Booms, Busts, and Recoveries Message Board

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Strategies & Market Trends : Booms, Busts, and Recoveries

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To: TobagoJack who wrote (60719)	3/4/2005 8:21:48 PM
From: energyplay	Read Replies (1) of 74559

Homebuilders - There are so many shorts (mostly hedge funds) that brokerages are able to charge a lease fee to borrow the stocks to be shorted. That fee is now ranging from 2% to as high as 10% ! If you are a big hedge fund or insitution, you can negotiate to get some of that fee - maybe more than half. Imagine you are a pension fund with a long time horizon, and you bought XYZ homebuilder 2-3 years ago for X. The price is now 2.2 X, and it pays a 2% dividend. You are also getting 0.15% per month (1.8 % per year out of 4%)as part of the lease. And the stock keeps creeping up... Why would you sell ? When do you think XYZ will head down ? The insitutions might very happy to let the hedgies bleed... If a hedge fund goes bust, they have to cover - buy XYZ - which puts the price up more - increasing lease income.

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