Mish's Global Economic Trend Analysis Message Board

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Strategies & Market Trends : Mish's Global Economic Trend Analysis

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To: Earlie who wrote (51767)	5/26/2006 11:57:18 AM
From: valueminded	Read Replies (2) of 116555

Earlie: I have no doubt that speculators will be burned - as will home builders who overextend and can not manage cash flow. Of course builders who can not manage cash flow go under even in good times. The path I see is that houses will be left unfinished and that will lead to a drop in new supply. The unfinished houses will be owned by banks who believing they will be worth the loaned amount won't sell for less since they would have to take a write off. Since most builders do not strictly manage flow and most banks let builders get by with loose controls, it will be an issue - but not one which will depress real estate prices since supply wont go up - banks can't build houses and an adroit builder wont touch a partially finished home unless it is severly discounted something that occurs in fits and spurts as banks realize they have to sell at 50c/dollar to get someone to take over the mess. Your strategy of buying puts on builders/mortgage lenders may work out. I have never done well on puts, so I will be buying calls but not now. In terms of interest only loans, I think they are a great deal. I have one and would do it again in a heartbeat. Makes perfect sense since I can (now) earn money in CD's at a rate more then my interest payment. I just take the principal I should be paying and stick in CD's/Bonds every month. Seven years from now I will make a lump payment to principal. Maybe I am naive, but I think far more people do this then just make the minimum and not worry about tomorrow. On the inflation front, I just increased my billing rate 8%. (personal rate of inflation) My clients didn't blink. Inflation is here. Maybe ?? years from now we see deflation, but for now I think purchasing power of the dollar keeps going down.

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