the_Bird

No Point in Bottom-Fishing the Homebuilders

There's so much inventory out there right now, it's going to be a LONG time before it all gets cleared out - so the illiquid assets on their books are even more illiquid that they would be in a "normal" environment. Moreover, the severe pullback in availablity of subprime/alt-A mortgages means that most of the people who might typical "upgrade" from being renters to homeowners just are not going to be able to do so; how's that inventory going to get absorbed? And - this is all in the context of an economy and jobs market that remains, if not great, *reasonably* robust? How does all of this look if we go into a recession? I don't think one is imminent, but I would say there's probably a 30% or so chance we see a recession develop in the next 12-18 months.

So yeah - homebuilders will have little rallies, mostly short-covering. There are a handful of stocks out there I've found where 80% - 90% of the float has been sold short; there's some real short-term danger there, SPF rallying from $3.71 to $5.72 in a week and a half looks like a classic squeeze. But - there's a lot of these companies that you'll never have to cover (if you can find any shares to short!)