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Strategies & Market Trends : Short Selling, Dark Side, Bubble Busting Laboratory

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From: zebra4o1	12/3/2005 11:35:50 AM
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The Nov. 18th issue of Grant's reviewed the performance of the housing market in the U.K. as a possible preview of what could happen in the U.S. Even though the U.K. market looked much more bubblicious than U.S. it has just stalled, not crashed (so far). U.K. homebuilder and mortgage lenders stocks are paradoxically holding up very well. One of the few housing-crash targets that actually has taken a hit is Kingfisher - a european equivalent of Home Depot. The theory is that without home price appreciation, there is less cash-out refinancing, and less money available for home improvements. According to Lending Tree 38.1% of home equity debt goes for home improvement. Also, without constant appreciation, flippers get discouraged. And flippers are another group that spends on remodeling. So Home Depot looks like it might be good housing-crash target that would get hurt early in the cycle. And unlike other housing-crash bets, puts are fairly cheap. Short interest is low too (~1%). I have been trying to play a housing crash with LEAP puts on mortgage lenders and home builders - so far a big loser strategy. But Home Depot looks interesting here.

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