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John Gilluly

 
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  • The Housing Market May Be Starting To Crash [View article]
    Dave,
    1) " why, if the housing market is so robust, they can't finance their operations from cash flow?"

    Simple answer. Why spend their own money to build homes if someone else will give them the money to do it practically for free? The public builders have almost unlimited access to dirt-cheap capital with very few strings attached. Gratis QE and the Federal Reserve.

    2) You're right about the employment to population ratio; but it's more than just bad management and the financial crisis's fault. Those things simply exacerbated it.

    Rather it's demographics.

    The Post WW II generation - the largest in history - is retiring, and has been retiring (early) since the year 2000 when the numbers first began to level off, and soon after, recede. If you look at the EMRatio you'll see that it really got rocking when the first baby-boomers graduated from high school in 1963, went practically straight up til the year 2,000 (37 years later), when the first boomers began early retirement at 55 years old.

    Now that cohort is in the 65 to 70 year range, and leaving the work force. That's why the numbers look so bad. It's not because something is "wrong". It's because it is the way it is. The difficult thing about the financial crisis is that these experienced workers lost a lot of retirement money in the market, and if they are currently unemployed now or were laid off, are unlikely to be employed professionally again. So yes, there is a human tragedy - exacerbated by the financial crisis - but we would have had this kind of EMratio in any case.

    3) Who is going to buy all these homes? I wonder about that too, but they keep buying them. Maybe it is stock market money; maybe it's good jobs in specific areas (not everywhere is super-expensive LA, San Francisco Bay Area, Silicon Valley, NYC, Boston). There's really brightening economies in other metros where land is not so expensive and nice homes run $250K - very doable with 4.5% mortgage rates. The point is, builders are only building new communities where the jobs are happening. It is for the statistical and real that they build for, not the theoretical nor the hopeful.

    Simple description of their stategy: location, location, location.

    Where I live - a metro area of maybe 15,000, there's ONE FOUR-BEDROOM home for sale, and it will likely go for $50K above asking. There is little to no inventory in the desirable parts of the SF Bay Area. It's like the current drought - driest year on record. Must be the lowest local inventory numbers on record too.

    And new homes? Practically non-existent and they sell quickly. There's actually waiting-lines for new homes, and the builders change the prices once a week if the demand is too high. I have read about families camping out in tents in front of the sales office at new communities in the East SF Bay (Dublin, CA)

    The only reason that Tri-Pointe (TPH) and KB Home (http://bit.ly/Ws2zLQ) have not sold every coastal CA home they could build is that they DON'T WANT TO. Where would they ever get replacement lots? At 2010-2012 prices? Forget it. Those days are gone.

    So they meter out the lots like little old ladies with tea cups pouring tea, and sell each lot and each home for a few thousand bucks more. Cancellations? Bring em on. The builders will try to keep the deposit and sell the home to a new buyer (almost immediately) for 5% higher.

    Where you see imminent disaster, I see builders shooting fish in a barrel. You don't see how they could possibly do it. I don't see how they could possibly lose.
    Feb 27 03:58 AM | 5 Likes Like |Link to Comment
  • The Housing Market May Be Starting To Crash [View article]
    You do a lot of hard work, Dave, no one is disputing that. It is the inviolability of the decision-making that is being questioned. I suppose I could be accused of the same thing, because on the flip side, I am just as bullish as you are bearish.

    DHI to $5? I just can't see that happening any time soon. The company owns or controls over a 190,000 lots and most of that is legacy holdings. Their footprint in the now-emerging Chicago market almost guarantees them recovery profits there. And it appears buyers prefer "new" homes; not used ones.
    Feb 26 07:37 PM | 2 Likes Like |Link to Comment
  • The Housing Market May Be Starting To Crash [View article]
    I think the fact that you sell-short the stocks that you recommend to do so is personally commendable. You have skin in the game; actual risk. I do too. Everything I write about I own, or would like to own.

