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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: UncleBigs who wrote (56558)3/22/2006 6:06:55 PM
From: orkrious  Read Replies (1) of 110194
 
1. The Fed stops at 5% and the yield curve is flat.

IMHO that is one scenario in which the homies won't rally. If the Fed stops at 5% the dollar is going to get smoked as will long bond holders. As the long bond goes, so go the homies.

2. Home sales soften but don't fall off a cliff.

I think the latter will happen because that's what happens in bubbles. But even if it doesn't, these companies won't be able to grow earnings with slowing sales. Higher materials costs and more competition is going to hurt margins.

3. Home prices hold relatively firm on the low end.

Looking at Detroit as a model for what's going to happen nationally (and I think that's the most optimistic thing that could happen for the bulls), the low end will stay strong. But there's not enough there for most of the builders and the market will quickly discount the low end's demise anyway.

4. Mergers and acquisitions start to occur in the sector.

My biggest fear but with most of these companies selling for 1.7-2.0x book (and book beginning to shrink) I think we have a way to go before that happens.

5. Huge buyback announcements take place. Maybe some big one time special dividends to rub salt in the eye of the shorts.

My least concern. These companies have been buying back stock hand over fist and the shares are still sinking. They aren't going to have the case to keep doing this.

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

the PE is going to go from 6 to 9 to 15 to 25 to 100 to...
but it's not going to be from an increasing price.
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