Sunday, May 31, 2009

Whitney Tilson's new piece on mortgages

His latest 69 page piece, is a rehash of charts with no new information. (He does have a coupon though, for $1700 off the deep value conference in NY, as long as you register by June 30.)

The only interesting tidbit presented is this on page 55, where he talks about home prices in Sacramento.

In that he said, "Home prices are stabilizing in Sacramento County due to more higher end homes being sold off."

It's nice that somebody finally recognized this fact.

But then again, you heard that here first, on March 23, in my piece entitled, "Housing math for the bears." I'll put it here again, so you don't have to bother clicking the link.

Since the bears didn't like the 666 bottom on the S&P 500, I'll give them some more math that they'll have a hard time swallowing.

As it quite evident now, the stock market, even to those who missed the lows, has bottomed. The stock market, is a forward looking indicator, and even though the news has been bad, this news is already discounted in prices.

(I suppose that statement just two weeks off of the low may have seemed just a bit foolhardy, but it is now obvious to anyone, that it was just forward thinking, that the bears didn't recognize.)

It's the same with housing.

And house prices, will now be going up, and these price increases, along with the rising stock market will get those who haven't bought, or who are contemplating buying a home, off of the sidelines, and it will help engender confidence in banks who love algorithms and models, but hate common sense!

Let's do the math. The numbers on the average home sale price came out today at $165,400. That my friends is the absolute low reading that you will see in this housing cycle, so get on board, or get run over by the train.

Now we also know, that the higher end homes are being foreclosed on also. Let's take a $1,200,000 home that goes into foreclosure and sells for $600,000.

(I'm glad that two months later, Mr. Mortgage meltdown, has realized that sales of higher end homes will increase the average price of homes. Now with interest rates going up, does he think that the average potential homeowner will be able to read his 69 pages and determine that prices are going up because of higher end sales? He won't. He'll buy.)

Now the average home sold for $165,400, last month, didn't it? So lets throw in a $600,000 high end foreclosure into the mix in a sample of 20 homes.

So we have:

19 homes at $165,4000=$3,142,600.
1 home at $600,000= $600,000.

So now we have 20 homes that now sell for $3,742,600. Divide that by 20 homes and you get
$187,130 versus this month's figure of $165,400.

An increase of 13.13%!

More bad numbers for the non-believers!

The housing numbers will indicate better times, even if housing hasn't changed.

(Housing numbers do indicate better pricing, despite the increase in the number of foreclosures. Now it may be a statistical quirk---In a few months, it won't be, as the quirks will be determined to be a trend.)

It's the same with the stock market. Higher prices attract buyers!

(Isn't that now happening in the stock market? Wasn't the first two weeks just a "fluke." Then the first month? Then just a bear market rally? Now it's longer than a bear market rally is supposed to last, and it's also higher than a bear market rally is supposed to be, and so are the stock markets around the world. And thewre is also a corresponding increase in credit in junk and investment grade. Did all of these folks not get Whitney's memo?)

How about it bears--how's your "conviction" level now?

Are we still heading into Depression II?

(Now even the bears have taken the Great Depression II off of the table. Why couldn't they recognize that two months ago? That's really easy, and it's answered by almost the same question. Why can't they recognize it now? It's pretty tough, if it will hurt your book sales!)

Being bearish will turn your intellectual argument into just common cents, and then you'll just contemplate what Thomas Paine said:

A long habit of not thinking a thing wrong gives it a superficial appearance of being right.

(Even if they need 69 pages to convince themselves!)

Because common sense is still in short supply on Wall Street!

I'll add just a couple more words.

As advertised!!


Anonymous said...

so what are some good buys right now under $10 going into the next up leg?


Palmoni said...

In retail M and CHS are both easy traders. JWN has pulled back from 25 to 20, the July 21 calls are 1.10, could go to 4.

In tech,I like the GOOG calls at 10-in the article I just wrote above this post.

I'll work on an under 10 corner.

Anonymous said...

thanks...what do you think about liz?

Palmoni said...

I think it works here also

Ray Errol Fox / Son of the Cucumber King said...

This one is good! And even better, encouraging. Refreshing to read a well-grounded optimist.

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