I’ve only given investment advice once on the VC, and that was back on August 1, when I suggested that a good home for “speculative money” would be Jan. 2007 puts on homebuilding stocks. As you can see from these three-month charts, this was a very good call, though I should have suggested October or November puts instead!
Underneath the headlines trumpeting continued strong home sales is a host of worrying signs for the housing market, including declining prices for both resale and (especially) new homes, troubles at Fannie Mae, rising interest rates, investors who can’t cover their mortgages in a (relatively) weak rental market and are being forced to sell, hundreds of thousands of adjustable-rate mortgages (many of them with initial “teaser rates” that allowed buyers to afford the unaffordable) that are due to adjust way up in the next 6 to 24 months, and more. Major markets like the D.C. area(where even my house-hungry wife agreed that things were “too crazy” this past Spring to buy) are starting to take a pounding.
The easy money has been made in homebuilding puts, but I wouldn’t be surprised to see 2000 NASDAQ-like declines in some of these stocks. Not being much of a speculator myself, I’m just holding my relatively meager “investment” in puts, sticking with my plan to keep ’em close to or up to expiration. Meanwhile, from a financial point of view, I wouldn’t consider buying anything in a “hot” market right now.
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