Friday, February 1, 2008

Deductive Reasoning

Writeoffs have been announced. Thereferore, all the bad news has been spelled out. Nice reasoning Sherlock. In a 4 hour conference call yesterday, leaders of MBIA refuted claims that their company with less than a billion dollars can remain solvent when on the hook for over a trillion dollars in bad bonds. HMMM, that makes sense. Pulte announced dismal earnings and a poor outlook. This admission, viewed through all the common sense of the OJ jury, was rewarded with a 20% one day gain.

Yet another downgrade for a bond insurer and MBIA has been put on ratings warning by S&P. Even under the most optimistic circumstances, even if a homebuilder could eek out a small profit (not going to happen, see must read about Pulte), how does that justify $20,$30,$50 stock prices? Home builders traditionally trade around a P/E of 10-13. In the early 2000s, P/Es hit 3 or 4 and that was a good time to buy. Now, P/Es for these stocks are figments of our imagination, but if earnings were to be projected, P/Es would be 40-50! Are these growth stocks given the current housing and lending environment? I didn't think so. Again, a stock like Google who made $4 billion dollars last quarter and has over $14 billion in cash loses 25% and a broke, hopeless company like Pulte gains that much in a single day. Hello Japan circa 1991.

One factor that is being overlooked in how poor these numbers are is the disproportionate downturn in major population/production areas. Everybody knows housing in Cleveland and Detroit has been dead and on the decline for 10 years, but Phoenix? San Francisco? LA? Austin? Miami? These are kind of big neighborhoods with lots of people going broke. When these people can't spend, companies will not do well. So let's keep pouring money in people, that way everyone can officially be debt poor. ARGHHHH! By the way, Microsoft just bailed Yahoo out for a 63% gain, Yahoo owners. Lucky bastards.

Nice call on the jobs report analysts. Instead of 80,000 new jobs, we lost 17,000 workers last month. But that's not a recession....

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