[RightSide]

Since we are almost about 3 months since I shorted LEND, I thought I would check in here…I’m glad to see that some other people have also made this trade.

As I stated in my original post, this is a fundamentally driven position trade. My outlook on LEND has not changed and I think the possability for LEND to go ZERO is still very high. I’m looking to add more short exposure to the whole crumbling housing market thesis.

I’m trying to find out which of the overleveraged homebuilders are going to go down the toilet as well…Standard Pacific looks like they might be facing a serious cash crunch in the near future…though their financial engineering makes it difficult to identify their exposure to a depreciating market.

I see poway is thinking of shorting WAMU, and as much as I hate to be on her side of the trade, I think it is probably a good short too…anecodatly they are about to move into a big shiny new hirise in Seattle…which has sometimes marked a company’s top…(remember timewarner buying AOL and moving into their big new billion dollar office space in 2000?)

[RightSide]

LEND is a highly liquid stock it trades $30,000,000 worth of shares each and every trading day. Unless you are going to be short more then $5 Million dollars worth of this stock, you are not going to have any difficulty moving in and out of your position very quickly, literall within seconds.

You can’t get “trapped” in a short-squeeze. You could set a stop-limit to exit LEND say on a close above 60 (which would be a new closing high) and then you have limited the amount you could lose regardless of what the stock were to do.

This is NOT a short term trade and is driven by a fundamental proposition. My thesis is that I believe LEND is going to go out of business due to a rapidly detiorating housing market. If the evidence that supports that thesis changes and the housing market turns back up, then I will exit the trade. If the evidence continues to support my thesis I will continue to increase my short position. I’m looking to be short LEND for at least 12 months, possibly longer.

I’ve got a lot of dry powder in my capital accounts and I will stick with my thesis until its fundamentally proven wrong.

Lets check back on LEND in 3 months and see how things are doing.

[RightSide]

Your apology is accepted bubble, thank you.

To address Rich’s question, why short LEND now and why do I think the lenders have escaped the first downturn that homebuilders have suffered so far…

First off, I think the homebuilders have large liabiliites on their balance sheets that are difficult to offload. Even though they’ve learned from the downturn lastime not to have a lot of housing inventory on hand, they do carry a lot of land and land options on their books that is not liquid and I think will ultimately cause a few of them to go BK.

The lenders on the other hand, including LEND are able to quickly and efficiently package up all their sub-prime loans and off-load them as Mortgage Backed Securities. If LEND had to carry all the loans it made, it would be sunk no question in my mind. IMO this has enabled the lenders to hold up here right now…Ultimately though, with sales dropping like they are, I just don’t see how the lenders are going to keep their business. Where will the loan volume come from?

Here are the facts now:
-Housing sales continue to stall across the nation
-The fed is entering late stages of its tightening cycle.
-Home inventories are skyrocketing
-With declining home equity, the opportunity to squeeze more golden eggs out of the goose is fast coming to an end.

And the biggest timing issue:

-We have about 15 days left in Spring. That means spring has come and there was no spring rally. It seems to me that we are on the verge of negative yoy comps and I think that is going to mark the change in the longer term trend.

…I think the lenders are next in line to see their business killed and I see the potential setup for a really ugly fall this year. I want to be positioned before that happens as I do believe the market is forward looking and now feels like the right time to start my positioning.

Ultimatly, I want to be heavily short lenders, home insurance providers and highly leveraged homebuilders without the capital to withstand a drought.

Personally, I think that there is going to probably be an extrogenous event that causes a nationwide recession and results in a severe downturn in the real estate part of our economy. Everyone looks at the last San Diego bust and says well that was caused by the loss of jobs in the defense industry…yet that really only became apparent after the fact. I looked back over past newspaper clippings and never once did I see a single article talking about how the loss of jobs in defense was going to undue the housing market in southern california.

I think the cause of the next decline will also probably be only apparent after the fact as well, therefore, I think you want to try to position yourself before that happens.

It took me a long time to pull the trigger, but I think the peices are finally starting to come together.

Any thoughts contrary to the above points are more then welcome.

[RightSide]

You’ve pissed me off because you bash me for no reason…I could care less what you think of me, but I’d like to share ideas and I’m open to critiques.

But you just offer insults with no substance.

Start a fight with me, I’m going to fight back, online or off.

[RightSide]

Honestly, your club idea sounds like a tactic perverts use to pick up little boys on the internet. I’m staying the hell away from you.

[RightSide]

HAHAHAHA…Your “old days” as a Wall Street financial consultant seem to have paid off handsomely….Really, you think $500 would be enough to get started? Wow, that’s some big bucks there kiddo.

[RightSide]

Hey bubble dude, you jealous for attention or something?

