Tag Archives: Toll Brothers

Homebuilder Stocks: A Short-Seller’s ATM

Someone or some entity – likely a hedge fund – bought 4500 September $35-strike puts on XHB on Thursday last week when XHB was trading just above $39. That’s a $225,000 speculative bet that the XHB drops more than 15% by mid-September.

This morning Toll Brothers stock plunged over 7% this morning after reporting its FY Q2 earnings, missing the Wall Street brain trust consensus estimates on both revenues and income. Deliveries are slowing down, expenses are soaring (energy and lumber)and asset write-downs are accelerating. On top of this, TOL’s debt and inventory levels continue to rise.

Typical of developers, TOL will continue to use other people’s money to speculate on real estate until the market crashes, leaving creditors and shareholders holding the bag. The Company bought back 1.8 million shares. TOL has repurchased 6.2 million in its fiscal YTD. Into this buyback, insiders have dumped nearly 800,000 shares. Not one share was purchased by insiders.

I’ve been recommending shorting the homebuilders in my Short Seller’s Journal for several months. Many of my subscribers and I are making a lot money with both short term scalps and longer term puts. The best part of about this is that very few market players trade the homebuilders. This makes it easier to take advantage of inefficient price-discovery. As an example, Zack’s Equity Research was looking for an upside surprise and spike-up in the stock as recently as yesterday.

TOL’s contract cancellation rate, which has been historically well below average, rose substantially (at least for TOL) in its latest quarter, as explained by Aaron Layman, of Aaron Layman Properts:   TOL Trips On Higher Cancellation Rate.

The homebuilders are historically overvalued, especially in relation to the level of unit sales, which are still about  50% below the peak in 2005.  They also have a lot more debt and inventory relative to the unit rate of sales.  Shorting the homebuilders is the easiest area of the market to make money right now.

You can learn the truth the about the condition of the housing market and why homebuilders are down double-digits percentages this year by clicking here:  Short Seller’s Journal information.   In addition to shorting shares, I make suggestion on using puts and market timing (I use puts).  I also report every put trade I make in each issue.


Toll Brothers Stock Jumps On Declining Revenues And Earnings

Toll Brothers reported its Fiscal Q1 earnings this morning.  Year over for the quarter: Revenues declined nearly 1%, operating income plunged 46.8%, net income dropped 4.1%.   Net income was boosted by the reliable accounting management technique of reducing the estimated GAAP “effective” tax rate, which enables any management to goal-seek a specific net income number.  In this case the goal is to “beat” the Street.  Margins were down across the board.

Oh ya, TOL pulled another stunt that homebuilders use to pump up GAAP net income:  it increased the amount of interest it capitalized by $6 million dollars. This has the effect of boosting operating income by $6 million compared to the same quarter last year because it reduces the amount of GAAP interest expense by the amount that was capitalized. It did this despite a drop in sales.   Its net income would have missed the Street by a suburban mile if it had just maintained the same rate of interest expense capitalized.

For this, the stock jumped up 6% this morning at the open.

The Company blamed the drop in operating income and margins on inventory write-downs.  But these have been occurring every quarter recently and will of course continue going forward.  That write-down only explains $4 million of the $44 million plunge in operating income.

There’s so much more going in TOL’s numbers which point to the continued economic deterioration in its business model.  I will be reviewing this further in this week’s issue of the Short Seller’s Journal, including which put options TOL I bought this morning.

Too many layoffs and store closure news to mention but I’ve realized that there are a lot of school-district (including teachers) layoffs and colleges, or even hospitals staff layoffs. CSX just posted 1000 management level position cuts – link.  By the way, thanks for the Short Seller’s journal, very informative. – note yesterday from a subscriber

The Government’s New Home Sales Report Is Idiotic

Absurd surges in new home sales activity were not significant…Headline reporting of this series is of no substance, as seen frequently with massive, unstable and continuously shifting revisions of recent history… – John Williams, Shadowstats.com on the June report.

Like everything else going on in the financial markets, the Government’s new home sales report is thoroughly inconsistent with all of the actualized supporting data and bears absolutely no resemblance to observable reality.

The Census Bureaus, which is notorious for producing fraudulent data, reports that new homes sales hit a 9-year high in July on a “statistically adjusted, annualized rate” basis. However, it had to revise its original report down for June to 582k from 592k.   Bloomberg theatrically describes the report as indicating “sky high momentum.”  These are, of course, fairytale numbers.

This is how John Williams of Shadow Government Statistics described last month’s new home sales report:    “Despite ‘benchmarking’ to the unstable seasonal-adjustment factors with the April 2016 release, this series remains extraordinarily unstable and consistently unreliable on a near-term month-to-month basis as weather headline sales increased or decreased.”  (Shadowstats.com)

The Government’s numbers were “driven” by an unexplainable 18% surge in new home sales in the South.  Yet, according to Redfin.com’s data for July, homes sales for July in the south’s biggest MSAs (population areas) cratered:   Atlanta -12.9%, Dallas/Ft Worth -13.3%, Miami -24.2%, Orlando -16.1% (LINK).  In other words, the Government’s metric conflicts drastically with observable reality.

Additionally, the new home sales report is entirely at odds with the ongoing economic contraction as reflected in most private-sourced economic reports.  This morning, for instance, the Richmond Fed’s manufacturing index collapsed the most on record (going back to 1993).   Another report on U.S. manufacturing activity released this morning showed continued weakness in the manufacturing sector, with the employment index at its lowest in four months.  If economic activity is contracting and real jobs (not Census Bureau fake jobs) are declining in number, homes are not being purchased.  Again, the new home sales report does not fit the facts.

