The Housing “Bottom” Is Now–Or Not

[PD]

Here is a link to a very interesting article by Charles Hugh Smith. Per his analysis, housing stocks have bounced but are nowhere near the bottom.

[powayseller]

Precisely why it is not too late to short the homebuilders. They have a good chance of ending up much lower. I remember buying Lucent at $5, and it went to $2.50. If someone had shorted LU at $5, wouldn’t they have doubled their money in just a few months? Shorting the homebuilders now could yield 2x – 6x return.

[North County Jim]

PS,

For a short-seller, a move from $5 to $2.50 is not a double. It’s a 50% gain.

The best a short-seller can do is double his/her money if the stock goes to zero.

[justme]

I’m feeling a bit Verklempt.
Talk amongst yourself.

I’ll give you a topic:

The Dataquick september numbers are just out.
The SF Bay Area is showing a YOY decline for the
first time in 5 years.

Discuss!

http://www.dqnews.com/

(Poway, feel free to move this to a new thread, I don’t know how to do it)

[powayseller]

Thanks, North County Jim, I forgot to do the math on it. justme, great topic and worthy of a thread of its own. Too many people thought the Bay Area prices could never go down. Hahahaha! It will be a wonderful thing when prices drop, so that people can afford to buy homes one day with 30 year fixed rate mortgages, using only 28% of their income.

[noone]

For a short-seller, a move from $5 to $2.50 is not a double. It’s a 50% gain.

Jim or PS, could you explain that logic? I don’t really know what short selling is and I am trying to understand why that is only a 50% gain.

In my mind, an example of selling short would be selling 100 shares at $5, taking in $500. You later buy those 100 shares at $2.50, paying $250. Haven’t you just doubled your $250 to $500?

What am I not understanding, or is it too complicated to explain in a forum like this? Don’t worry, I’m not about to try this, I’m just trying to understand 🙂

[powayseller]

The price goes down 50%, but you doubled your money. Yup, you’re right. I was too quick to admit I was wrong. But how would it work if you bought Put options or a bear fund? My dynamic bear fund is supposed to return 200% of the movement in the index, so a move from $5 to $2.50 should yield a 100% gain. Maybe North County Jim can set this straight.

[Anonymous]

Price goes down 50% you gain 50% profit. You can’t do better than 100% profit on a short.

For puts you can do MUCH better. For example, if you buy a put for $1 with a strike price of $10 and the stock plummets to 0, your theoritical max gain is 1,000% ($10 returned for every $1 invested).

[Anonymous]

Noone, in your case you borrowed $500 (in stock) and your profit was $250, thus 50% profit (250/500). The key in shorting is you are always doing it on margin and you can’t borrow an unlimited amount.

[powayseller]

Great post from Barry at the Big Picture about the follies of reading too much into the headline numbers, Delving Deeper Into Housing. He explains that the housing starts of 6% have a margin of error of +- 9%, thus making the starts figure meaningless (since they could be -3% to + 15%, and include zero). What is significant is the 17% drop in starts from last September.

[Wiley]

Hey PS,

Did you put on you wamu short? Good day to be short. Looks like those loans are catching up to them.

[kev374]

The thinking of people is just wierd I tell you…sometimes the stupidity of some people just boggles my mind. Why is it perfectly sensible in their minds for prices to have appreciated 300% in the last 5 years but when you talk about a decline of 50% they label it as “impossible”.

It is only common sense that if the appreciation has been totally unprecedented then it is fully possible and in my mind LIKELY that the downturn will also be equally unprecedented and shocking.

[powayseller]

I don’t have an options account, so I didn’t short WaMu. Instead, I bought shares in Rydex Dynamix Inverse Dow and S&P500 funds. I know nothing about shorting and options, so I decided to play it safe.

[Anonymous]

PS, it is mind boggling to me that as much time as you spend on this site and this subject that you still know nothing about shorting and options. It is not that complicated, haven’t you been paying any attention? You have a major mental block on this one for some reason.

[powayseller]

What is really mind boggling is the insults you send my way. I’m not even sure what to say to a comment like yours, other than wondering why you are so hostile?

[Author]

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