Call it a tale of two CEOs.
At the Citibank Housing Conference, we heard two
versions of the housing implosion from two industry leaders. On the one hand,
Robert Toll (Toll Bros CEO) was saying that his cancellation rate was slowing (unfortunately,
so have been his sales).
In a separate presentation at Citibank, DHI CEO had a few choice words:
"D.R. Horton, the second-largest builder by revenue, will likely miss its internal goals for 2007 home closings, Tomnitz said today. Closings will likely fall below 2006 levels, he said.
"I don’t want to be too sophisticated here, but 2007 is going to suck, all 12 months of the calendar year,” Tomnitz said. "Our future is not as bright as what we would like it to be.”
There are some in the housing industry who certainly don’t pull any punches. Tomnitz may not win any awards for eloquence, but the guy isn’t spinning investors with crap. At the very least, that is fairly refreshing.
Incidentally, I am working on a related issue for tomorrow — call it the "Wages of Spin" — that looks at the negative impact of real estate industry bullshit . . .
Toll Cancellations Drop; Horton Says Market to `Suck’
Brian Louis and Sharon L. Crenson
Bloomberg, 2007-03-07 15:54
Blame the professors: Just as the option backdating scandal started with academic researchers noting mathematical anomalies, so too might the next brewing scandal: the I/B/E/S Analyst ratings back dating scandal.
According to a Barron’s article by Bill Alpert (buried on page 39), several professors have discovered what they describe as 54,729 non-random, ex-post changes out of 280,463 observations — a little over 19.5% of analyst recs (abstract below):
"The professors found
almost 55,000 changes that had been made in the I/B/E/S database of
stock-analyst recommendations maintained by Thomson, the Stamford,
Conn., firm that is a leading vendor of financial data. The alterations
made Wall Street’s record of recommendations look more conservative –
hiding Strong Buy recommendations and adding Sell recommendations from
1993 to 2002. That is a period for which Wall Street has drawn heat and
government sanctions for touting Internet bubble stocks.
As a result of the changes, the stock picks shown in
the database would have created annual gains that were 15% to 42%
better than the originally recorded recommendations, using a trading
strategy based on analysts’ recommendations."
The firms were the most significant participants in the data backdating were also the firms who had the closest relationship between banking and research and were the hardest hit by the Spitzer enforced settlement.
From page four of the academic working paper notes exactly how significant this was:
"Why do the historical data now look different than they once did? The contents of the database changed at some point between September 2002 and May 2004, a period that not only coincided with close scrutiny of Wall Street research by regulators, Congress, and the courts, but also saw a substantial downsizing of research departments at most major brokerage firms in the U.S.
The paper outlines four types of data changes: 1) non-random removal of analyst names from historic recommendations (anonymizations); 2) the addition of new records not previously part of the database; 3) the removal of records that had been in the data; and 4) alterations to historical recommendation levels.
The net result of this was to make many specific trading strategies appear better in retrospect than they actually were. Buying top rated stocks and shorting lowest rated stocks, based on the changed data, now perform 15.9% to 42.4% better on the 2004 revised data than on the 2002 tape, the professors state.