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Barry Minkow Scheme: Documents Show He Trashed Lennar Corp., Sent Its Stock Down $500 Mil, Then Bought It Up
By LA Weekly
published: Thu., Nov. 4 2010 @ 4:30PM
By Beth Barrett
blogs.laweekly.com/informer/2010/11/barry_minkow_lennar_scam.php
The Weekly reported last month that Barry Minkow, L.A.'s most famous convicted fraudster, once again isn't to be trusted. He was accusing major firms of fraud and financial crimes--and making money at it, even though he couldn't prove his claims.
Now, court records newly obtained by the Weekly show that Minkow tried to have it both ways in his attempted take-down of Lennar Corp., whose plight was detailed by the earlier Weekly story:
After Minkow called Lennar a "financial crime in progress" last year, driving its stock down nearly $500 million, he bought Lennar stock, betting that the supposedly shady home-building giant would prosper. Here are the juicy details:
Minkow is the supposedly reformed fraud king who as a teenager in the mid 1980s duped the news media, investors and federal regulators with his ZZZZ Best carpet cleaning company.
He took the company public, becoming the youngest person ever to do so. He served seven years in prison after the company was revealed as a giant Ponzi scheme.
After his release in 1994, Minkow became a church pastor and a media darling as a reformed fraudster turned fraud buster.
He began making money by buying "short" positions on the stocks of certain companies, then issuing reports critical of those companies, driving their stock prices down.
By buying "short," Minkow profited when the stock price fell.
The Weekly reported Oct. 14 that court documents in Florida cast major new doubts on Minkow's credibility. Those documents are being generated in a lawsuit Lennar is pushing against Minkow in retaliation for his damaging claims about the company.
Minkow was paid handsomely by a client for his January 2009 report dissing Lennar. It caused the stock price to tank.
But court records now show that he later bought Lennar shares after the price fell. As he explained in a deposition in the lawsuit 10 weeks ago, "I thought the stock was going to go up."
In other words, Minkow profited by warning investors that Lennar was committing crimes. Then, after investors fled the stock, Minkow bought it--without telling investors he thought the company had growth potential.
Minkow attorney Alvin E. Entin, of the Florida law firm Entin & Della Fera, told the Weekly that in December 2008, a month before Minkow's scathing report on Lennar, and in May 2009, Minkow bought short positions on the company's stock.
In December of last year, Minkow took a "long" position--betting the price would rise.
http://blogs.laweekly.com/informer/2010/11/barry_minkow_lennar_scam.php
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original post courtesy of scion
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4kids
all jmo
Lennar Corporation Declares Quarterly Dividends
Lennar (NYSE:LEN)
Thursday 30 September 2010
Lennar Corporation ( NYSE: LEN and LEN.B ), one of the nation's largest homebuilders , announced that its Board of Directors has declared a quarterly cash dividend of $0.04 per share for both Class A and Class B common stock payable on October 28, 2010 to holders of record at the close of business on October 14, 2010 .
Lennar Corporation , founded in 1954 , is one of the nation's leading builders of quality homes for all generations . The Company builds affordable , move-up and retirement homes primarily under the Lennar brand name . Lennar's Financial Services segment provides primarily mortgage financing , title insurance and closing services for both buyers of the Company's homes and others . Lennar's Rialto Investments segment is focused on distressed real estate asset investments , asset management and workout strategies . Previous press releases and further information about the Company may be obtained at the
" Investor Relations " section of the Company's website , www.lennar.com.
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WOO HOO ....I'm gonna get $120.00 free money ....my head is swooning .
Lennar returns to profit in 3Q and shares soar
Homebuilder Lennar makes money in 3rd quarter on bump in deliveries and shares spike .
In this Sept. 4, 2010 photo, construction continues in Lennar's Silver Palms housing addition in Homestead, Fla. Lennar Corp. returned to profitability in its fiscal third quarter Monday, Sept. 20, as home deliveries climbed and construction costs declined. (AP Photo/J Pat Carter)
Related Quotes
Symbol Price Change
LEN 15.14 +1.15
Alex Veiga, AP Real Estate Writer, On Monday September 20, 2010, 5:12 pm EDT
LOS ANGELES (AP) -- Lennar Corp. returned to a profitable third quarter Monday as strong completed sales helped drive a 14 percent jump in revenue and the homebuilder's construction costs declined.
But the absence of federal homebuyer tax credits sapped demand in the June-August period and new home orders fell 15 percent.
President and CEO Stuart Miller said June was the slowest month of the quarter, while July and August were "a little less horrible."
"It's been a tough summer," Miller said. "As we've gone into September, we're seeing a little bit of pickup in our traffic, but that shouldn't be cause to have a sigh of relief at this point."
Lennar and other homebuilders enjoyed a bump in sales this spring as affordable prices, low mortgage rates and two federal tax credits lured homebuyers into the market. Since the tax credits expired at the end of April, the number of people looking to buy has dropped. Even the lowest mortgage rates in decades have failed to push sales.
The biggest hurdle remains uncertainty over any economic recovery with the country's unemployment hovering near 10 percent.
