Market briefing --- Lori
Hedge fund firm - Shaw (slow)
Online gambling -- Lindsey (slow)
world’s biggest hedge fund firm, but he’s not optimistic about the industry outlook. he says returns will probably keep falling this year. bloomberg’s pimm fox sat down with shaw and asked him about where his firm is investing. shaw started with the energy industry.
>> we’ve been involved in the purchase of a number of windmill projects, and in fact i think at this point enough to power something like 30,000 homes or so and we expect to increase that―we hope to increase that by a factor of 10 over time. it looks like that’s something that’s not only good for the environment, but finally may make economic sense.
>> is that basically in the united states, those wind turbines, or is that all over the world?
>> we’re interested all over the world but at this stage, we’ve been looking at opportunities in a select number of places. we’re not talking about the details yet.
>> talk a little bit about ethanol and your involvement there in the alternative fuel business. what’s your take on that? what do you see going on there?
>> it’s another very interesting area. we’re finally at the point now where some of these alternative energy sources that are environmentally more friendly are worth taking a look at. in parts of south america, that’s actually economically viable. we’re not yet at the point where it’s a major source of energy in the united states but we hope that will be. and also in a variety of other areas, we’re quite interested in cleaning up the environment at the same time that we mang money for our investors.
>> are you actively participating as an investor in these alternative energy companies, like ethanol, abroad or in the united states?
>> we’re looking at a wide range of those things, have just begun to make real investments in these different areas but it’s an active area of interest to us.
>> are you personally managing this?
>> no, i hear about it from the groups that are doing it and i find it very exciting.
>> you’ve been spending a lot of time applying your computational skills in the world of biotechnology. what are your goals there and where are you spending your time?
>> that’s, in fact, the research group i’m managing in a hands-on manner. since the beginning of the firm, i’ve been involved in new things the firm has done more than the ongoing operations. here, what i’m interested in is how you can use computational techniques to simulate biologically interesting molecules at an atomic level and ultimately be able to design drugs inside the computer as opposed to in a wet laboratory where you mix things together.
>> will this be beneficial to the investing community? are we going to see a lot of money flowing into this area right now?
>> that i’m not sure about. it’s a fledgling area and i wish there were more attention being paid to it because i think it’s very important for science and curing diseases but we’re not exactly sure when that will pay off, at this point. our focus is on the long term. we tend to take a very long perspective and wait until the science really works before deciding just how to monetize it.
>> are you actually spending money in other companies or are you basically forming your own companies to do this?
>> most of this is stuff we do ourselves. we’ve spun off a number of companies over the years but they’ve been things we’ve tended to organize internally and ultimately either bring public or sell to another firm.
>> lawmakers taking aim at the fast-growing online gambling industry saying it enables such illegal activities as money laundering and fraud but the banking industry is crying foul. lindsey arent is in washington with more.
>> internet gambling is illegal, as many of us know, in the united states, under laws that forbid certain businesses from transmitting bets over international lines. that has not stopped scores of online gaming sites from cropping up overseas or americans from using them. law makers want to change all of that. when 23-year-old law student eric marrow wants to gamble, he flips open his computer, logs on to the web and bets against his friend in an online poker room.
>> play at night, do a little homework, go online and play for a few hours. >> the majority of lawmakers on the house financial services committee see a problem with his hobby. they passed a bill to crack down on the online gambling industry, barring banks and credit card companies from processing online banks.
>> internet gambling does no social good. there are no―not only are there no tax revenues, there are no jobs created in this country. there is no plus to it.
>> congressman barney frank, the bill’s lone opponent, says it’s a violation of american’s rights to personal autonomy.
>> if an adult decides it’s their right to gamble, it’s appalling lawmakers would say you can’t gamble.
>> the banking industry is voicing concern about the bill’s burden on financial institutions.
>> we might be asked to study each one of those transactions to see if somehow this is a gambling transaction or not.
>> bill’s sponsor jim leak says it’s time to ban an industry that causes too many family problems and financial breakdowns.
