billddrummer

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    • Circuit City Falls Further: 'Bring Out Your Dead' [view article]
      To Legend,

      Only if the banks don't curtail borrowing (which is happening with blue chip companies like McDonald's), customers flock back to the stores (which is a reversal to what's going on now), and the company can figure out how to sell stuff at a profit (which they haven't done in a year and a half).

      The track record doesn't support your view.       Sep 30 06:22 PM
    • Billion $ Question: What Will Mortgage Backed Securities Be Worth? [Housing Tracker] [view article]
      Hi Judy,

      Great data. Thanks for keeping up on everything!!!

      Although I think your headline may be missing some zeroes. This might be a trillion dollar question. I've seen numbers as high as $5 trillion in counterparty risk related to mortgage backed securities, derivatives, and default swap exposure.

      But as with all paired trades, the risk is essentially half that number, or $2.5 trillion. And the vast majority of mortgages will ultimately pay out. So the further loss risk is probably in the $1,000,000,000,000 range (boy that's a lot of zeroes!).

      Time to keep the powder ready, and dry.

      Thanks again for all your hard work!!       Sep 30 05:35 PM
    • Circuit City Falls Further: 'Bring Out Your Dead' [view article]
      To phil,

      Thanks for the kind words. I bet the bankers are looking at the deal now, to determine what constitutes a Material Adverse Event (one of the triggers for technical default). Hiring the restructuring firm may be one of those events, but the lawyers will have to fight it out. Losses beyond what the company expected could also be considered material. Or, the impairment charge of $73 million points to a potential for additional writedowns on the balance sheet, which would further impair the capital position. Or, having the stock trading at such a low level (essentially a penny stock now).

      This is going to be interesting, but I don't think it will take too long to figure out what's what.

      I wouldn't be surprised if a notice goes out by the end of the week. On the other hand, maybe they can work out an arrangement that will allow them availability on the credit line through the holidays, with an orderly liquidation after the Christmas season.

      That's what CompUSA did last year.

      Time will tell, as it always does.       Sep 30 04:25 PM
    • Circuit City Falls Further: 'Bring Out Your Dead' [view article]
      CC just hired the same restructuring firm that is advising Mervyns LLC in its bankruptcy petition:

      www.bloomberg.com/apps...

      It won't be long, now. Stock is trading at $0.72.       Sep 30 01:52 PM
    • Subprime, Alt-A Mortgage Performance Continues To Decline [Housing Tracker] [view article]
      Hi Judy,

      Great compilation. Thanks!

      To flashrob,

      First of all, the investors who purchased the mortgage backed securities weren't interested in the houses at all. All they wanted was yield on their investment, which was represented by the value of the cash stream (interest and principal payments) generated by the underlying notes. As long as people made their payments on time, that cash stream was predictable, measurable, and could be valued. But when mortgage companies began making loans to borrowers who couldn't afford them, default rates spiked. What that did to the markets is twofold: First, the payment streams were less predictable; and second, their market value become questionable because of the subsequent unpredictibility.

      That, in my view, is why the credit markets for collateralized debt securities has frozen up.

      Adding insult to injury is this: The tranches of mortgages that were bundled and sold were insured with credit default swaps, to protect the investor from default. Those swaps were also sold in the secondary market. And as long as default rates remained low, the swap market stayed liquid--if few people defaulted, then your swap was safe. And many companies pledged the values of the swaps for commercial paper, that was also sold in the secondary market. But as more loans went into default, swap values dropped. The lower swap values forced commercial paper issuers to come up with more collateral to back the outstanding commercial paper. But with the markets frozen, dealers couldn't raise the cash necessary. And you ended up with bankruptcies of Lehman, a fire sale of Wamu, the collapse of Merriill Lynch, and so on.

      But that has nothing at all to do with the value of the property. Instead, the markets for the securities created from the mortgages written is what collapsed, mainly because the payment streams couldn't be predicted with as much certainty.

      And that's why we're here, in my opinion.

      I've said this many times on this forum and others: Until prices for homes reach a level where a local household can afford to purchase, housing prices will continue to fall. This is a local phenomenon, driven by prevailing incomes in the local area. Which is why it's so instructive to read this thread--Judy gets information from all over the world, and presents it to us to provide a macro-view of the real estate markets.

      Locally (northern NV), I look for home prices to correct another 15-20%. That would put the median home price at $192,000, which is affordable for a household with the median income for this area. In higher income areas, prices will tend to correct at a higher level. But don't expected outsized appreciation after the median price stops falling. There's still more inventory to absorb before appreciation starts.
      Sep 30 01:17 PM
    • Circuit City's Deepening Troubles [view article]
      CC hired restructuring advisor FTI, the same firm that was approved to oversee Mervyn's bankruptcy activities.

      It won't be long. Shares are trading below $1.       Sep 30 12:57 PM
    • Circuit City Falls Further: 'Bring Out Your Dead' [view article]
      Instructive call. Management appears to be awake now.

      Wondering what they were taking while the company was falling into this abyss?

      If you believe management (questionable) CC will revive itself going into the holidays. Staffing and in-store stock will be up for the season, pricing will be competitive, marketing will be targeted and effective, and the company still has full support of its vendors.

      The lack of financial covenants on the $1.3 billion credit facility is a testament to how much pressure bankers had on them to get deals done a year ago, despite looking at a borrower with falling sales, negative FCF, non-existent EBITDA and no strategic plan. The loan got approved anyway because it's overcollateralized with inventory.

