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alstry (< 20)

Altstry Responds to Demon



March 25, 2008 – Comments (3)

DemonDoug's Comment:

If you have serious concerns with her analysis would love to see you email her and what her response would be (as opposed to just ranting about it on a blog).

My Response:

First of all, I don't pay for Ivy's work and she owes me no direct obligation.  Just as I don't pay the salary of a professional athlete, he/she owes me no justification for quality of play.

Second, my ranting comes from not just a analysis of the analysts, but also an analysis of the press, corporations, and government.  During these times, it seems like the whole system is letting us down in terms of reporting fully and fairly.  If we don't speak up, who will?  Our children and under what circumstances?

The problem we are currently facing was evident to me three years ago.  You can't lever up a nation, make it dependant on credit to exist, and simply cut the system off.  The consequences are becoming and will be dire.  Further, the more you leverage, the more painful the unwinding and we are very very leveraged right now.

This board gives us a forum to exchange information.  It is true capitalism.  Those that provide information of value will be read and those that don't will be singing in a vacum.

As you can tell, I have chosen to focus on housing because it is the largest asset class in America.  It is also responsible for a sigificant amount of debt in our country.  If you add outstanding debt to value of homes, we are approaching $35 Trillion dollars.  Nothing comes close. 

I have chosen SPF as my example of corporate example because it is so easy to give the reader concrete evididence of the behavior.  It is the most leveraged major public HB and the representations by management of simply amazing as evidenced by the recent firing of the CEO.

Ivy is the analyst because she is the one being quoted in the press lately.  Analyst de jour if you will.  It used to be Steven Kim.  I am gender nuetral in my approach and have no bias.  As far as the press, the list is endless for the nonsensical reporting.  The AP headline below is a perfect example.  Home sales UP when y/y home sales are DOWN?

We are approaching a very dangerous time in our country's history.  Access to credit is drying up for many Americans.  Thousands of mortgage companies have shut down over the past year.  Many companies that provided student loan funding have stopped.  Local banks are in trouble and starting to fail.

But it is not only individuals, access to credit is drying up for municipalities as well.  Just take a look at the auction rate market and a few other material municipal debt classes.  Not only that, it is drying up at a time when revenues for many governments are slowing.  The only place that seems to have increased access to credit is some of our finanicial institutions.

All of this at a time when our nation is the most leveraged in its history.  For the first time ever, the debt on the average American home is more than the equity.  Our municipalities and state goverments are carrying historically high debt.  Our banks and financial institutions are as leveraged as ever.

Now the defaults are just beginning.  As credit is tightened further, the defaults will continue to increase.  This early in the cycle we are seeing record foreclosures, municipalities on the verge of bankruptcy, and some of our nations largest financial institutions collapse. 

Serious discussion about this seems to be absent.  Our banking system encouraged this reckless behavior on by all parties.

The amazing part is that all of the solutions seem to be directed at the balance sheet, or existing debt if you will.  Very little is being done to the income side of the equation.  A six hundred dollar check simply won't suffice.  If you do not address income, defaults will inevitibly continue to rise causing distress that our nation has never seen before. 

The $$$ defaults already exceed the S&L crisis and income to our nations individuals, corporations, and municipalities is declining.


Yes I have been a little hard on Ivy.  But she is the one getting press and delivering the kool-aid messages de jour.  The contraction of credit and rising defaults is a very important issue.  It could destroy our nations economy.  If as Americans we don't address it right now, our children may never get the chance for their turn at bat. 

This response is a little heavy, but it is a very heavy issue.   Thanks for keeping things in perspective.

