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Beazer Homes (BZH) CEO Ian McCarthy anticipates 2008 to be another difficult year. He says the Atlanta-based builder is focused on managing issues that have surfaced over the past few months, such as a recent financial restatement and an internal investigation concerning compliance. The company also is installing a downturn management plan that will focus on cash savings across the board.

Beazer’s latest battle plans were announced today. The company also revealed some of its fourth-quarter results. Beazer is in a restatement period until May 15, 2008, so the quarterly results were incomplete. The most telling figure from the report was the cancellation rate, which logged in at a stunning 68 percent.

A $7.5 billion Abu Dhabi deal to buy Citigroup shares may have created a model for acquisitions by Gulf and other emerging-market investors scouring the ruins of the U.S. mortgage crisis for bargains. The Abu Dhabi Investment Authority sought no role in managing Citi

Citigroup Inc C 30.32 0.52 +1.74% NYSE

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, allowing the world’s wealthiest sovereign fund to invest as a saviour of the largest U.S. bank without the risk of being perceived in the United States as an Arab predator. Citi, which could book $17.8 billion in second-half credit-market losses, said ADIA would buy 4.9 percent of stock, eventually becoming the largest shareholder of a bank that has lost 42.5 percent of its market value in the past five months. Other Gulf investors, backed by $1.2 trillion in state reserves, say they could follow, depending on when they expect the worst of the crisis triggered by defaults on high-risk home loans to have passed.

Wells Fargo, the second-largest U.S. mortgage lender, said on Tuesday it expects to incur a $1.4 billion pretax charge in the fourth quarter, largely for higher losses related to home equity loans. The company, which is also the fifth-largest U.S. bank, said it also is significantly scaling back its business of making home equity loans through brokers, citing “declining market demand for such products.” It said four months ago that it will close its subprime wholesale lending business.

Countrywide the largest U.S. mortgage lender, moved to reassure investors Tuesday that it is not borrowing too much and will not be constrained in its ability to provide home loans. Countrywide, based in Calabasas, California, has faced heavy criticism over its lending practices as defaults mounted, leading to a $1.2 billion third-quarter loss.

Freddie Mac halved its dividend and unveiled plans to sell $6 billion of preferred stock to bolster the mortgage investor’s finances in anticipation of more losses, the company said Tuesday.

U.S. consumer confidence fell unexpectedly sharply in November to its lowest since after Hurricane Katrina in 2005 on worries about rising gas prices and financial market volatility.

Prices of existing U.S. single-family homes in the third quarter slumped 4.5 percent from a year earlier, matching a record decline from the previous period as the housing downturn deepened. For the period ended September 2007, the index’s 10-city composite shows a year-over-year drop in prices of 5.5%. The 20-city composite notches a 4.9% drop. Finally, the nationwide index shows a 4.5% drop. That number isn’t just big, it’s getting worse.

Recommendation:
Keep away from financial and housing stocks for now. If you think they are cheap right now, wait 3 months and it will get even more cheaper. If anything I would short them. I believe this market trend is not a correction, but clear recession.

Disclosure: Short position in DHI and BZH

Nouriel Roubini is a Professor at the Stern School of Business at New York University. His analysis appears regularly on his blogsite, Global EconoMonitor.

Last week’s prediction was particularly dire and is worth reprinting here:

“It is increasingly clear by now that a severe U.S. recession is inevitable in next few months…I now see the risk of a severe and worsening liquidity and credit crunch leading to a generalized meltdown of the financial system of a severity and magnitude like we have never observed before. In this extreme scenario whose likelihood is increasing we could see a generalized run on some banks; and runs on a couple of weaker (non-bank) broker dealers that may go bankrupt with severe and systemic ripple effects on a mass of highly leveraged derivative instruments that will lead to a seizure of the derivatives markets… massive losses on money market funds with a run on both those sponsored by banks and those not sponsored by banks; ..ever growing defaults and losses ($500 billion plus) in subprime, near prime and prime mortgages with severe knock-on effect on the MBS and CDOs market; massive losses in consumer credit (auto loans, credit cards); severe problems and losses in commercial real estate; the drying up of liquidity and credit in a variety of asset backed securities putting the entire model of securitization at risk; runs on hedge funds and other financial institutions that do not have access to the Fed’s lender of last resort support; a sharp increase in corporate defaults and credit spreads; and a massive process of re-intermediation into the banking system of activities that were until now altogether securitized.”

Reality has finally caught up to the stock market. The American consumer is underwater, the banks are buried in dept, and the housing market is in terminal distress. The Dow is now below its 200-Day Moving Average — the first big “sell” signal. Anything below 12,500 could trigger program-trading and crash the market. The increased volatility suggests that we are watching a “real time” meltdown.

Recommendations:
Short housing sector, financial sector (banks & credit services) and retailers.