July 29, 2006

I shorted SOLD (housevalues.com) on 6/19, it's down 41% since then. Amazon.com down 20% last week! And put options way over 100% gains

Ah, gotta love being right. 5.25% cash, GLD, ConocoPhillips (COP) and shorting SOLD and Home Depot (HD) among other retailers with put options for December.

Where's "The Banker" when we could really mock him?

Here's what one idiot said when I shorted via put options housevalues.com (SOLD):

Keith....another example of your too late investing philosophy.Zillow came out the end of January....at that time SOLD was at 17. Over the next two months, SOLD goes from 17 to below 8. Today the stock is at 8......now you are getting in???If you knew Zillow was going to kill SOLD, then you should have acted when Zillow launched.

And I'm really liking put options - anyone else playing that game?


happyrenter said...

i have put options on QQQQ and some major home builder, over 100% increase.

Anonymous said...

Made over 300k shortig meritage,centex,lennar and countrywide in the last six months. What a ride.

Mafiaman said...

"Made over 300k shortig meritage,centex,lennar and countrywide in the last six months. What a ride."

You seem to making some nice gains. I'm living in S. Florida and sucking wind. Wire some of that easy cash to my account, or I will locate you and you will be sleeping with the fishes.

Anonymous said...

This is the way the bubble ends: not with a pop, but with a hiss.

Housing prices move much more slowly than stock prices. There are no Black Mondays, when prices fall 23 percent in a day. In fact, prices often keep rising for a while even after a housing boom goes bust.

So the news that the U.S. housing bubble is over won't come in the form of plunging prices; it will come in the form of falling sales and rising inventory, as sellers try to get prices that buyers are no longer willing to pay. And the process may already have started.

Of course, some people still deny that there's a housing bubble. Let me explain how we know that they're wrong.

One piece of evidence is the sense of frenzy about real estate, which irresistibly brings to mind the stock frenzy of 1999. Even some of the players are the same. The authors of the 1999 best seller "Dow 36,000" are now among the most vocal proponents of the view that there is no housing bubble.

Then there are the numbers. Many bubble deniers point to average prices for the country as a whole, which look worrisome but not totally crazy. When it comes to housing, however, the United States is really two countries, Flatland and the Zoned Zone.

In Flatland, which occupies the middle of the country, it's easy to build houses. When the demand for houses rises, Flatland metropolitan areas, which don't really have traditional downtowns, just sprawl some more. As a result, housing prices are basically determined by the cost of construction. In Flatland, a housing bubble can't even get started.

But in the Zoned Zone, which lies along the coasts, a combination of high population density and land-use restrictions - hence "zoned" - makes it hard to build new houses. So when people become willing to spend more on houses, say because of a fall in mortgage rates, some houses get built, but the prices of existing houses also go up. And if people think that prices will continue to rise, they become willing to spend even more, driving prices still higher, and so on. In other words, the Zoned Zone is prone to housing bubbles.

And Zoned Zone housing prices, which have risen much faster than the national average, clearly point to a bubble.

In the nation as a whole, housing prices rose about 50 percent between the first quarter of 2000 and the first quarter of 2005. But that average blends results from Flatland metropolitan areas like Houston and Atlanta, where prices rose 26 and 29 percent respectively, with results from Zoned Zone areas like New York, Miami and San Diego, where prices rose 77, 96 and 118 percent.

Nobody would pay San Diego prices without believing that prices will continue to rise. Rents rose much more slowly than prices: the Bureau of Labor Statistics index of "owners' equivalent rent" rose only 27 percent from late 1999 to late 2004. Business Week reports that by 2004 the cost of renting a house in San Diego was only 40 percent of the cost of owning a similar house - even taking into account low interest rates on mortgages. So it makes sense to buy in San Diego only if you believe that prices will keep rising rapidly, generating big capital gains. That's pretty much the definition of a bubble.

Bubbles end when people stop believing that big capital gains are a sure thing. That's what happened in San Diego at the end of its last housing bubble: after a rapid rise, house prices peaked in 1990. Soon there was a glut of houses on the market, and prices began falling. By 1996, they had declined about 25 percent after adjusting for inflation.

And that's what's happening in San Diego right now, after a rise in house prices that dwarfs the boom of the 1980's. The number of single-family houses and condos on the market has doubled over the past year. "Homes that a year or two ago sold virtually overnight - in many cases triggering bidding wars - are on the market for weeks," reports The Los Angeles Times. The same thing is happening in other formerly hot markets.

Meanwhile, the U.S. economy has become deeply dependent on the housing bubble. The economic recovery since 2001 has been disappointing in many ways, but it wouldn't have happened at all without soaring spending on residential construction, plus a surge in consumer spending largely based on mortgage refinancing. Did I mention that the personal savings rate has fallen to zero?

Now we're starting to hear a hissing sound, as the air begins to leak out of the bubble. And everyone - not just those who own Zoned Zone real estate - should be worried.

Joe Logic said...

Station Casinos (STN) down nearly 40% since May. People in Vegas can no longer HELOC away their money at their casinos.

Anonymous said...

Capitalist pig, taking advantage of mom and pa investors....sniff, sniff.

stocksystm said...

Recently closed out my LEAP puts on Toll Brothers for a better than 200% gain. Still riding RYL and CTX puts with major gains. Just bought some puts on SPG today.

keith said...

joe logic - station is on my short list to research more... figure those vegas locals won't have housing atm to feel rich (to go gamble with) but also the vegas housing and building based economy is about to go kaput

but I'm cautious that in bad times, people gamble and drink even more

foobeca said...

Keith, what about shorting things like bayliner, ski-doo, harley, GGP, worst buy, and circuit shitty?

Anonymous said...

you are such a loser. No mention of your crappy gold trade or the fact that you own AAPL which even despite the recent bounce has sucked wind all year. You really blow.

keith said...

foo - all good picks

I'm up 60% on aapl, not sure why people flame me on that stock. must be unemployed realtors

trailer trash said...

Anonymous said...
This is the way the bubble ends: not with a pop, but with a hiss...When it comes to housing, however, the United States is really two countries, Flatland and the Zoned Zone.

I read your Flatland/Zoned Zone essay with great interest. This is the first time that I have seen such an easily understood explanation of the price discrepancies inherent in the US housing market.

Joe Logic said...

Keith -

Check out this Barron's article on STN. Check out the graph of stock price to median house price.

Anonymous said...

I made over 200k my homebuilder puts.

Anonymous said...

Still holding on to the 200k gain for at least one of the builders to file BK. I have until 2008. The next 4 quarters for builders will be horrible.

Anonymous said...

made 25k on my homebuilding puts.... anyone think the homebuilders will have a technical rebound from the oversold condition. i'm in the homebuilders joe, ctx, len, cuz they got a lot more to drop

autofx in Phx said...

Stop congratulating yourself on GLD plays Keith. The moves you made, at least the ones you spoke of here, reeked of amateur investing/trading skill.

TradingCourses said...

Good info. Thanks.

Mini-DOW Futures Day Trader

Anonymous said...

Was surfing the net loking for some eskimo pie case and I came upon your site and I was impressed by the quality of content you have. Keep up the awesome job. I will be bookmarking you right now.

Emini Day Trader said...

Interesting blog. I can see that you've done a lot of work on it.

Emini Futures Day Trader
elliot wave

Anonymous said...


bevel siding Tips for building or remodeling your dream home.