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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: russwinter who wrote (56555)3/22/2006 5:52:47 PM
From: UncleBigs  Read Replies (2) of 110194
 
Russ, I see the vulnerability but just am unwilling to commit my capital to the short side of the trade. In the next 6 months, I think the homebuilders could have a big run higher. I'm not betting on it, but it wouldn't surprise me. Here's how:

1. The Fed stops at 5% and the yield curve is flat.
2. Home sales soften but don't fall off a cliff.
3. Home prices hold relatively firm on the low end.
4. Mergers and acquisitions start to occur in the sector.
5. Huge buyback announcements take place. Maybe some big one time special dividends to rub salt in the eye of the shorts.
6. Massive short interest begins to cover.

If the p/e moves from 6 to 9, it would still be discounting future slowness.

I just hope people are careful on the short side of the homies trade. A 25% up move before the bottom falls out wouldn't surprise me in the least. If you're short, it's hard to ride out that kind of a move.
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