Saturday, March 29, 2008

I Just Lost $900 Million!

Awwww, poor Jimmy Cayne, CEO of BSC, cashed his and his wife's options out for a meager $61 million. Just last year, with the stock soaring to $170, he was a billionaire on paper....guess that's the difference between theory and reality. I've got a joke that explains the difference as well, but you've probably heard it before.

As I've been saying for months, retail is in the crapper. Wasn't it just last month that Penney's shot up on news that same store sales weren't as bad as expected? Now they've lowered their earnings forecast by 33%! Bogus pops on sales from stores like Tiffany's don't exactly reflect the current state of the American consumer. The better Walmart and Costco do, the more foreboding it should be for even the mid-level retailers. People are broke, and I will continue to hang on to my XLY puts as a result. Look for mid-level restaurants to continue to falter as wallets cinch up.

As greater evidence of this, home equity delinquencies are at an all-time high, now over 5%. The problem for lenders is this. If someone is defaulting on their home equity loan, they're probably defaulting on their mortgage as well. As first lien-holder, the mortgage gets paid back first if assets or sold. Banks have been reluctant to refinance or take reduced home equity payments, but that day may be coming soon as anything is better than nothing (right Bear?)

Speaking of which, Bush's mortgage plan, whatever the hell that is, should be revealed in the next 2 weeks. Paulson has consistently stated that we will not bail out investors and other unqualified buyers. Banks will be encouraged to swap reduced loans for treasuries to help the consumer. My question is this. I have never missed a payment on my fixed-loan. I had additions/upgrades put into the mortgage that add value to my house without ever have taken a home equity loan. I have lost equity in my house over the last 2 years. Shouldn't I be first in line, not last, if we're offering to essentially write off lost equity with our banks? I'm a much better credit risk than 99% of my neighbors; will I be punished for being credit savvy and a strong earner?

As anecdotal evidence of just how bad things are getting (at least here in South Florida), my wife met a neighbor yesterday who was moving out of her rental. She had been renting from an investor (of course) who was now going into foreclosure (of course). She could not find another home in our development to rent because all of the other rentals were going into foreclosure as well. Instead, she'll be moving right across the street into another development until that owner goes into foreclosure as well. Please tell me we're not bailing these people out!!!!

We should get very official proof of recession when the jobs report is unveiled on April 4th. As I documented in my post March 2nd, our labor statistics are eternally flawed. That's how we came up with a number that was 88,000 jobs higher than reality. The economists from Trimtabs, who predicted much more accurately a loss of 77K, note that we survey the wrong industries (gov't and manufacturing) far too heavily as we are now a service industry economy. These changes are much more significant and that's why the jobs numbers always have a steep correction.

I will continue to look for strangle/boom/bust candidates this weekend....will let you know.


Tiger Coach said...

Brother Ax...
If things ever get real bad in Florida, there is a place up here called The Cleveland Clinic...they are always looking for good surgical assistants:)

Wouldn't it be nice to see where Winnebago (WGO) falls over the next two years?

Boom and Doom has the retail market pegged! He believes that WMT cut margins on their products, understanding that volume was the key to beating this market...definitely the smartest guys on the block.

As always I love reading your blog. Check out my most recent analysis that should be done a bit later.


moneythoughts said...


I was checking out people interested in investing and came across your blog.

I write and paint. Take a look at my blog, I think you might find it of interest. Monday through Friday I write about the economy and a wide range of topics dealing with the market. On Saturday I post my art.


AX said...

Things are already very bad in Florida Coach! Might have to take a loss to make one...foreclosures will come at bottom barrel prices and new home developments are opening $200-300K below initial projections. Gonna have some fun in the next year or two making some lowball offers. As I said, anything is better than nothing. Looking forward to your post...

Tiger Coach said...

You have to appreciate KNB's numbers yesterday...
New house starts: down 75%
Cancellation Rates: 53%

Why this stock is still above 10.00 is beyond me! Same goes for PHM!


AX said...

Arrgh, forgot to blog that in, KB's numbers made Lennar look like a star. I agree, these stocks should all be pennies.

moneythoughts said...


Thanks for dropping by my blog and I'm delighted we have a number of things in common. Please feel free to mention my blog to your friends or anyone else. I am trying to stay away from politics; however, if you read my blog's postings, you will see that is difficult.

Hope you will become a regular viewer and reader.