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TWST: Bob, is there any point of light that you see in either of these sectors?

Mr. Curran: It will take patience. Tim pointed out this has been a long correction in manufactured housing. I agree. The length and depth of the correction caught most observers by surprise. This was particularly unexpected because the economy has been so strong. The big problem was that capacity grew substantially in all phases of manufactured housing over the course of the cycle, a cycle that also began in the early 1990s. There has always been noticeable ease of entry into production, retail and finance activities within manufactured housing. That was again the case this cycle. As a consequence lending standards deteriorated and inventory built up at retail. Encouraged by the healthy economy and strong demand for housing, new dealers opened sales centers and existing dealers added more sales lots during the 1990s. In an effort to gain market share and scale, newer finance companies were willing to provide retail and floor-plan financing for these new sales lots. Manufacturers who were also adding production capacity were quite happy to supply these new sales lots, often under attractive terms. Competition to provide financing became quite intense and lending standards clearly deteriorated, particularly in 1997 and 1998. Finally, during 1998 and 1999 marginal finance companies started to exit or reduce their commitment to manufactured housing. The remaining companies began to raise their lending standards. That led to year-over-year declines in shipments, first beginning in April 1999. As time has progressed, the declines have become more severe. Shipments were off 32% year over year in July. In response to these pressures the industry has reduced capacity. At present at least 59 of 337 industry production facilities are idled and perhaps as many as 63. Some 15%-20% of industry financing capacity has or will soon exit the market. The number of dealer sales locations is now down at least 15% from its peak and, perhaps, meaningfully more sites are expected to close in the months ahead. The slowing in retail sales means that it is taking longer to work down excess inventory in the field. And the lenient lending approach of 1996, 1997 and 1998 has led to rising home repossessions. Those homes are refurbished and then aggressively priced for resale. Clearly refurbished repos and excess homes in inventory can and must be more aggressively priced to the disadvantage of new homes coming off the assembly line. All this being said, it appears to me that it will take at least three to four more quarters before inventories are significantly worked down and the industry can show flattish year-over-year shipment comparisons. If this scenario holds, there could be a cyclical play in these stocks and substantial price appreciation. Obviously the economy has to continue to grow at a reasonable pace and financing standards have to remain stable or even loosen. Further meaningful tightening in loan qualification standards would clearly extend the correction. There is also another caveat. Conseco (NYSE:CNC), which bought Green Tree and is by far the largest financier of manufactured housing, is having problems. The old management of Conseco tried to sell its housing finance operations but apparently couldn’t get a satisfactory price. For now at least the new Conseco CEO has put the sales effort on the shelf. But will Conseco continue to provide as large capital commitments to this sector as it has in the past? If Conseco were to significantly reduce capital commitments, I don’t believe other companies in the industry could readily fill the void.