Bookkeeping: Selling some Lennar (LEN)

Why do I own homebuilders? Only because they go up on great news like foreclosures accelerating.

• Foreclosure activity in April--that’s default notices, auction sale notices and bank repossessions (so yes there can be more than one hit on the property, but we look at the total percentage increases)--was reported on 243,353 properties. That’s a 65% increase from April of 2007.
• "In states like Michigan, we’re hearing from some of the trustees who actually do the foreclosures that the lenders have asked them to slow down because they don’t want to process any more into a market that won’t absorb the properties back through sales," says Rick Sharga of RealtyTrac.
• In Florida, a St. Lucie County court actually added a night shift to handle the massive backlog of foreclosure filings. The clerk of the courts was quoted as saying the caseload has become, “just horrendous.” The court used to handle about forty filings per month.
• The folks at RealtyTrac, and granted these folks list foreclosed properties for a fee, say they don’t believe we’ll see the numbers start to slow until the second quarter of 2009.
• All those foreclosed homes on the market will continue to push inventories up and push prices down in neighborhoods across the country. (Bingo)
  

I don't have any good explanation and I don't believe we have any home market calm until 2010, but the stocks stopped going down on bad news late fall/early winter 2007, so you have to respect it. [Apr 29: Housing Stocks Continue to Ignore the News] What I do is buy these stocks when they falter a bit, and inevitably as hopes increase and Kool Aid flows they go up, so I cut back. They've actually turned into some great trading stocks; so I keep doing the same trade over and over, and it works... the key here is we are getting higher highs and higher lows in a general sense. Or at least the lows are not lower. Today an analyst came out and said not so nice things but hey the stocks rallied because (all together now) "it's all priced in"

• In a client note Wednesday, Wachovia Capital Markets analyst Carl Reichardt said he expects hyper-competition among builders, limited mortgage availability, high supply and buyer fear to keep home sales and margins depressed throughout the year. (but other than that, this is a great story)
  
• However, he believes builders' stock prices already account for this dismal outlook.

Also remember, that Congress, who was threatened by the homebuilding lobby that they would stop paying them ... err contributing to their political coffers, if they did not get relief flew in with a "stimulus" package for the homebuilders under the guise of a Foreclosure relief act.... so yet another reason to be bullish on these guys. [Apr 4: Congress is Rushing to Help Home Owners!! (Not)] Congress could care less about the peons but once the homebuilders threaten to stop contributing to their campaigns, well then that gets them working hard and passing bills in record time... Boo Yah. Who said Congress cannot work hand in hand across the aisle? When their money supply is threatened they all come together very well in concert! Cramerica - for the corporation by the corporation. Let's review - bailouts for banks, bailouts for homebuilders, and more inflation for you, the consumer. Ahhh... nirvana. Why should stocks not go up in that environment? :)

I am selling 400 of my remaining 1000 shares of Lennar (LEN) here near $20 - I missed buying more on the last dip (near $18) since I was concerned that the stock market might actually go down... haha, that's almost funny in retrospect. (stocks rarely are allowed to go down in socialized markets, and when they are its only temporary). And the next time these stocks dip, I'll buy again and replace these shares because... well the stocks keep rebounding and showing good strength. It's as simple as that sometimes. I'll sell more if we trend towards $22...

Conclusion: Housing stocks.... mmmm...mmmm... good.

Long Lennar in fund; no personal position