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Handling the Homebuilders


Does it make sense to short Beazer Homes or Hovnanian to play a possible bankruptcy filing?


I have not really looked in detail at this morning's housing figures because I don't really think they are that relevant anymore. The facts are that history has indeed repeated itself: following 1992 housing bottomed, and then plodded along in a totally undistinguished fashion until after the stock market bubble; then housing began its own new bubble - by far the biggest and most leveraged ever; and then the bubble unraveled, as all housing bubbles inevitably do.

What's next for the narrow housing group (homebuilders) is not that interesting anymore because I don't view the reward of being aggressively short homies as being worth the outside chance that housing will begin to recover relatively soon. Does it make sense to short Beazer Homes (BZH) or Hovnanian (HOV) to play a possible bankruptcy filing? Not in my book. The easy money on the short side of housing has been made. And needless to say, it will likely be many years before I'll consider homebuilders as longs.

The "housing contagion" thesis, obvious as it may be at this point, is where I continue to look for short plays, and the SPDR S&P Homebuilders (XHB) has gone from not being sufficiently linked to homebuilders to being just what I am looking for in terms of collateral names.

However, I will be paying far closer attention to the "existing home" data - even if it lags by a couple of months - since that is much more likely to shape broader monetary policy.

Switching to commercial real estate, an interesting article in today's Washington Post. It sure does look like Sam Zell has done it again.

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Position in XHB.
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