Money and Investing Thoughts

Existing home sales in the Sacramento region started the traditional winter slowdown in November. Sales for the month were 24% lower than October but 76% higher than in November 2007. Pending sales decreased 10% from October to November. Available inventory is 32% lower than November of 2007.

Foreclosed homes continued to dominate with 70% of the sales. Price per square foot dropped under $100 for homes selling for less than $200,000 in Sacramento county. Sac county is the center of foreclosure activity as indicated by the prices per square foot. Neighboring Placer, El Dorado, Yolo and Nevada counties have much fewer foreclosure sales and the average price per square foot ranges from $156 to $197 in those counties.

As I have written in the past, I believe median sales prices are meaningless as long as sales of bank owned properties are a significant percentage of sales. I believe that the bankers are rapidly lowering the prices they will accept just to move the inventory off the books. This is very damaging for the real estate markets, but who ever heard of a banker doing something that would be a benefit to their community. Here is an anecdotal story from a personal friend in Las Vegas:

Liz found a foreclosure, a stunning 4 bedroom ranch with a Hollywood pool on a 1/2 acre.  We saw it when it appeared on the MLS on a Thursday night, looked at it on Friday, and put in our bid (full asking price of $284,900) on Monday.  Bank asked for “best and final on Tuesday as there were three other competing bids on Wednesday and we upped the bid by $12,000.  The house sold for $354,000 cash – damn.

The bank severely under-priced the house to move and it did in 3 days. Think about how much money these bankers are leaving on the table.

Another interesting Las Vegas tidbit. In November home-builders filed for permits for only 180 new homes! Even in this terrible market the builders have sold almost 10,000 new home in Las Vegas this year. It is pretty obvious they are stepping off the declining home price ladder. The recent national data on new homes show the same trend.

The bad mix of high levels of foreclosures plus stupid bankers does not bode well for any stabilization of prices (aren’t these the same institutions that made the stupid loans in the first place?) but at some point the combination of low mortgage rates, low prices and declining inventory will turn the housing market.

Note: Thanks to Lyon Real Estate and Mike Lyon for adding me to their mailing list for the TrendGraphix Monthly Real Estate Report.

Each week I recap the results of the WilderHill New Energy Global Innovation Index, symbol NEX, and published by New Energy Finance Ltd. The index consists of approximately 90 stocks from 22 countries. The NEX is the tracking index for the PowerShares Global Clean Energy Portfolio ETF (PBD: 9.73 +0.259 +2.73%). For reference, the NEX has a 52 week high of 461.56. All results are for the 5 trading days ending at the close on Monday, Dec 15.

The NEX finished the 5 day period down 0.1% at 164.71. The index significantly out performed the NASDAQ and S&P 500 which fell 4% and 4.5%, respectively.

The two biggest sectors in the NEX diverged for the week with the wind sector coming in as the top sector, gaining 5.7%. Belgian gearbox manufacturer led the wind stocks with a 20.2% gain. The solar sector lost 9.7% of its value as most of the components lost ground. German solar cell manufacturer Q-Cells after they announced some customers were delaying their planned purchases.

Hydrogen and fuel cells was the worst performing sector, off 12.2%. In my opinion, fuel cell companies just have not yet found a way to profitably manufacture and sell their products. It seems like U.S. based Fuel Cell Energy has been losing money as long as I can remember.

Here are the best and worst stocks from the NEX for the week:

NEX top gainers since 09 Dec 2008
Meidensha 6508 + 27.0%
Hansen Transmission HSN + 20.2%
Byd Co 1211 + 13.7%
Babcock & Brown Wind Partners Group BBW + 13.3%
Acciona ANA + 9.5%

NEX top losers since 09 Dec 2008
Q-Cells QCE - 34.4%
Solar Millenium S2M – 23.1%
Ener1 HEV - 22.6%
Aventine Renewable Energy Holdings AVR - 20.9%
Ballard Power Systems BLD – 18.2%

There has been and continues to be a lot of news and analysis about the Baltic Dry Index, BDI, which tracks the cost to ship dry bulk goods. Many “investors” have been using the ups and mostly downs to decide whether to buy or sell a host of shipping companies, whether they are in the dry bulk business or some other shipping business.

One of the subset of Baltic indices is the Baltic Capesize Index, BCI, which tracks the shipping costs on the largest of the dry bulk ships, the Capesize. Capesize vessels are those in excess of 80,000 dwt and primarily carry coal and iron ore. The BCI then tends to fluctuate with the amount of steel being produced.

