Breaking the Shackles of the 9 to 5 | by The Time & Money Group

Housing Market. On December 5th, I issued a what’s he smoking report as Robert Toll, CEO of Homebuilding Company - Toll Brothers, stated “Fifteen months into the current slowdown, we may be seeing a floor in some markets where deposits and traffic, although erratic from week to week, seem to be dancing on the bottom or slightly above.”  His out is that he said “some markets.”

Two months later, on February 8th, Toll said it expects first-quarter write downs could total $60 million to $160 million or more, as markets such as Detroit, Minneapolis, Chicago, Reno, Nev., and parts of Florida “may not yet have stabilized.” Toll said full-year write downs would “significantly exceed the estimates in the guidance we provided in December 2006.” Clearly those weren’t the bottoming markets he was talking about in December.

Toll’s job as CEO is to manage Wall Street’s expectations.  Otherwise, his and his stockholders wealth goes up in smoke.  So, he has to be in constant spin mode.  As main street investors, we have to look beyond the spin and stay away from sinking ships.  Unless you are short - then you look for sinking ships like housing.

BTW, here is my quote from December 5. “I am writing this post so that I can refer back to it after their next earnings release.  If TOL is trading higher by then I will be shocked.  Toll Brothers closed today up 3% at $32.87.”  Toll closed today at $33.40.  Looks like I missed it by a few pennies.  Same quote holds for next quarter.

Update 2/9/07:  I missed it by a day - Toll Brothers closed today at $32.34. 

Collateral Damage. Two economist quoted in Market Watch painted a different picture than many of the bubble heads on CNBC. Steven Wieting, an economist for Citigroup, believes the worst is yet to come for jobs. “We are doubtful, however, the gross job losses tied to the housing cycle are any more than one-third complete,” he wrote. He’s looking for losses to “easily exceed a half million.” 

David Rosenberg, chief North American economist for Merrill Lynch, estimates that employment in residential construction will fall about 20% in 2007, or about 600,000 jobs. In essence, the number of jobs in home-building will return to 2002 levels as the pace of home building does.  In addition, of some 3 million manufacturing jobs tied directly to housing, about 10% will disappear, Rosenberg estimated.

So, when Kudlow and his crew say that spill-over from the housing bust will have minimal affect on the overall economy.  Simply look into the TV and ask him to pass the peace pipe.

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