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March 2008

Recs

16

Las Vegas housing market checkup

March 23, 2008 – Comments (9) | RELATED TICKERS: KBH , LEN , SPF

After spending almost a week in one of the most remote places in the US - The hot springs of saline valley in Death Valley national park, I drove back to Las Vegas for my spring housing market checkup. The change from the beauty of Death Valley, to the fast paced, no road rules of Vegas is not for the timid.

My first stop was North Las Vegas near the 215 beltway and I-15. I visited several subdivisions of public home-builders SPF, KBH, and LEN. I must digress just a bit. What is it with these subdivision names? Mountain shadows, Eagle canyon, Canyon springs, Coldwater ranch, etc...Let me make it clear - In Las Vegas, there are no freaking mountains, eagles, shadows, shade,  canyons, or coldwater!  Vegas is hotter than hell in the summer, and windier then the top of  Everest in the winter! The subdivision names should be:
 

Deadpan desert view estates
Tumbleweed factory condos
Dust-bowl dirt boxes
Desolate windy ditch ranch
At least your not renting homestead

Sorry, I'm back with the north Las Vegas subdivisions. I drove around and talked to potential buyers and agents. Overall traffic and interest is up considerably since Dec - but this is the seasonal norm. The big difference is that very few are buying. The prices here in Vegas are still too high, and the homes are just too big. Most floor-plans are at least 3500 - 4,000 sq. ft. The builders need to be downsizing these homes to 2500 sq ft IMHO. The current price per sq. ft is low, but the total price is just too high.

Beside price, the reasons for the lack of buying seem to be lack of mortgages, and fear of further price drops. In Las Vegas, the location is still key. In North LV and west LV near red rocks, activity is much stronger. South LV and Henderson are a completely different market - and in trouble. I don't know why Henderson is consider Las Vegas? Henderson in particular is horrific. Two developments projects, Inspirada and Kyle Canyon will cause major problems for KBH, BZH, and LEN.


Overall, I would avoid any HB with large Las Vegas and especially Henderson exposure. The most exposed to LV and Henderson are: LEN, KBH, BZH, and TOL. The home-builder with the least LV exposure is SPF with only 3 active communities(LEN has 34 active and 6 in Henderson).

On a positive note, I visited some large subdivisions in Northwest LV near the BLM boundary. A year ago these had thousands of empty boxes as far as the eye could see. As I drove in these new subdivisions, I noticed all the boxes are now occupied. Obviously I have no idea if these were all sold, or rented, but no slum-like deserted subdivisions that some of the media fear-mongers are spewing about.

I have been predicting the US government to start various bailout packages as this housing depression continues. This is happening with the GSE's now with 200-300B more $$ to lend, and the FED floating billions to brokers now. I am still predicting the final bailout - 300-500B buyout of CDO's and CMO's by the federal government.

Here is an excerpt from an earlier blog from over a month ago:

"The US housing bailout needs to work as follows. 300-500B of lower level tranches of CMO debt needs to be purchased and held by the US government. Also the GSE's/FHA need to loan cheap money 5.5% 30 yr, to refi the weak/poor loans with 2006-2007 vintages. and slow down the foreclosure process. The third leg of the bailout would be the GVMT helping states and cities raise bond funds to purchase distressed homes in hard hit communities and take them off the market - maybe affordable rentals, for lower level workers, etc...."  [more]

Recs

7

Ride the waves of change - Chesapeake Energy

March 19, 2008 – Comments (3)

A tidal wave is coming to the US, and Chesapeake Energy will be surfing like a pro! This change I am talking about is the use of natural gas in the US. Many economic experts agree that pollution taxes, or a cap and trade pollution system will become reality in the next few years. I have written in February about my vision of the future of natural gas.   [more]

Recs

10

Invest with some weight - Steel stocks

March 10, 2008 – Comments (4)

I like a company that produces a tangible product, something that if you drop it on your foot, it hurts: rebar, structural pipe, flat rolled, tubular products, precision tube, stainless steel, tool steel, ingots, blooms, billets, bars, structural beams, etc...All these products could put a dent in your foot, but might also put some cash in your pocket.

Steel is basically iron ore with carbon used as a hardening agent. Other alloying agents are also used.  Steel is increadibly versitile,  depending on the elements added to the alloying process, one can control  hardness, tensile strength,  and ductility.

Steel stocks offer an extremely wide array of industries to invest in. The way I look at it, when you invest in a steel firm, you are not just investing in the steel industry, but the industry in which these firms steel products are sold to:

- Infrastructure construction
- Commercial construction
- Oil and gas distribution
- oil and gas exploration
- automotive
- applainces
- Aerospace
- aggraculture
- recylclers
- water projects
- international infrastrucute, construction
- raw material for steel, iron ore, zinc, manganese, tungsten, etc...

So there is no one demand for "steel". There is demand from the above many industries.  Being in cyclical industries, steel firms have had a bad reputation. This is unfounded in  my opoinion, as the steel industry appears to have learned its lessons from its cyclical past. Now steel companies understand paying down debt is a wise use of cash flow when times are good. Consolidation is also a ongoing dynamic in the steel industry that is likely to continue.

Another reason the love these steely investments - valuations. Most steel equities are trading below 12 times earnings. Cash flow from operations are also very strong, with an average cash flow yield of around 20% for the steel stocks I track.


Before investing in a steel company, investigate the industries that the steel firm sells into. My favorite steel industries are:

- Infrastructure construction
- Oil and gas distribution, exploration
- Aerospace
- recylclers
- water projects
- international infrastructure, construction

My current best steel investments:
                        
Ticker      PE       CF Yield      PE        Industries served
----------------------------------------------------------------------------------------------------------------------
PKX:       12            18%                   India, China infrastrucure, diversified
GGB       11            25%                   Latin america, US infrascture,
RS          10            15%                   US fabricator, aerospace
CMC       10             21%                  Recycler, US infrastruture, Europe
IIIN           9             18%                   Concrete, Infrastrucutre, bridges
USAP:      8             23%                   US power generation and aerospace



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