The National Association of Home Builders said Monday its index of homebuilders' confidence in the housing market remains at the lowest level in 18 years for the second month in a row.
Stuart said the housing market recovery will continue to be "rocky and sloppy," but there are some positive signals.
"There are real buyers out there," he said. "A modest improvement in the job market and consumer confidence will dramatically improve demand."
The Miami builder said it earned $30 million, or 16 cents per share, for the three months ended Aug. 31. That compares with a loss of $171.6 million, or 97 cents a share, a year earlier.
Revenue rose 14 percent to $825 million from $720.7 million.
The performance easily beat the expectations of analysts surveyed by Thomson Reuters, who predicted earnings of 5 cents a share on $777.5 million in revenue. These estimates usually remove one-time items.
Management reiterated that it expects to post a profit for the full year.
While some of the other major publicly traded builders have posted a profit of late, they also have seen new home orders drop sharply the deeper they got into the summer. But Lennar's new home orders didn't fall as much as some analyst had anticipated, and its shares spiked 8.2 percent, or $1.15, to $15.14.
"While these results clearly don't point to any real improvement in the demand picture, we believe that Lennar's ability to continue to show profitability in this slow operating environment will be a positive for the stock," Barclays Capital analyst Megan McGrath wrote Monday.
The company credited its revenue rise mostly to the increase in completed sales, which rose to 2,909 compared with 2,660 homes in the prior-year period. Average home prices rose slightly to $240,000 from $239,000, while incentives were reduced to $30,600 per home delivered from $42,200.
The company said some areas of Maryland, north Virginia, Raleigh, N.C., Texas and even South Florida are doing better than most of the other markets in the U.S. The builder has seen higher demand in those areas and been able to raise prices in some communities.
Aside from reducing construction costs, the homebuilder also managed to trim its selling general and administrative expenses by 4 percent.
Lennar has operations in 17 states and sells homes for entry level and move-up buyers as well as retirees. It also operates a unit that primarily buys distressed real estate investments.
Online:
Lennar Corp.: http://www.lennar.com/
You were the best of the bests brother. R.I.P
This was written by one of my favorite bloggers Mish Shedlock, and is relevant to LEN:
Last Hurrah for Housing
Case-Shiller Home Prices in 20 U.S. Cities Rise More Than Forecast
Home prices in 20 U.S. cities rose more than forecast in June from a year earlier, reflecting the influence of a government tax incentive and a sign the market was stabilizing before sales plunged in July.
The S&P/Case-Shiller index of property values increased 4.2 percent from June 2009, the group said today in New York. The median estimate of economists surveyed by Bloomberg News called for a 3.5 percent advance.
The Case-Shiller index is a moving three-month average, which means the June data are still being influenced by transactions in April and May that benefitted from the government incentive. A pullback in demand since the credit ended, mounting foreclosures and an unemployment rate near a 26- year high may weigh on prices in coming months.
Nationally, prices increased 3.6 percent in the second quarter from the same time last year and were up 2.3 percent from the previous three months.
San Francisco, San Diego
Fifteen of the 20 cities in the S&P/Case-Shiller index showed a year-over-year increase, led by a 14 percent gain in San Francisco and an 11 percent increase in San Diego.
Compared with the prior month, 17 of the 20 areas covered showed an increase on an unadjusted basis, led by 2.5 percent gains in Chicago, Detroit and Minneapolis. Two cities were little changed and Las Vegas fell 0.6 percent.
Builders such as KB Home and Lennar Corp. reported falling sales after April 30, the deadline for homebuyers to sign contracts to purchase a home to qualify for the extended tax credit. The deadline to close transactions by June 30 was later extended to Sept. 30.
Donald Tomnitz, chief executive officer of D.R. Horton Inc., the second-largest U.S. homebuilder by revenue, said he welcomes the end of federal homebuyer tax credits that boosted sales earlier in the year.
Back to Normal
“I don’t want the tax credit to be re-enacted or be recreated or extended,” Tomnitz said on an Aug. 3 conference call with investors. “We want to get back to a normalized market.”
Foreclosures may be an obstacle for the market for much of the year. A record 269,962 U.S. homes were seized from delinquent owners in the second quarter as lenders set a pace to claim more than 1 million properties by the end of 2010, according to RealtyTrac Inc., an Irvine, California-based data company.
Last Hurrah for Housing
Case-Shiller is a backward looking index. The increasing number of foreclosures, the complete collapse in new home sales, a massive increase in inventory, and the end of tax credits all suggest we are near the end of the line for this bounce in home prices.
Interestingly, even the home builders are against another home tax credit. Is that reflective of the massive distortions caused by the credit, the realization the tax credit was useless, or the fact that homebuilders recognize there is little chance Congress will back another tax credit?
Regardless, here's the deal: New Home Sales Consensus 330K, Actual 276K, a Record Low. As a followup please see How Many New Home Sales Was That?
