Price forecast: Homes down again; debt, coal up
Janney's LeBas predicts cheaper homes, more expensive coal; PA investors reopen hard-coal mines as prices rise
Boasting of his prowess as a prognosticator last year -- "six of our top ten surprises" for 2010 "came to fruition", including European bailouts and the commercial real estate non-collapse -- Janney Capital Markets bond strategist Guy LeBas has put out a "Top 11 Surprises for '11" list, with varying degrees of confidence:
His safest bets -- "high probability events" -- for 2011 include:
- "Home prices experience another 10% or greater nationwide decline," boosting mortgage defaults and extending the building slump
- "Congressional spending cuts fail to live up to election hopes," as House Republicans fail to reach their targets. LeBas says this will mean higher bond yields, making it more expensive to borrow.
- "Corporate re-leveraging transactions" will drive stock earnings-per-share higher -- "even as price/earnings ratios decline" as companies can't keep profits up.
- "Coal prices will soar to $100 per ton," up 25%, on bigger China demand.
Speaking of coal: Milestone Partners, Radnor, says its Blaschak Coal Corp. has bought an anthracite coal processing plant in Lattimer, Pa., plus adjacent coal-mining rites for "a large area in Luzerne County, near Hazleton," in the Mammoth vein, in the Lattimer basin, adding 15-20 union miners to its payroll, to feed the "rebounding global steel industry" overseas. "Blaschak will also supply rock from the site for road construction."
This follows Montgomery County investor Bruce Toll's and partner Doug Topkis' $11 million foreclosure purchase of the debt-laden old Lehigh Coal & Navigation Co., now based in Tamaqua, last year, after owners failed to pay what they owed Toll. He told me at the time he was talking to buyers in Europe and Asia, and looking to buy more mines.
"I'm an investor in Milestone, too," Toll told me today. Said Topkis: "All those hopes remain intact. We're going to be hiring a bunch of people as soon as the state, the DEP and EPA transfer the permits to us. It should be 2011."