      But consumer electronic inventory isn't worth much in bankruptcy court. Which is a very real possibility if the holiday season turns out as grim as it seems it might.

      And to AT57,

      The first directive by Schoonover was to trim back ordering flat-panel TVs during the 2006 holiday season, which led to lower sales because stores were out of stock. The decision to fire the higher paid salespeople was the second.       Sep 30 12:07 PM
    • Circuit City Falls Further: 'Bring Out Your Dead' [view article]
      Todd,

      My comment from last week about the company's balance sheet is absolutely what happened:

      seekingalpha.com/user/...

      True to my prediction, cash is down, borrowings are up, and market cap fell to the basement over the previous year.

      I'll bet the bankers that backed the credit line are looking for loopholes in the agreement. But it doesn't seem to me that financial metrics were part of the SEC filing describing the deal:

      www.secinfo.com/d14D5a...

      I'll bet they wish they had.


      Sep 29 07:44 PM
    • Circuit City Falls Further: 'Bring Out Your Dead' [view article]
      To phil,

      I'll bet the bankers that put together their lending facility are scouring the loan documents to see whether there's any way they can get out of it.

      I looked at the filing, and it didn't appear that the lending group put any financial covenants in the agreement. Which makes sense to a degree, because they were already losing money when it was booked. But with credit markets frozen and banks looking at liqudity pressure, I'd be surprised if the lending group (includes BAC and JPM, among others) didn't put some stops on draws.

      When that happens, vendors will stop shipping, and CC will be done.

      Sep 29 04:39 PM
    • Circuit City's Shares: No Different Than a Lottery Ticket [view article]
      To phil,

      You're right that CC waited too long to get rid of Schoonover. Now that he's gone, the stock is trading at $1.37.

      CC's market cap is less than 10% of WMT's.       Sep 26 07:27 PM
    • Well At Least Inventory Is Declining [Housing Tracker] [view article]
      Hi Judy,

      So the spinmeisters at NAR say inventory is down. What is happening here in Northern NV is that people are letting their listings expire and not renewing them. Which speaks to weakness rather than strength.

      There's too much competition from foreclosed properties being offered at well below what used to be market prices. As a result, people who aren't distressed and were going to sell are having to deeply discount their own homes. When they find that out, they just let the listing lapse, and put off their sale for 'later.' In a way, it's similar to the published unemployment number vs. the real unemployment number, as people give up looking for work, and get dropped from the unemployment rolls.

      Don't expect inventory to fall much further.
      Sep 26 12:31 PM
    • Circuit City: Finally, Schoonover Is Asked to Pursue Other Opportunities [view article]
      To dfordtheman,

      Looks like a good plan. I suggested CC turn its stores into online pickup points well over a year ago.

      boards.fool.com/Messag...

      Obviously, that didn't happen. But the larger stores could serve as local warehouses for product ordered online. The smaller ones? Convert them to 'the city' boutiques catering to affluent consumers.       Sep 25 07:34 PM
    • Record Decline for Existing Home Sales [view article]
      To Still Renting,

      I know what you mean. Many creditors give up if there are no hard assets to attach.

      The NAR numbers try to spin a happy song with the days' supply declining, but it may be that people are pulling their homes off the market, dropping the inventory number, but not affecting sales totals. That will have the same effect on DOM numbers, but speaks to weakness, not strength.

      I put about as much faith in NAR pronouncements as I do the government's.       Sep 25 11:54 AM
    • RealtyTrac: 25% Of 2008 Home Sales Will Be Foreclosures [Housing Tracker] [view article]
      I rent because I have lousy credit.

      But as an aside, RealtyTrac's assertion that 25% of home sales will be foreclosures this year doesn't apply to the states in the top 5 (or 10) ranked states. In NV, foreclosure sales represent well over 50% of existing home sales, and a goodly number of new homes too, as lenders foreclose on developers during the course of a project. One such project included 128 lots and 7 uncompleted homes. An investor bought four of the uncompleted homes, and individual homeowners had to qualify for construction financing to buy the others, because the bank was not interested in completing them.

      I realize that NV has a ways to go before things stabilize. Las Vegas proper seems to be at the bottom, but there are still many communities surrounding that city in distress. And here in the north, things aren't looking any better yet.       Sep 25 11:29 AM
    • With Focus Still On Affordability, NY Market Falters [Housing Tracker] [view article]
      Hi Judy,

      Well done compilation, as usual. Thanks for the broad look at nationwide markets!

      As an aside, home prices in northern NV are still falling, inventory is rising, and a statistic from a local title company is forecasting harder times: Failed escrows (pending sales that didn't close) jumped in August, primarily because contingent sales haven't happened. The most common contingencies are obtaining financing and selling an existing residence. With credit constrained, getting financing is harder for everyone. That's affecting both the move-up market and first-time homebuyers. First time homebuyers are having trouble getting approved for financing, and move-up sellers are having to cancel escrows that depended on them being able to sell their existing homes. Virtually no one can qualify for two mortgages, even with rates as low as they are now. Bridge loans are a thing of the past.

      So the credit 'crisis' (possibly the most overused word of 2008) is now affecting people with good credit who could, in happier times, expect to qualify for, and purchase, larger homes.

      Looks like the only financing option will be FHA. Which doesn't help if you live in a high-cost area. Loan amounts are capped at $417,000.

      More to come.       Sep 24 08:04 PM
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