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Five Things You Need to Know: Good Time Businessman; Hard Time Socialist


When the going gets tough, Toll Brothers looks for the visible hand of government.


Kevin Depew's Five Things You Need to Know to stay ahead of the pack on Wall Street:

1. Bob Toll: Good Time Businessman; Hard Time Socialist

No real surprise here. Toll Brothers (TOL) reported its third consecutive quarterly loss this morning. The stock is up a bit after the company said its backlog at the end of the second quarter fell 50% from a year earlier to $2.08 billion even as net contracts signed during the quarter, after cancellations, declined 44%.

But here's something that IS interesting. TOL CEO Bob Toll, a homebuilding "businessman" during the good times, is apparently a little bit more of a socialist during the bad times. According to Bloomberg, Toll today said Congress should "jump start demand for new homes with an initiative that will bring buyers off the sidelines and into the market, and thereby stop the downward spiral of home prices."

If only we could have Congress do the same thing for other businesses facing weak demand and oversupply, we could "stop the downward spiral" of prices and... oh yeah, CAPITALISM.

2. Ford Deals In Permanence

Americans' growing appetite for smaller, more fuel-efficient vehicles is not a temporary shift but a permanent change Ford Motor (F) CEO Alan Mulally said this morning.

The shift in consumer car purchasing habits is dramatic. According to USA Today, the first four months of the year saw sales of the smallest, least-expensive cars and most fuel-efficient cars jump 33%, albeit in an overall market that declined about 8%.

Ford's Mulally said the stampede away from gas-guzzling SUV's is a "structural change" and that the shift to small and medium-size cars and utilities… is going to be permanent."

Somehow, as one who personally drove a 1976 Cadillac in college during the first Gulf war, I doubt that it's going to be permanent. But that attitude expressed by Ford is emblematic of why the big three U.S. automakers have continually foundered over the past decade; the notion even five years ago, with oil at $30 a barrel, shared by all three automakers was that consumers would never give up their SUV's. Well, they did. Equally ridiculous is the idea that they'll never go back to them.

It may take another decade, but one day big cars and trucks will be back.

3. Social Mood Resurrects Specter of 1970s

Interesting survey results in USA Today this morning. According to Gallup, a 55% majority of those surveyed say their families are worse off financially than they were a year ago - the highest number since the organization first asked the question in 1976. It also represents an 11% increase since February.

Still, at least 26% say they are better off.

4. Fleet Weak?

Interesting discussion this morning at the Goldman Sachs Lodging, Gaming, Restaurant and Leisure Conference with rental car companies Avis/Budget (CAR) and Dollar Thrifty (DTG) and Hertz (HTZ).

One hidden (at least hidden from consumers to a degree) consequence of problems in the auto industry has been the reduction in capacity pressuring the number of fleet vehicles sold to rental car companies. The Big three, Chrysler, General Motors (GM) and Ford (F) each at one point owned stakes in rental car companies and used those stakes to direct unsold vehicles to them at cut rate prices.

The question is whether a reduction in production capacity - something many analysts predicted could never happen due to the production glut - combined with high raw materials costs for steel, etc. will crimp margins in the rental industry due to increased fleet costs.

The answer is a bit surprising. The companies say that over the past three years they've really only seen about 3% in car cost increases, and in the first quarter it was even lower, at 2.4%. The industry now expects to see Detroit production capacity settle down and don't expect car cost increases beyond a range of 3-5%. They've actually had margin expansion over the past the years despite the cost increases.

However, as part of the management of the rental fleets with supply of fleets on the tight side heading into the summer, customers can expect to see fewer cars available during peak rental periods, and costs to increase as a result of the demand increase.

One last thing, for those anticipating that airline ticket increases, surcharges and capacity reductions might benefit rental companies with consumers effectively "trading down" and driving for shorter trips, rental car companies are not really correlated too closely with the airline industry. According to Mark Frissora, CEO of Hertz, GDP is a better indicator, with a correlation of 0.85.

5. Perfect Merging of Social Ideals

Taking a look at the Sunday New York Times business book bestseller list, we couldn't help but notice the following titles perched at numbers one and two:

1. THE ONE MINUTE ENTREPRENEUR, by Ken Blanchard, Don Hutson and Ethan Willis.

2. THE 4-HOUR WORKWEEK, by Timothy Ferris.

You could call that a perfect merging of the present social ideals.

No positions in stocks mentioned.

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