Using Veritas to Construct the "Per…

29-04-2017 Hits:85900 BoomBustBlog Reggie Middleton

Using Veritas to Construct the "Perfect" Digital Investment Portfolio" & How to Value "Hard to Value" tokens, Pt 1

The golden grail of investing is to find that investable asset that provides the greatest reward with the least risk. Alas, despite how commonsensical that precept seems to be, many...

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The Veritas 2017 Token Offering Summary …

15-04-2017 Hits:80112 BoomBustBlog Reggie Middleton

The Veritas 2017 Token Offering Summary Available For Download and Sharing

The Veritas Offering Summary is now available for download, which packs all the information about Veritas in a single page. A step by step guide to purchasing Veritas can be downloaded here.

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What Happens When the Fund Fee Fight Hit…

10-04-2017 Hits:79969 BoomBustBlog Reggie Middleton

What Happens When the Fund Fee Fight Hits the Blockchain

A hedge fund recently made news by securitizing its LP units as Ethereum-based tokens and selling them as tradeable (thereby liquid) assets. This brings technology to the VC industry that...

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Veritaseum: The ICO That's Ushering in t…

07-04-2017 Hits:84447 BoomBustBlog Reggie Middleton

Veritaseum: The ICO That's Ushering in the Era of P2P Capital Markets

Veritaseum is in the process of building peer-to-peer capital markets that enable financial and value market participants to deal directly with each other on a counterparty risk-free basis in lieu...

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This Is Ground Zero for the 2017 Veritas…

03-04-2017 Hits:80986 BoomBustBlog Reggie Middleton

This Is Ground Zero for the 2017 Veritas Offering. Are You Ready to Get Your Key to the P2P Capital Markets?

This is the link to the Veritas Crowdsale landing page. Here is where you will be able to buy the Veritas ICO when it is launched in mid-April. Below, please...

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What is the Value Proposition For Verita…

01-04-2017 Hits:83219 BoomBustBlog Reggie Middleton

What is the Value Proposition For Veritas, Veritaseum's Software Token?

 A YouTube commenter asked a very good question that we will like to take some time to answer. The question was, verbatim: I've watched your video and gone through the slides. The exchange...

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This Real Estate Bubble, Like Some Relat…

28-03-2017 Hits:54241 BoomBustBlog Reggie Middleton

This Real Estate Bubble, Like Some Relationships, Is Complicated...

CNBC reports US home prices rise 5.9 percent to 31-month high in January according to S&P CoreLogic Case-Shiller. This puts the 20 city index close to an all time high, including...

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Bloomberg Chimes In With My Warnings As …

28-03-2017 Hits:82369 BoomBustBlog Reggie Middleton

Bloomberg Chimes In With My Warnings As Landlords Offer First Time Ever Concessions to Retail Renters

Over the last quarter I've been warning about the significant weakness in retailers and the retail real estate that most occupy (links supplied below). Now, Bloomberg reports: Manhattan Landlords Are Offering...

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Our Apple Analysis This Week - This Comp…

27-03-2017 Hits:82214 BoomBustBlog Reggie Middleton

Our Apple Analysis This Week - This Company Is Not What Most Think It IS

We will releasing our Apple forensic analysis and valuation this week for subscribers (click here to subscribe - lowest tier is the same as a Netflix subscription). As can be...

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The Country's First Newly Elected Lame D…

27-03-2017 Hits:82078 BoomBustBlog Reggie Middleton

The Country's First Newly Elected Lame Duck President Will Cause Massive Reversal Of Speculative Gains

Note: Subscribers should reference  the paywall material here for stocks that should give a good risk/reward scenario for bearish trades. The Trump administration's legislative outlook is effectively a political desert, with...

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Sears Finally Throws In The Towel Exactl…

22-03-2017 Hits:88137 BoomBustBlog Reggie Middleton

Sears Finally Throws In The Towel Exactly When I Predicted "has ‘substantial doubt’ about its future"

My prediction of Sears collapsing once interest rates started ticking upwards was absolutely on point.

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The Transformation of Television in Amer…

21-03-2017 Hits:85991 BoomBustBlog Reggie Middleton

The Transformation of Television in America and Worldwide

TV has changed more in the past 10 years than it has since it's inception nearly 100 years ago This change is profound, and the primary benefactors look and act...

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Don't think that this is just my quarterly carping and caviling of the CEO of a succcessful 3rd generation family business that has fallen on the ropes. I have a lot of respect for hard won, multi-generational wealth. I really mean that, lot of respect. It is very difficult to become a centi-millionaire while finding the time to instill within your children the principles and drive to continue what you have built. What I am doing quarterly though, is taking note of the significant mishaps of this latest in the generational success story. Ara Hovnanian has fallen on some relatively rough times, like practically everyone in the residential real estate industry. I know the feeling, and I defintiely sympathize. In this particular case though, I truly doubt the CEO's ability to weather through the storm - a storm which he is responsible for turning his ship straight into. As a recap, Hovnanian was one of the first builders to really market their sharp cost cutting through the national press, which I simply thought was laughable in its simplistic attempt to conceal the true results of the effort. Then I browsed through their financials and the usual due diligence stuff to see that they have a whole host of problems, most of which are not mentioned in the press, such as:

  • a lot of bad mortgages on the books (I warned of this risk in detail in the first post on my blog),
  • a CEO that purchased personally at the top of the market with a 100% LTV loan (yeah, that's right) now trying to flip it very shortly thereafter in a down market,
  • legal issues stemming from overly aggressive loan underwriting, etc.

