Toll CEO: Fourth Estate Razes Real Estate

It's true that the Business Press Maven casts an angry eye on the business media each day, risking journalistic hate mail and kicked shins at cocktail parties. But there is only one place I draw the line. When someone blames bad business on the media ... I have to take up arms in the media's defense.

Blaming the media for the fractured state of your business is lamer than the retail industry's fallback excuse of too hot/cold/rainy/dry weather. It is also an indication that your troubles are far from over.

Enter Robert Toll, CEO of the estimable Toll Brothers, flapping his gums about how media reports about falling house prices are scaring customers away from buying.

Said Toll, while announcing anemic preliminary quarterly results:

"We believe there is significant pent-up demand which is growing. When we have held promotions, buyers have come out to play and put down deposits. Often, however, a lack of confidence in the direction of home prices overcomes their enthusiasm and they don't take the next step of going to contract. They, like all of us, read the papers and watch TV, both of which keep advising them that home prices are declining."

They Just Don't Get Toll!

This has become quite a go-to line for the leader of an overextended company, one whose products customers can't afford based on carrying costs. Last quarter, while reporting the company's worst results in two decades, he said:

"Ceaseless talk of a recession continues to dampen the mood of consumers. This drumbeat, coupled with concerns over mortgages, the direction of home prices, and foreclosures has kept pent-up demand on the sidelines."

Got that? It's not that a recession is (probably) at hand. Nah. It's the media talking up a recession, probably because they want the newspapers they work for to go Chapter 11 even quicker.

Let's count the ways that Toll's sad little mantra is misleading:

1. 1) I don't remember Toll crediting the media during the ridiculous housing run-up for chasing real estate advertising money with 1,423,789,678 happy profiles about people in houses that they had redecorated and were going to increase in value forever. Remember? The word "subprime" was literally not in the journalistic vocabulary.
2. 2) Since the housing downturn began, a good portion of the media has been busily predicting its recovery. Watch The Wall Street Journal build an entire imminent recovery story on a single statistic: from a realtor trade no less. Or witness The New York Times not even mentioning the role of the strong dollar in temporarily propping up New York City housing prices. Or that widespread declaration of a recovery before the downturn had hardly begun when existing home sales blipped up for a grand total of two months in a row. Usually it takes three to declare a false trend, but they made an exception for real estate at two.

Look, bottom line is that whether you are talking about a retailer blaming the weather or a home builder like Toll, KB HomeKBH, D.R. HortonDHI, Pulte HomesPHM or HovnanianHOV blaming the media, the savvy investor needs to redouble caution when a company uses a tool of distraction.