The BCI spent most of the last year between 8,000 and 19,000 before started to fall precipitously in early September. The ride was straight downhill and the index bottomed at 830 on December 2. Over the last two weeks, however, the BCI has been on a run, increasing 80% to close today at 1,514. Over the same two weeks the broader BDI has increased just 21%.

The BCI is increasing on the hope that the Chinese steel industry will start ramping up again. Iron ore contracts are being renegotiated at closer to the current market prices and if the ore producers give up some pricing they will surely see an increase in volume. There will be a string of Capesize dry bulk ships from South America to China.

I have read quite a few articles indicating that the BDI could be a good leading indicator for and industrial recovery. I thing the BCI may be a leading indicator for the BDI. Do not forget that these indexes are still off 80% from their recent trading ranges and the shipping companies in the spot market are not getting rich, they are just not going broke as fast. That said continued strength in the BDI and BCI will raise investor interest in shipping companies across the board. Here are the shipping companies I am tracking:

• Genco Shipping & Trading (GNK: 7.39 +0.40 +5.72%) Leases their fleet of dry bulk ships on longer time charter contracts contracts. In the 3rd quarter they had daily equivalent revenues of $39k per day and vessel expenses of $4,700 per day. The $1.00 quarterly dividend may be at risk, but the company has been paying out only 50% of net income.
• Ship Finance International (SFL: 12.11 +0.41 +3.50%) Does long term, bareboat charters of tanker, cargo and offshore ships. Revenues and 20% dividend appear to be very secure. A gain in the BDI will definitely help the share price.
• Aegean Marine Petroleum Network (ANW: 5.44 +0.22 +4.21%) is developing an expanding network of fueling stations and bunker tankers to provide fuel to all types of shipping. The revenues and earnings of ANW have little or no relation to the BDI, but the stock price will be boosted if the Baltic Indices continue to rise.

I will be watching the BCI to see how far it can continue to run.

Note: GNK and ANW are components of this site’s hypothetical Opportunities Portfolio. SFL is in the Income Portfolio and a personal holding.

Are ETFs Driving Late-Day Turns? – WSJ.com.

The article from the WSJ.com linked above (subscription required) puts for the hypothesis that the 2X leveraged and inverse leveraged ETFs are pushing the market, especially in the final hour of trading.

The recent market action has traders waiting for the last hour, determining the market direction, and piling in. The leveraged ETFs are a popular vehicle to ride the direction of the final hour of the day. These ETFs have become some of the most active issues in the market.

Outside of the possibility that active trading in these funds is pushing market volatility to higher levels, I am wondering if their is a possibility of them blowing up at some point. Can they become the equivalent of program trading in 1987 or mortgage backed security trading in 2007. A few days ago I wrote an article on one of these leveraged ETFs that hit shareholders with an 86% short term capital gains distribution. That seems to be a small clue that all may not be well in double gains and losses land.

I really do not have a clue if these ETFs can blow up. The gut feeling is there that as their trading volumes grow there is a flaw in the structure that will bring it all down at some critical level. If anyone has any thoughts on this I am curious to hear them.

ReviewJournal.com – Business – HOUSING MARKET: LV home sales soar in November.

The article linked above states that a bottom appears to be forming in the Las Vegas real estate market. Regular readers of this site know I have been chronicling the resurgence of existing home sales in California and Las Vegas over the last 6 months or so. Las Vegas and Sacramento were among the most over-heated in the nation during the price run-up and have fallen the hardest since the peak.

For November, Las Vegas had existing home sales were 120% higher than the same month in 2007. This is the third month in a row that sales were double the same month in 2007. Available inventory of homes for sale sits at 10.4 months compared a 24 month supply at the end of 2007. The inventory as months supply has been driven down more by increasing monthly sales as the actual number of homes on the market has decreased by just 3.1%.

The median price continues to fall as the majority of sales are bank owned properties or short sales. The rate of price decline is slowing but has not yet bottomed.

I found this quote especially interesting considering the source. Alexis McGee is the President of Foreclosures.com:

“Recovery is under way. Affordable is back in the housing market,” McGee said. “In 2009, housing will not only recover, but we’ll see buyers leap into this market in droves, depleting our housing oversupply, and actually put higher price pressures on the market.”

I hope this is the case.