'The Consumer Is Back', Trade Is...Back

We mentioned Wednesday [Mortgage Applications Spike to Record] that if you wanted to play the dropping mortgage rate angle, Bankrate.com (RATE) was a choice.


My decision to sell Lennar (LEN) a few days ago now looks silly because as you know, all these government programs mean the US consumer will soon be able to use their house as an ATM again and people will once more begin daytrading houses. Here is Lennar and the homebuilder index - notice the moves over the past week and Thursday.


And then of course, with their newly flush pockets, that means people will be back in the malls spending the hard earned money that they refinanced into (don't worry that many don't have jobs and many others are underwater - we can't talk about that when we have a thesis to ride). Retailers are flying again as they did Wednesday despite terrible same store sales.

Not to mention the home improvements we are going to do with this new found money from our home ATMs.


And of course all these new homes that will fly off the shelf will need new appliances.


See, this would be a bit surprising if this was not the same playbook we see played every time there is "hope". We saw the exact same movements just three months ago [Sep 11: Hot Money Says a Housing Turn is Coming Soon]. Well that was a great trade for a few days as well until it imploded when "reality" reared its ugly head.

Same names, same run ups, same "hope", same everything. If it were not so predictable it would almost be amusing. Remember, the market is of course a discount mechanism and extremely efficient. Hot institutional money needs to find something to run up, so now they have a catalyst and away we go. I expect hedge funds to reignite this trade over and over in 2009 on any government program or data point that is "less worse" than the month before. The casino lives on. It is most important to know that you can see how dependent the entire national economy is on the house ATM.

Disclosure: No positions but wishing I had kept Lennar for a few more sessions

Comments

[punk_ash:]

witty and sarcastic at the same time... Good one...

2008 Dec 04 11:03 PM

[igggy:]

I actually thought that lower gas prices would have a positive effect on November sales. Now it looks like cheap gas helped only Walmart. Of course, things would have been much worse without cheap gas.

2008 Dec 04 11:51 PM

[MarvinMBA:]

I do shopping at Lowes and I have to tell you there were a lot of people
shopping...things have gotten to the point that there is a real need out there for the products Lowe's carries...MarvinMBA PS If you have a pressing problems with your house repair, it will not wait.

2008 Dec 05 12:02 AM

[Moon Kil Woong:]

You are right thinking the government thinks the way out of this predicament is exactly how we got into this predicament. You'd think they would have learned by now. I wonder if they are right though. People are scared to go mortgage their life on a questionable home investment. Can you blame them?

Who knows what the Treasury or the Fed will do tomorrow? Lower rates to 0%, encourage 2% interest for loans. Then you'll be hitting yourself for buying at 5.5% or 4.5%, especially by that time the price might have fallen 20-50% more. I think they have sowed so much uncertainty, even about your job that most people think it would be nuts to buy a house at any rate right now. I certainly think so.

Hopefully, Obama's Treasurer won't be the former CEO of Goldman who encouraged his company to make money selling bad CDS to AIG and their own customers and then used taxpayer money to pay AIG so they can pay Goldman. This type of stuff makes us sick and makes us realize that the US economy is unstable as long as they are running the show.

2008 Dec 05 01:56 AM