[powayseller]

I’ve been told that about 75% or more of options expire worthless, so the people making the money are the option writers. In a CME study, over 82% of options expired worthless, because making money on options requires being right on timing, direction, and magnitude, a triple whammy. So no options for me.

I should really get a book on shorting, as I know very little, and am probably just dangerous to myself at this point.

[powayseller]

SDA, cooked books can fool the market for a while, like Enron. You’re right.

Does anyone want to form an investment club? We could start our first meeting w/ a report on our chosen company.

[powayseller]

technovelist, can you elaborate on your predictions?

[powayseller]

cabinboy, I wouldn’t rely on economists to predict a recession. Not a single one predicted the 2000-2001 recession, in a poll conducted in Sept, 2000. This was after the stock market crash. The main economist predicting a recession are Nouriel Roubini, Dean Baker, and Ed Leamer. Leamer has a chart showing each time housing starts fell yoy, we went into a recession (exceptions: big war spending in Korea and Vietnam).

I am 95% cash. The stock market is the worst place to be now, but thanks to suckers buying into the Fed-is-done rally, and the misled investors who buy into the “buy and hold” and “dollar cost average” theories, contrarians like me, and technical pros like Chris, make money. It’s a zero sum game; we need the herd to move in the opposite direction to make money.

[powayseller]

PD, so do I. The market has not yet priced in the severity of the slowdown.

Remember when Lucent was trading over $80/share? I think it even went to $95. It dropped to $5, and I thought that was the bottom, and bought $1,000 of LU. Then it proceeded to go down to $2.50. Who would have thought?

The same thing will happen to Toll Bros and the other builders. Toll, from its height of $60, is likely going to hit $1.50/share.

Some say it’s too well capitalized, they are too big to fail. They said the same thing about Lucent.

By the end of 2009, Toll could be a penny stock. Their outlook will worsen, as fewer people can buy their homes, and they have to write off more land options.

BTW, if its current price of $26, half off its peak, were so great, why are the insiders selling instead of buying?

I’m probably the most bearish on this board, daring to suggest that builders could be penny stocks.

[powayseller]

davelj, the last time I read the definitions of MPT and CAPM, I decided I don’t believe in it either. What are your reasons? Did you invest in the Prudent Bear funds? What do you think about shorting WaMu? The gains on shorting an undiscovered loser like WaMu could be huge. But yes, a lot can go wrong; they could quietly move their losses to a different section of their books, and by the time the market realizes their losses are due to foreclosures, my shorts will be priced out. The gov’t could bail them out, etc.

[powayseller]

Chris,

Actually, you are the one saying this time is different. You think that the stock market can rally when we are heading into a recession.

The data set you are using is incomplete, because you are not looking at any mid-year cycles where the median yoy housing prices decline nationwide, a precursor to recession (Edward Leamer). We have never had this happen, so the data doesn’t exist.

Your data set that you are using, the years 1930 – 2002, has a few differences from the current year (Bill Fleckenstein said the last 2 recession you mentioned have no relevance, bec. it was a different env’t with interest rates and debt).
Mainly, this time is the biggest budget and account deficits in history, consumers so far in debt they are using equity in their homes to pay for gas, and the biggest asset bubble ever, with even the FDIC and Greenspan concerned about systemic financial risk to the GSEs and our entire economy.

For the first time since the Great Depression, median year over year home prices have dropped in all areas of the country except the South. Median yoy home prices are up .3% and .9% for resale/new. (Remember how Lereah kept saying home prices nationwide have never dropped and never would? Well, it’s happening now!)

I will watch the stock market closely, but it is beyond me why anyone thinks the stock market could rally in such a precarious economic time.

The stock market rallies when earnings are up, and loses when earnings are down. With the slowdown in consumer spending finally affecting the bottom line of many companies, lenders and builders starting to issue warnings, investors are going to put the Fed-is-done rally behind them, and wake up from their slumber to realize the seriousness of the slowdown. The stock market is the same: when earnings go down, the share prices follow.

