January 17, 2006

Merrill Lynch Pump and Dump Update #3: Banc of America cuts builder stocks


So, when is that (new) SEC investigation of Merrill going to be announced?


Banc of America Securities on Tuesday downgraded two homebuilder stocks, Toll Brothers Inc. and Meritage Homes Corp., saying it was cautious on 2007 and 2008 earnings for the sector as expenses, especially land, continue to rise.

Analyst Dan Oppenheim in a research note to clients said although his estimates do not assume a housing crash, he sees profit declines for builders as costs increase faster than revenues.

Oppenheim cut his rating on Toll to sell from neutral, citing "a slower pace of sales and price appreciation along with increases in land, labor, and materials costs."

BofA said it expects demand to weaken significantly at higher price points, therefore Toll "may see more weakness than peers given its focus on the luxury segment of the market."

23 comments:

Anonymous said...

The only possible straw Merrill could grasp at is the kind of thing I never saw coming last week on Countrywide Financial's monthly mortgage report: CFC is getting a much bigger piece of a smaller pie, so its stock ran up like 5% in a day.

That said, there are a million differences in the Merrill case, not the least of which is that one of their own guys gave the builders the thumbs-down just a couple of days before.

They'll never admit to doing anything wrong though because when it's all said and done, a lot more is said than done when it comes to prosecuting big-money pump-and-dump schemes.

Wes D said...

This story is nothing but a gnat in a world dominated by tarantulas. The housing bubble is going to blow but this will be long forgotten by then. The real people who will be under the spotlight are the mortgage banks who make marginal loans. Expect the Fed to require very soon (3-6 months) extra reserves to handle bad loans from these banks.

Dogcrap Green said...

The anals that are pumping the housing bubble theory and how it plays out with the homebuilders. Are the same ones that looked like morons pumping telecoms during the tech bubble.

Am I the only one that remembers how Andrew Hammerling of Bank of America swore on a daily basis the telecoms were the best place to invest?

He was an embarsment to Bank of America. Now Bank of America wants to get a bubble right for once.

the fact is LAND is the bubble. It is the land that bubble not the house it sits on.

But look at TOL and their purchase of land recently.

They get to lease it back up through 2009, yet they bought the land at 2002 prices. So in 2009 they will have land from prices of 7 years previous.

How much money do you think you can make selling house if you had the chance to buy Arizona land today at 1999 prices?

Bank of America blew it again.

Anonymous said...

BofA are criminals too.

Anonymous said...

Thanks to China and free trade mantra there is a DEFLATIONARY downward pressure on all but the highest wages. The cute crowd who middles the cheap stuff or works in the upper management of such companies is doing well.

What does this have to do with real estate? The nouveau wealthy ARE the ones who SHOULD be buying because they have the money and are riding the crest of the low wage trade. So Toll Brothers which is a Luxury builder catering to the high wage winners should be a winner too. But in report after report after report on housing across the country it is the $1,000,000 and up properties that got hit first with the popping of the bubble! So what went wrong with the rich boys? I can understand the pull back of the average Joe who is trying to afford a median priced home with an interest only loan... but what ABOUT Mr. big boy? What is wrong there? Or have they like US realized that it REALLY IS A BUBBLE thanks to the low interest property buying craze started by Greenspan!

DrChaos said...

What's happening is that even the "usual" wealthy people, typically Republican-voting business owners making $100-$200k are finding out the reality of the "Trickle down" economy that everybody else has known for a while.

The money isn't for them either---it's for the hyper rich with massive political and financial connections.

They still have to fill up their (non-economy!) luxury cars and trucks, pay for good medical coverage that they deny to their proletariat, and send their children to college and now professional schools to get anywhere. And these are expensive. Their stock investments and bonds haven't gone much of anywhere for 5 years either.

Only the hyper-rich don't have to worry.

Anonymous said...

I don't think you can say these people are typically Republicans. In my experience, greed has nothing to do with political affiliation, and everything to do with a lack of evolution. And neither party is remotely evolved.

Here in Tampa, Democrats are every bit as wealthy as Republicans, and every bit as greedy as Republicans, and every bit as involved in the ghastly real estate bubble as Republicans. Our Democrat mayor has encouraged developers to take over the entire city; our heavily Democratic city council members and county commissioners brag about the doubling, tripling, and quadrupling of house prices. Our heavily Democratic variance board has given developers every variance imaginable to build anything they want anywhere they want with no regard to anything other than profit. The result? One of the ugliest, most boring cities on Earth is now one of the ugliest, most boring, and most overbuilt junk piles on Earth, with prices as absurd as those of California and Hawaii, but with none of the beauty or amenities of either. People here pay millions of dollars to live in a toxic waste area called the channel district, with "water views" of the sewage treatment plant, and industrial chemical tanks.

If these are the newly rich, they are tackiest and funniest of this breed in history.

Wes D said...

I think Tampa is a very nice city. If you could bomb out the areas north of I275/I4, east of Howard, south of Busch, and west of 301, it would be a much nicer place.

Channel district is getting some upscale condos. Channelside shopping has finally taken off. It's a great place to visit and catch a hockey game. I'm actually glad - downtown Tampa is one of the cleanest and nicest downtown areas I've ever visited. Davis islands is a local paradise with outdoor shops and restaurants. Downtown just needs some night residents instead of the homeless. It's also a pretty safe area - I've not once felt worried about walking around by myself there leaving the Tampa theatre or church.

