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<strong>Buffett Rumor Lifts Builders</strong>


<strong>By <a href="http://apps.thestreet.com/cms/email/tscEmailStory.do?storyId=10367798&authorId=1100625&storyUrl=/newsanalysis/homebuildersconstruction/10367798.html">Nicholas Yulico</a>


TheStreet.com Staff Reporter


7/13/2007 12:35 PM EDT</strong>


URL: <a href="http://www.thestreet.com/newsanalysis/homebuildersconstruction/10367798.html">http://www.thestreet.com/newsanalysis/homebuildersconstruction/10367798.html</a>





<p> </p>

Beaten-down homebuilder stocks got a boost Friday after a rumor floated around that Warren Buffett is buying shares of <strong>Hovnanian</strong> (HOV) .

<p> </p>

<strong>Berkshire Hathaway</strong> (BRK.A) , the investment vehicle of Buffett, is known to buy stocks on the cheap. The firm declined to comment on the rumor, saying its long-standing policy is to never discuss its investment activities except when it is legally required to do so.

<p> </p>

Two sources who closely follow the homebuilding industry said they would be surprised if the rumor turned out to be true.

<p> </p>

" [Buffett] was never involved in past. I don't think he would get involved now," says one sell-side analyst.

<p> </p>

A hedge fund source also expressed skepticism. "Housing has not bottomed yet, so why would he buy now?" he says.

<p> </p>

Nonetheless, the rumor lifted nearly all homebuilder stocks. Hovnanian shares were up $1.47, or 8.8%, to $18.02. The company didn't immediately return a call seeking comment.

<p> </p>

<strong>Brookfield Homes</strong> (BHS) jumped 5.1% to $29.65; <strong>Centex </strong>(CTX) added 4.4% to $43.45; <strong>NVR</strong> (NVR) climbed 4.4% to 710.13; and <strong>Toll Brothers</strong> (TOL) rose 3.7% to $26.41.

<p> </p>

<p>"I think it's still too early to start buying the stocks, given that we are barely starting to see the tip of the iceberg in terms of foreclosures, and the biggest impairment charges are still ahead of us," says Alex Barron, an analyst with Agency Trading Group. </p>

<p>Huh funny it sounds like many of the experts sound like us bears.</p>

<p>My favorite line "Housing has not bottomed yet, so why would he buy now?" LOL. Why would anyone buy now? Time to make some profit from the folly.</p>
 
<p>oc_fliptrack makes a good point with history and how it is repeating itself. For a more local review click <a href="http://ocecon101.blogspot.com/2006/12/bubble-blah.html">here</a>. I also have paid for some of the articles which can be quite entertaining. My favorite is from 93 where the guy just wishes how he could pick up the newspaper and see a positive article on the housing market because everyone wants to live here. Again check out oc-fliptrack's <a href="http://www.elliottwave.com/features/default.aspx?cat=mw&articleid=3188">link.</a></p>
 
You and the gold ! Big dip in a.m., hopefully that's when you bought. Long term hold for you, I would imagine ! My pop bought SGR last month....yowza !
 
<p>Holy Shiite Muslims... This'll <a href="http://bigpicture.typepad.com/comments/2007/07/wtf-is-going-on.html">sting a bit</a>.</p>

<p> </p>
 
<p>Are you saying this is bad?</p>

<p><img alt="" src="http://img101.mytextgraphics.com/photolava/2007/07/17/abx0799-4769llthf.png" /></p>

<p>Nah in January it cost $.05 per dollar to insure your garbage but today if you want to insure your garbage it costs $.45. Does any one know how I can buy options on the ABX?</p>
 
<p><a name="" href="http://www.marketwatch.com/news/story/home-builders-confidence-plunges-again/story.aspx?guid=%7B04EF395D%2DCC4D%2D41D5%2D8899%2DD4CFE9A49DE8%7D">Homebuilders feeling hopeless</a> </p>

<p> </p>
 
What happened to the $1.1 billion that Bear Stearns "loaned" to it's two structured derivative hedge funds. BSC just announced NAV of the two hedge funds was less than 9 cents on the dollar. OOPS!<p><p>



But, don't worry, the subprime mess is contained to these two BSC funds.<p><p>



There is a quip in the investing world: The guy falling off an 80 story building can keep saying everything is fine for the first 79 stories.
 
<p>I heard today the ABX tanked and all homebuilders were down. I guess whoever floated that Buffet rumour was just someone at KHOV trying to recoup some of his losses before the inevitable. </p>

<p>Interestingly enough, the same report also said homeprices in LA County were up 5%, even though the sales pace was the lowest in 16 yrs. I think it's just the high end properties skewing the numbers.</p>
 
The ABX has totally tanked and damn I wish I knew how to short it. The 2007 BBB- costs 55 cents per dollar to insure that crap. Oh I think it is time to go swimming around some of those pools it insures. If I don't come back tomorrow to post you know that I have choked on my own vomit.
 
That's fun reading. Two things I noticed were





"The real estate market, once a “blossoming bride” of the 80’s, was now a <strong>“bloated hag”</strong> of the 90’s." - Love that line, reminds me of the Bill Gross comment about sub-prime tramps dressed in high heels





The other one I thought was/is very interesting


"In a few cases buyers were trading up, even though they were selling their existing homes at a loss, because they figured that they would make up the loss in their new home."





