>>>The homebuilders are ripe for consolidation and/or even private equity like activity. I would say this begins in 2008.<<<
One might argue that this has already started with Ichan vice WCI last September. It is a real consideration when contemplating a short position.
I look at the fundamentals of the US economy. I see perhaps twenty charts of significant economic parameters (e.g. housing starts) plotted against time/recession incidence. Every one cries recession is on the way. The FED can't move, and I believe will be forced to raise as its next step. Almost all of the US trading partners are raising rates. The US will loose investment/credit if it doesn't follow suit.
Everything about housing is getting worse. Robert Toll and Ara Hovnanian are both saying that the bottom is not in sight. TOL and perhaps NOV declined to provide '07 earnings guidance.
The only reason not to short is the persistent broad market bullishness, which I am incapable of explaining. I have to write it off to American mania or Chinese desperation to park cash somewhere else than the US 10 year note.
Interestingly enough, Randall Forsyth in Barrons this weekend related that the Chinese might be moving to the short end of the curve. Selling the ten year is certainly an indication of an anticipated rising rates and/or inflation:
Yet the bond market may be sniffing something less benign for the future. ISI notes that growth in the MZM money-supply measure has accelerated to a 12.8% annual rate in the past three months, lifting its year-on-year pace to 8.1%, with inflationary potential. Bear Stearns economists see the same threat in the rise in gold. "From our perspective, gold prices indicate money is still easy and, therefore, inflation is likely to pick up," they write in a research note.
As noted here last week, the recent rise in bond yields is threatening to pierce the downtrend line that goes all the way back to the early 'Eighties, when the vigilantes sent long-term Treasuries to 15%.
Another hint may be in the fall of short-term T-bill yields. While bond yields have climbed from about 4.50% in early March to nearly 5%, three-month bill yields dropped from over 5% in late February, to 4.776% Friday.
According to Merrill Lynch's chief U.S. economist, David Rosenberg, Street chatter is that China's central bank may be shifting some of its enormous Treasury holdings from notes to bills. Inflation is bonds' worst enemy, sending their prices falling as yields rise. Moving into T-bills avoids that risk.
Are the Chinese onto something?
I remain short but sell a lot of covering puts. |
