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Let Me Destroy Two Myths In Media Today
Myth #1) New home sales soared to highest since April 2010
The Government reported today that new home sales came in at a seasonally adjusted 389k vs. 385k expected. Please note the emphasis on “seasonally adjusted.” The prior month’s reported number was revised lower (of course) to 368k (seasonally adjusted) from 373k. No one knows except the insiders at the Census Bureau how the seasonal adjustments are calculated.
HOWEVER, if you read through the press release from the Census Bureau, you find that the actual number of new homes that were “sold” in September was 31,000. Huh? I’m drawing on the work from zerohedge.com in this LINK, which also links the CB report. Of the 31k homes actually sold, only 11k were completed homes. 10k were not actually started yet and 10k were under construction. As noted, the 31k is below the 35k from May 2012.
I’m going to one-up zerohedge’s analysis by pointing out that currently the new home cancellation rate is running close to 20%. You can get this number by skimming new homebuilder quarterly reports. If this number stays consistent, of the 20k homes not completed, it is possible that 4k of those could cancel. Which would then mean that the real monthly number for September would be 27,000 homes that were sold. Including seasonality, that would put the likely run-rate well below 300,000 homes based on a thorough cleansing and analysis of September’s headline report.
Myth #2) Facebook had a great earnings report based on the growth in mobile active users
The headlines could not have been more full of hyperbole and embellishment. Facebook’s stock spiked over 20% and all the financial analysts/reporters were falling over themselves with delight. CNN Money has a video titled “Facebook cashes in on 1 billion users.” LOL. Certainly insiders and Morgan Stanley (the IPO underwriter) cashed in big time on zombie investors. That much is a true statement.
Here’s the problem with the headline declarations: when I go to the 8-k filing with FB’s quarterly SEC earnings report, I can’t figure out where the “cash earnings” are. Maybe I need a visit to the eye doctor, but I was actually quite amused by what I saw with my own eyes in FB’s 8-k: LINK
If you parse through the reported financials, to begin with, there’s not a lot of “color” from management about the operations. Compare that to one of the recent big bank 8-k filings and you’ll see what I mean. This is an analytic red flag and it means to me that there’s just not that much to talk about.
Second, if you click on the link and scroll down to the Statement of Cash Flows, you’ll find that cash flow from operations declined from $565 million in Q3 2011 to $250 million in Q3 2012. Cash flow from operations for the 1st nine months of the quarter declined from $1.039 billion in 2011 to $931 billion in 2012. Notice anything there? There was a deceleration in amount of cash flow generated in the third quarter of 2012. This should not be happening with a “growth” business.
Finally, the media/Wall Street is shamelessly pimping FB’s “active mobile user” base. This totally reminds me of the “clicks and eyeballs” phrase from the internet bubble era. Remember Henry Blodget getting on CNBC in front of a beaming Maria Bartiromo and promoting the new economics of page views? ROFLMAO. Here’s the truth: Mobile active users represented 60% of monthly active users in Q3. However, the MAU category generated only 14% of ad revenues. Someone please explain to me how that is bullish? Am I hallucinating? But hey, the company updated its Messenger for Android and iOS and made Facebook Camera available in 18 languages. So the company has that going for it, which is nice…
I don’t see how our system and financial markets can get any sillier than they are now, but I’m sure they will. The reason FB stock is up so much today is that there’s a massive short squeeze in the shares shorted. I say this because the shares are extremely hard to borrow and the reality of the economics and cash flow underlying FB’s business model do not come remotely close to representing the $50 billion market cap of the stock. With the global economy starting to contract in a major way, the cash flow numbers for FB are not going to do what they need to do in order to justify even half of the current market cap. And the housing market is not recovering…
2012-10-24 12:02:34
Source: http://truthingold.blogspot.com/2012/10/let-me-destroy-two-myths-in-media-today.html
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