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October 25, 2007


transnational syndicate

All the good news in the face of incipient recession, dollar crash, real estate crash, credit crunch, reminds me of the book-film, 1984, where the choco (choclate) ration decrease is described as an increase, with the attending conclusion that the newspaper records must be changed in order to reflect accurately that the new ration is an increase, rather than a decrease.

Hence the term Orwellian.

Video-Listen to the testimony, watch the video, the transnational criminal 9/11 syndicate::



Funny you bring this up. Yesterday, the government came out with new home sales numbers that beat estimates, with an increase of 10,000 homes in lieu of a decrease. Of course, the previous months release was revised downward sharply to allow for what would have been a decrease in home sales to now pop up as an increase.

I am assuming no one is expected to use common sense here, since the guys that actually sell the homes (the builders) say they had a BIG problem selling the homes and they sold a lot less this quarter than last. So, the conspiracists asks, "who in the hell was selling all of these new homes if it wasn't the guys who build new homes?". Not by the hair of my chinny chin chin replied the census department:-)

Orwell's descendents are bureacrats in the census department, for sure...


Thank you for this blog. I like how you follow the builders and update us. But if i may make a comment: i find that your blog is often "all over the place". For example, you kept on saying that KBH is one of the healthier ones because they sold land before everyone else and then one day you put up a post saying KBH is in big trouble (for various reasons). Well, if now even KBH is in trouble, then they'll ALL go bankrupt except NVR! But the problem is that you're not predicting that they'll all go bankrut. You're saying that fr now only a few will go bankrupt and the rest you're NOT YET putting on your bankruptcy candidate list. Correct me if I'm wrongbut you probably believe that 3-6 of them will visit ch.11 - no?
My second problem/question is that you keep on saying land will go down 50%. Well... 50% from what? If KBH sold off some land, where can we can an estimate what they sold it for? When was the land price peak, was it like end 2005 / early 2006? And if a homebuilder built a home on land and sold the home, how much did he implicitly sell the land for? And then there is the land type distinctions that you made, but you did not say which one will go down 50%? (i.e. A B C areas? entitled vs. nonentitled?). Anyway, the way I see it, this is all about land, and there's no doubt that land is illiquid, but it does have a value. Are there any comps we can use? How does one go about valuing land? The rule of thumb that I get from your blog and a few other sources is that land prices will go down double of home prices, and maybe a bit more, so probably 50-60% FROM THE PEAK is a good estimate. And this is nominal, not real.
Third thing, you seem to "misunderestimate" the capacity of banks to ammend covenants. Why do you think they will foreclose soon? Usually it's all about free cash flow. If the company can cover the interest and cash flow is not about to violate terms, banks don't foreclose so fast.
Fourth thing, we need to consider more carefully WHY the banks have not yet pulled the plug on the warehouse lines of credit for the mortgage subs of the builders. I mean Pulte is weird I agree, but what exactly has been going on in these subs, I always wanted to know and today I want to know even more. And if they do pull away financing, do they have recourse to the builder entity itself? Will it bring down the entire builder?
You don't have to answer everything right now, if you want, you can make posts based on these questions over the next few days, but I think a lot of your readers would like an answer to these questions. I'm gonna start researching these questions myself...
thanks for this very good blog.


one more thing about the 50% land decline. 50% is from the peak, however, many builders book land at what it was worth when they bought it, which is not at the peak. So... i'm confused.


Well, to clarify: the CFO series of posts are written by someone other than myself. He is a guest writer who is (was) actually an insider in the industry. I agree with the vast majority of what he has to say, but not with all of it. Hence, the discrepancy with the KBH viewpoints. KBH sold off thier most profitable divisions in order to raise cash to pay down debt - which they did. But, they were generating negative cash flow, and will do more so now without the profitable divisions. They have bought themselves time, but whether it is enough or not remains to be seen. I don't trust the judgment of management teaming up with Countrywide! They could have picked a more credible partner.

As for land sales, well that is very geographically specific, and I have answered much of that in my posts regarding regarding housing value trends (albeit, this is not raw land).

CA, NV, MI, FL will fall significantly from peaks while texas will not fall as far. Read the posts regarding the crystal ball. The last graph answers you question regarding my opinion of housing values. And remember, you get what you pay for. Do not take advice from a free internet blog as gospel. Do not even take it as advice. Consider it an opinion only, and possibly not even an unbiased, truthful or educated opinion. I am not says those adjecives apply to this blog, just a general common sense warning.


Ok I'm a bit confused here. In one post, one of you said something to the effect of "I am not really a CFO but I'll pretend to be". In another post, the title is "Straight Talk From the ex-Homebuilder CFO: My interview with a RE lender". When you say "my", who is "me"? Who is the lender and who is the CFO? When you initiated the blog, you talked about "me", not "us". So T'm really confused. Can you go through all of the people who contributed to this blog so far? (Ad by the way, no I don't use this as gospel or advise, but this blog is agood starting point). thanks!


Hate to confuse you. All of the "CFO" posts are by an anonymous poster who needs to keep his name under wraps for obvious reasons. All other posts are mine.

The lender in the post referenced "CFO" is of course, anonymous as well.


ok... so there's one final point of confusion remaining: The anonymous "ex-Homebuilder CFO", is he REALLY an ex-homebuilder CFO? And if so, can you at least give an order of magnitude size of the homebuilder company in question? Is it billions, hundreds of millions, or less? thank you

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