You criticize my idea but offer NOTHING of your own. In my opinion, that is the definition of a loser and probably explains why you aren’t wealthy yourself. Most people who are not wealthy criticize those who are because it makes them feel better. I advise you to get over it.

I have given a real time idea that everyone will be able to follow and see how it plays out, what have you shared with this forum, but a bunch of the same useless re-hashed drivel?

Obviously, my frustration with the whole housing bubble is that its a very crowded trade. Both smart money and dumb money are on the same side, which makes the outcome often different then one might expect.

Also, a quick lesson for you, sophisticated doesn’t mean complex. Warren Buffett made his wealth with very simple trades that any “simplot” could have seen at the time.

Finally, as you obviously are ignorant in your historical knowledge of the stock market, the vast majority of stocks with large short-interest end up with major declines. There are a few that do qet squeezed and they make all the headlines and create fear amongst the retail investor (aka, the dumb money.)

Is that a valid risk for LEND? Certainly, I’m not blind to the risks, but I will hedge any upward momentum with short term calls. LEND is a very liquid stock and unless they display some operating momentum, in my opinion, a squeeze is unlikely.

Instead of bashing me, why don’t you go see if you can contribute something of value.

[RightSide]

What permabulls?

Is there a single person here who thinks housing prices are going to go up in the next 12 to 24 months?

I certainly don’t, niether does SDRealtor…mostly what I think this forum consists of people who are hoping prices go down so they can buy cheaper.

I wish there weren’t so many fricking housing bubble blogs out there and so many people posting about it…

PLEASE IF YOU THINK SD HOUSING PRICES ARE GOING TO BE HIGHER THEN THEY ARE NOW IN 18 MONTHS, LET US KNOW THERE IS AT LEAST ONE OF YOU OUT THERE!!!

[RightSide]

John Talbot published his first book over 3 years ago telling us to sell our homes because the great crash was eminent.

I guess if you publish a market crash book every 3 years, hopefully you’ll be right one of them!!

[RightSide]

So check this out!!!

This house I’ve been looking at in Cheesapeake Bay has actually GONE UP IN PRICE the last 30 days…it was orignally offered at 1,695,000 and is now asking 1,740,000! In looking over their latest price sheet, they have RAISED the prices on most of thier remaining houses.

They are definately on their way to being sold out so maybe they are trying to squeeze a little juice from the last ones left?

What do you negotiate on from a new builder? Price or concessions or both?

[RightSide]

Yes. By looking at the amount of money actually withheld as taxes you can get a very clear picture of actual wages. What’s really amazing, is that there is another category of income “other then withheld” which is basically independent contractors and business owners (a person who owns an s-corp for example has to file quarterly estimates via a k-1) are up well over 20% yoy.

Our economy is on fire!!!

[RightSide]

I get an institutional economic analysis that takes data straight from the treasury: It is national, not regional so I don’t know how it differs for SD area…

http://www.fms.treas.gov/dts/

This is real-time data and is hard #’s.

Often one of the reason individual investors get fleeced in the market is that they don’t get the right factual data.

[RightSide]

You guys made me laugh out loud. I posted this to give you some anecdotal insights from a buyer and my take on the market environment, not to get any of your advice about wether its a sound financial decision.

Actually, the advice I’m most interested in is from Bugs…I admit to being one of those ignorant about the actual housing construction and how to evaluate it. I spoke with a building litigation attorney and he told me that KB Homes is the real criminal out there, but that Standard Pacific almost never was sued and therefore he considered them a high quality builder.

Incidently, I was at the Magnolia community in Bressi Ranch, and we were checking out the family room and someone was walking upstairs and the whole house sounded like it was about to fall apart. I was pretty shocked to experience that in a brand new $2M house…

So Bugs, what do you think about the Bay Collection? Is it shoddy construction? Whats a good example of quality construction? How can I learn more so I don’t get fleeced?

Thanks.

[RightSide]

Wages are NOT flat!

They were up over 9% last year, they are tracking to be up another 8% this year.

Wages have far outpaced infalation and continue to do so.

Oh darn those facts, I hate when they get in the way of my distorted view of reality.

Rich, at 9% wage growth, how long for the I to catch up to the P?

[RightSide]

If the dollar goes to zero, the people who owe millions of them lent against their house are going to be very happy. A dollar going to zero is a good argument to get the max loan you can afford at a fix interest rate and buy the biggest house you can find.

I recently read a headline in the STAR Newspaper at the checkoutline that said, “The Coming Great Depression” in big headlines. I guess your not the only one who has got the beat on that story.

The only worse thing then the dollar going to zero and soup lines around the block, will be when the aliens land on the white house front lawn. Don’t say you weren’t warned!!!

[Author]

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