Housing Crash…Case Study….China and Solar coming in 20??

HOUSING…All we are left with is another case study in fear greed and leverage. I started writing the case study back in February of 2007 (Wall Street set this case study in motion when housing stocks first broke out to new highs in 2002):

Homebuilders – The NEW Value Trap

Five years from now when the homebuilding stocks are 20-30 percent lower and marking time, small investors will all own shares in what the institutions have distributed to them since mid 2006.

The companies are not crap and they won’t be in 5 years, but the stocks will be value traps. Victims of a badly ended trend where the stocks were overowned and overhyped.

It is no one person’s fault, it is just the way Wall Street works. They are just not real growth stocks. Nothing was different this time and no particular CEO or management team will be totally immune.

The industry will continue to go out of favor with Mutual Funds. That does not mean you should sell your home or get bearish on the world. Hundreds of new trends have been emerging since the homebuilders peaked last spring.

Do not overthink it and get sucked into buying value. That’s for Warren Buffett and a select few, great value managers.

Housing stocks, not housing as a business in general are done. Housing is cyclical, always has been, always will be. You CAN overbuild, just like you can make too much capacity for semiconductors. With homebuilders, leverage sped things up. I disregarded my own analysis and in the Fall I bought the housing sector for a short-term bounce trade. That was my worst idea of the year. I quickly took my losses and have watching the mess once again from the sidelines.

I never tried to call a top in housing, but definitely warned that it would get worse after they had already fallen 50 percent back in February. I followed up repeatedly . I guess that’s why the permabears ‘disgust’ me so. As if calling a top makes you a special gifted market person.

I guess I was wrong about housing stocks being a value trap way back when . They never made it to value, just straight to bankruptcy.

Owning them now is not for anyone other than forensic accountants who have a crystal ball into The Fed and lenders tolerance or for penny stock speculators.

Jeff Matthews just just did a great look back at his housing call . Jeff is not scared of shorting on the way up. That’s why I would NEVER act on his posts. But, he has seen all the cycles. More than some 30 year old analyst writing 312 page missives on homebuilders or internet stocks. As I mentioned last week about the JP Morgan internet analyst – that’s a pathetic waste of time. We get to read Jeff’s missives for FREE. You just need to know ‘HOW’ to read them. Here is my fave and money part of the blog post:

I bought Time Magazine today for the first time since…probably since 9/11, when I bought every newspaper and magazine available with a cover story on the World Trade Center attacks. The relevance of a weekly “news magazine” these days is, after all, right up there with “Book-of-the-Month” clubs and the Sears Catalogue.

Nevertheless, I bought this new issue of Time Magazine because the front cover is titled “Home Sweet Home” (stamped in large letters, the “S” converted into a Dollar sign) with an illustration showing a man covetously hugging a house. The sub-title reads: “Why we’re going gaga over real estate.”

I bought it, quite simply, because this Time Magazine is as good a “cover story” kind of market-mania, surely-we-are-approaching-a-top indicator as I have ever seen.

If you had been excited Jeff’s great post in June of 2005 and sold all your housing stocks and even shorted, you would have been right, just a little early.

Both China and Solar are Case Studies in waiting. It’s the exact same. Wall Street is cooking up the supply. Timimg when it overtakes demand is a fool’s game, but it will happen. China is on the verge of another break, while Solar seems to be just getting legs. Both will end the same way, but you don’t need to predict when, just avoid being the YUTZ’s holding the shares once it is clear the trend has run it’s course.


  1. John Tyler says:

    Is it a bit too early to call a top in China? The wealthy like Buffett and Jim Rogers and a bunch of Chinese billionaires are still betting on it heavily. Someday we’ll see a severe correction in the Chinese housing and stock markets, it just doesn’t look like it’s happening in a few weeks or months.

  2. greenskeptic says:

    Excellent post, Howard. You are that rare writer who is equally adept at being thoughtful and humorous. You do both well.

    This thoughtful post, in particular, strikes a chord. I was starting to worry about solar as a bubble or blister (and China, by extension) the other night and posted about it on my blog (see “Solar Year or Blister in the Sun?” On The Green Skeptic).

    And the start of 2008 certainly supports your insight with everyone jumping on the solar bandwagon, especially shorts. Anyone with a remote solar connection or solar in their name, whether or not it’s a viable business, can get their time in the sun. (Did someone say dot-sun Bubble?)

    I wonder if the fundamental difference is that, except for the extreme high-end, housing is a pretty saturated play — how many 100K units can actually move? — while solar demand is dependent upon ever-increasing oil prices, demand for energy independence, the emerging renewables market, and the certain need to reduce greenhouse gas emissions.

    Anyway, much as I suspect you are right, I hope you’re wrong and we can stay long — and hold off that sun set.

  3. howard lindzon says:

    John – I am not calling a top in china, It is definitely correcting right now.

    Rogers was in 5 years ago and is a trend finder. In the end, Wal STreet will do its thing and distribute the supply to bury most

  4. Howard Lindzon says:

    steve must have no idea. If you followed me you know I took my loss and blogged it over and over.

    smart guys still go bust! this one looks like a bust. Even if they do take it private it would be under 15 now and lawsuits a plenty.

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