South Tampa is a great area (north of Gandy). The Hyde Park area is a beautiful city within a city of old houses from the 1920s that have been restored into beautiful places. Lots of good restaurnts within easy walking distance. It's an easy drive to downtown or westshore (How about a 15 minute commute?), and it would be a paradise to live down my bayshore drive. It would be like a daily vacation in paradise with the breathtaking views of the water and downtown vista. An urban dweller could live in that neighborhood and work downtown and never have to go anywhere else.

The rest of Tampa is okay and has a small town feel to it since it's not near as suburban as many other cities that are similar in population (KC, STL, Indianapolis, Pittsburg, Cincy, etc). It's also a very easy city to get around, especially if it's not rush hour. I would have to think very hard to think of two points that it's not possible to get to in under 20 minutes at average traffic. It's possible to go from Carrolwood to South Tampa in that time. Or Rocky Point to Ybor (15 mins), or Citrus Park to downtown (15 mins), or USF to westshore (15 mins).

The only suburban areas of Tampa are Brandon and the Temple Terrace area, which are nothing when compared to Orlando. (Pinellas co is another story - and mainly a dump that a hurricane should wash off the face of this earth at some point).

Anonymous said...

A realtor or developer must have written the previous. Tampa is a dump, and most of us who grew up here think so. the Channelside district is horrible, with the same ridiculous "upscale" shops one finds everywhere, but the added attraction of industrial waste and chemical storage tanks to look at. One cannot cross the street without endangering ones life. It's all smoke and mirrors.

Hyde Park is outrageously expensive. When my family moved there in the 1960s, nobody wanted to live there. In the 1980s, Yuppies, inspired by "This Old House," moved in and turned it into the most pretentious neighborhood in all of Tampa.

The writer states:

"I think Tampa is a very nice city. If you could bomb out the areas north of I275/I4, east of Howard, south of Busch, and west of 301, it would be a much nicer place."

Well, Hyde Park, downtown and Channelside are east of Howard, all of Tampa is south of Bush and west of 301, so yes, if you destroyed all of Tampa, it would be a much nicer place. The downtown is mostly empty, filthy old buildings, all connected, and it smells. It is high traffic, there are virtually no parks or greenspaces, there are no nice stores. The greedy developers (including Donald Trump) putting up condos there may want to promote it, but once one in installed in one of these places, there is nothing to do. Most of downtown looks like skid row, and it continues as a slum for nearly ten miles north. The farther north one goes, the more redneck the slum become.

The traffic in Tampa rivals that of Atlanta, but Tampa is not pretty like Atlanta. It is overrun with billboards, and honky-tonks. Strip clubs and porno shops are everywhere. So are abortion clinics and bible-thumper churches. 60 Minutes once did a program on Hillsborough Avenue, calling it the Ugliest Street in America. Multiply that by thousands, and you get the picture.

Wes D said...

"A realtor or developer must have written the previous."

Nope, just a resident.

"Hyde Park is outrageously expensive. When my family moved there in the 1960s, nobody wanted to live there. In the 1980s, Yuppies, inspired by "This Old House," moved in and turned it into the most pretentious neighborhood in all of Tampa."

I agree, but that doesn't make it a dump. It's a very nice area with some good street level restaurants and decent nightlife scene. Not a big yuppie fan myself but I'd rather see redevelopment of slummier areas that fresh suburbs sprouting up everywhere. (Wesley Chapel, anyone?)

"I think Tampa is a very nice city. If you could bomb out the areas north of I275/I4, east of Howard, south of Busch, and west of 301, it would be a much nicer place.

Well, Hyde Park, downtown and Channelside are east of Howard, all of Tampa is south of Bush and west of 301, so yes, if you destroyed all of Tampa, it would be a much nicer place."

I stand by that assessment. Using a map, draw a box using those 4-sides, so this would not include anything south of the interstates.


"The downtown is mostly empty, filthy old buildings, all connected, and it smells. It is high traffic, there are virtually no parks or greenspaces, there are no nice stores. The greedy developers (including Donald Trump) putting up condos there may want to promote it, but once one in installed in one of these places, there is nothing to do."

Downtown Tampa is much nicer than many other downtown areas. There are parks (Gaslight square), the wonderful walk along Bayshore drive, the proposed riverwalk connecting the art museum and channelside. U of T is a great campus where it's peaceful to sit. There are some restaurants but the place is getting better and will continue to once the condos are built. Try walking downtown ST. Louis or Pittsburg and Tampa looks like a paradise compared to those cities.

"Most of downtown looks like skid row, and it continues as a slum for nearly ten miles north. The farther north one goes, the more redneck the slum become."

You have a point there, see my rectangle for redevelopment listed above. It's amazing how quickly you get out of Tampa once you're driving north of I-275. 10 mins from downtown and you're in the middle of redneck trailerville.

"The traffic in Tampa rivals that of Atlanta, but Tampa is not pretty like Atlanta. It is overrun with billboards, and honky-tonks. Strip clubs and porno shops are everywhere. So are abortion clinics and bible-thumper churches. 60 Minutes once did a program on Hillsborough Avenue, calling it the Ugliest Street in America. Multiply that by thousands, and you get the picture."

1. Atlanta traffic is much worse.
2. Beauty is in the eye of the viewer.
3. Lots of strip clubs for sure.
4. No more abortion clinics or churches than any other city. At least there aren't shooting and riots outside of either, thank goodness.
5. Hillsborough Avenue looks like any other older urban street in this country. It's no different than highway 50 through downtown Orlando.
6. Bayshore Avenue is also one of the prettiest streets in any city in the country.

Tampa does have it's problems but so does any city. If you want to look at a derilict area, look no further than Pinellas county (St. Pete & Clearwater). They make Tampa look like some Disney world resort.

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