patrick.net

I thought history never exactly repeats itself, but occasionally it rhymes?

I thought history never exactly repeats itself, but occasionally it rhymes?

It rhymes when planets align.

Thanks Peter P, I added a disclaimer.

Hmmm, HARM started a new topic already. No matter, we can talk here for a day and then when there's a good big point to make, I'll create a new thread.

Patrick

This bubble rhymes with 1990 but the biggest difference is that the recession caused the downturn and prices were out of line but not as much as now. This time the housing crunch is pulling an otherwise healthy economy (albeit propped up by the housing ATMs) but a stark difference is the abundance of money still available. That is why you are not going to see a significant rise in interest rates because dwindling demand of qualified buyers causes an oversupply of money chasing after them.

So ... apart from LEND which one is worth investigating ? CFC might prove to me more stable. And for NEW, NFI it's way too late to make serious money.

The builders are quite high compared to their 52 week lows. So there might be some opportunities.

Anyone has decent suggestions for investigation ? Not investment advice of course.

I just liked LEND because I knew the company had basically built its ENTIRE business model on subprime. I had a girl in one of my MBA classes who kept touting how inovative they were for going after that market. I used to roll my eyes even though she was hot. She looked just like Sharon 'Boomer' from the new Battlestar Galactica.

WSM and ETH are my favorites, both furniture retailers targeting the upper-class wannabes, flat for the last few years, at historical high level, lots of room to tank.

OO, are you thinking that just in general high end items are going to suffer, or are you attributing a slowdown specifically to high end furniture tied to housing?

The reason I ask is because I am frankly torn between thinking the housing bust will cause a huge recession, or if it will remain contained. The reason for my indecisiveness is because the US is no longer the world leader in international finance, and there are more variables at work than just the multiplier effect of lost construction jobs. Though our silly 'service based' economy couldn't sustain itself on its own. After a while of having China make everything for us, and we just sell real estate and loans to each other the house of cards seems shaky.

I am thinking of specific ancillary industries revolving around real estate. I will stay away from the truly high-end consumer items which may be very resilient.

Take Japan and HK's realty bust for example, furniture shops closed down left and right, but sale of LV bags stayed very resilient. High-end cosmetics sales went up. The reason is because lots of FBs had to move back to stay with their parents, so their disposable income actually went up. In Japan, even higher-end vehicle sales went up in the recession years.

But when you move back with parents, it's very unlikely that you can find enough room for big chunky furniture :-)

I don't think that the housing bust will be contained, but certain industries will be harder hit than others, and we are talking about best bust for the same put option buck here right?

I am just interested in looking at the industries that will be f*cked the most.

OO

WSM doesn't have LEAPS available :-( Maybe this will be my first short.

I have family (family in-laws, actually) in the furniture business, and a housing crash is not something they're looking forward to. Probably looking for a public company that deals almost exclusively with mid-high end stuff is what you're going to want to look for. IKEA might take it in the shorts a little bit, but people will be thinking 'cheaper is better' if they can't avoid buying furniture.

Warren, I come across that too, I have to call my Scottrade office directly sometimes and they are always able to fill over the phone. Also, it is hit and miss on the internet, I sometimes do a few smaller amounts. Short orders are good for the day only with Scottrade anyway, so I find more success trying early in the morning.

I wouldn't gamble with something like this unless it was money I could afford to lose; it only makes you a speculator since it's not a sure thing. You have been wise enough to wait this out; why would you want to gamble with what you gained by not buying into the bubble. It would be a damn shame to put a significant amount of your money into a deal like this and lose it just when prices on houses finally come down to what you consider affordable.

Allah, you are right, it is stupid to gamble, and speculate. In my case I was following this since Patrick first started his site. I had modeled the entire scenario and saw that we were right each step of the way. I believed so much in my judgment, and had the gains from selling at the peak that I firmly believed if I was wrong I genuinely deserved to lose my investment. Gambling is stupid, proceeding when you don't know what you are doing is just as stupid, but the way you get rich in this society is to see something that others don't and go for it.

I think a less risky approach would be to watch for stable, large cap banks like Wells Fargo or Citi that get undeservedly beaten up for their relatively tiny portfolios of subprime loans. I'm a a value investor myself, and I prefer to be long. I'm watching the homebuilders now. Probably around next year I will pick a builder or two that I think will be long-term industry winners. I also have my eye on natural resource REITs, because nobody is buying their lands for developments, and the world will always need timber and minerals. Possibly I will diversify soon into European stocks, as I expect the pound and Euro to climb in strength vs. a weakened U.S. dollar.

Not investment advice.

I don't think anyone should bet the farm on shorts or options. It is just some fun money that I set aside for betting on the trends, if I win, I reward myself with an extended vacation, and if I lose, no big deal.

I don't think anyone should bet his entire portfolio on another company going under. But doing a bit of short-term trades based on your judgment of the market is not immoral nor detrimental to one's financial position.

not investment advice.

Btw, Patrick --nice graphic!

OK, LEND went to 5 something a share. I am out. I made $25,000 just today, and a whole bunch more over the long haul. I'd say that party is now over, and I without giving specific advice am not encouraging further shorting of this stock.

Patient, I didn't do puts. I just sold 4,000 shares short. I've been playing around with it for a few months. Today's profit was actually a portion of the big picture. I knew the overall trend was down to eventually $10/share was my target. I was stunned this morning when it was in the 5's. I then bought to cover all of them, then called Scottrade and asked them to send a check. I'm in a very good mood today.

Patient, I'm out, but I believe the builders are still high. Me personally, I'm not going to mess around with it, since stock trading is not my core competency, but I have been tracking them and it does seem like they are starting to get hit hard. KBH was in the 50s and now in the 40s. A delayed recovery will definitely impact their value short term, what I don't like about shorting the builders is that the market is always forward looking so if a builder looks like they will survive I expect their stock price will immediately jump back up based on projected future earnings.