recourse" angle WRT mortgages, I'd only been thinking of the impact of walk-aways and foreclosures on the housing market itself. The combination of full-recourse mortgages and the revised bankruptcy laws could mean wider bad news all around; e.g., people forced to sell other assets. Any idea of how many non "non-recourse" (sorry for the double negative) mortgages or HELOCs are out there?
Posted by: RW | Aug 9, 2006 4:10:16 PM
Barry-
Need another strike through in your first sentence to this article. Make that 2.9%!
Posted by: Mark | Aug 9, 2006 4:12:48 PM
per Bynocerus:
"Also, you know it has to be an ugly day when there's no trolling from Johnny Damon and The Brown Shirt (SS. Honestly, who would take the handle of SS? )"
Maybe they've just been busy loading up on AAPL again? Buy on the dips! 8-]
Posted by: whipsaw | Aug 9, 2006 4:18:22 PM
"Craig, they're not even trading at book yet but around 1.3x (at least the ones I'm tracking including TOL). Your larger point is spot-on."
Well, they're in the neighborhood, Pete. Plus they had a bounce off the short squeeze the last two weeks that lifted them a bit. That I think was just the hedgies pushing out the weak retail shorts so they could ultimately grab their short positions before the next leg down.
One other thing we have to consider is that the public builders represent only a portion of all the companies out there. There are a lot of private builders in dire straits who will be dumping land and home inventory onto the market. To say nothing of all the speculators.
What we see reported on Wall Street is a fraction of the pain on Main Street.
Posted by: Craig H | Aug 9, 2006 4:24:33 PM