That's a real sign of something, health maybe?. You acknowledge what your house is really worth, you sell it, you buy another because that's what you can do and what you want to do. I certainly don't see that happening anytime soon.
 
UPDATE 1-Benchmark ABX index fall to record intraday lows


Wed Jul 18, 2007 10:42 AM ET





<p> </p>

<p>(Adds background, quotes)</p>

<p>By Nanc Leinfuss</p>

<p>NEW YORK, July 18 (Reuters) - The benchmark ABX index sank to record intraday lows in nervous trading on Wednesday on concerns over mounting deterioration in assets backed by subprime mortgage securities, traders said.</p>

<p>The ABX "BBB-" 07-1 index, which is tied to loans made in last year's second half, fell to 43 on Wednesday after closing at a record low of 45.02 bid on Tuesday. The ABX 06-2, which references loans made in last year's first half, slid to 47.75 following its record low close of 49.09 in the prior session, traders said.</p>

<p>"The Bear Stearns situation is definitely contributing to the already negative sentiment in the subprime market," said one portfolio manager.</p>

<p>On Tuesday, Bear Stearns Cos. Inc. <BSC.N> said in a letter to investors its two troubled hedge funds that bet heavily on risky subprime loans now have "very little value."</p>

<p>"The preliminary estimates show there is effectively no value left for the investors in the Enhanced Leverage Fund and very little value left for the investors in the High-Grade Fund as of June 30, 2007," according to the letter. A copy of the letter was obtained by Reuters.</p>

<p><img alt="" src="http://img104.mytextgraphics.com/photolava/2007/07/18/abx718-f4ab6qz5.png" /></p>
 
<p> </p>

<p><a id="r-4_1118267008" href="http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/07/18/bcnbear218.xml"><strong>Bear Stearns letter sent to investors last night</strong></a></p>

<p><a id="r-1_1118292971" href="http://www.marketwatch.com/news/story/us-subprime-woes-get-worse/story.aspx?guid=%7B7BD31214-5465-481D-9A9A-570062593208%7D"><strong>Subprime woes will get worse, Bernanke says</strong></a></p>

<p> </p>
 
<p>Here is the today's Cali Kiplinger letter and what they have to say about housing. They tend to conservative but they also have been right on on oil. Notice that OC is noted as one of the weakest markets.</p>

<p> </p>









<pre><tt>Dear Client: July 18, 2007</tt></pre>

























<pre><tt> <u>With housing slumping well into 2008</u>...

<u>Calif.'s economy will feel the chill</u>.

An upturn isn't in the cards as long as the sag

in building permits and additional foreclosures

cut into consumer spending and employment.

<u>Job growth is taking a big hit</u>.

Look for just a 1% gain next year on the heels

of 1.4% growth in 2007. Employment by builders

will be down 5% in 2008 from this year.

</tt></pre>

<a name="ECONOMY"><img alt="" align="left" border="0" wrap="yes" valign="bottom" src="http://www.kiplinger.com/members/ca/heading_images/ECONOMY.gif" /></a>

<pre> <u>The glut of homes won't go away soon</u>.

The investors who flipped houses

for a quick buck are gone. Subprime borrowers

have vanished. And few potential homeowners

are willing to buy until home prices cool more.

<u>Expect a bigger median home price drop</u>

in 2008...4.4% vs. 2.4% expected this year.

The biggest declines will be in inland areas,

where subprime lending was most prevalent.

Major metro areas along the coast will do OK.

<u>Modestly priced houses will do worst</u>.

The $1-million-and-up market is still healthy.

<u>Home building permits will dwindle</u>...

</pre>



























<pre><tt>about 130,000 the next two years, well below the 163,000 issued in 2006.



<u>Weakest regions will have the softest housing markets</u><tt>: San Diego,

the Inland Empire, Orange County, Sacramento and the Central Valley.

<u>Strongest areas</u><tt>: Los Angeles, San Francisco and San Jose.



<u>Losses in building and finance jobs will have a ripple effect</u><tt>,

leading to modest retail sales gains below 5% in both 2007 and 2008.

<u>Entertainment is likely to soften</u><tt> as film production tapers off

after a burst of activity this year in anticipation of a writers strike.



<u>But other industries will do better</u><tt>, helping the economy.

<u>Commercial construction</u><tt>. More L.A. and S.F. offices are coming.

Expect to see lots of big-city hotels and warehouses along trade routes.

<u>High tech</u><tt>. Silicon Valley and the rest of the S.F. Bay Area

are reviving, buoyed by business and consumer demand for electronics.

Environmental technologies are the next avenue for industry growth.

<u>Tourism</u><tt>. The weak dollar will attract more foreign visitors

to San Francisco and Los Angeles. High gas prices won't deter motorists.

<u>Agriculture</u><tt>. Foreigners will buy popular specialty crops,

but a shortage of farmworkers could limit farmers' 2008 output.

<u>Trade</u><tt>. Export growth is sure to keep trucks and trains moving

between L.A. ports and the Inland Empire. Earlier-than-normal talks

could head off trouble when steamship labor contracts expire in 2008.

</tt></tt></tt></tt></tt></tt></tt></tt></tt></tt></tt></pre>

































<p> </p>

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