    My worry about your excessive bearishness is the opportunity-cost to traders who have followed your line of thinking. Unless they were very adept and sure-footed, they could be looking at significant losses at this point; in fact, months of significant losses.

    You are not a single voice in the crowd (as you might assume). You have a large following of over a 1,000 readers on S/A. The one question I think worth considering is if there could be any circumstances - some day, some way - which might convince you to change your mind?

    At this point your fervor to short construction-related stocks seems boundless. However, the actual performance of the builders does not appear to confirm that fervor.
    Feb 26 05:01 PM | 6 Likes Like |Link to Comment
  • The Housing Market May Be Starting To Crash [View article]
    Dave - the housing index hit a new 52-week high this morning. (See: http://yhoo.it/1frG6rF). New Home sales surprised 9.6% to the upside in January. The replacement cycle remains alive and well. It's likely that there is an acceleration afoot in new home sales this Spring, not a crash.
    Feb 26 10:29 AM | 8 Likes Like |Link to Comment
  • Why Are So Many Homebuyers Backing Out Of Their Contracts? [View article]
    But unfortunately, as Issue above mentioned, KBH has the lowest reputation among real estate agents in the U.S. because their "first response" to a site problem seems to be legalistic, rather than pragmatic. Florida is a case in point. Homeowners had to go to the media and the courts before they could get their leaking rooves and rotting walls fixed.
    Feb 22 03:15 AM | 4 Likes Like |Link to Comment
  • Housing Starts And Building Permits Miss By A Mile [View article]
    I like your "pond scum" indicator. Kinda funny; but likely true in your local market if you have found it to be reliable.

    Out here in the SF Bay Area where I live, we have gone from exceedingly low inventory to practically NOTHING for sale. Most homes go for above asking. Inventory must be the lowest on record.
    Feb 22 01:13 AM | Likes Like |Link to Comment
  • Trading The Ranges In M.D.C. Holdings And Tri-Pointe Homes [View article]
    MDC hit $28.07 this morning (2/20/2014 - day before Existing Home Sales report), near the very bottom of its range. Stock closed in the afternoon at $28.75, up 2.5% from its lows.
    Feb 20 04:06 PM | Likes Like |Link to Comment
  • Housing Starts And Building Permits Miss By A Mile [View article]
    Bespoke's exegesis is interesting. If I were to ask you, "Do you live in the world?", Of course, you would say yes. And then if I asked you how the recent poverty statistics in St. Louis were affecting you, you might say, "Huh?"

    Because what really matters is WHERE in the world you live; not just that you are a global citizen. And these housing stats are like that - anonymous global citizens, until you boil them down to the axiom that drives real estate, "Location ...location ...location."

    Home builders build what you and I call homes, and what the data creators call "Privately-owned Housing Starts authorized by building permits - 1 unit structures". A person can go the the Federal Reserve of St. Louis data site (FRED) and type in the search box "Housing units authorized by building permit" and click through literally hundreds of metro areas in the U.S. to see how things are going. By my perspective, January was a zag (down) month and February and/or March are just as likely to be a "zig" (up) month.

    So let's do a little re-interpretation of "Missed by a mile". The Midwest had an arctic vortex for most of December and January, and recorded temperatures below zero that were unsafe for people working outside. Thus housing starts in the midwest were 50,000 to a 100,000 below what they would have been under a normal "just freezing" Midwest winter. How cold was it? 40 to 50 degrees below freezing. Real cold. So cold, in fact, that the 50,000 annualized starts was the lowest EVER recorded for the Midwest.

    Add the 50,000 - 75,000 Midwest starts that were frozen out of the stats, and you have 888,000 + [50,000 - 75,000] = [938,000 - 963,000] starts, a small miss below the expected 965,000. Further, the building permits for the midwest came in at 151,000 vs. 139,000 for December, clearly a ramp-up completely belying the starts number.

    You can notice from the charts above, that starts and permits zig-zag a lot. Up one month, down the next: up down up down etc. It's the overall trend you want to look for. And except for the Midwest's one-month weirdness, the trend is up. The only areas that are down on a month over month basis is the very high-cost west (where Coastal CA dominates the stats) and the South, that was also affected by freezing temperatures.