3 Comments – Post Your Own

#1) On March 25, 2008 at 9:33 AM, alstry (< 20) wrote:


3/24/2008  S&P MAINTAINS HOLD OPINION ONSHARES OF STANDARD PACIFIC (SPF 4.93***): With SPF getting an extension of a waiver of non-compliance with its credit facility, lowered from $900M to $700M, and holding$293M in cash on hand at Mar. 21, we believe it has a betterchance of surviving the severe housing downturn. SPF also appointed a new CEO from its director ranks last week. We believe SPF's high lot inventories in Cal. will become attractive when the housing market turns around. Applying aprice-to-book slightly below 0.5X to a forward book value of $14.75, in line with small builders, we are maintaining our 12-month target price at $7. /K. Leon-CPA


This report is bordering on outright fraud.  SPF had $293 million of cash as of March 20th.  It started the quarter with about $450 million.  It has a $100 million dollar bond payment coming up and owes about $130 million on its revolver including LOCs.  Now SPF is going into its most cash flow negative quarter.  In addition, it has about $700 million dollars of off balance sheet JV debt of which about $400 million is subject to remargin payments as land prices decline.  WE KNOW LAND PRICES ARE CRASHING.

How does the S&P analyst expect SPF simply to make it through the second quarter with JVs exploding(we should get a better perspective when LEN and KBH report in a few days) and it is currently in violation of its revolver for the Fourth time?  What can SPF tell its lenders to extend more cash when it is cash flow negative right now and the outlook is even more negative?

Why do you think they fired the CEO?  Why do you think the CEO and CFO are being sued in a class action suit for providing false guidance?  Do you think S&P should be included in the suit?  Why do you think I vent?

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#2) On March 25, 2008 at 2:49 PM, DemonDoug (30.72) wrote:

Alstry, thanks for the reply.  To be honest, I feel just as you do, maybe even with more contempt if you can believe it.  The reason I asked on that other blog was that it feels like there is a conversation where you and Ivy (or other housing bulls) are talking but are in different buildings.  The best exchange I've seen on here was when you and florida were having a back-and-forth on one of his blogs, and it is those types of discussions that are most valuable.  When you ask "Why do you think they fired the CEO?  Why do you think the CEO and CFO are being sued in a class action suit for providing false guidance?  Do you think S&P should be included in the suit?" - the thing is I know the answers, because I'm right there with you.  But what I would like to know is how would Ivy Zelman reply to such questions.  How would other analysts answer such questions.

This is why a two-way conversation is so valuable.  What you are saying makes so much sense, and what they say makes so little sense, it would help me understand that other side if they were responding to fundamental analysis.  Because at least with floridabuilder, he is giving plausible explanations for any bullish sentiment.  In terms of the analyst, I agree, it doesn't matter who it is, or gender, or anything, I just would like to see an analyst who is confronted with the facts that you laid out respond to your critique.

Plus there is a small hope I have that some of these analysts will wake up to the fundamentals, downgrade the hell out of everything, cause margin calls across the board, and everyone has to file BK.  Just a hope though, because I know analysts oftentimes are just paid shills either pumping or dumping an equity based on whatever their boss or client wants.  (I wonder what kind of severence Stephen Kim got for taking the calling the false bottom for Citigroup last fall.)

The question I always have when analysts and management and people in high power positions make obviously erroneous statements and decisions is "Are you dishonest or incompetent?"  Generally I go with the former as opposed to that latter, best example being Enron, their entire business was built on dishonesty, and as Bent recently pointed out, many US companies are built on systems of dishonesty.  Since you have such a strong voice and such a strong understanding of the nuts and bolts of housing, I figure you would be the best person to ask an Ivy Zelman or any other analyst just that question, but not on a blog, but ask them directly.  Also, regarding Zelman, she has shown in the past that she is very competent, and again one would ask why in the face of all these numbers would a competent person upgrade a company who is in such bad shape.

Plus I'd just like to see you bust these housing bulls up. :)

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#3) On March 25, 2008 at 3:01 PM, alstry (< 20) wrote:


I understand.  I have little doubt that this intentional behavior to mislead or gross negligence.  Either way, the fact that it is ALL the analysts, including the "independents", the press, and the banks, clearly something very difficult is about to be unleashed upon us.

My guess is within the next six months.  I have been talking to bankers, accountants, and business owners.  Where I was an odd duck a couple years ago, now I have a bunch following behind.

The only question now is how bad.....because they are doing the best to conceal it.

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