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Lunch Money



With the concept of a "housing bubble" having become a daily mantra in the popular media, and having been all but blessed even by our fearless Elmer, one must wonder when the weaker speculators will start getting cold feet and start jettisoning their "flipping" inventory. The insiders at Hovnanian Enterprises (HOV) don't seem to want to take any chances as to when the whole kit and caboodle will come tumbling down, and at 5:10 p.m. Friday afternoon (nice), filed a registration for a shelf offering of $500M of debt securities and 15.2M shares of Class A common to be sold by the controlling shareholders. As a "conspiracy theory addict," I must point out the following:

HOV is just coming off reporting a quarter where it had some 'splaining to do as to whether it missed or did not and whether it guided down or not.

Click here for an excerpt from the S-3 filing detailing the sources and end result of the shares being sold.

Bottom line, these shareholders not only are selling all of their Class A shares, but they are also converting some of the Class B stock to Class A and punting it as well. After these sales are completed - almost $1 billion dollars worth of them at today's prices - their holdings will have been cut by more than 50%. The remaining holdings may not include options still held, and that probably continue to accrue, and, naturally, the sale of these shares has not yet taken place.

Strictly as a "mechanical issue" the sale will increase the existing "float" by approximately 38%, enough that one should consider the consequences on the future volatility of the stock and the availability of "borrow" for short-selling.

Let's make a date to revisit this sale in a couple of years and let's see how good - or bad - was the insiders' timing.

No positions in stocks mentioned.
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