There is no recession, the economy is in fine shape, and business is strong!!!

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« Straight Talk From the ex-Homebuilder CFO: My interview with a RE lender. Are the banks ready to foreclose builders? | Main | COUNTRYWIDE POSTED its first quarterly loss in 25 years on $2.27 billion in mortgage losses and write-downs and soaring credit-loss reserves. But... »

October 25, 2007

There is no recession, the economy is in fine shape, and business is strong!!!

I am so convinced of the title, that I have compiled a list to illustrate. Of course, I didn't include the home builders in this list since they have obviously been hit, and I didn't include the banks earnings (since they have obviously not been doing well), and I didn't include the mortgage insurers results (since they have been hit hard), and I didn't include the foreclosure rates (since those are dismal), and I didn't include REOs (with CountryWide becoming the largest holder of single family housing in the country), and I didn't include... Well, you get the message. So let's see what I did include in my compilation to show how far away from recession we are...

My team's latest forecast of real estate price trends 4 years forward (the entire table may not fit in this post, width-wise):

	3Q2007	4Q2007	1Q2008	2Q2008	3Q2008	4Q2008	1Q2009	2Q2009	3Q2009	4Q2009	2010	2011	2012
West	-5.30%	-4.90%	-3.90%	-4.10%	-3.80%	-3.10%	-2.70%	-2.30%	-2.30%	-2.00%	-2.50%	-3.10%	-2.20%
North	-4.10%	-3.80%	-2.80%	-2.10%	-1.80%	-0.90%	-0.80%	-0.70%	-0.30%	0.20%	0.40%	3.70%	4.10%
Texas	-0.80%	-0.20%	0.20%	0.30%	0.70%	1.30%	2.70%	5.40%	10.80%	21.50%	30.30%	24.20%	19.40%
Southeast	-6.00%	-6.20%	-3.90%	-2.60%	-1.40%	-1.20%	-0.40%	-0.50%	-0.60%	2.00%	-2.70%	-8.50%	-9.30%
Average	-4.10%	-3.80%	-2.60%	-2.10%	-1.60%	-1.00%	-0.30%	0.50%	1.90%	5.40%	6.40%	4.10%	3.00%

Banking Jobs Lost - Challenger, Gray & Christmas Inc, the consulting firm, said in August the U.S. financial industry had announced 87,962 job cuts this year, 75 percent more than in all of 2006. It said 35,830, or 41 percent, relate to housing market problems.

Bank of America, the No. 2 U.S. bank, said it was cutting 3,000 jobs, a majority of them in corporate and investment banking, and the rest elsewhere. The cuts amount to 1.5 percent of the bank's 198,000-person work force.

Bear Stearns said on Oct. 3 it was cutting 310 jobs in its mortgage origination businesses as part of a reorganization of its mortgage operations. It had said in August that it cut 240 subprime lending jobs.

Credit Suisse on Sept. 26 cut 150 jobs in its mortgage-backed securities business.

Capital One, an independent credit card issuer, said on Aug. 20 it will eliminate 1,900 jobs. In June, it announced plans to cut 2,000 jobs.

Citigroup said on April 11 that it would eliminate 17,000 jobs and move an additional 9,500 jobs to lower-cost locations.

Countrywide Financial, the largest U.S. mortgage lender, plans to cut 10,000 to 12,000 jobs, or up to 20 percent of its work force. It said on Oct. 16 that it expected a $125 million to $150 million pretax restructuring charge from the move.

HSBC Holdings' U.S. mortgage unit said on Sept. 5 it would cut about 600 jobs.

JPMorgan Chase, the No. 3 U.S. bank, is cutting 100 jobs across its global credit markets unit, or about 10 percent of that group's head count, people familiar with the situation told Reuters on Oct. 11.

Lehman Brothers Holdings said it will fire another 850 workers, or about 3 percent of its work force. The cuts come after the investment bank said it was cutting 1,600 jobs.

Morgan Stanley said on Oct. 17 it was cutting about 300 jobs in its institutional securities division, mostly in mortgages. On Oct. 2, it said it would restructure its residential mortgage business and cut about 600 employees.

National City, the ninth-largest U.S. bank, said on Oct. 24 it is eliminating 2,500 jobs, 1,200 more than it disclosed the month before, after it merged its home equity and mortgage lending units.

SunTrust Banks, the seventh-largest U.S. bank, said on Aug. 20 that it plans to eliminate about 2,400 jobs by the end of 2008.

Wachovia, the fourth-largest U.S. bank, said on Aug. 28 it plans to eliminate about 2,000 of 2,600 jobs at the Richmond, Virginia headquarters of its Wachovia Securities brokerage unit as part of the company's acquisition of A.G. Edwards. The company also said recently it plans to eliminate about 200 investment banking jobs, or roughly 5 percent of its 3,900-strong investment banking operations.

Washington Mutual, the largest U.S. savings and loan, is laying off 1,000 employees as it copes with slumping housing demand.

Wells Fargo, the fifth-largest U.S. bank, said on July 26 it would cut 170 jobs

Posted by Reggie Middleton on October 25, 2007 at 04:01 PM in Global Macro | Permalink

Comments

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::

http://video.google.com/videoplay?docid=-4762034487703351799

Posted by: transnational syndicate | October 25, 2007 at 09:53 PM

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...

Posted by: Reggie | October 26, 2007 at 09:08 AM

Reggie,
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.

Posted by: mike | October 29, 2007 at 03:14 PM

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.

Posted by: mike | October 29, 2007 at 03:17 PM

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.

Posted by: Reggie | October 29, 2007 at 04:20 PM

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!

Posted by: mike | November 02, 2007 at 08:11 PM

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.

Posted by: Reggie | November 04, 2007 at 07:47 AM

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

Reggie Middleton's Boom, Bust & Bling Blog - HAS MOVED TO REGGIEMIDDLETON.BOOMBUSTBLOG.COM!!!

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About

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RGE Monitor : Nouriel Roubini Blog

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October 25, 2007

There is no recession, the economy is in fine shape, and business is strong!!!

"Imploded" Lenders:

Ailing/Watch List Lenders:

"Imploded*" Funds:

Historical Implosions:

Ailing/Watch List*:

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