“Safe as houses” now, finally, only said with irony

Hard as it is to pull from the haystack of needles (that is the current crop of financial reports) a single one. Lennar corp. is coming good on previous promises to be losing more money:

The company took a $1.86bn impairment charge for land, inventory and goodwill in the quarter ending in November, which included a $740m loss on 11,000 lots the company sold to its joint venture with Morgan Stanley. Lennar said its land portfolio was worth $4.5bn at the beginning of its first quarter, down from $7.8bn the year before.

The impairment charge takes the total amount written off by the housebuilding industry to nearly $20bn since the beginning of 2006, according to calculations by Standard & Poor’s.

…

“You’re going to see a lot more land sales,” said Stephen East, an analyst at Pali Capital. “That’s going to depress land and housing prices further.”

Stuart Miller, Lennar chief executive, called his group’s results “disappointing”. He said: “It is apparent that 2007 was a very tough year. At the back end of this year I do not expect to see sales or price acceleration.”

I’m not one to say ‘I told you so’, so much as ‘oh, hi guys – where in hell have you idiots been?‘ Lennar made this promise, while losing money, back in June of 2007. While everyone else appeared blithely to follow the tripe spoon-fed by the National Association of Realtors, this was a picture of Dorian Gray’s house, becoming more and more ugly.

Now, of course, people are noticing.

The US housing market closed the books on a dismal year on Thursday, recording a 2.2 per cent drop in the pace of existing home sales in December to an annual rate of 4.89m units, which was slower than expected.

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The downturn in the US housing market has been at the heart of the credit crisis that has shaken global markets and worsened the outlook for US economy.

Funnily enough the same article contains this nice piece:

Earlier in the day, however, the labour department issued a more upbeat set of figures on the US economy, showing that the number of new jobless claims fell 1,000 to 301,000 in the week ending January 19. The downward move marked a surprise compared to analysts’ expectations of a small rise. It was the fourth weekly decline in new jobless claims.

So, recognition that the economy piled on 1m fewer jobs than last year, and is set to give workers six of the best, pants down, is apparently still going to be a little while coming (watch for ‘the papers’ to be surprised, 4 months from now, to see the employment numbers worse than they expected. It’s like an army of Forrest Gumps: the great thing about being stupid is that you are constantly surprised).

The Wall Street Journal has a good piece pulled together for city-based housing markets (click the image to view the full chart):

Even Manhattan, where prices continued to rise briskly last year, looks more vulnerable to a slowdown. Falling home prices and soaring defaults elsewhere have created more than $100 billion of losses on mortgage-related securities at Wall Street firms, destroying many jobs in the New York area. The number of homes listed for sale in Long Island and Queens at the end of 2007 was enough to last 18 months at the current sales rate, up from a 12-month supply a year before.

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Few expect a quick recovery. Stricter credit policies at mortgage lenders have disqualified many potential buyers, and foreclosures are adding to an already glutted supply in many areas.

Ouch. Hardly unexpected, but ouch.

Was the Fed Tricked?

If you’ve missed it, this is the big story today. It’s pretty funny, at least for me. I’m sick like that.

When the Federal Reserve surprised markets with a 0.75 percentage-point cut in the federal-funds target Tuesday morning, the thinking was that concerns about a U.S. recession had so fully enveloped the markets that just about anything could happen. Sure, the thinking went, the Fed was in danger of looking like it had responded to market action rather than an economic report, but if markets were reacting to economic reports, well, it’s all the same in this world these days.

However.

The revelation that Societe Generale is taking a $7 billion write-down due to the activities of one rogue trader — and additional reports that the French bank may have been unwinding those positions on Monday, a thinly traded, volatile day when Asian and European markets were rocked with losses, puts the Fed’s move in a new light. Namely, that they were taken in.

The answer of course, is yes – they were. And it serves them bloody right, but not us. The Fed’s job is to know that this sort of thing is going on – not see equities being pummeled and jump in to bail them out. It’s our Money Supply and the stability of our prices. Stewardship of these things is the Fed’s responsibility.

Hence, we quickly learn what sheer folly and utter irresponsibility it is for the Fed to use its limited ammunition to intervene in equity prices. Their panicky rate cute were not to insure the smooth functioning of the markets, but rather, to guarantee prices.

As we have been saying for the past two days, this is not the Fed’s charge. They are supposed to be maintaining price stability (fighting inflation) and maximizing employment (supporting growth) — NOT guaranteeing stock prices.

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Tuesday’s panicked 75 basis cut will prove to be an historical embarrassment, a blot on the Fed for all its days. Failing to understand what their responsibilities are is bad enough; allowing themselves to be bossed around by Futures traders is inexcusable.

And, having been rewarded for their past tantrums, the market will now be screaming for another 75 bps next week. As Rick Santelli appropriately observed, the Pavlonian training is now complete.