I am retired and take educated guesses on all things financial.

November 19, 2006

November 20, 2006: State of Foreclosures and Aero Defense

I had a brisk weekend of football watching the OSU/MI game in Columbus and then up to Cleveland for the Browns/Steelers game with friends from Michigan, Ohio and Pennsylvania. How sweet it was to witness the excitement and competition that these two wonderful games showcased. I prefer collegiate sports. Actually, I truly prefer a fine symphony orchestra playing the Tschaikovsky Fourth Symphony, but I digress.

Do NOT think about buying home builders or their minions yet.October 2006 foreclosures were up 42% from October 2005.October's level was 3% higher than September's results. October's foreclosure activity represents the second highest level since RealtyTrac began disclosing this data in 2005.

In October, FIVE STATES represented 46% of all of the country's foreclosures. For comparison, these five states represent 32% of the nations households. California leads the nation with 13.9%, Florida had 9.9% of the total, Texas had 8.8%, Michigan 7.1% and Illinois had 6.7%.

Key states in foreclosure upticks include Nevada, up 318% (not a typo),California up 200%,Michigan up 106%,Colorado up 88*, Virginia up 53%, Florida up 51%, Arizona up 19%. Bright spots included Texas down 9% and Maryland down 17%.

In October, there was one foreclosure for every 1,061 households. One out of every 360 households in Colorado, one out of every 438 households in Nevada and one of every 535 households in Georgia were in foreclosure. This is a staggering statistic that bodes poorly for BOTH home builders and lending institutions who are carrying overpriced/overmortgaged and poorly maintained properties in their real estate portfolios.

It is my opinion, and I believe others as well, that the increase in foreclosures is being driven by investors walking away from properties that are now under water. As home prices continue to come under pressure in many markets, foreclosure activity will remain at high levels, thus putting additional inventory into an extremely over-supplied market.

The housing market and their lending partners are in deeper trouble than being marketed to you, the investor. Watch out.

I continue to stand firm on buying selected Aerodefense stocks. BE Aerospace (BEAV), Goodrich (GR),L-3 Communications (LLL), and Esterline Holdings (ESL).Boeing (BA) again is a buy even though it is at a high.

In Aero news,USAir wants to merge with Delta for 8.8b in cash and stock. I do not like the deal from the USAir perspective. My last few flights on Delta have been nothing short of nasty, and their main routes are being handled by better, cleaner and cheaper low cost airlines. Boeing is set to receive more than 10b in new business in the coming weeks from commercial airlines. Airbus is still a disaster in spite of their new A350-XWB rollout. ERJ announced it will be in line with high expectations for fiscal 2007.AH and BAE are in competition to build mine protected vehicles similar to the Buffalo now made by General Dynamics.Look for LLL to receive multi-billion dollar contracts over the next sixty days for Project Helix, Army linguist contracts, and the Army/USAF joint Cargo Aircraft.

Democrats are set to take a meat cleaver to military expenditures - until they realize that many of these contracts are to be executed within Democratic controlled House of Representative districts. Politics trumps campaign slogans. No War For Oil. Ha.

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