Tuesday, September 9, 2008

Bookkeeping: Adding Back Lennar (LEN)

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It's a traders market. We cut homebuilder Lennar (LEN) yesterday in the low $15s saying

When given gifts, take them - especially in this market. Cutting homebuilder from 1.7% stake to Lennar (LEN)0.1% stake on this gyration up to $16. Cut it in the low $15s. We'll see if we can get it back in the low $13s or lower.

Well it is now in the low $13s, trading in the $13.10s, about 24 hours later. That's over a 13% drop. So we're taking it back UP to a 1.2% stake.

Again, I don't believe for 1 moment the housing industry will be fine in 6 months but pathetically this has been among the best performing groups since hedge funds need to find something to ride. Today there was another in a long litanty of bad news items out of the group (1 month ago pending sales was "good" and everyone screamed the bottom was in - now today the number is bad and no one mentions it)
  • Pending U.S. home sales fell more than expected in July as the housing market's struggles continued, an industry group said Tuesday.
  • The National Association of Realtors said its seasonally adjusted index of pending sales for existing homes fell 3.2 percent to a reading of 86.5 from an upwardly revised June reading of 89.4. The index was 6.8 percent below year-ago levels.
  • Home sales are considered pending when the seller has accepted an offer, but the deal has not yet closed. Typically there is a one- to two-month lag before a sale is completed.
  • Wall Street economists surveyed by Thomson/IFR had predicted the index would fall to 88.6. The index, which sunk to a record low of 83 in March, stood at 92.2 in July 2007.
  • Many in the real estate industry are hopeful that these standards will be relaxed with Fannie and Freddie under government control, but the outlook remains uncertain. (hope. You see that word everywhere. Reality is not useful. Hope is)
also a sector downgrade today
  • Homebuilders continue to suffer declines in buyer traffic even as their stocks have rallied, said an analyst who downgraded several homebuilder stocks Tuesday.
  • Credit Suisse's Daniel Oppenheim lowered his rating on the homebuilder sector to "Market Weight" from "Overweight" in a client note. He also cut four individual stocks to "Neutral" from "Overweight": DR Horton Inc., KB Home, Toll Brothers Inc. and Pulte Homes Inc.
  • An in-house survey of real estate agents indicated declines in buyer traffic in August due to fears of falling home prices, concerns about the economy and difficulties finding, or qualifying for, an affordable mortgage, the analyst wrote. (this is reality - remember summer is the biggest buying season - what happens in "6 months" otherwise known as winter)
  • Oppenheim added that the recent bailout of mortgage giants Fannie Mae and Freddie Mac will lower mortgage rates, but not by enough to spur sales. (don't you worry, this will be used as a reason for another rally in the near future. And yes it does help, but we have such larger problems that it's just 1 offset to a multitude of problems - i.e. unemployed people don't really buy homes, people without savings don't buy homes - unless its 2003-2006)
That said, reality does not matter in the virtual hedge fund world - just making trades. I am hoping for it to go back even lower and then we can build it up to a larger stake. Until then, we'll trade it if it remains range bound like this. This is nothing but a rental, we don't believe in the fundamentals or any bottom anytime soon in the "real economy" although the stocks might be calling a bottom 3 years in advance. This is all we are left with as stocks with real fundamentals are systematically destroyed since too many levered hedge funds own them. Hence these underowned stocks are "safer". I've debated buying multiple home stocks but again this is not a stock pickers market, its a sector allocation market. Owning 1 homebuilder is the same as owning 40. So instead of buying a basket, we'll just own 1 and start making it a larger stake. Since no matter what reality is, we will be shouted down by the "home buying will rebound soon" crowd (who has a lot of money) we will continue to buy this on pullbacks. But hopefully larger pullbacks than this. ($10s or $11s would be nice)

Now that we have the government internvetion out of the way, hopefully we can go retest those July lows without the invisible hand messing up what will happen anyhow.

Long Lennar in fund; no personal position



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