Expect to see new all time low prices in some cities later this year or next year as pent-up demand dries up along with incentives that merely brought that demand forward.
http://globaleconomicanalysis.blogspot.com
Trust me...when LEN runs, it will run hard like before (although that was on the perennial "Arab buyout" rumors) and for the very reason you point out. They are going to need to find 15M shares in short order (no pun intended) and this bad boy will gain 30% in one day if full blown panic sets in. I just think you're a little early. Go play KEM for awhile.
(I'll get you started...50% of the time it spikes a few cents off the open, then drops until around 1030 HRS EDT. Once they shake loose the amateur hour crowd, it climbs till around 1300 HRS EDT. After that, it's your guess. Sometimes it tracks the S&P, sometimes the exact opposite. I'm usually in at 1000-1020 HRS out right after noon EDT. HINT: If you're going to hold overnight, buy at the 1030 HR or 1430 HR dips...you'll never match a decent order AH) GLTY.
SBB
well we can agree to disagree. the high short interest is the main reason i bought in. great contrarian indicator. very rarely do you see short interest jump above 10-15% unless bankruptcy, or some scandal is looming. i think the funds took this as low as they wanted to take it, i expect an uptrend channel from here on out regardless of the overall market.
Read my earlier posts. Your "logic" is fighting itself. You say you want to play on momentum and then take a bullish stance on home builders? You'll get killed if you play both sides for the middle in Septemeber. I expect LEN back at $21 early next year. If you get yourself trashed in Septemebr chasing it up and down, you'll have that much less money to invest when it will do you some good.
Just to show you I'm not a bad guy...go take a long hard look at KEM. There's a fortune there waiting long term and as a low cost trading vehicle while you're waiting. $2K a day can be had easy most days once you've adapted yourself to the trading patterns. Let LEN find out where it wants to be...12% short interest is just too high in an unstable low volume market. Maybe October once the election results are starting to shape up a little clearer.
Not a chance. Why do you think the stock moved from $21 down to $11.93? ALL THE BAD NEWS WAS GETTING PRICED IN. So the bad news hit and the stock bounced, short squeeze coming. Housing is the ONLY sector in the market I am bullish on. Housing stocks have been getting beaten down for 2 years, only one way to go now imo
Happened exactly as I predicted. There was a dip into the 11s and a huge buyer came on board. New base is $12.50. "Huge buyer" wasn't you in case you're wondering, lol. Stock's "momentum" is 100% dependant on the general market right now which had a couple days dead cat bounce off a perception of being oversold. September will be a bloodbath and see LEN back down into the 11s again. Play it against that and you'll be losing money in no time.
Looks like you were wrong, hoped on this momo train on the 13 support retest Friday. Looking for $15 on the squeeze and market relief rally.
LEN dips into the $11s today on bad housing report. Unexpected good news, (and the chances of that are almost nil) might allow another base to start forming in mid-$12s. But you can't fight momentum and the shorts rule this sector. No support left under $12.50 on bad news. Free fall to $8s unless an institutional buyer or some oracle steps in. I am waiting for all the analysts that were screaming BUY BUY BUY @ $18.00 to start issuing downgrades at $10 or $11 after the carnage is pretty much over and the nitwits who listen to their insane reasoning have lost all their money, LOL. I can read it now...after some reconsideration, we have decided to reduce Lennar Homes to a "sell" from a buy due to the fact we were completely wrong, now look like total jitbags and have managed to get all our valuable clients into a massive short position to take advantage of this downgrade. New 12 month price target $8.00
I LOVE those guys.
SBB
Did I say long? No I meant SHORT candidate. $12.61 is the last ledge then it's $8 bucks and change. I mean, I can understand why it declines 4% in one day. 12K temporary census workers applied for unemployment. If that isn't a 100% guarantee of a Great Depression and a new housing crash I've never heard one. A forward looking PE of 6, upward guidance, every analyst following the damn thing has either an accumulate or buy on it. The balance sheet is the best in the industry, they have cash to burn, their losses are almost entirely written down and their land portfolio is earning them a ton of money already. Their TX market is on fire...even FL is coming back where they are strongest. And people are laying out 2008 and 2009 buying and building numbers from the worst period in history as the locked down patterns for the next 20 years and trading that way. The inventory on the market right now in 2005 assuming another 300K foreclsures over the next 6 months could be absorbed in 1.2 years. And I hear idiots on CNBC saying it will be 30 maybe 50 years till the excess inventory is mopped up? Gee, did America outlaw immigration and reproduction while I was out this afternoon? Amazing. I hope Warren was right about that blood in the streets thing. And the scam garbage soars on nothing, LOL!
SBB
Looks like $13.45 the old support is going to become the new resistence. It should be easily broken with continued upward pressure off the general market rebound from the 5% pullback over the last 10 days or so. I see $14.30 and then $15.20 as real bear resistence to get through. I am guessing LEN will roll between $12.75 and $14 for the next couple weeks until earnings and corporate guidance on 9/21 cause a breakout. Short interest is around 11% of the O/S and probably 30% of the float. I would be monitoring that number closely headed up to Sept 21st. A good short squeeze launched at about $14 would send LEN to $15.50 pretty quick. All IMHO.