Has the stock market ever rallied going into a recession?

My estimate is that your technical indicators will not line up for you to make that trade this fall.

[powayseller]

The problem with $/sq ft is that the land cost is bundled in. To get a true cost per square foot, you’d have to subtract the cost of the land first.

There is a fixed cost for having an entitled lot for one house, and anything larger does not increase in price at the same rate; for example, my house that I sold was on 5.2 acres, in an area zoned for 4 acre minimums. So the additional 1.2 acres was basically useless and had little additional value. Appraisers added $20K for each additional acre, so the parcel was probably valued at $330K for the land required to build a house (in this case 4 acres), and then $20K for each additional acre.

So an accurate $/sq ft requires knowing the underlying land costs, which is linear only beyond the minimum lot size need for constructing one home.

[powayseller]

Too few people are savers, so the Fed focus is on helping the masses; 70% of GDP is consumption, and most Americans are up to their eye balls in debt. At my elementary school, most moms work now; the PTA President told me thiw year we’ve got a bunch of incoming kindergarteners with working moms; volunteer work is down as more moms are working to pay off all that debt and have no time to help at the school. They’re overextended; you can see it everywhere.

Why would the Fed help the 1% or so (just a guess) of Americans who save?

Also, the Fed’s goal is monetary stability, so they must react to large trends that would cause inflation or deflation, not to the minor trends caused by the savers.

[powayseller]

Daniel, I’m specifically looking for someone who has already studied the financial statements, since that is a very long process, that I don’t want to spend the time on right now.

I don’t look for validation at all, I’m quite contrarian. My requirement is that the trader/broker must have the same view of the economy as I; no sense asking for assistance from someone who’s more comfortable with the status quo of dollar cost averaging, and therefore will have NO clue what I’m talking about.

Daniel, asked for the name of someone with these qualifications, not an evaluation of my personality, which you can post in “off topic” if you are so inclined. Let’s stay on topic, please.

[powayseller]

Great article. Two points caught my eye. First, two of the people profiled refinanced from a fixed rate loan, one as low as 5.1%!!!, to an option ARM, to get lower payments. Second, this part of the business will be unaffected by the new lending guidelines: ” To get the deals done, banks have turned increasingly to unregulated mortgage brokers, who now account for 80% of all mortgage originations, double what it was 10 years ago, according to the National Association of Mortgage Brokers”. So John Dugan can’t touch these guys.

[powayseller]

Roubini’s blog today regarding my question on gold and whether he speaks farsi. He actually responded to me; I think I’m in heaven…

“Schahrzad: thanks for your continued interesting comments. I say that gold is a barbaric relic as there is a bunch of “gold bug” who believe that all the world’s problem would be solved if we were to go back to a gold standards; these hacks are usually the supply-sider voodoo economics believers who think – against all evidence – that tax cuts increase revenues. So, i am wary of supporting the role of gold. and yes in periods of inflation gold can be an hedge; but so can many other commodities; what is so special about gold? so, i’d rather us get rid of our gold obsession.
best, nouriel ps: btw i speak farsi extremely poorly

Written by Nouriel on 2006-08-31 19:27:44″

[powayseller]

vrudny, Chinese women are very beautiful, and I am sure your wife is too.

vc_guy, another poster informed us Roubini speaks farsi.

[powayseller]

My landlord has invested in beach condos in Mexico, which will be completed in 2 years. He’s expecting a very large return on his investment, based on current high rates of appreciation. Sounds like a bubble,, but am not sure.

Can you get a history of prices in the area he’s considering, to see if a bubble developed?

[powayseller]

cabinboy, you pose an excellent question: where do the investors put their money in a recession? Bonds? Tbills? euros? Gold? Where have they gone historically?

Clearly Chris and I are have opposite views going forward.

Chris, do you know where the big money goes in a recession?

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