Peak Lumber?

After yesterday's post I ran across the following article: Peak Wood

An interesting idea considering I grew up during the "Trees - America's Renewable Resource" PR Campaign.

Lumber

Along with the rest of the Commodities markets, Lumber has gotten hammered by the Dollars recent rally. Lumber is down some 30% off its recent highs. Possible support is evident between $220 and $225.Until New Home Starts make some sort of turnaround its hard to see Lumber screaming higher. While Builders have made great strides in reducing their Inventories (w. help from their tight-fisted lenders).....

...there is going to need to be a significant reduction in Used Homes available for Sale. Unfortunately, Used Home Inventories took a pretty steep seasonal run higher.

ETFs

The market is rallying off of very oversold conditions. A couple of ETFs of note that held up better than lots of the market are the Transports & the Russell 2000.The transports have quickly recovered its 1 yr trendline w. the Indicators buried in oversold territory. Looks like a buy on a pullback at $77.5. I'm keeping it conservative with a stop at $76.35. If it can break the downtrend the target is $83.



UWM is the 2x for the Russell. It too held its trendline. $31 is the buy area with $29.95 the stop. This targets $36.5 if the downtrend line is broken.

Frontier Financial, revisited

Frontier was finally put out of their misery. The regional bank with the clout to take them over was Union. The cost to the deposit insurance fund comes to 36% ($1.37bn). That's worse than even the first takeovers in 2008 cost. As anticipated, the over at 20% was a clear winner.

Apparently the spike in volume and price was due to takeover rumors. As I mentioned at the time, I thought it made no sense for a non-bank entity to attempt a buyout. With the price running to near $6 a short was in order. Unfortunately, my broker (Scottrade) as usual, was unable to locate shares to borrow. FTBK is currently trading at $.55 on the pink sheets.

By shedding FTBK the FDIC has done a great job of whittling down the dollar amount of the problem banks in Washington. At $3.7bn, Frontier was the 2nd largest bank on the list. Homestreet at $3.2 is now the 2nd biggest problem. Sterling, at $11.3bn is still tops on the list.

Sterling will be a fascinating case study. If Union Bank is one of the 20th largest banks in the USA, who is left to takeover Sterling? Answer...no one. There is no reason BB&T, Fifth Third or any other eastern regional to expand in the Northwest when they can consolidate on their home turf. So what is left? It appears Sterling is in play with Private Equity. I have not seen any mention of Govt involvement but, the only way a deal like this makes sense is if the FDIC steps in a takes a hit. I'll put the over/under for the FDIC stepping and absorbing losses on this one at $3bn, and, I'm taking the over.

Once Sterling & Homestreet are resolved, it will cost the Govt a mere pittance to clean up the balance of the problem banks in Washington. If the over is hit on Sterling, it will be game on for investors to swoop in on the remaining problem Banks in Washington.

New Homes 4/2010

New Home Sales got a nice shot in the arm in April. The expiring tax credit and low rates probably played a big role in the increase. I'm looking for Sales to drop of steeply come June.


Inventory levels have dropped to levels not seen for a long time. I would imagine builders will be playing it pretty close to the vest as far as new starts are concerned. The memory of holding too many spec homes is too fresh in their minds.

It appears the impetus to borrow is already waning in Buyer's minds: http://www.mbaa.org/NewsandMedia/PressCenter/72973.htm

Used Homes 4-2010

Spurred by glib Sales Agents touting an expiring tax credit and an end to the FED's support of the mortgage market, April sales exploded to levels not seen since 2007. With mortgage rates still low and the credit set to expire at the end of June, I wouldn't be surprised to strong sales thru June. After that, anything goes.


Potential Sellers apparently smell an opportunity as they rush to get their homes on the market. Just like Sales, Inventory levels exploded in April. I'd say they have two months to get their home sold. I hope they priced it right.

Case Shiller 3/10

The good news is that nationwide home prices have stopped falling, for now. March saw the second consecutive month of annual price increases. That is great news for banks and builders. Stabilizing their balance sheets is a key ingredient to their recovery.


The not so good news is that the price recovery looks quite feeble. Considering the effort the FED has put into keeping rates low and the amount of money the Govt has spent towards pushing prices up one would certainly hope for better results. Once the home buyer credit expires there appears to be very little to prop up prices. I'm going to hold my forecast of 2010 price declines of 4%-7%-10%, for low end, middle and high end homes, respectively

Bank steps up

Cascade has decided to bite the bullet and write off/down some of its assets.

Cascade Financial expects big 1Q loss as it sheds 2 land-development assets

In particular, "Cascade said it agreed to sell 263 residential lots in Marysville on which it foreclosed last month. It will record a $5.6 million charge on the $13 million loan that went bad." Not quite sure why there is 263 lots in Marysville, but if the loan was underwritten at an LTV of 75% the value was about $17,333,000. A $5,600,000 write off on the note indicates a selling price around $7,400,000, approximately 43% the value when the loan was done. Seems a little rich, but certainly a better deal than it was in 2007.

Hope Springs Eternal

Optimistic article in the Seattle Times today:

Seattle's office towers stop getting emptier

Here's the money quote: " the total office-vacancy rate in greater downtown rose only fractionally during the first three months of 2010". I suppose that's a good thing unless you own a building. If you do, wouldn't you think it's the worst of times? The noose is about as tight as you can stand. From a valuation standpoint, vacancies need to stop increasing for values to stabilize. Hopefully, that's what's happening.

Oil Update

Nice backtest of the breakout.
Stops go below the trendline currently at 40. Should target 44 short term.