SBB
This market just doesn't want to collapse. The short side of it has pulled out every stop and tricked every tool in the box and they just can't send it into panic mode. The easy scares and flippers are gone for awhile. The size of conjones you'd need to short this market right here are enormous. LEN might not require quite the amount of courage to short, but it can blast up a $1.50 inside 3 days. I am sorely tempted to buy a couple more thousand shares in around $13.40 but have decided to hold off. I still think the mid-high $12s aren't out of the question. It depends how much fear the short interests can drive into people over the weekend. Next week determines the pattern for the remainder of the summer...either another 6-8% decline or a slow back and fill upward into October when the election picture will materialize and anticipated future policy will take over the market's direction into the new year.
SB, I'm betting we'll see a dip to $13 or maybe a wee bit lower. Probably today. I was tempted to re-enter yesterday but I held off. The bears are in charge of this market for a month or so...they're wrong of course, but they're in charge...
SBB
Are we back at a buy point?
Finally got back some decent money and picked up all earlier losses on this beast averaging down of all things. I had almost $100K in it at one time, LOL. I think I have it figured out now...DUH. It's buy low, sell high, right? I'll be back in tommorrow if it dips below $14.25.
Re-analysis...which coming from me on this stock is about worthless. But anyway....
I thought by watching the trend and momentum that LEN had moved past it's old bottom support at $14.49 (next rung down $13.73) and moved up a notch to $15.20 making a $15 a share buy relatively safe. Wrong. Again.
I swear that some short traders just love a challenge. There has been nothing but upgrades and good news for LEN for the last month. Every analyst puts (no pun intended) it at the top of the homebuilders "most likely to recover first" list. Consensus is for LEN to announce a (.04) per share loss on September 21st but word on the street is they will kill that number and announce between .05 and .10 cent a share profit. Even S&P data suggests that LEN is a much stronger company internally than when it was trading in the $50s prior to the housing crash and burn. All of which seems to just drive the short interests in toward the stock in droves. Go figure...you would think there would be easier targets. And (lest I start to sound like the weasels at the "cabinet" board), they are probably just trading the channel of support and resistance as well. But it is certainly confounding.
If LEN falls to $13.75 I intend to double up on my current trade (doing what is probably the second dumbest move one can make in trading...averaging down). I have already made the dumbest move which is to remove the 10% stop behind the shares I bought Tuesday. But there is only so long a stock can bear up against an overwhelming trend to trade higher in an obviously improving housing sector. I may even add a thousand shares if it dips below $14.49 this afternoon. I hate to be a contrary indicator, but there you are. I just want everyone else here trading to know what I am doing so they can plan accordingly...and do the opposite. Boy, am I glad I abandoned the AAPL trade...making $500-$2000 bucks a day with little or no risk. No sense sticking with that plan....
SBB
There are certain stocks certain people shouldn't own. EXPH is everybody's. LEN is mine....all I can suggest you do is pay attention to my buying points and short as many shares from there as your account will allow.
SBB
Took my paltry profits yesterday , SBB ...$1.25 X 2,500 shares all tolled . Just waitin' for the next channel .
Strongly suggest you take profits and bail again...I bought my shares back at $15.02. It's a straight retracement to $13.99 from here.
Just got home from work to see I am the proud owner of my 2,500 Len shares again . Couldn't watch so I put a limit at $14.10 and filled near the EOD .
GULP ....come on channel up , up , up ...come to mama , LOL .
Oh I forgot. The absolute FOOLPROOF indicator. The 100% guarantee LEN is going to run. Goldman lowered it's rating on Wednesday. Translation, they needed it to drop to support levels so they can load up their clients. Which usually takes them 3-5 days.
Goldman lowers their rating on an equity for two reasons. 1) They had just raised their rating to "Outperform" and the stock fell 75% the following day so they decide to let their bankrupted chump change clients who invested in it know they now think it might actually "underperform" or, 2) They need to knock down the price 10-20% for a couple of their big money clients to get off their short and go long.
Classic scumbag GS manuever...IMHO, of ocurse.
SBB
And bud, LEN's is perfect. A classic chart...support at $14 and resistance at $22. Even the sell-off couldn't really break support for more than a session. Every indicator in the world says LEN is headed to $22 and now is the time to buy. And short of some psychopath flying a plane into a building, there is no reason it shouldn't run. As long as I don't buy it. So I'll warn everybody if I do so you can short it. IMHO.
SBB
Every time I see a perfect channel and play it... the channel never holds! LOL!
Gonna start playing the channel . Will try to get my 2,500 shares back IF there is a friday EOD sell off .
Broke even on my last stint and that's just not good enough , LOL .
very nice
Detailed Quote:LEN
LENNAR CORP.
