Layoffs, Degrading Debt, REITdowns, Leaking SIV's
Beating: Motorola, Aetna, Travelers, Bristol Myers Missing: Dow Chemical, Comcast, Cummins, Symantec.
Cutting back: Big Lots lowered its Q3 forecast. B of A hacking 2% or 3000 jobs. After the bell: Capstead Mortgage, Microsoft
Downgrades... Moody's Investors Service on Oct. 11 lowered the ratings of Pulte, Centex and fellow homebuilder Lennar Corp. to a junk-grade "Ba1."
Moody's: "falling sales make it difficult for the companies to generate even minimal earnings before charges."
Bank of America analyst Daniel Oppenheim expects the slump to continue through the next 12 months.
"We see limited buyer traffic, a lack of mortgage availability, excessive inventory and risk from continued price declines" to clear out that inventory."
Writing it off...
#8 homebuilder Ryland posted a Q3 loss of $54 Million vs $87 Million profit a year ago. Revenue -35%; closings -32%; new orders -20%; value of orders -27%.
Write offs for inventory and property values equaled $128.1 million.
#3 homebuilder Pulte reported a Q3 loss of $787.9 million vs $190.2 million profit a year ago. Revenue -31%, closings -28%; new orders -37%; value of orders -47%.
Write offs for inventory and property values equaled $1.18 Billion vs $87 Million, a year earlier.
CEO Richard Dugas: "Time has proven that no one can be sure when this particular downturn will end or begin to show signs of stabilization.
Since we are not sure how long this environment will stay this bad, Pulte plans to be prepared for the worst."
REIT down... Since peaking 02/08 the Bloomberg REIT index has fallen 16.5%.
The last time the REIT index declined more than 10% in total return was in 1998.
Real estate investment trusts are poised for their biggest decline in almost a decade as higher borrowing costs curb takeovers and reduce property values.
University of California economist Kenneth Rosen:
"REITs are overvalued by 25 to 40% relative to stocks and bonds, and cash flow yields are too low." The Reits could see another 20% decline this year.
Leaking like a SIV...
MBIA Inc., the world's biggest bond insurer, today said its Hudson-Thames Capital Ltd. SIV is seeking alternative financing after having difficulty funding itself.
MBIA said it has invested $15.8 million in the SIV's capital notes though has no obligation to help support it.
Fitch Ratings says the value of SIVs, which own more than $320 billion of bonds, fell to 73% as of Sept. 28 from 100% in July.
Regarding the musical chairs known as the SuperFund SIV... Joseph Mason, an associate professor of business at Drexel University:
"Continuing to mask transparency by means of rearranging risk without actually offloading or recognizing the true value of that risk is not going to help anyone."
Many of the 30 SIVs worldwide can't find buyers for their commercial paper -- debt that comes due in 270 days or less.
On average, about 44% of SIV holdings are in MBS mortgage-backed securities, 2% of which is in subprime mortgage bonds, and 11% is CDO collateralized debt obligations.
The concern is that without the SuperFund SIV funding, the SIVs would have to sell their investments and might have to accept fire sale prices.
That would force owners of similar securities to assign new, lower values to their holdings, causing losses to spiral.
As an alternative, banks could take over the assets, though that would tie up capital (higher reserve requirements) and restrict lending, putting a drag on the economy.
Billionaire Warren Buffett : "One of the lessons that investors seem to have to learn over and over again, and they'll have to learn it over again in the future...
is that not only can you not turn a toad into a prince by kissing it, but you also cannot turn a toad into a prince by repackaging it."
Hat tip to Bloomberg.
Cutting back: Big Lots lowered its Q3 forecast. B of A hacking 2% or 3000 jobs. After the bell: Capstead Mortgage, Microsoft
Downgrades... Moody's Investors Service on Oct. 11 lowered the ratings of Pulte, Centex and fellow homebuilder Lennar Corp. to a junk-grade "Ba1."
Moody's: "falling sales make it difficult for the companies to generate even minimal earnings before charges."
Bank of America analyst Daniel Oppenheim expects the slump to continue through the next 12 months.
"We see limited buyer traffic, a lack of mortgage availability, excessive inventory and risk from continued price declines" to clear out that inventory."
Writing it off...
#8 homebuilder Ryland posted a Q3 loss of $54 Million vs $87 Million profit a year ago. Revenue -35%; closings -32%; new orders -20%; value of orders -27%.
Write offs for inventory and property values equaled $128.1 million.
#3 homebuilder Pulte reported a Q3 loss of $787.9 million vs $190.2 million profit a year ago. Revenue -31%, closings -28%; new orders -37%; value of orders -47%.
Write offs for inventory and property values equaled $1.18 Billion vs $87 Million, a year earlier.
CEO Richard Dugas: "Time has proven that no one can be sure when this particular downturn will end or begin to show signs of stabilization.
Since we are not sure how long this environment will stay this bad, Pulte plans to be prepared for the worst."
REIT down... Since peaking 02/08 the Bloomberg REIT index has fallen 16.5%.
The last time the REIT index declined more than 10% in total return was in 1998.
Real estate investment trusts are poised for their biggest decline in almost a decade as higher borrowing costs curb takeovers and reduce property values.
University of California economist Kenneth Rosen:
"REITs are overvalued by 25 to 40% relative to stocks and bonds, and cash flow yields are too low." The Reits could see another 20% decline this year.
Leaking like a SIV...
MBIA Inc., the world's biggest bond insurer, today said its Hudson-Thames Capital Ltd. SIV is seeking alternative financing after having difficulty funding itself.
MBIA said it has invested $15.8 million in the SIV's capital notes though has no obligation to help support it.
Fitch Ratings says the value of SIVs, which own more than $320 billion of bonds, fell to 73% as of Sept. 28 from 100% in July.
Regarding the musical chairs known as the SuperFund SIV... Joseph Mason, an associate professor of business at Drexel University:
"Continuing to mask transparency by means of rearranging risk without actually offloading or recognizing the true value of that risk is not going to help anyone."
Many of the 30 SIVs worldwide can't find buyers for their commercial paper -- debt that comes due in 270 days or less.
On average, about 44% of SIV holdings are in MBS mortgage-backed securities, 2% of which is in subprime mortgage bonds, and 11% is CDO collateralized debt obligations.
The concern is that without the SuperFund SIV funding, the SIVs would have to sell their investments and might have to accept fire sale prices.
That would force owners of similar securities to assign new, lower values to their holdings, causing losses to spiral.
As an alternative, banks could take over the assets, though that would tie up capital (higher reserve requirements) and restrict lending, putting a drag on the economy.
Billionaire Warren Buffett : "One of the lessons that investors seem to have to learn over and over again, and they'll have to learn it over again in the future...
is that not only can you not turn a toad into a prince by kissing it, but you also cannot turn a toad into a prince by repackaging it."
Hat tip to Bloomberg.
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