patrick.net

Sorry this is off-topic, but I saw it on Publisher's Lunch (a list that reports publishing industry book deals) and thought it was very interesting. It's a book recently sold that will be released in Spring 06:

Former Washington Bureau Chief for The Australian Financial Review Peter Hartcher's BUBBLE MAN: Alan Greenspan & the Missing 7 Trillion Dollars, an account of Greenspan's role in the creation of two bubbles and a timely reconsideration of his legacy, to Star Lawrence at Norton, for publication in Spring 2006, by Catherine Drayton and Richard Pine at Inkwell Management (NA).

I always find it interesting when people worry about shorting stocks. My husband and I had some stocks in tech, and we did end up shorting ourselves on some profits. But to tell the truth, I'd rather short myself some profit than lose all my investement when the market blows.

I don't follow stocks the way others do, but I do find it interesting when company CEO's start dumping their own stock. Kind of like Enron... I don't know if Toll Bros. is comprable, but company execs always know more than the unwashed masses, and if they're selling I'm thinking it's a good idea to pay attention. But you do need to know a little history. Do the company execs generally sell off income paid in options in order to diversify or is this the first time they've been selling of large chunks of company stock?

I'll have to ask around on this one because I just don't know enough to make any educated guesses.

Do the company execs generally sell off income paid in options in order to diversify or is this the first time they’ve been selling of large chunks of company stock?

I guess this practice is normal. However, I heard that their share as a percentage has been dropping.

Shorting is perceived to be dangerous because:

1) stocks generally go up in value over time
2) downtrends are more choppy than uptrends

I find it psychologically very difficult to short stocks. The possibility of an unlimited loss makes me too nervous. I could probably handle a covered short (short plus long call).

Why do a covered short when you can buy puts? Less complexity (fewer legs) means less commission.

San Diego Homes and Condos Now Impossible to Sell or Flip, Heralding US Real Estate Crash

http://tinyurl.com/a962n

(Thanks Melody)

Hey look! Now it’s reality TV! Maybe all too real…

Remember the ABC TV show "Bull"? I actually enjoyed the silliness quite a bit. :) Too bad the market crashed soon after and the show was cancelled.

Such TV shows are yet more signs that the end is here.

Why do a covered short when you can buy puts? Less complexity (fewer legs) means less commission.

Peter, not being a day-trader type, I'm pretty new to put options & shorting. Is it possible to "diversify" your puts -- such as buying puts on a basket of homebuilder or REIT stocks. That way, your betting on a class of stocks, not having to guess which individual stocks will fall by what % by what time. Might make it easier/less scary for amateurs/newbs like myself. Also, do you recommend any particular online brokers for this type of investing (preferably one with "training wheels"). ;-)

Thanks for the info, Yuan!

HARM, I use Interactive Brokers for options simply because their commission is very low ($1 per contract, no minimum). There is no help available from them because everything is electronic.

You may want to go for a full service broker if you want some assistance in the beginning, but they may charge $30 though.

If you buy options, time is your enemy because all options lose 100% of time value at expiration. As a result, timing needs to be more precise with options than with stocks.

(Not investment advice)

Thanks Peter.
As far as the "basket" idea goes, is this possible, or do you pretty much have to buy puts on each individual stock? What do you think about Yuan's comments on REITs?

HARM, you can only trade options on certain individual stocks and some indice. It is not possible to buy puts on any arbitrary basket of stocks. You can definitely buy puts on some REITs, but some REITs will hold up better than others in a downturn.

Each option contract controls 100 shares of stocks. So buying a diversified basket of put options is quite doable. Look for brokerages that do not charge a minimum commission or ticket fee per trade. Otherwise the cost to trade your basket of puts will be too expensive.

Tracking the "housing bubble" meme in Lexis/nexis:

I'd quote the text, but it isn't that interesting without the chart.

Summary: slow build in number of mentions at the beginning of the year, picks up in May, peaks in June, declines in July, drops dramatically in the last couple weeks.

http://www.publitas.net/2005/08/rise-and-fall-of-bubble-caption.html

Waiting for the prick... And I don't mean Mr. G. Or do I?

This is a bit off-topic for this thread, but I just came up with a new acronym I wanted to share with you guys. It's for the majority of recent I/O & neg-am borrowers: CHUMPS

Cunning
Hard-eyed
Ultra-savvy
Market
ProfessionalS

Thanks, Peter.
You happen to know if there's already a convenient market index consisting only of homebuilders? Also know any good non-commercial, residential mortgage-heavy REITS (preferably ones with a ton of IOs & neg-ams in their portfolio)?

You happen to know if there’s already a convenient market index consisting only of homebuilders?

None that I know of.

Also know any good non-commercial, residential mortgage-heavy REITS (preferably ones with a ton of IOs & neg-ams in their portfolio)?

I will look into it. AFAIK, REITs are not usually savvy enough to use IOs and NAAVLPs.

But you can look into mortgage REITs. Some may have lots of IO/Neg-am exposure.

It seems to me you sell stocks when either a) you are in need of cash now or b) you think your stock has peaked and now is the best time to sell. Given the vast dollar amounts these guys have been selling it is hard to imagine how they would need that much cash now. So b would be the answer IMO.

Last time I checked, most CEO's don't need to cash out their stock options to make the mortgage payment.

Last time I checked, most CEO’s don’t need to cash out their stock options to make the mortgage payment.