14.660.07 (0.48%)AS OF 3:27:49PM ET 07/15/2010
Last Trade 14.66
Trade Time 3:27:49PM ET
Last Trade Exchange BATS
Today's Change 0.07
Today's % Change 0.48%
Bid 14.6600
Bid Size 32
Bid Exchange Third Market
Ask 14.67
Ask Size 10
Ask Exchange NYSE
Primary Exchange NYSE
Currency USD
Open 14.55
Day High 14.80
Day Low 14.05
Previous Close Price
07/14/2010 14.59
52-Week High
04/23/2010 21.7900
52-Week Low
07/14/2009 8.3000
Volume 4,484,203
Average Volume (10-Day) 5,678,241
Average Volume (90-Day) 7,020,363
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4kids
all jmo
My email is the best way to communicate with me concerning the board, My addy is on my profile. Thanks for your interest. :)
We're in this supposed "July" rally pattern that occurs in several stages during election years. So far the down January, up spring rally, catastrophic June, followed by the July rally has followed the pattern exactly. If it holds true, we see a decline starting in August and accelarating into September leading to a "scare the p*** out of you" decline in October. Then the big year end rally following the elections. Yeah, well. So they say on CNBC. I have been trading AAPL shorting it and going long picking up a couple hundred a day on cautious quick trades. Once I have my loss back on the LEN trade and bail, I'll play it for this rally and then go to cash and maybe just play a short trade here and there until there is this supposed "blood in the streets" this October. The market is in total chaos...there is no order. Lemmings run frantic in the streets...raping, robbing pillaging. T/A is down the drain. Pretty much have to go day to day using the major indices and individual company news to flip for chump change. Oh...go LEN!
SBB
See ....told ya . As soon as we got out of LEN it takes off like an Olympic sprinter .
Just talkin' to myself .
I want my shares back sniff sniff
Gosh Auntie Em...who could have seen THAT coming? Never fight momentum or the trend except if you are employing logic and reason. Unless neither seems to be the right or the wrong choice....in which case toss a coin and figure no matter what comes up you'll make the wrong call then do the opposite which will guarantee you will be wrong unless you get hit by a Greyhound bus outside San Pedro before you get to your office and can enter your trade. Anybody get the number of that northbound train?
Buy LEN, buy bye, buy bonds....yadda yadda.
Warren Busted
Could have sworn they left them slide to the fifth digits on the pinks. Is the cut off at .0001? Oh yes, be sure and dispose of your trading LEN shares until further notice and all that...All IMHO.
SBB
Hahahaha ....I luv your inimitable way with words , SBB .
Of course LEN will take off now that we're out of it . I may consider just playing it for the 5 % lows to highs . It's that timing thingy I'm not that good at .
Alas ...spectators at this point .
Prepare for the greatest rally ever witnessed by humanity in Lennar. I just closed my trading position on the little uptick this morning, fighting every instinct and piece of logic I know. My guess is that it will now do an immediate about face and reach $60 a share in two weeks. The reality being that, fighting the lemmings when they have massed and are traveling at high speeds in astounding numbers to their destruction in the sea is a waste of time. This is not the first time illogic, irrational fear and stupidity won out....it will most definitely not be the last. But I am not willing to play the part of Monty Python's Black Knight guarding the bridge the little SOB's are running over while they chop off my arms and legs on the way by.
SBB
Don't blame you...this is getting very, very ugly. I should have learned a long time ago not to even post recs. Always ends up causing other people grief.
I am a victim of common sense and math. Not of using it, just of having used it before lemming season was over. I came within a whisker of getting stopped out last week. If this continues after the holiday, I'm jumping ship as well. I still see hard-core support at $13.00. If LEN closes below that and I don't get stopped out (which would be almost a miracle), I'll be out anyway. From there we drop to $11.25. It breaks $11 on volume in this market, it's back to single digits. So much for my cabinetry profits, lol.
SBB
Horrible to see my realtor friends simply petrified by the coming storm.
In California , housing is expected to drop in price another 25%
Who in their right mind would buy a home now? Thanks to media and fear mongering, not many people have any more motive to buy.
Didn't wanna start any panic selling yesterday , LOL , but I took my 2,500 shares off the table . Major whew that I preserved the cash .
Will wait for a bottom .
Renee ...Miss Chicken
Well , Mr. Timing , you had me at " I sure can pick 'em " .
The rest was manna .
I sure can pick 'em can't I, kid?
The one thing you can't fight in any market is fear generated momentum. It doesn't matter how big you are, how strong you are or how smart you are. What data you use, how much experience you have, how many times you've seen it all before. What you think should be happening, what the numbers say should be happening, what common sense dictates should be happening, what rational thinking says should be happening. When the lemmings run to the sea, they take you (and LEN and everybody else) with them.
The lemmings aren't encumbered with reason or intelligence or a desire to employee logic. They don't research the roads or consider the season or check the water temperature or the traffic. They don't care about sunblocks, or the sand or what type of wine to bring along in the cooler. They gather in huge numbers, they run blind, they jump where the ice ends, they die.
I really, really, really hate them.
SBB (Mr. Timing)
I had beads of sweat on my brow , LOL .
Man, today was one UGLY market. The worst day for momentum and general sentiment I've seen in a long time. Point drops weren't all that scary and there was a small rally at the end, but it was just the general "feel" of things. A lot of times that signals the end of a bull market pullback, but this had a different kind of "panick right below the surface" quality to it than the typical summer malaise trade downs.