    So what caused the drop? Freezing temperatures in 2 locales and over-priced homes in the west. Other than that, a "normal" report skewed by one-off events.
    Feb 20 06:28 AM | 1 Like Like |Link to Comment
  • Income Investing: Back In 2014? [View article]
    Surfgeezer,

    Here is my question. I own NLY (http://bit.ly/1cqi25M). I wouldn't mind owning more. I also re-invest the dividends. After each ex-dividend date I make 30 cents a share on 2,000 NLY (currently).

    Today (2/19/2014) the April 19, 2014 NLY $12.00 puts are $1.23 bid/$1.40 ask.

    What is the adaptation of your strategy to my intention (acquire more shares, earn more dividends, and lower my cost-basis)?

    For example, say I sell 2 put contracts at $1.23: if it closes below $12 I will need to buy the 200 shares, but my cost basis is $12 minus $1.23, or $10.77 (long-term capital gain cost-basis), yes?

    What if NLY closes above $12 on April 19? Do I get to keep the 2 x $1.23 ($246, taxed as income) and the contract dissolves worthless?

    In conclusion: If the stock rises above the strike price, you make income; and if it goes down, you get cheap shares. (?)

    That seems like a risk-less proposition for someone who wants to accumulate dividend-yielding shares in a "solid" company (or so I'd like to assume) and who doesn't want to sell. The person buying my puts helps me ($) along the way, yes?

    Am I missing something here? My main concern is generating income, to be used later on for retirement.

    Also, in order to sell puts, what is the customary requirements ($) from brokerages for a person to be able to do this? It appears you buy puts that expire on a quarterly basis (every 3 months). What is the rationale behind that?
    Feb 19 10:55 AM | Likes Like |Link to Comment
  • No Mortgage For Homes [View article]
    I think you said it best, "If they want to do business with US, they know how to find US."

    Precisely. Through your articles on S/A. And then sign 'em up? Another real estate author on S/A was wondering the same thing about you (the plural you, not the singular you) and wrote to me about it. First thing that popped into both our heads was the articles are a lure to acquire customers.
    Feb 13 01:13 PM | Likes Like |Link to Comment
  • No Mortgage For Homes [View article]
    Mr. Calhoun's articles - or is it Mr. Snider, or others? - (http://bit.ly/1eWagkX) -seem more like targeted advertising, looking for clients. Pick any one of the smiling faces on his website to manage your money.

    I am not sure if Seeking Alpha even allows this (if they knew), but trolling for customers in a public forum - and selling a product - Alhambra Partners - is definitely not "just" journalism.
    Feb 13 03:04 AM | 1 Like Like |Link to Comment
  • January Jobs Report Positives: Residential Construction Momentum And The Participation Rate [View article]
    The nominal number of new construction-related jobs in January, 2014 was almost double that of January, 2013 - in what was one of the coldest Januaries on record. There was also a pick-up in manufacturing jobs.
    Feb 11 02:04 AM | Likes Like |Link to Comment
  • There Go The Tailwinds [View article]
    In the latest BLS construction employment figures for January, 2014, hiring in that sector increased 100% over 2013: to 48K from 24k (approximately).

    For 2/3 of the United States that increase was for what's considered an "outside job" in one of the coldest Januaries on record.

    Manufacturing payroll employment also improved over January, 2013
    Feb 10 02:25 AM | Likes Like |Link to Comment
  • Is It Safe To Return To REITs? [View article]
    Galicianova - that REM looks great. Hasn't cut or reduced its 15% dividend during the recent 2013 downturn; is diversified, and is composed of some great companies.
    Feb 10 02:12 AM | Likes Like |Link to Comment
  • The Real Estate Slide - It's Just The Weather [View article]
    That's because there's no supply. Do a For Sale check on Zillow.
    Feb 9 11:22 PM | 2 Likes Like |Link to Comment
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