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| Symbol | Sector | Return | Exposure | Trades | Last Trade | Status |
|---|---|---|---|---|---|---|
| CVD | Biotechnology | -3.11% | n/a | 2 | 07-Mar-08 | Prior Holding |
26-Feb-08
Game Plan Week of Feb 24: The Core
Holding Rationale for CVD.
We have seen some decent rally in the last two days and the market is set for more gains on the upside. The driver behind this seems to be the bailout of the big bond insurers MBIA and Ambac.
The current market action raises one question: what is the actual reason for the bad market in the last months? What is the core of the problem?
Well, it is NOT the bond insurers, whose potential downgrade has threatened major US banks with additional write-downs. It is also NOT the banks, who are BTW not out of the woods even with the positive news on MBIA/Ambac (remember: major banks where downgraded big time yesterday!).
The banks still have their portfolio full of funky CDOs. Their value relies on ordinary people who (hopefully) pay off their home loans. CDOs will keep loosing value as long as housing prices deteriorate. So here is the core of the problem: if you listen to housing market experts or homebuilder conference calls, most of them are NOT expecting a market recovery within the next two to four years!
All the talk of "the housing market has bottomed" is just plain hope from analysts, who probably are under water with their own personal mortgage payments and need to talk up the market.
One analyst wrote in a research note that "housing is more affordable now". I don't agree. Sure, housing prices have come down, but banks have tightened their credit standards BIG TIME: in order to buy a house, you now need to put 20% down and the house value cannot be more than three times your household income. This wasn't the case lin the last years. So if you for example want to
buy a house in Southern California, where you easily pay half a million for a shack, you need to make 160 Grand a year and put 100 Grand down. To give you a little perspective: in 2005, 94% of the US households made LESS than 150k annually.
Bottom line: I give the DOW maybe another 200-300 points until he runs out of steam (BTW: I use this opportunity for some quick LONG swing trades (JEC, OI, CVD, MCD) but also to build up short positions for March).
The good news is: I am able to SHORT my favorite homebuilder, Beazer homes (BZH), again. This wasn't possible months ago, because my broker ran out of stocks I could borrow for selling.
Posted at 04:03 in Holding Rationales | Permalink | Top
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