I read your article and I've seen a dozen more like it. Not to dismiss the good information contained within. It's just that without those articles and the general negative sentiment continuing after earnings have made a dramatic turn around, we'd never have any indicators pointing toward whether a bottom had been reached or not until we were in the midst of a full blown recovery. By that time, it would be way too late to buy in on a truly worthwhile profitable trade. You may have noticed I'm a Buffetite..."blood in the streets..." and all that. Despite the fact the government gets so much wrong, the cessation of the tax credit was based on improving numbers in the housing market. The facts just can't be argued. But if we do slip back into a double dip and I'm wrong, there's better than a 50/50 shot in an election year we'll see Congress lift the credit back up on the table within weeks...not months. And while that might not equate to a rally, it will certainly stem any arterial bleeding.
In 30 years I've never seen Joe Sixpack and the press figure out what's going on in the housing sector until the call is a no brainer. Never. The only people with a worse track record than the government at calling the market are the business press and analysts. (If you need evidence, just go back and read some of the thousands of "....this tech rally will never end, you need to take a second on the house and get in NOW!" articles in December of 1999 just prior to the 2000 crash...they're hilarious) I seriously believe the press starts grading their own test papers and fixing the game by upping the drama queen aspects of their own reporting near the very beginnings of recoverys and long term bear markets so despite the preponderance of good or bad numbers, it still doesn't appear they missed the call. Until its too late of course. As I said earlier, it will be fall before the general populace grudgingly begins to accept housing has turned and probably next spring before they open their wallets and act on it. But I still like the odds for an August/Sept rally in LEN from the smart money influx. Provided of course I don't get stopped out of my trade by the lemmings in the meantime...all IMHO.
SBB
More industry pessimism... with this much negativity out there are we nearing the bottom for Homebuilders? Sorry about the formatting after the cut and paste!
Further Freebies and Price Cuts Threaten Builders' Recovery
By Dawn Wotapka
Of DOW JONES NEWSWIRES
LAS VEGAS (Dow Jones)--Builder Lennar Corp. (LEN) might have slashed some prices more than 15% here, but that's not enough to jolt potential buyer Linda Primm to action. Not now that the federal home buyer tax credit has expired. "As far as being in a rush now, no," she says, as she tours the loft-like second story of a model home in the Rancho D'oro community, one of many to spring up in the desert here in recent years. "What are you going to get? Nothing." Without the credit offering up to $8,000 traffic and deals have fallen off a cliff nationwide, dragging sales to a record low in May. Builder KB Home (KBH) last week said its second-quarter orders plunged 23%. Some nervous builders are responding by boosting the freebies they include with purchases, and cutting prices particularly given they built extra homes in recent months. While such offers have long been a part of the business, further price reductions and profit-eroding incentives reduce revenue. That will deal the fragile sector yet another blow, possibly delaying recovery until 2011. "The rest of the summer and the fall are going to be tough for the builders," says Demir Gjokaj, a Majestic Research analyst. "Demand has remained far weaker for far longer than builders expected. Price incentives can't rebuild the spent demographics that cratered demand. That will take time." For now, it's impossible to know how many excess houses went up: Tax-credit buyers have until Wednesday to close deals, while contracts can be cancelled anytime before closing. Builders promise they were careful: Investors will know more as companies report quarterly results in coming months. Of course, some builders vow to keep prices stable. But increased incentives and price cuts anywhere typically have a rippling effect, forcing both public and private builders to follow. "If one major builder cuts, it's a race to the bottom, because they're all going to cut," says Stephen East, a home-builder analyst with Ticonderoga Securities. "Suddenly, you're right back at square one." Specials are clearly out there. In addition to the discounts at Rancho D'oro, Lennar is quietly offering a 3.25% adjustable-rate mortgage to some buyers. Others can tap a 3.75% rate--more than 1% below the current average-- fixed for 30 years. To offer such specials, builders typically make upfront cash payments to mortgage companies, a process known as a "buy down." Standard Pacific Corp. (SPF) recently bumped up incentives by "a few thousand dollars" in many communities, effectively whittling prices by 1%, says Chief Executive Ken Campbell. Hovnanian Enterprises Inc. (HOV) promises "incredible savings" largely credit for options and upgrades--in New Jersey. Unlike a few years ago when circuslike advertisements highlighted builders' desperation nationwide companies are targeting specific regions and communities. At Standard Pacific, "every market gets to do its own thing," Campbell says. "They do it differently from neighborhood to neighborhood depending on demand." The steepest discounts will likely be found on speculative construction built without a signed contract. Because buyers can't pick out their own colors and upgrades, the homes can require discounts to sell. Builder DR Horton (DHI) leads the sector with 7,300 spec homes, according to JP Morgan. The average is 1,344. "Inventory overhang does not improve with time," says Jody Kahn, a vice president with John Burns Real Estate Consulting. "The longer those houses sit out there, the more likely it is that the builders have to reach deep in their pockets to move them." -By Dawn Wotapka, Dow Jones Newswires; 212-416-2193; dawn.wotapka@dowjones.com
Some other things to watch at Lennar....
