Interview: Analyst at National City
>> existing home sales unexpectedly surged in august running counter to some hints the housing market may be peaking. still, according to a survey by the national association of homebuilders, optimism among the group fell for a third straight month in september. let’s take a closer look at housing with dan poole, an analyst at national city. nice to have you on.
>> great to be here, ellen.
>> dan, were you surprised by the home resell numbers that came?
>> not terribly. some of the home builders we have talked to and surveys we have seen, many in the investment community like to say things are slowing. yes, they’re slowing but we’re hearing adjectives from frantic to really strong. the fact that the numbers were good is not a surprise. existing home sales is a much truer number of what is going on in housing because unlike government estimates, it’s a real life number that the realtors put out once a month and we put a little more confidence in it. we weren’t really surprised.
>> we have the new home sales figures due tomorrow. give us a look ahead at what you anticipate.
>> the home builders we have been speaking with continue to say that business is very good. we really don’t see that there’s going to be a dramatic falloff. i think last week between katrina and rita there was some real concern that the consumer was going away. the housing markets haven’t shown it. we think we get a fine number tomorrow as well.
>> put it in the context of having comments again today from fed chairman alan greenspan about the housing market saying speculation is having a greater role in u.s. home prices. he has been out there for several months now talking about the housing boom. what is your perspective when you hear comments like this?
>> well, clearly there is speculation out there. any time you have taxi drivers and others outside of the market speculating, talking about great investments, there’s some froth. but in the big picture, if you take new household formation, second homes, depletion of the existing home stock, there isn’t that much out there to a confidence. there is some speculation out there. underlying fund amountals of this market are really healthy. you have to go back to 1999 to find a time period―this is back in the days when home builders did not outperform of rest of discretionary. this is a strong, solid market . some speculation, absolutely. but the underlying market is pretty good, too.
>> let’s talk about the investments then. when you look at home builders, they have come off highs. what are you currently recommending to investors in terms of whether it makes sense to pare back on investments?
>> we have pared back for a while. we have overweight to the home builders. still think that the underlying fundamentals are attractive. we’re also in some other areas related to hougs, some building materials companies are well positioned. but we still do have a position in the homebuilders. one of the names we happen to like most lately is lennar. they were out on the tape last week taking numbers up, looking at earnings from the company tomorrow, we think underlying fundamentals are solid. compared to other homebuilders, the stock has not done as well this year. we think it’s attract actively valued here.
>> it’s interesting because phret o pretty much unchanged, up less than 1%. do you personally own lennar?
>> do i not.
>> any of the home builders that you think will come out and lower forecasts? we have heard from i believe one company so far that has talked about problems. any others that you think are out there?
>> probably not. any time a company―a homebuilder does that, they’re inevitably one of two situations. either it’s market specific and they don’t have a diversified geographic space or two, legal issues or other things have cut their development count down. those are usually short lived. the underlying fundamentals of this market we still think are pretty good.
>> in terms of building materials plays, give us the one thaw think is the best pick right now.
>> we have been interested in mohawk. ticker m.h.a. pulled back a bit. they announced an acquisition. we were in front of that. that did really well. there is concern of petroleum costs. they’re in the heart of soft surface flooring industry. oil and components make up a big portion of the cost of goods sold, on the soft goods side.
>> dan, let me ask you, that stock is down 15% so far this year. what are you seeing that other investors are not seeing?
>> two things. first, attractive valuation. this is most important. this company has historically had very―they pass along their prices. price increases usually stick. we think price increases will continue to stick. there will be noise along the way, particularly when oil prices are up where they are, but at end we think price increases go through, they stick and earnings should be there.
>> dan, real briefly, do you own that?
>> i do not.
>> dan poole, thank you for joining us. dan poole of national city. we take a quick break. we come back and have more on the markets . we’ll have world and national news update. keep it here. “after the bell” will continue in two minutes’ time.
点击播报
Listen Market briefing -- Ellen (slow)
Interview: PNC Financial
>> welcome back to “after the bell.” i’m ellen braitman. let’s recan’t day on wall street. the dow jones industrial average and nasdaq ending the day higher. s&p little changed. stocks rebounding from the worst week in three months. that’s what we saw last week. gains today led by energy shares as refinery shutdowns following hurricane rita lifted oil prices. also, insurers gained after damage from the storm was less than originally forecast. well, today we heard from two federal reserve governors and they say the economy likely to remain strong even after the two hurricanes have pummeled the gulf coast. federal reserve bank of chicago president michael moskow spoke to reporters after a speech to the national association of business economists. this is what he said.
