Our Institutional Research firm — my day job — made a short term buy call last night.
Its only a trading call, but I will see if I can get permission (from our clients) to release it publicly.
Bottom line: A bounce, similar to January, only not as strong or long-lasting. And, its not a lasting bottom.
More straight talk from an old hand in the building sector:
"Billionaire investor Eli Broad said the U.S. economy is in the "worst period” of his adult life as a housing market recovery remains "several years” away.
"This is worse than any recession we’ve had since World War II,” Broad, 75, said in an interview yesterday. Broad, the founder of homebuilder KB Home, said the U.S. should avoid a depression on the scale of the 1930s because the country now has sufficient "safety nets.”
The economy expanded at an annual rate of 1 percent in the first quarter, the Commerce Department said last week. That caps the weakest six months of growth in five years. The U.S. lost 49,000 jobs in May, when the unemployment rate rose to 5.5 percent, the fifth straight month with a drop in payrolls and the biggest jump in the jobless rate in more than two decades.
"This is the worst period of my adult lifetime,” Broad said, speaking about the U.S. economy. "I do not think things are going to get any better” before the next president takes office in January.
Check out that chart in the background — Ouch!
Broad Says Economy in Worst Slump Since World War II
Anthony Massucci and Erik Holm
Bloomberg, July 1 2008
“Housing optimists have systematically misjudged the market. Some became convinced that the huge runup was justified by fundamentals such as population growth, rising incomes, and land scarcity. And because sharp national housing price declines are so rare in U.S. history, analysts assumed that prices would, at worst, flatten out for a few years. What they…Read More
Welcome to the second half of 2008.
We begin the second half pretty much the same way we finished the first half: Equities under pressure in Asia, Europe, and judging by the futures in the US, domestically as well.
One of the things that us foolish idealists hope for is that the current set of crises will force the fantasy brigades to actually start interacting with that hypothetical construct known as reality. Perhaps by confronting the actual problems facing the economy, we can actually begin the process of repairing them by taking the painful write-downs and instituting the medicinal policies that make sense.
Such hopes are misplaced. The latest evidence of such comes from no other than Blackstone Group (BX) CEO Stephan Schwarzman. On the occasion of the private equity firm’s one year IPO anniversary, Schwarzman places the fault for the current crises squarely on FASB 157.
You read that correctly: This was not the fault of incompetent lending to borrowers who could never afford to pay back mortgages; nor was it the fault of the rating agencies that slapped AAA on paper that turned out to be garbage; nor was it the responsibility of an MIA Fed that utterly failed in their responsibilities as the chief supervisor of the banking system; nor was it the liability of fund managers who in a misguided grab for yields bought billions of dollars worth of securities that they had no idea of the specific details contained therein.
No, it was the accountants’ faults.
You see, those persnickety bean counters forced banks and brokers to actually write down paper for which there was no market.
Therein lies the foible of Schwartzman’s Folly, for if you own marketable securities for which there is no market, then by definition, these are not really marketable securities.
How then to price all of this paper on the books? Why, just rely on the people who bought them in the first place! Never mind that they don’t understand what they own, they failed to do their due diligence before buying this garbage in the first place. Do not acknowledge these folks have an enormous personal incentives NOT to mark this junk down.
You can trust them! They’re good people.
Perhaps this helps to explain why Blackstone Group’s stock is off nearly 50% since the IPO: The foolish shareholders of BX have been making the mistake of marking the stocks-to-market. My suggestion: Forget that they are a private equity firm, and consider instead your own approximate fair value interpretation of what the company is worth!
Attention fund managers: Here is my new Stephan Schwarzman inspired idea. Y’all should be buying Blackstone in the open market today at $18, and at the four o’clock close, be marking it at $36. That will be not only be your fair value interpretation of what it’s worth, but it reflects a 100% gain instantly.
And, that’s before the $.30 dividend.
Indeed, for those investors struggling with the current selloff, I suggest you forgo mark-to-market accounting at present, and instead start implementing mark-to-subjective-self-interested valuations. Your portfolio returns, and you’re outside investors, will thank you for the immense improvements in your performance.
Musical reference and soundtrack via the Talking Heads
FASB 157 — Delayed, or Not? (November 15, 2007)
SFAS 157: Market Prices Too Low? Just Ignore Them! (March 31, 2008)
Are Bean Counters to Blame?
ANDREW ROSS SORKIN
NYT, July 1, 2008
Summary of Statement No. 157
Fair Value Measurements
Mohamed El-Erian Argues for Propping Up Asset Prices
Naked Capitalism, MARCH 18, 2008