There is outrageous pessimism in the housing sector and within the home builders that persists and seems to become worse every day. While the home builders were regularly trashed by the pundits in 2009 (and rightfully so) the same people are either going over the top with even worse predictions for the next 6-12 months or simply saying that housing, as an industry in America is over...it will simply never recover. No houses will ever again be built in significant numbers. The end is here, there is no future. That kind of insane and ridiculous general rambling gibberish is what I LOVE to hear...but only when I am certain it is a) nonsense, b) backed by little or no builder specific meaningful data whatsoever and c) playing at a fevered pitch to the same numbskulls that buy into it at the bottom of every housing cycle. So why is it nonesense and backed by no meaningful data? How about this...Lennar just posted earnings of $39.7 million compared to a loss in the same quarter of $116.5 in 2Q 2009. OK there "Joe Pundit, My US Housing Market Is Coming To An End"...where did those numbers come from? Are you saying they are manufactured? Are you saying an $8K tax credit available for the better part of three quarters reversed a trend by almost $160 million dollars in year over quarterly earnings? And the fact gross margins on home sales are UP 1.1% YTD? While G&A expenses have dropped dramatically and are down 40 basis points as a percentage of sales? Fantasy?
Rialto, Lennar's distressed asset division was formed a couple of years ago to buy and hold distressed assets for the builder. Last fall, it got its first infusion of land when it formed a public-private partnership with the Federal Deposit Insurance Corp. to buy and then manage $3.05 billion in distressed real estate loans. Rialto is now turning a profit (something predicted by pundits and stock gurus would never happen when it was formed) and contributed $5.1 million to earning in the second quarter. $5.1 million in net earnings...after the FDIC and private partners took their cuts. Even Lennar's financial arm reported operating at a slight profit.
The weakest markets in the US right now are generally recognized as MI, FL, CA, and NV. Actually I read an article that singled out the current worst 13 general areas in the US based on unemployment and drop in home prices. Areas classified by the author as "likely never to recover". They were from bottom to worst: Providence, RI, Las Vegas, NV, Rockford, IL, Boise City, ID, Toledo, OH, Reno, NV, Grand Rapids, MI, Fort Meyers, FL, Orlando, FL, Sacramento, CA, Palm Coast, FL, Lansing, MI, and absolute worst (questionably IMO), Riverside, CA. While I have some reservations about the claims made by the half full side of the equation (REALTOR, etc) that some of these areas are supposedly already seeing a substantial recovery, Lennar does not have a presence at all in many of the ones that indeed may take several additional years to come back. They have no presence whatsoever in Michigan or Rhode Island. Their only presence in the upper midwest areas most devastated by unemployment and declining prices is Chicago...an area stabilizing as I type. And while they have a substantial presence in NV in both Las Vegas and Reno, they pulled back considerably starting in late 2007. "Florida", according to Rick Beckwitt (VP Sales) "is one of Lennar's hottest current markets". This may be explained by the fact Lennar's presence is judiciously spread throughout the state rather than being concentrated in Fort Meyers and Orlando. He also commented that sales are picking up nicely in the mid-Atlantic (a huge market for Lennar) and are very strong in the San Antonio area while CA remains "community specific". I agree with this assessment and do not believe it is "wishful thinking" as many of the housing market pundits persist in pointing out. It's based on real numbers. Particularly where CA is concerned. I stopped building in 2007, liquidated inventory on the market at that time at break even pricing and have yet to resume any spec building. Fellow builders at that time thought I was insane...these are the same builders who are (in a few instances) still paying 6% and 7% interest on construction capital sourced at that time for inventory that has been sitting on the market empty for the last 2 years. Lennar made essentially the same very cautious moves early in 2008 and restricted ongoing projects to the stronger community specific areas.
All that doesn't mean that Lennar is not sitting on empty inventory located (in some instances) in some pretty dismal community tracts. They are also going to have to walk away from some large land tracts they sourced in FL and CA simply because they made no sense to buy at the time they were purchased and cetainly make no sense now. However the Rialto arm of the company has also sourced some prime sites through fire sale prices from builders who went belly up during the recession. These tracts are estimated to more than compensate for the less astute purchases made earlier and boost profits substantially into the future.
The bottom line here being, Lennar is already in the beginning stages of a fairly unpredictable but sustainable recovery. They made all the right and painful financial moves back in 2008 and 2009 leaving them ahead of the curve and prepared for the recovery that will start slowly in 2010 and blossom in 2011. Their profitability is back up, their G&A costs are down and their subsidiaries are firing on all eight cylinders. Is there still a tough patch ahead? Yes, but dramatically moreso for the builders who didn't bite the bullet early, eat their losses upfront by clearing inventories and never got a chance to catch their breath long enough to hit the ground running when the opportunity finally presented itself early this year. All IMHO.
