“Our thesis was clearly wrong in hindsight”

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“Our thesis was clearly wrong in hindsight”

By twist

You have to hand it to the guys at Goldman Sachs, who now say they shouldn’t have upgraded financial and consumer discretionary sectors a few weeks ago. They manage to lend an air of dignity and professionalism to a statement that basically says, "Uh, We messed up!":

"We boosted our consumer discretionary and financials weights in May on the belief the sectors would benefit from bank recapitalizations and fiscal stimulus," Goldman strategists led by David Kostin wrote. "Our thesis was clearly wrong in hindsight."

"Our thesis was clearly wrong in hindsight." I believe they just wrote the epitaph for the whole housing boom and bust.

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John M. says:

June 23rd, 2008 at 10:27 am

twist -

On the other hand, our friends at the NAR (MA division) are always into fine wine at the Kool Aid stand, even if life hands them a lemon (how’s that for a mixed metaphor?)

“Harvard U Says Housing Crisis Worst In 50 Years”, by Vittorio Hernandez, All Headline News, June 23, 2008.

The current housing crisis appears to be the worst faced by the nation in 5 decades, according to the Harvard University’s Joint Center on Housing Studies released Monday.

In its yearly State of the Nation’s Housing report, the university wrote, “The national median single-family home price fell (for) the first time in 40 years of recordkeeping, leaving several million homeowners with properties worth less than their mortgages.”
…

In a separate report, the Massachusetts Association of Realtors issued its May report Monday showing that single-family homes in the state slipped by 9.2 percent to $322,500 from $355,000 in 2007. Volume sold also went down by 10.1 percent. Median selling price of condominiums also dipped by 2.6 percent to $282,500 from $290,000.

The realtors, nevertheless, saw positive developments in the numbers. Sudan Renfrew, president of the association said, quoted by the Boston Globe, “While the number of sales for both single-family homes and condos were down in May, these decreases continue to narrow since the start of the year, which is definitely a move in the right direction. It is also a positive sign that median prices on a month-to-month basis continue to move up.”

twist says:

June 23rd, 2008 at 10:48 am

John-

Retsinas, who heads these studies at Harvard, is a perma-bull who usually channels the spirit of David Lereah, so I was surprised to see how bearish this report was. Retsinas however, remains true to form:

"The good news is that we still have a growing population," said Nicolas Retsinas, director of the Joint Center for Housing Studies and one of the study’s authors. "As long as you have more households, more people are going to need places to live."

Social trends - people getting married later and divorced more often - are making single-person households the fastest growing household type, the study finds. In addition, a long-term net increase in potential home buyers will be driven by demographic factors: the aging of "echo boomers" into adulthood, an increased life expectancy for baby boomers and projected annual immigration of 1.2 million.

From 2010 to 2020, the number of households in the United States will grow by an average of more than 1.4 million per year, the study finds.

Even Yun admits household formation is down, although he’s convinced that’s causing "pent up demand". I was surprised- I didn’t think it was possible to be more bullish than Yun. [I know what some of you posters are thinking now, and I'll put asterisks through that comment if you post it!]

If what Retsinas is trying to show is that the housing market will recover by 2020, I’ll admit that’s likely. I don’t see it happening any time in the near future though.

John M. says:

June 23rd, 2008 at 10:59 am

twist -

Housing isn’t the only risk out there. The subprime mortgages got into the guts of the whole financial sector with surprising results. With the rest of the markets up on M&A madness (junk bonds chasing real junk??) the financial stocks are getting hammered again, perhaps because of the downgrades for the monoline insurers. Here’s some of the ugliness to now.

Recent quotes
NYSE:ABK 1.92 -0.13 (-6.34%)
NYSE:MBI 4.93 -0.66 (-11.81%)
NYSE:FRE 20.20 -1.62 (-7.42%)
NYSE:FNM 22.66 -1.15 (-4.83%)
NYSE:WM 6.18 -0.20 (-3.14%)
NYSE:LEH 23.54 -0.66 (-2.73%)
NYSE:MER 34.73 -1.22 (-3.39%)
NYSE:RF 10.88 -0.34 (-3.03%)

agnostic says:

June 23rd, 2008 at 11:50 am

Recover to what levels?

twist says:

June 23rd, 2008 at 12:12 pm

Agnostic-

So many in the REIC have poor memories- they feel that the recent boom was normal, and recovery will mean the party gets going again.

I’m of the opinion that inventory levels are so high, it will be years before we see things go back to their historic trendline - and they are likely to drop below that before recovering.

Home prices over the long term have to relate to wages. The recent disconnect was an abnormality caused by fantasy financing, but I think it has been shown that this was a BAD IDEA.

agnostic says:

June 23rd, 2008 at 2:39 pm

twist -

You know it was a rhetorical question. I am so sick of seeing these realtor-prognosticators who are telling people that things will recover in the second half/09/10/11 etc. Once again I think these d*uchebags should be strung up for giving investment advice without a license.

freemonster says:

June 23rd, 2008 at 6:31 pm

Hi All,

Most people on this site are much more informed than I so I have a Question. Can anyone draw a parrallel to the California RE crash in the very early 90’s or very late 80’s?
I also vaguely remember a crash in Houston late 70’s or sometime in the 80’s. Can anybody quantify the relative doom? I know the Houston crash there were a lot of walk aways. Any comments?
The anti spam word is appropriate…doomed

sandman says:

June 23rd, 2008 at 6:56 pm

twist and agnostic:

You two nailed my sentiments from this weekend. So many people are harping about us being in a “RE recovery” right now. Excuse me, but doesn’t a bottom come before a recovery? Talk about chugging the punch bowl…er, kool aid bowl.

twist says:

June 23rd, 2008 at 8:00 pm

Freemonster-

I actually wrote a post on previous busts in March of last year. People forget how slow and deep they were.

My opinion of the current bust- it will be bigger and badder.

uuuthe says:

June 23rd, 2008 at 10:55 pm

I’m usually not a conspiracy theorists, but I feel that Goldman Sachs might have deliberately put the false message out there. I wouldn’t put anything past GS. Remember, this is the same company that shorted the very securities that it sold to customers. But it’s not just Goldman Sach that does this sort of thing. Merrill Lynch got busted for similar types of recommendations.

http://cryptogon.com/?p=1680

Yossarian says:

June 24th, 2008 at 10:41 am

Hmmmm…. do you remember ‘Dr. Strangelove’? The US President was yelling at General Buck Turgidson about the psychotic Air Commander who ordered a nuclear raid on Russia… George C. Scott’s character replies below:

General “Buck” Turgidson: Well, I, uh, don’t think it’s quite fair to condemn a whole program because of a single slip-up, sir.

jryskmpr says:

June 24th, 2008 at 11:17 am

The response to these apologetic analysts is simple: execute them.

Housing Doom

A nation that forgets its past is doomed to repeat it. - Churchill

“Our thesis was clearly wrong in hindsight”