D R Horton had an operating loss of $823.8 M for the quarter anded June 30. But it also took write offs and charges, read impairments, of more than $1.27 Billion in the same quarter. J P Morgan commented that this was a huge step up from previous quarters, the impairments that is.
We study accounting to understand such things. Firms must compare carrying value with what the projected future value of assets will be. If the carrying value is less, an impairment charge is dictated. How did this happen to Horton, well think about what is on their balance sheet. The write offs were charges to cost of sales, inventory impairments, write offs of deposits, land purchase contracts and goodwill impairment. Which means that their inventory of homes and land are not worth what is shown on the books. Sales are down 30% from the same quarter last year so prospects are getting worse not better.
Now none of this should surprise a regular reader of this blog, I have been detailing the Sub Prime Mortgage Wreck for some time. What is surprising is how Mr. Bernake at the FED and Mr. Paulson at Treasury keep insisting nothing is wrong.
The DOW was down 450 points at one time Thursday, and closed down 300 or so. Look for a recovery over the first week of August but I suspect the top is in for financial assets, I will be posting my last two newspaper columns on these and other topics.
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