SBB
SB...that's exactly the response I expect and am pleased to see from "the man on the street"...if you'll pardon the coloquilism. I want to see massive pessimism toward housing. I want to see the magazines, newspapers and blogs pumping out "the housing sector is broken" or (better yet) "the housing sector in the US is gone forever...it will never recover..."
Those were the headlines that led us out of the last four cycles. Your "backlog" is the "month's supply" figure I assume. Historically it has reached it's annual high in April-May. This year is no different except that the buyers credit skewed the April 2010 numbers. There were also a lot of extraordinarily shaky deals constructed by well meaning but inexperienced agents desperate to make sales at any cost ahead of the tax credit. A lot just crashed and burned in the wake of tighter mortgage restrictions. I'll bet the number of contingency contracts that got clipped was approaching 30% which, of course, all dumped back over into May's month's supply inventory number. The industry (IMHO) hit bottom in February-March. That does not mean there is going to be a noticable recovery starting immediately. I think we begin to see the average layman start to notice the market pickup sometime around Sept-Nov this year. I then expect a dramatic...well, lets say "substantial" surge in buying beginning shortly after the holdiay season. By May of 2011, there will be no doubt whatsoever the recovery in housing is real and growing stronger.
The recovery curve is picked up inside the industry first. That is why you saw a ton of smart money moving into the stronger building stocks in Feb-Mar. That money will be on the move again once the July 2010 numbers come out (IMHO). Permits are up strongly (28-29%) year over across the US. The price dip you refer to was most likely desperate homeowners strongly lowering prices as the April 30 tax rebate date loomed. May inventories of existing housing reflect the "dumb" factor left over after the tax rebate expired and at the end of every housing decline...those homeowners stuck in 2006 who will not face reality and lower their prices to reflect the market. Now is this recovery going to absorb those homeowners as they believe...nope. Prices will be the last thing rising. So expect to see the "dumb" factor dragging up month's supply numbers for another year.
Lennar has cut costs across the board dramatically. They have gone hard-core on their suppliers. They build a good home (although you never SEE that in the blogs and "disaster" stories online) and their contractors only hire the best which should be an easy ramp up since half the country's construction population is or recently was out of work. They are ready to come out of the gates more competitive against both other builders and the existing market than at any time since the 1990s. What will drive new housing is partially what you were afraid of. People absolutely will not buy a high ticket asset they believe will depreciate. Which is why they are looking at these dopes in their existing homes who still think they will be getting a 2006 price in a dramatically reduced 2010 market. Now seeing those prices and comparing them to the cost of upgrading to a nice, modern, highly energy efficient green home, a large percentage are opting to build in many cases instead of buy. These buyers are a ton smarter and more savvy than a generation ago. They factor in every dime when weighing the buy/build factors. Energy costs, maintenance and personal time required for general upkeep carry almost as much weight as the price tag. And that is where I see the recovery starting with Lennar and a few other upper echelon lean, mean and green builders leading the way.
We have it all...left over inventory which will become stale and never sell anyway skewing the supply numbers, exisiting home owners seeing that and waking up to work with their agents to adjust prices up front to reflect reality so they can actually sell the home and a whole new breed of new home buyers who are fixed like a laser on considerations of the entire package of costs surrounding home ownership. And the media and most of the street calling the end of housing as we know it forever and a market that may be "depressed for decades". I love it....the recovery has finally begun. All IMHO.
SBB
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Lennar Corporation
700 Northwest 107th Avenue
Miami, FL 33172 United States
Phone: 305-559-4000
Fax: 305-226-4158
Website: http://www.lennar.com
Common Stock Outstanding as of March 31st , 2010 :
Class A : 153,634,729
Class B : 31,291,318
April 9th , 2010 10Q :
http://yahoo.brand.edgar-online.com/DisplayFiling.aspx?dcn=0001193125-10-080610
Details
Index Membership: S&P 500
S&P 1500 Super Comp
Sector: Industrial Goods
Industry: Residential Construction
Full Time Employees: 3,835
Business Summary
Lennar Corporation , together with its subsidiaries , operates as a home builder and provider of financial services in the United States . The company's homebuilding operations include the construction and sale of single-family attached and detached homes , and multi-level residential buildings , as well as the purchase , development , and sale of residential land directly and through unconsolidated entities . Its financial services comprise providing mortgage financing , title insurance , and closing services for buyers of its homes and others . As of November 30, 2009, the company owned 82,703 homesites and had access through option contracts to an additional 21,173 homesites . It serves customers in Florida , Maryland , New Jersey , Virginia , Arizona , Colorado , Texas , California , Nevada , Illinois , Minnesota , New York , North Carolina , and South Carolina . Lennar Corporation was founded in 1954 and is based in Miami , Florida .
LEN filings EDGAR: http://www.sec.gov/cgi-bin/browse-edgar?company=&match=&CIK=LEN&filenum=&State=&Country=&SIC=&owner=exclude&Find=Find+Companies&action=getcompany
National Association of Homebuilders (great source of accurate, up to date industry stats): http://www.nahb.org/reference_list.aspx?sectionID=130
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