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Dave Kranzler's  Instablog

Dave Kranzler
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I spent many years working in various analytic jobs and trading on Wall Street. For nine of those years, I traded junk bonds for a large bank. I have an MBA from the University of Chicago, with a concentration in accounting and finance. Currently I co-manage a precious metals and mining stock... More
My company:
Golden Returns Capital
My blog:
Investment Research Dynamics
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  • Homebuilder Stocks: Look Out Below!

    You can lead a horse to water…Every single homebuilder stock I look has insane levels of debt. The company in my latest report has 22x EBITDA to Cash Flow. I had to rub my eyes and re-calculate the numbers when I first looked at that ratio. This is a hallucinogenic level of debt at a time when the housing market is headed south. This company will hit the wall within two years and anyone short the stock will be able to cover close to zero.

    But ALL of these companies have record or near-record levels of debt and inventory. Their debt/inventory as a whole is higher than it was at the housing bubble peak in 2005 - on unit volume sales that is less than one-third of the bubble peak volume. The seasonallymanipulated adjusted, annualized sales rate for home sales being fed to us by the industry organizations and the Government are fraudulent. Witness that fact that the Census Bureau imposed the 3rd largest seasonal adjustment on record to yesterday's November retail sales report. It's all a fabrication, like most of everything else in our system. Click to enlarge:

    (click to enlarge)

    Shorting the homebuilders now is one of the easiest short-sell bets since the peak of the housing bubble or the internet bubble. The Fed is no longer buying mortgages and near-record low mortgage rates are not stimulating sales. My research reports are unique in their insight and detail, showing exactly why the reported GAAP numbers are misleading, if not outright fraudulent, and why these companies are in worse shape now than in 2005, the last time they crashed: Sell-Short The Homebuilders.

    Disclosure: The author is short KBH, DHI, RYL.

    Dec 12 10:22 AM | Link | Comment!
  • The Homebuilders Got Whacked Today

    Down well over 4% with the SPX down 1.6%.

    Toll Brother's missed earnings expectations. The stock is down 4%. Contracts were down 5% from Q3 and backlog was down 8%. This is in a housing market which is being supported by near-record low mortgage rates. Interestingly, despite a huge increase in reported average price per unit, Toll's gross margin - revenues less cost of revenues - were flat. One would think that, ceteris paribus, Toll's gross margin should be soaring.

    Something smells rotten and I have feeling that Toll engaged in massive discounting to try and move some of its gargantuan inventory. The discounts were probably accrued into cost of revenues so that Toll could report a lofty average price per unit. Toll is going to have problems next year, as its debt to capital ratio jumped up to 41% from 32% last year…(click to enlarge):

    (click to enlarge)

    The DJ Home Construction index is now down over 4% from its high-close weeks ago. I have five stock reports which will help you take advantage of an insanely overvalued housing market: Homebuilder Stock Reports.

    I believe the company in my latest report will be bankrupt in 2 years. My reports detail the misleading accounting these companies use and show why they are not really making even close to the amount of money they claim using phony GAAP accounting standards. I also have suggested options trades.

    Disclosure: The author is short KBH, DHI, RYL.

    Dec 10 4:00 PM | Link | Comment!
  • Economy Worse Than Being Reported – Housing Market Crumbling

    Despite the Government's ebullient headline employment report, the U.S. economy lost jobs in November. Per CNBC: That big headline number translated into just 4,000 more working Americans. There were, at the same time, another 115,000 on the unemployment line. That disparity can be explained through an expanding labor force, which grew 119,000, though the participation rate among that group remained at 62.8 percent, which is just off the year's worst level and around a 36-year low - LINK.

    Thanksgiving weekend (4 days Thurs - Sun) retail sales - both brick/mortar and online - collapsed 11% vs. 2013. Experian reported that there was a 27% jump in auto loan delinquencies during the third quarter: LINK. There's still 2.4 million less full-time workers than in November 2007. There's 3.1 million more part-time workers.

    I got news for everyone, part-time wages do not create homebuyers. In fact, it was recently reported that 51% of all workers make less than $20/hour. But here's the coup de grace for the demise of the housing market (click to enlarge) - source LINK:

    That graph illustrates why the housing market is crumbling and why the homebuilders are a phenomenal short play right now. In fact, the Company in my latest report - This Company Will Go Bankrupt - specifically caters to the segment of the market represented by the blue line.

    I show how this Company is not making any money despite the fact that it reported positive net income (GAAP accounting basis) in its FY 2014. This Company has more debt now than it had at the bubble peak in 2005, on sales volume that's less than 1/3 of its bubble peak sales volume. This Company will hit the wall w/in two years - it's already rated at the 2nd lowest junk bond level by Moodys - 2 notches above distressed. You can access this report and 4 others here: Homebuilder Reports.

    Disclosure: The author is long KBH, DHI, RYL.

    Dec 08 12:58 PM | Link | 2 Comments
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