subject: Is Toll Brother's Turnaround A Sign Of Recovery - Or Looming Disaster? [print this page] Justice and I have written at great length here in Taipan Daily as to various disparities that are cropping up in the U.S.
There is, of course, the fashion in which small-cap stocks have been gapping down and away from large-cap blue chip stocks, as skittish investors seek stolidity over growth a sure sign, Justice notes, of exhaustion on the part of the bulls.
I dont know how much longer investors will find respite in blue chips, mind you, because these stocks share a growing gap between corporate value and share price.
The Expectation Gap
At its current level of 28.84, the Dow Jones Industrials current price-to-earnings ratio is roughly double its historical average. To give you a sense of scale, Apple Computers (AAPL:NasdaqGS) home of Steve Jobs, the genius responsible for the hottest toys in the universe currently features a P/E of 32.55.
We have also written about certain factual gaps, like the distance between the economy Washington touts and the one almost anyone who can see perceives daily. For example, there is the disparity between the growth Washington has purchased via front-loaded auto and home sales, and the sort of self-perpetuating growth one can honestly credit as a sign of genuine recovery.
Or how about the gap between how many folks are listed by the government as being out of work (currently a tad more than one out of every 10 citizens), and the real number of un-, under-, and just-barely employed guesstimated as somewhere in excess of 20%.
The Terror Gap
Add in the folks who are terrified that they, their spouse, their kids or their parents might see a pink slip at any moment, and that figure rises to damn near 90%. And this is no guesstimate. Job loss was listed as one of the top reasons for the recent drop in consumer sentiment, the other reasons being fear of foreclosure and fear of spiraling inflation.
This brings me to perhaps the most alarming gap: The one between that 90% of the populations expectations of the future, and the 10% who really dont seem to be aware of whats going on outside of a little enclave on the southern tip of Manhattan. They, after all, are having a wonderful time these days.
We have read much in recent days as to the governments attempts to shore up the low- and mid-end real estate markets by buying up defaulted mortgages and promising newlyweds an $8,000 present if they will buy a house before they can truly afford one. These efforts are credited with creating a pretty little pop in various real estate and homebuilders indexes.
The Real Estate Gap
Unfortunately, that pop was short lived. Indeed, it pretty much vanished the moment investors realized that Washington might not have the gumption to carry on as recklessly in 2010 as it did in 2009. This singular threat that we all might be forced to operate on our own for a while hangs like a sword of Damocles over most every aspect of the economy.
But the mighty 10%, the folks who got rich trading thin air before the crash and richer trading misery afterwards that whole too big to fail crowd, with their bailout-fueled billion-dollar bonuses dont seem to give a hoot about such things.
Witness the recent surge of one lone builder, Toll Brothers (TOL:NYSE), on news that new orders for its high-end luxury homes (think mini-, midi- and even macro-mansions here) surged 42% in the fiscal fourth quarter. Additionally, the flow of canceled contracts and postponed projects has fallen from 30.2% a year ago to a miniscule 6.9% today.
But wait, it gets even better. Not only has Toll succeeded in unloading its backlog of speculative inventory, it has actually been raising prices since Labor Day. The analysts who have been predicting revenue for TOL in the vicinity of $373.5 million were no doubt astounded when it came in 30% higher, at $486.6 million.
Again, one requires a sense of scale to truly understand this turnaround in TOLs affairs. This is the best day TOL shares have had since 1992.
The Spending Gap
Nor is the story of TOL unique. Apparently, within a certain small circle, ostentatious luxury is chic again, as we read of spending rebounds on Prada, Dior and Chanel at places like Paris Au Printemps, New Yorks Tiffanys and Dallas Neiman Marcus.
Now, please understand that I am not trying to beat some kind of populist drum here. At least these guys are pumping a portion of their ill-got gains back into the economy.
What I am really quite concerned about is this. It appears that this 10% has pretty much taken complete control of Washington. (We have written at length about the very tiny gap between what this crowd wants and what they get, when it comes to the economy.)
A Wisdom Gap?
And yet all they can seem to do with this immense power is reaarange the deck chairs as their luxury cruise ship sails full speed ahead into the night. They dont seem to notice the iceberg that has already wiped 20% of the country and is towering over another 70%.
Or if they do see it, they think that this iceberg will be as compliant in the face of their money and power as most every other obstacle they have purchased their way past.
I am, of course, using the whole ship/iceberg metaphor for the most obvious of reasons. Sometimes the obstacle is just too big, the ship is moving just too fast, and the inevitable result is just too sad.
