A Walk Down Memory Lane

For those of you who think that I’m a Johnny-come-lately to the housing debacle and the credit crunch, below is a sampling of my emails that have gone out to thousands of people over the past two years. Positioning for the meltdown was, and is, paramount.

4/11/2006: To be successful, you need to take what’s given and react accordingly. If you pay more at the pumps, figure out who’s profiting. Not only from the start of the oil production process, but also to the finish. If the market is showing weakness, you may use the various long and short strategies to benefit. Finally, if the obvious is occurring, wait until it runs its course, and then jump into action.

10/27/06: The media’s selective information and spinning has usually made the investor the last to know. Remember Enron, WorldCom, Global Crossing? Currently, I believe the homebuilding industry is in a death spiral, one that has not been seen since 1988-1991. Inventories of unsold houses climbing, unsold completed homes at record levels, foreclosures mounting, and median prices declining to record levels. But the pundits, especially the MAD ones on TV say “So what”, “No big deal, “It’s almost over.” My response: It’s just begun. The higher we go, the harder we fall. And the beat goes on.

11/22/06: Could the breaking of the housing bubble hurt the average American more than the collapse in stock prices in 2000-2002? It could be so since 69% own their own abodes, compared with 50% who own stocks or mutual funds. Speaking of housing, how long will it take to bring inventories of unsold houses into normal levels if current selling rates do no more than hold at today’s pace? It might take the better part of a year, if sales don’t go any lower. No one can guarantee that, especially if the Federal Reserve raises interest rates. (Unthinkable you say?)

01/12/07: Look around your neighborhood. Are houses selling quickly, or are they selling at all? Does construction continue, or have projects been discontinued? Has your house appreciated in the last six months, or depreciated? And I haven’t even talked about the negative impact of re-financing, adjustable-rate exotic mortgages, and negative home equity. All in all, not a pretty picture and signs that we’ve just seen the top of the iceberg, not the bottom, as many proclaim. I believe the homebuilding industry will continue to decline, thereby providing the potential for gains in the next several months. That’s how I see it.

4/26/07: Though many people will insist, “it’s different this time,” keep in mind that every great market that has grown in debt has always ended badly, whether it’s the tulip mania of the 1400’s, or the dot.com mania of 2000, it never changes. Major stock market declines will be the rule, not the exception. People continue to ask: When will it happen? The debt contagion is spreading every day, and the decline will come when least expected. We are positioned defensively, and you can feel very comfortable. No matter how much lipstick you put on that bloated debt pig, it’s still a pig.


9/07/2007: The average $500,000 mortgage, when sliced and diced, supports approximately 20 times its value in CDO mortgage paper, sold around the world. When you factor the number of adjustable-rate mortgages that are re-setting over the next 16 months, (March alone is $110 billion), by a multiple of 20, you get some very scary indebtedness. Keep in mind, this indebtedness is dependent on rising home values and people’s ability to pay; both of which have now been called into question. Factor in the declining job picture, and you may have a recipe for disaster.

9/27/2007: In the 1980’s, the Japanese lowered interest rates to zero. That action did not save the Japanese stock market, nor did it save the Japanese real estate market. In fact, it’s just most recently that they’ve finally dug out. The difference this time is that the financial world is all interdependent on trillions of dollars of debt. From the smallest homeowner to the biggest money center bank, our economy has borrowed its way to happiness. Unfortunately, that game is over and the pain is about to begin. The countdown to meltdown has begun.

12/18/07: My prediction for 2008. A year of incredible volatility, possible homebuilder bankruptcies, the threat of banking sector meltdowns, and the chance of general panic never seen by today’s investing public, or even by the professionals. Downside swings of as much as 20% from here, and the possibilities of double digit relief rallies. But make no mistake, this is a BEAR MARKET.

So what happens now? More of the same, with the bias to the downside. But for the nimble traders, a paradise of opportunity.

Right now, I’m long, and no, I’m not wrong. (A poetic attempt.)

Till next time,

Bill

P.S. – Long GE, QLD, UYM, FNFG, DDM, FCX (at least for now.) Shorts: none

P.P.S. – If interested, a complete email journal is available upon request.

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