Finally, in the report it showed that new home inventory is declining.  However, I look at several new homebuilder financial reports every quarter and they all show inventory levels that are ballooning (and being financed with debt).   For instance, Toll Brothers reported this morning (more on that later) and its inventory level of new homes increase 5.3% from the end of last quarter and 6.8% from the end of January.    DR Horton is the country’s largest new homebuilder, its inventory level has soared nearly 10% over the last four quarters.

Also, the same Census Bureau has been reporting well in excess of 1 million supposed housing starts for the last several months.  How is it possible that starts exceed sales by a significant amount and yet inventory is said to be shrinking?  Once again, the facts do not fit the report.

Remember the Redfin.com report referenced above when existing home sales are reported tomorrow. The National Association of Realtors uses the same statistical meat grinder used by the Government in producing its seasonally adjusted annualized fictional account of the housing market.

As far as demand at the lower end of the market, I will republish the market color I received earlier this month from one of my Short Seller Journal subscribers, who has been a real estate professional for over 3 decades:

You are spot-on the housing market. I think the flippers in Denver metro are driving the under $400,000 price to a frenzy and the over $500,000 in the burbs are dropping in price. Some of these flippers have 8-10 houses at the same time. A little jiggle and they will dump. Then the part time rental landlords follow in selling as the rental market gets tough.

The only reason that prices keep rising is because the Fed’s near-ZIRP interest policy and the Government’s sub-prime dressed-in-drag mortgage-lending programs have enabled buyers to pay more than ever for a home and make monthly payments – for now.  As the real economy continues to implode, delinquencies and defaults will pile up as quickly as they did from 2008-2010, led by the flippers reference in the quote above.

The Market Is Broken – Today Was A Disaster For The Bulls

We all woke this morning to the money honeys on financial propaganda television, all of whom couldn’t hide their ear-to-ear toothy grin over the Dow futures being up over 600 points.  But after a big 350 point opening gap up, and after trending largely sideways for most of the trading day, the markets plunged to close well below yesterday’s closing levels:


Grins turned to frowns and confusion by the close of trading. What is even more stunning is the way the indices were bouncing around in the last 10 minutes of trading. The Dow went from down over 100 to almost green and then back down to its close at -204. It was shocking to watch, to say the least. I’ve never witnessed trading like this in over 30 years of active involvement in the financial markets. The Dow and the S&P 500 were bouncing around like an LSD-laced kangaroo on a pogo-stick. The NAZ was up over 14 points and in less than it minute it was down 10. I closed down 22, or .6% on the day.

And my favorite sector, the homebuilders, were massacred. The Dow Jones Home Construction had jumped up a couple points on the over-hyped new home sales report, only to close down 23.88 points, or 4.1%. In just four trading days the DJUSHB is down 12.4%.  This is a huge move for any market sector.

Part of the culprit was Toll Brothers, which reported earnings today. It missed its income estimate by a country mile and was well short on revenues as well.  The party in the homebuilder sector is drying up.

I have several homebuilder reports that I will be updating soon.  When I update them I will also be raising the price.  Two of them, the first two on the list, will soon be racing to see which one will break $10 first.   You can access them here:  HOMEBUILDER REPORTS.

Anyone who buys them now will receive the updates, as per my policy.  The homebuilder sector is, outside of venture-cap tech, the most overvalued sector of the market.  There is a lot of money to be made on the downside.

FYI, Toll Brothers is one of the homebuilder stocks which Jim Cramer has been having sexual relations with himself over:


Housing Stocks Tumbling Already

Just so you are not hearing the bear side of the housing market story from me, Seeking Alpha published an article today from another analyst who is seeing the same fundamental problems with the housing market as me:  The Housing Market Looks Like A Short.

This followed my analysis of the existing home sales report published by Seeking Alpha yesterday.  As I show in my detailed report, Monday’s existing home sales report, for all intents and purposes, was not any indication of any sales growth in the housing market:   Existing Home Sales Miss Street Estimates – Underlying Data Still Bearish.

The problem endemic to the housing market is that more workers are leaving the labor force every month than are finding jobs.  The preponderance of jobs taken are part-time, low wage positions.  By the Government’s own data reports, 90% of the labor force that is working has been experiencing declining wages ever since QE began in early 2009.   Real median monthly household income is lower now that it was in 2007.   The average American can not afford to buy a home and that’s why the first-time buyer is becoming extinct.

As I will show in my analysis of new home sales, the Government’s housing reports are as phonied up as every other other economic metric the Government and Wall Street reports.

The homebuilder stocks have now given up almost all of their short-covering driven spike up yesterday after the fraudulent new home sales report was released, despite the fact that interest rates are lower today (click to enlarge):


Please note the surge in sell-volume at today’s open.  The hedge funds are loaded up on the sector and they have no options left except to start selling once the fundamentals get ahold of the stocks.  It will be a bloodbath.

My homebuilder short sell reports offer a unique opportunity to readers to make a lot money shorting this sector.  There are no reports available from Wall Street that go into detailed analysis like my reports do.

Perhaps this sums it up best – TOL insiders are dumping shares (source:  nasdaq.com):


What better proof of the truth behind closed doors than insiders dumping their company’s stock?  Questo dice tutto – That says it all!