Takeovers and Shorting Homebuilders

[powayseller]

I got this off Fleck today. If true, this is another reason to be careful shorting. A takeover will cause the price to rise, causing you to lose all your money, right? So be careful shorting the obvious ones, because they may be takeover targets.

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My question is how would you go about efficiently screening for financial stocks that have the largest exposure to mortgage debt (both normal and sub-prime)?

I share the conviction expressed on your site that the combination of a flat yield environment and exposure to mortgage defaults on property of declining value is going to hurt certain financial institutions. To that end, I would like to build a list of potential short candidates.
• I have listed my favorite examples, but I keep hearing takeover talk on some of them… so be careful. Why anyone would buy these companies is beyond me, but I’ve seen crazy takeovers before.
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[powayseller]

Fleckenstein, July 19, 2006 DAILY RAP

Why shorting is for the pros…

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When Strategy Warrants Shifting

Turning to tonight’s big news, i.e., Intel, I have been vacillating over whether or not to trade around my large put position. I’ve sat on my hands to here, but I decided to reduce my position somewhat, by going long some stock against my puts.
I believe that Intel’s quarter is worse than most people expect. And, in an ordinary environment, I would think that with so many people buying the stock in anticipation that this is the last of the bad news, lots of them would be disappointed. But, I think that in the current market backdrop — since Bennie gave the bulls a little daylight — the bulls’ attempts to rationalize away Intel’s problems are likely to be more successful than ever, at least temporarily.
I am not afraid of Intel or its results. What does trouble me: That bulls will look past the fact that Intel has way too much inventory/capacity and continues to produce too many parts — and choose to focus instead on some fantastical second-half story. So, I have chosen to go long some stock against my puts.

Divulging the details of some of my daily machinations is perhaps a bit too much inside baseball, and more than what some readers want to know. My reason for doing this? To illuminate the amount of work that goes into running a short portfolio — so that folks at home see why I advise not to try shorting if they don’t have plenty of experience and lots of time to allocate to the process.”

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