Ranboz

Lennar's Insolvency: Enron Redux?

I agree and have been short on Lennar since June. I believe that buying stock option puts on homebuilders and/or mortgage related companies will continue to be a reasonable hedge against real estate related potential losses. My general stance is as follow.

Markets often behave irrationally and tend to return to fundamentally supported levels over time. The housing market is no different.
- It is reasonable to expect that U.S. national REAL housing prices could fall by about 50% from their December 2005 peak back to their historically normal level.
- It is reasonable that national NOMINAL prices could also fall significantly (10%-45%) over the next eight years or so unless the U.S. experiences a greatly increased rate of inflation* (6-11% for the next 4-8 years).
* Because national deflation (housing) is often considered to be a greater economic threat than inflation, the Fed will likely pursue an inflationary policy.

(Inflation/housing numbers created from projecting the data from the "irrational exuberance" graph located at irrationalexuberance.c...