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alstry (< 20)

Wave II About to CRASH!!!!!!!!!!!!!



April 13, 2008 – Comments (4)

FloridaBuilder its about time to come out of retirement.

In any tsunami, the second wave is the one that really kills a lot of people.  Just when everyone thinks it's OK to go back into the water...CRASH...the destruction comes flowing back and sweeps everyone out to sea.

Insider Q&A hears 2nd wave of real estate woes coming

Getting real estate companies out of their financial pickles is a popular job these days. We chatted with Marc Berger, who helping turnaround specialists XRoads Solutions Group of Santa Ana build up its real estate practice …

Us: You must be busy?
Marc: Very Busy. There is tremendous amount of pressure on borrowers — mostly homebuilders, for the moment. Second wave coming soon — and lenders. Builders are facing violations of the covenants in their borrowing agreements mainly tangible net worth and liquidity provisions. Lenders are very resource stressed from having enough people to deal with all the problems hitting at once.

The second wave is about to crash because everyone is running out of just about everything.  Builders running out of inventory.  Banks running out of money.  Suppliers running out of time. 

We basically saw the biggest going out of business sale in homebuilding history take place over the past year as many were saying each time we hit a new bottom.  How many bottoms can you hit before you are broke?

They knew it, the bankers knew it, and soon America will know it.  Too much supply, too little demand, falling income and rising NON housing related expenses have basically put housing way down the list on importance right now as an expense.  It is much more important to eat and make money than live in a beautiful McMansion.  How tough is it to downsize or move in with a relative compared to going without food for a month?

Expect lots and lots of lots and McMansions to be coming up for sale as layoffs really start kicking in over the next few months.  There simply is not enough revenues flowing in to American companies and governments to support such high payrolls.  Paulson says its going to get WORSE!!!!

For a guy who recently told us that everything was fine, that could be an ominous thought.  What are our choices, print more money.....whoops, food and gas prices will go even higher and not only will we not be able to afford food, we won't be able to drive either.  Pump money to the banks and starve the people, then we will have a solvent financial system foreclosing on everyone's assets as asset values decline all over the world.  Notice how debt remains the same even as assets fall in value.

Friday's decline in GE wiped out over $40 trillion dollars of wealth.  That one day decline equals about the total market cap of every public homebuilder in America.  Citi's market cap has contracted so much that it is worth less than Apple....even after Apples decline in value.  The first wave destroyed trillions and trillions of dollars of wealth.  Now Paulson seems to imply the second wave could be a lot worse.

Whatever happens, one thing is clear, it is very difficult to surf the second wave in any tsunami.

4 Comments – Post Your Own

#1) On April 13, 2008 at 11:46 AM, dwot (28.95) wrote:

You have that sense as well?

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#2) On April 13, 2008 at 4:10 PM, DemonDoug (31.36) wrote:

40 trillion for GE?  wouldn't that be 40 billion? 40 trillion is more than 4x the US national debt, i doubt even with leverage ge's 10% downturn would have lost that much money in the markets.

But the overall point I get.  Especially with housing.. with gas and food so high, and wages stagnant, and no more real estate specuvestors flipping properties to make money, I don't see a bottom for housing until there is a more severe downturn. I've seen many analysts (and I think florida had this opinion too) that was targeting summer of 2008 as the next severe contraction.   I'm in this camp too.  I think there will probably be some idiot's rallies and unrealistic optimism until the 2Q numbers start coming out in July and August, and it may start before that if there are debt bills due June 30 that HB's aren't able to pay.

In the meantime we've just got a few more months to wait as it all crumbles around us. 

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#3) On April 13, 2008 at 5:10 PM, alstry (< 20) wrote:

I stand corrected on the mistake between trillion and billion.  My brain was in swap world at the time.  Thanks for the clarification.

Actually, I think the next big correction is going to come much quicker.  In talking to some bankers, money is getting very tight right now....very very tight.

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#4) On April 13, 2008 at 11:55 PM, abitare (29.85) wrote:

Aligned. Asia is selling off. I was going to buy EEV (Ultra short Emerging markets). I think I missed the opportunity.

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