 

I glanced at the results the following quarter, and more of the same . I attempt to provide a useful contrarian perspective, one that would have come in handy during the heady, debt driven, purchase boom peak of 2005.

A quick tutorial list that may have guided Mr. Hovnanian elsewhere?
  1. The Coming Land Recession, Part 1 and Part2
  2. Straight Talk From the ex-Homebuilder CFO: Yes.. straight from the Lennar CEOs mouth... land has zero value
  3. Straight Talk From the Homebuilder CFO: The tricks builders use to disguise the true losses on their books
  4. Myths, Markets & Manipulators: The Real Deal on the Homebuilders

Basically, the gist is that the large scale, capital markets driven, public company home builder model is an accident waiting to happen in a real asset bubble - that is unless you are very, very careful. By human nature, who is very careful in a bubble??? It all looks good going up, but we see how ugly it can get coming down.

And it has a lot farther to go according to my housing value projections (see Okay, I have just recharged the batteries in ).

I say all of this because management's credibility is the key to maintaining a relatively stable share price in a turbulent market and adverse macro conditions. Nothing personal, but every time I get the opportunity to gauge this firm's current management, credibility is found lacking and the 70%+ drop in share price seems to concur. Excessive debt and poor performance contribute, of course. We all makes mistakes, but if it happens repetitively, it is a habit and not a mistake. Case in point, the following transcript excerpt from Hovnanian's last conference call. All the man had to to was give a direct answer to the analyst's question. An "I don't know" would have been acceptable to me, particularly because it is most likely the truth. After reading the links above, zero seems like a likely answer as well. Save Lennar's unusually honest (at least at that time) CEO, not many bosses would admit such a thing in public, though.


HOV's most recent conference call transcript excerpt, courtesy of seekingalpha.com:

Ara K. Hovnanian, President and CEO, Hovnanian Enterprises Inc.

Our current plan is not to shrink our footprint, but shrink the size of the foot that’s in that footprint, if you will. We just plan to pare down our inventories in virtually all of our markets.

Carl Reichardt – Wachovia Securities

Okay.

Later on in the call:

Wayne Cooperman - Cobalt Capital

You wrote off a lot of stuff this quarter and you still have a $19 book value. I was wondering if you could actually opine what I should take that to mean. I mean, does that imply that you should earn some kind of return on that $19 book value, or you could sell all the rest of your assets and we could get $19? Because your stock’s at $7 and something doesn’t make sense.

J. Larry Sorsby, Executive VP, CFO of Hovnanian Enterprises

The stock is too cheap.

Wayne Cooperman - Cobalt Capital

Seriously, though, what does $19 mean to me? I mean, are we going to earn a 15% return on that $19 book value? Are we going to keep selling assets that are now at the same price we’ve written them down to?

Ara K. Hovnanian

Well, as I am sure you are well aware, Wall Street has not been kind to homebuilders. Many are selling below book value and --

Wayne Cooperman - Cobalt Capital

[They believe] in the book value. You guys just wrote off a lot of stuff. The $19 is now your kind of -- what you would think accurate book value, or at least that’s part of the question.

J. Larry Sorsby

What you are really asking us to do is make a projection and as I think we’ve made it pretty clear, we are just not in a position that we are going to make a projection.

Wayne Cooperman - Cobalt Capital

I don’t even want a projection. I just wonder if you could just talk about what you guys see as the -- what’s embedded in that? Do you think you could sell your assets for what you’ve written them down to or do you think they are written to a level where you actually earn a return on them?

Ara K. Hovnanian

If you are planning on a 15% return on $20 of book value, I wouldn’t bank on that at this moment. Fifteen-percent ROE is for normal times. We are not in normal times, so I say if that’s your benchmark, I wouldn’t count on that for the short term.

J. Larry Sorsby

Yeah, when the market recovers, which it ultimately will do, we’ll get back to earning those kinds of returns. But when we are still in a cyclical correction or downturn, it’s difficult to approach a 15% return and that’s about all we can say at this point.

Ara K. Hovnanian

Yeah, I mean obviously when the markets were better, we were earning in excess of 40% returns on our after tax, on our beginning equity. Fifteen-percent we kind of consider a more normalized part of the market. And then when you are in a trough of the market, you’d expect to earn below that for sure.

Wayne Cooperman - Cobalt Capital

The other -- I mean, would you guys expect to sell off more raw land or assets and get close to your book value and pay down debt that way?

Ara K. Hovnanian

No. I think generally speaking, the most logical course right now is to continue building and selling homes. We think that maximizes value and cash flow. As opportunities arise on land sales or potential joint ventures, we are certainly going to explore those as well. The main focus and certainly the main thrust is continuing to build through the housing and we think that maximizes the recoverable dollars that we’ve got invested