>> you can go to a race track and a casino. why only this one particular way of gambling. it doesn’t really make any sense.
>> despite those arguments, the bill is given a pretty good chance to pass the house in a vote that could come as early as june. lori? >> lindsey, thanks so much for that. one of the country’s biggest homebuilders came out with first-quarter earnings in the extended hours. alex barone, analyst with j.m.p. securities, will join us to break down the data. that’s next.
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Listen Interview: JMP Securities
>> welcome back. news after the bell from k.b. home. want to start out with comments from the c.e.o., of course, this is the latest, an indicator of the slowdown many forecasters were predicting for the housing industry. the c.e.o. saying that nevertheless, we remain cautiously optimistic due to the strength of the economies in our major markets where historically healthy nand is expected to continue. so k.b. homes reaffirming their forecast for this year of earnings per share $11.25 a share, in line with analysts’ forecasts. however, a lot of analysts track the orders for the homebuilders and new orders for k.b. did fall 12% to 8,719 units versus 9,900 units this time last year. as far as earnings per share, $2.02, ahead of the thomsen forecasters looking for $1.96 a share. revenue is slightly light of forecast. let’s bring in alex barron, analyst with j.m.p. securities, joining us on the telephone. alex, we were talking moments ago and you were curious about how k.b. is reaffirming their forecast if they are reporting a slowdown in orders.
>> that’s correct. when we look at the orders, we were expecting for this quarter, we were expecting orders would be up 8% compared to a year ago and as you noted, orders were down 12%. now, the company believes that it’s a little too early and it may be a seasonal weakness. and while we understand that seasonality plays a role into this business, basically, we don’t think this is all that’s going on. we think that order trends have started to materially weaken in several of the most important markets for this company, mainly california, las vegas, phoenix and florida.
>> those are as you said key markets for k.b. homes. texas, as well. texas has been a strength for k.b. could that strength in texas offset the weakness you detailed in other markets ?
>> no. we don’t believe―we have modeled texas to be up this year and it should be k.b.’s strongest market as well as for other builders but texas, generally speaking, has lower prices and lower margins than the other states i mentioned so in our view it won’t be enough to offset the decline in the other markets .
>> how is k.b. homes positioned to weather a potential or predicted slowdown in the housing industry?
>> we believe it’s fairly well positioned, in a better position than several of its competitors, several of the other larger public builders. and part of the reason is because they are geographically diversified and they don’t really have exposure to all the cold markets , which are mostly in the midwest. now, the other thing that k.b. has going in its favor is that it has a wide array of products and they focus a lot on making what we consider affordable homes. what this means is that on a per-square-foot basis, they could be offering a similar home to somebody else across the street that cost less than square foot so in an environment where housing affordability is an issue for a lot of people and home prices have gone up to 40% in certain markets , those builders offering more affordable homes should do better even in a softer market .
>> they did admit cancellations rose, orders falling. granted, they’re just entering the peak homebuilding season. but isn’t this of some concern to you as an analyst?
>> can you repeat the question?
>> we’re coming into the peak building season for the homebuilders, yet just last month, k.b. did say that their cancellations―people are cancelling home orders. so this has got to be of some concern.
>> well, yeah. some level of cancellations is normal in this business. for k.b., actually, the way they define their cancellation rate, it’s actually higher than for other builders. different builders define cancellation rates differently and it has somewhat to do with the amount of up-front deposit money that they get from buyers. so in k.b.’s case, a lot of times they consider an order to be just somebody signs up on a waiting list, puts down a few thousand dollars and those people could decide to go across the street and decide to buy somebody else’s house instead, so they consider that a cancellation, whereas other builders, if they get 10% of your money, and those people want to walk away from the deposit, that’s more of a serious cancellation. any cancellation is not good but k.b.’s cancellations tend to be higher as a percent than other builders for that reason.
>> alex barron, we have to leave it there. thanks for joining us. alex is an analyst with j.m.p. securities. goldman sachs says the world economy is in remarkably good shape because it has finally got help from japan. more in the “chart of the day” after this.
