Posted by intelledgement on Tue, 16 Dec 08
OK, we still think the odds favor a long and deep recession and a secular decline here. But for now, “obtimism”—the optimistic expectation that some combination of the TARP funding from Treasury, intervention by the Fed such as today’s decisions to cut the interest rate on Fed funds to zero and to buy mortgage-backed securities, and the forthcoming stimulus package from the incoming Obama administration will turn things around in the latter half of 2009 and by 2010 we will be back to normal—obtimism reigns supreme.
The problem with obtimism is…well, actually, there are several problems. However, none of them speak to why we are stepping aside on these short positions today in the wake of the Fed’s latest attempt to sweep back the tide.
Like most investors, we have been singed by the fires of 2008, and we are closing these short positions today not because we believe the fires are out, but because this deluge of credit is likely to have an ameliorative effect in the short run, and thus we expect an upward bias in the market until it becomes clearer that obtimism is misplaced. We expect to be back here, probably as soon as next month, probably at better prices.
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Posted by intelledgement on Tue, 02 Dec 08
Wow—getting to be wooden stake time here for the (former) bloodsucking residential real estate development company we have sold short, Beazer Homes (BZH). They announced their 4Q08 and full year 2008 results today (their fiscal year ends 30 Sep), and even considering the current meltdown, the numbers were stunningly bad.
Revenue in 4Q08 was down 35% from 4Q07 and closings were down 38%. The company lost a record $475 million in the quarter—their eighth consecutive quarter of red ink—up from $155 million of losses a year ago and sharply worse than the $110 million they lost in 3Q08. For the full year, the results were similar: revenue was down 40% from 2007, closings down 35%, and the loss of $951 million (-$24.68 per share!) easily lapped the 2007 loss of $410 million—in fact, Beazer lost more money in 4Q08 than in all of 2007. The cumulative loss for 2007 and 2008 has reached -$1.4B.
And the descent persists.
“Conditions in both the overall economy and housing market came under greater pressure during our fourth quarter and have continued to deteriorate since that time,” the press release quoted Ian J. McCarthy, President and Chief Executive Officer as stating. “Home buyer demand for new homes continues to be adversely affected by low levels of consumer confidence, falling home prices, extensive new and existing home supply and reduced access to mortgage financing. In recent months this difficult environment has been greatly exacerbated by turmoil in financial markets, heightened concerns about the global economy and a substantial rise in the number of home foreclosures.”
The stock closed at $1.38, down 9% on heavy volume, after trading as low as $1.21. You have to wonder how long a company worth $1.38/share can afford to keep losing $4.43/share each quarter (as they have on average for the last eight quarters). Things have gotten so bad that earlier today Jim Cramer publically called for Beazer to go out of business.
It’s tempting to keep riding this to the end in the interests of science, but the stock price is low enough here that we have to consider just booking our profit. Stay tuned.
Previous BZH-related posts:
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