We’re told that Nero fiddled as Rome burned, and that deck hands on the Titanic rearranged lounge chairs while the great ship sank. . .
From this recession, I think we’ll have another historic metaphor for blissful ignorance to disaster: painting the house when the wrecking ball comes.
Home Depot (NYSE:HD) CEO Frank Blake said last week that the company’s strong Q2 earnings and recent stock rise (8.5% over the past month), were largely driven by purchases of paint, carpeting, and basic building materials to patch up repossessed houses.
Even with some real estate companies and banks paying foreclosed-on homeowners not to destroy their split-levels in a cathartic rage, "trash-outs" continue and patch-ups are still needed.
But Blake says that the nation’s largest do-it-yourself chain can’t expect "like-for-like" product sales — i.e. stuff people bought before the bottom fell out of housing — to pick up again until the second half of 2010.
By my accounting, that’s a year from now. . . and plenty can happen in the intervening months.
New Paint and Fake Tans
In this job, I have the privilege of tapping into various conversations among successful traders and businesspeople. They’ve gotten where they are by moving money with confidence, but they also preserve a healthy amount of skepticism. Even if a long position is up, the sharpest investors will repeatedly ask why the market has awarded a higher premium, rather than just pat themselves on the back.
And today I’m telling you that these guys don’t like what they see in the market rally. Though many of the financial media and political dog-waggers would have you believe that good vibrations and drywall patches are enough to keep earnings on the up-and-up, I hear, "Hogwash."
"Saying the market will function outside of consumer spending is like saying you can get a tan after sundown," one of my favorite recent email threads commented. "Sure, it’s possible, if we get fake tans, but then we just die from cancer. Or there’s the spray-tan technology that makes folks look tanned but really ain’t. . .
I guess that’s what the market is right now: getting the fake spray tan."
Savvy investors are also having dot-com flashbacks these days. And keep in mind these fellas dodged that disaster by maintaining their mentality that B.S. can only talk so much before real money tells it to take a hike.
My colleague Steve Christ pointed out last week in his Daily Ration blog that mortgage delinquencies have actually hit a record high. Over 13% of U.S. homeowners are either behind on payments or just waiting for a close-out sale, and a growing number of prime rate borrowers are getting sucked into the whirlpool.
The same states that are being touted as leaders away from housing weakness still account for 44% of new foreclosures nationwide. California, Nevada, Arizona and Florida are edging forward in month-to-month home sale increases, but similar to Home Depot’s spackle sales, the market activity we’re seeing in those states is based on seller distress. . . and not necessarily optimism.
With a torrent of adjustable rate mortgage (ARM) resets still ahead, and Deutsche Bank saying delinquencies could push 50% in 2011, how could buyers really be bubbly?
If numbers from the epicenter of the housing and credit crisis are driving this market to a wobbly top, you have to wonder if we can find a corner of the market where money is moving in earnest. . . somewhere investors might even find shelter when the wrecking ball comes for this rickety house on a hill.
Building Green from the Ground Up
In last week’s Wealth Daily, I told you about India’s plan to more than triple its square-footage of energy-efficient building space.
It’s a multi-billion-dollar effort that India needs to house millions of cramped city dwellers and new residents from rural areas in a way that won’t break the nation’s creaking infrastructure.
A separate piece in WD’s sister publication, the free Green Chip Review newsletter, highlighted the role Persian Gulf oil money is playing in kick starting an international housing phenomenon that is being built from the ground up.
As opposed to the Arizona desert, Abu Dhabi’s arid reaches are transforming into a $22-billion project called Masdar. There, in the middle of the United Arab Emirates, petrodollars are pouring into an effect to build the world’s first carbon-neutral, zero-waste city. Far from being a parochial endeavor for the region’s wildly wealthy princes and sultans, Masdar is bringing together world-class scientists from the Massachusetts Institute of Technology and companies like Germany’s BASF SE (OTC:BASFY).
I call it the UAE’s clean energy moonshot.
BASF has been selected as Masdar’s main building materials supplier. BASF’s international research team will be on site in Abu Dhabi, concocting concrete that lowers emissions and low-absorption roof coating; designing temperature-sensitive wall materials; and exploring other R&D dreams — all made possible by the emirate’s massive oil wealth.
By 2016, Masdar City will be a showcase of new building materials on a real scale, and BASF will reap the rewards from Abu Dhabi all the way to Home Depot, where you’ll find those same products on the shelves. Now that’s something to look forward to.
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