>> financial markets and the public do not seem bothered by the lack of an explicit number for future inflationary expectations. and at present time, inflationary expectations are well anchored.
>> in the meantime, fed governor susan bies said this from washington, d.c..
>> the longer the prices stay higher, the more likely an impact on prices in general. but at this point, we’re still seeing an underlying core resilience in the economy. it was strong before the hurricanes hit. and all of the rebuilding that will be required is clearly going to also show up in strong economic numbers once we get through the immediate impact.
>> these comments by two of the voting members of the federal open market committee suggest that the fed’s policy of raising interest rates at what it called a measured pace to prevent a surge in inflation remains in tact. well, is that the case? let’s ask stuart hoffman of p.n.c. financial. he joins us right now from chicago from that meeting of the national association of business economists. he is the president of the group. he joins us from there. stuart, nice to talk to you.
>> nice to talk to you. glad to be able to join you.
>> what is the tone of the conference?
>> well, the tone of the conference is there’s a lot of concern about energy prices. seems to be the number one concern. maybe more natural gas than crude oil. looking ahead they seem to agree with earlier comments made by the two fed policymakers that certainly katrina will knock down and now rita economic growth this quarter and into the remainder of the year. but our group feels that that is likely a temporary setback and u.s. economy’s growth will be at least on trend if not a bit higher in 2006.
>> stuart, what is interesting, the most recent survey you did of this group, of the economists shows that katrina slowed growth by less than half a percentage point. were you surprised by the modesty of that number given that we have had the federal government give numbers up to one percentage point of a drag on the economy?
>> i mean the survey was taken in the immediate aftermath and we have learned more. i’m not all that surprised. what wasn’t reflected in the survey is how much of a rebuilding and how much that could add to economic growth in 2006. speaking for myself personally, i think economic growth in this half of the year will be knocked down by about .5%. but likewise i think the add to economic growth in 2006 from all the rebuilding, reconstruction, federal moneys as well as private insurance moneys could continue to support economic expansion in our group. we still think that economic growth next year could almost be 3.5% which we’d view as sort of on trend. so it’s not an above trend performance but it’s an economy that is continuing to grow on trend. the other thing that came out in the survey and that i worry about personally is that inflation is going to be higher. particularly headline inflation but some of those higher energy prices could show up in core inflation as we go forward not oepblt next couple of months but into 2006.
>> what kind of concern. one thing that interested me and surprised me when i looked at the numbers from your survey it seemed like inflation according to the consensus of economists was not as big of a problem.
>> the core number, the group came out that core inflation would be about the same next year as this year. about 2.3% or 2.4%. that is not a high number but as president moskow said, the fed has never announced a target range for inflation. the presumption is that for a 1% to 2%. as you get above 2%, you sort of get to the top of the comfort range. so fortunately our survey doesn’t see core inflation accelerating up to 3%. even if it’s a steady drumbeat at around 2.25% to 2.5%, that may be a bit higher than the federal reserve would want to tolerate beyond the next couple of quarters.
>> and let’s talk a little more about oil. what are you hearing from your colleagues about why it’s not having more of a drag on consumer spending?
>> there are offsets. employment growth is certainly up. housing activities remain strong. we also hear some concern that i would share that the home heating oil season, for at least half the country that has winter weather, that actually the average homeowner has about a 50% higher home heating bill than they have a summer gasoline bill. there is concern that as higher natural gas prices persist into the winter and that’s passed onto consumers, even’ weather is normal, that will take a bite out of consumer spending. if you look into next year, while we and myself would think that consumer spending will be slower, maybe business investment and housing, there is an equal offset in people’s expectation of government spending, particularly federal government spending could add as much to the economy as the private sector slowdown might take away. less from consumers and businesses, more from the federal government to get the kind of economic growth expected.
>> stuart hoffman.
>> thank you.
>> stuart mentioned housing. we take a break and look at housing market straight ahead.
