Cramer says sell HB's 1 week before fed cut

The problem with Cramer's playbook is that this time it's a secular bear market in housing, not a cyclical bear market. Similar to how 2000-2002 was a secular, not cyclical, bear market in stocks and especially tech/growth. Then you had a 500 basis point fall in Fed Funds, yet stocks had their worst performance in 70 years.

The Fed can cut rates to zero and it still won't bail out the housing market.

As for BZH, have you looked at where the bonds and default swaps are trading? With the current state of the housing market, bondholders are unlikely to get back 100 cents on the dollar in the even of a default - that's not exactly a bull point for the stock.
 
Quote from silk:



Actually i think Cramer is good. But when you make 1000's of calls you are going to wind up looking like an idiot hundreds of times.
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That is exactly the problem that I think he has. All a person has to do is look at his track record on the street to see he is a talented PM and Trader. The thing is though that because of his show he has to give out several "picks" every single day, and comment on several more stocks beyond that. If any of us HAD to pick a few stocks each day, some of them would definatly make us look foolish,
 
The success of Hovnanian's sale of the century this weekend shows why the near term bankruptycy risk of publicly traded homebuilders is close to Zero.

If they get into liquidity trouble, they can just cut prices and sell homes for slightly under cost or 15% under market value and sell out entire communities. While producting small losses, it produces huge cash flow and unlocks the huge book values that that the home builders have in excess of the low stock prices.

They can then use the cash flow to buy back bonds trading at discount of par or pour cash back into cheap land acquisitions or share repurchases.

http://www.cnbc.com/id/20810847
 
Hovnanian was going to proclaim this promotion a success no matter what. Obviously you are not familiar with the company. Ara Hovnanian is shameless.

Explain to me how a company having a fire sale is going to unlock their book value.
 
Even though the group is trading below book value, they traded to 0.5x book in 1900/91. At those levels, the stocks have another ~30% or so to fall.

Besides, there is tremendous inventory. That's certainly not a good long-term environment.

Eventually, you're going to get a good tradeable bounce. But that's all it will be because of problems in the industry and the general history of over-inflated stocks is that once they bottom, they move sideways for years.
 
I prefer TOL to all of them, but why try to pick a bottom? If indeed the HBs are undervalued, it isn't like they are undervalued by $5. They are undervalued by $25 in some cases.

I have seen people try to pick worse scenarios than this and done very well, i.e., PVN. Thing is, they had no idea where the bottom was, and they had to add all the way down close to zero, so as to average in at a decent price.

BZH may move 350% higher, but it may be from $2!!! That is why imo this is such a risky play. If you are going to do it, you have to commit to add at strategic places all the way down, and ?hope? it is not ENE.

Therefore, save amo.

nitro
 
I think many people are confused about this trade.

The play is an event trade. The event of course is the rate cut. The play doesn't really have to take into consideration the long term price of HBs.

However I think every hedgefund on this planet is doing this same play. This could get ugly if they try to game each other.

But rate cut is negative because it pulls the floor out of the USD. From here on out I think high commodities prices are a negative sign of inflation, not a positive sign of true DEMAND.

One day maybe bonds will tank and interest rates will be jacked up so fast it will make even Volker's head spin.
 
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