Hold on, SactoQt --some of these guys have really really BIG houses. ;-)

San Diego Homes and Condos Now Impossible to Sell or Flip, Heralding US Real Estate Crash

So I guess this show is destined to be cancelled:
Discovery Channel's "Flip That House"

http://tinyurl.com/dsnzx
(not a joke)

So I guess this show is destined to be cancelled:
Discovery Channel’s “Flip That House”

They probably have some pre-recorded episodes already. It is going to look very silly in a few months. :)

“…some of these guys have really, really BIG houses.”

You can be sure that their houses were built at bargain prices.

You can be sure that their houses were built at bargain prices.

I wonder if the construction quality is any better than a typical cardbox. ;)

primetroll: you can lose your shirt by going long also. As long as you manage your trades and stick to your plans, shorting is not riskier than going long.

You can also use your existing long position as collateral and be 100% long and 100% short at the same time with different stocks.

Toll Brothers (TOL) was trading at about $5 five years ago. Now it’s about $50. A ten fold increase in only five years! I would sell some too, even if I though the price might go up more. But the outlook is getting riskier by the day. And Toll is probably a riskier stock than some of the other big builders.

With the yield curve nearly flat, inversion is knocking at the door. Perhaps it will be only a matter of weeks or maybe a few months. I expect a recession with 12 months of the inversion. Oil is setting new record prices causing further weight on the economy. A potential slowdown in consumer spending, slowing of home sales and construction will also slow the economy. Especially for builders.

With all these background factors I find it to be no surprise that the housing executives are taking some money off the table. Besides, they keep getting more stock through options and grants as part of their compensation. So why not sell some. You can always buy it back later when people lose interest in the company and the price is lower.

I have to stress that even highly-informed market participants like Jim Rogers and Julian Robertson do sometimes get their faces "slapped" (if not ripped off) shorting certain stocks. They survived because they quickly recognized their mistakes.

If you choose to trade, always be prepared that you could be very wrong.

(Not investment advice)

@Zephyr,
My thinking exactly. If only HB stocks were up only modestly and it looked like housing prices still had lots of room to appreciate, then you could still argue with a straight face that they're reasonably good buys. Not in this market --no way, only one direction to go. Only question really is, how low and how fast?

Don’t short the homebuilders. You will get your face ripped off.

But if that happened, I could come back and post as "Face-less Reality". :-)
Seriously, I think I'll stay out of shorting. Unlimited downside with limited upside has an ominous ring to it. Modest put options sound like a much better deal anyhow.

But if that happened, I could come back and post as “Face-less Reality”.

LOL

Here are some quotes from the Sac Bee that are interesting. Obviously they refer to the market in Sacramento. But I do think what happens here can affect the BA and vice versa. Worth looking at anyway.

Adjustable-rate mortgages accounted for 74 per-cent of all home loans in California in June, compared with 66 percent a year ago, DataQuick Information systems reports

We're creeping toward 6 percent (for 30-year mortgages) and my guess is with a couple of more Fed moves and an economy powering ahead" rates will climb to an average of 6.25 percent by year's end, said Keith Gumbinger, vice president of HSH Associates, a mortgage research firm in New Jersey.

SactoQt, thanks for the information.

The thread curve is currently inverted. We are getting more activities in the older thread than this newer thread.

The oil uptrend appears to be sustaining.

The thread curve is currently inverted. We are getting more activities in the older thread than this newer thread

Don't want that, do we? Could lead to a nasty blog recession! :-)
Thus, I have started a new thread: Bubble Reform

primetroll, we are not running out of oil but much of the reserve is not economical to extract in quantity. Technology does help over time. Or does "technology" like 4-ton SUVs consumes even more oil?

Primetroll,

Interesting contrarian view, yes, but I'm not sure I buy into it. Even the most bullish energy forecaster doesn't deny that there is a practical peak to oil extraction (you'll note I didn't say "production"). The only question is when.

And don't count on Canadian tar sands or new deep-ocean finds to save us. Processing tar sand is incredibly energy-intensive. In other words, you almost expend as much energy as what you end up with. Same goes for drilling deeper wells --plus, most of the world's big reserves have already been tapped.

Some called the Hubbert curve peak 10 years ago, some say we're near it now, others say we have a few more years to go. Nonetheless, there will be a peak. The question for me is, what are we going replace oil with, and how quickly can the new energy source(s) be brought online?

Left you a post on the last thread this morning re: MP’s comments that you asked my opinion on.
Thanks, Jack for the confirming, informed opinion!

The question for me is, what are we going replace oil with, and how quickly can the new energy source(s) be brought online?

Hopefully high oil price can force us into doing something before economically feasible oil runs low.

The Y2K episode demostrated that we could be scared into doing something proactive.

What are we going to replace oil with????

We can always look into the Motionless Electromagnetic Generator again. ;)

The world will shift to a new energy source ONLY WHEN oil is no longer economically feasible. The big oil firms also own the majority of the investment in alternative energy. They won’t shift the world off the oil economy until the economics of oil production and distribution force them to.

This is what I believe as the likely scenario and what I fear. Boom-bust cycles they are.

Peter P, you said ”The Y2K episode demostrated that we could be scared into doing something proactive.”

Yes it did. However, Y2k also showed that we are very susceptible to grossly exaggerated pessimism, and can be brought to a near panic without just cause. Most of the world did nothing much to prepare for Y2k and their systems held up fine. I personally made absolutely no preparations for Y2k.

One more thing though, there was no interest group that would have been hurt by proceeding with Y2K paranoia. Everybody wanted a share in the panic: software companies, lawyers, gun manufacturers :)

There was no countering mechanism.

For oil, the countering mechanism is very powerful. Too powerful.