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Author: mindshar Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 660  
Subject: Re: Some Reservations Date: 12/10/2008 11:19 AM
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If this is true, are we to believe they have the financial strength to survive today this mother of all housing meltdowns?

IMO, odds are that Buffett will back USG to ensure their survival. How much common shareholder equity will remain is more of a question.

We are the most overhoused country on earth.

What does it mean to be the "most overhoused"?

with vast tracts of abandoned housing because government has contrived a whole array of incentives to assure that more housing is built every year than we really need

In my opinion urban blight has a lot more to do with the availability of interstate highways and generally inexpensive gasoline to enable commuting, the decline of many of our manufacturing industries, and "white flight" following many of the race riots in the 60's. Urban blight isn't anything new after all; it's been with us for decades -- since long before the current housing bubble.

So even if sales achieve 80% of the past pace, profits are likely to remain below that level.

I think production cuts and the potential elimination of weaker competitors should compensate, with margins approaching past levels once home building rebounds.

If so, USG will be many years returning to it's former heights.

I agree that USG's not a short-term investment and it could take quite a while for the stock to rebound significantly.

Are these factors why USG has declined so precipitiously?

I would say they are some of the factors... IMO other factors include a general concern about USG's debt levels (despite the length of time USG has before its bond debt comes due), and also a generally short-term outlook for investors and fund managers looking primarily at their returns in the next few quarters.

Does USG not have a realistic chance of returning to recent highs any time soon?

I'm not sure that we can expect much any time "soon". But as long as we don't suffer significantly more equity dilution, I think USG has significant long-term price appreciation potential. $100/share may not be realistic, but multiples of the current price definitely sound feasible, once the housing market rebounds.

One other wildcard is the potential demand increase due to climate change. If you accept the notion that global warming is causing an increase in the prevalence and severity of storms and/or wildfires, then there will be an increased need to replace and repair homes. Katrina destroyed 350,000 homes, and damaged or left inaccessible another 500,000 homes. 850,000 homes is a huge number -- larger than our current annualized rate of housing starts.

Certainly not an outcome I want to see happen, but one which may become material.
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