Report: Greenspan Says Turmoil Like '98 Friday September 7, 12:03 am ET Report: Former Federal Reserve Chairman Alan Greenspan Says Market Turmoil Like 1998, 1987
NEW YORK (AP) -- "The human race has never found a way to confront bubbles," former Federal Reserve Chairman Alan Greenspan said Thursday in reference to the euphoria that can precede contractions, or reactions, like the current market turmoil, according to a published report.
Greenspan, speaking to economists in Washington, D.C., compared the turmoil to that of 1987 and in 1998, when the giant hedge fund Long-Term Capital Management nearly collapsed, The Wall Street Journal reported on its Web site.
"The behavior in what we are observing in the last seven weeks is identical in many respects to what we saw in 1998, what we saw in the stock-market crash of 1987, I suspect what we saw in the land-boom collapse of 1837 and certainly the bank panic of 3/8 1907," Greenspan said at the event organized by the Brookings Papers on Economic Activity, according to the Journal.
Greenspan, now a private consultant, said euphoria takes over when the economy is expanding and leads to bubbles, "and these bubbles cannot be defused until the fever breaks," the Journal said.
Bubbles can't be defused through incremental adjustments in interest rates, he suggested, the paper reported. The Fed doubled interest rates in 1994-95, and "stopped the nascent stock-market boom," but when stopped, stocks took off again. "We tried to do it again in 1997," when the Fed raised rates a quarter of a percentage point, and "the same phenomenon occurred."
Excellent article on WAMU Dew, and this will continue to roll through the economy, sector by sector as the interrelational factor of businesses like lenders, homebuilders, retailers, repair centers, etc takes its toll....yes even Toll Brothers.
AP Hovnanian Reports 4th Loss in a Row Friday September 7, 4:57 am ET By Janet Frankston Lorin, Associated Press Writer Hovnanian Reports 4th Loss in a Row on Problems of Credit Availability and High Inventory
NEWARK, N.J. (AP) -- As economic reports continue to show a struggling housing market, earnings figures from another luxury homebuilder Thursday did nothing to contradict them. Hovnanian Enterprises Inc. reported another loss in the third quarter, citing continuing problems of credit availability and high inventory.
Four consecutive quarterly losses, a 35 percent cancellation rate, fewer sales and contracts.
The company also said it would slash prices on homes across the country beginning late next week to try to sell off excess inventory.
After paying preferred stock dividends, the company reported a loss of $80.5 million, or $1.27 per share, in the quarter that ended July 31. This compared to a profit $74.4 million, or $1.15 per share, in the same period a year ago.
Analysts surveyed by Thomson Financial were expecting Hovnanian to lose 99 cents per share in the quarter.
The Red Bank-based company, which builds luxury homes in 18 states, including California, Florida, New Jersey and New York, is the latest builder to be slammed by the downturn in the housing market.
Last month, Toll Brothers reported its third-quarter profit plunged nearly 85 percent as the housing downturn and credit worries triggered cancellations and hefty writedowns.
In the quarter, Hovnanian incurred $108.6 million in pretax charges for write-offs of land deposits and markdowns in the value of land.
Revenue in the quarter dropped 27 percent to $1.13 billion from $1.55 billion a year ago.
Hovnanian reported a 35 percent cancellation rate for the quarter, compared with 33 percent for the same quarter in 2006.
Chief Executive Ara K. Hovnanian said conditions in most of the company's markets remain challenging.
"Credit tightening in the mortgage market has reduced the number of qualified home buyers, existing home inventory levels remain persistently high in many of our markets and buyer psychology has been negatively impacted by a steady stream of news related to falling housing prices, foreclosure rates, and mortgage availability," he said in a statement.
Last week, Fitch Ratings downgraded its credit ratings on several homebuilders, including Hovnanian, citing the problems in the home mortgage industry and other factors.
Fitch said the downgrade also reflects negative trends in Hovnanian's operating margins and deterioration in its credit metrics.
Hovnanian's sales results showed evidence of the continued housing slump as contracts for the third quarter declined 24.2 percent to 2,539. Hovnanian sold 3,179 completed homes, down 31.2 percent from 4,623 in the third quarter of last year.
To try to boost sales, the company is offering a nationwide three-day sale beginning Sept. 14. Hovnanian will offer deep discounts in each of its 449 communities.
Alex Barron, senior research analyst at Agency Trading Group in Wayzata, Minn., said slashing prices to reduce high inventory should help the company improve its cash flow.
"Right now the game is who can cut the prices the most," he said. "They have a lot of debt that they need to service and in order to service that debt they need to have some cash coming in the door."
While the long-term housing market looks bleak, Barron said he doesn't see Hovnanian going into bankruptcy.
"They'll probably end up being a smaller company than they currently are, but at this point I don't think there's any indication that they're in trouble."
Hovnanian also blamed the tightening of lending standards in the mortgage market beyond those made to subprime lenders. "This is leading to a further reduction in the universe of qualified buyers for our homes," he said.
In after hours trading, shares rose 48 cents, or 4.22 percent, to $11.85 Thursday.
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