... slightly below Friday's low now. We've seen worse pullbacks along the way up, as I noted here on Sunday:
Will the current pullback match the 23%, 34%, 45% pullbacks that we've had since mid-1998? Who knows; stupidity and mass panic can be powerful forces. I'm not going to predict a daily or hourly price movement, any more than I'm going to predict coin flips. But for those who understand this business and investment valuations, it is obvious that PHM is well on track for new highs again before long (still expecting $85-90 this year, $200-300 before the end of the year).
Shorts who choose to "live" on this board, I'm sure are happy and feel "vindicated" right now; sorry that there are too many of you now to address you all personally. The reality is that we've seen this before, and worse in fact. Irrational pessimism can be quite powerful, but eventually reality takes its place. Eventually, asnity will return, and PHM will get a much more realistic valuation. Real investors understand this, coin-flipping short "traders" will never get it. Watch and see how this plays out in the upcoming weeks, months, and years, not tick-by-tick, minute-by-minute, day-by-day.
Thanks Davenport; nice to see a short with a sense of humor, one who can admit seeing the humor in that "Chicken Little"* movie trailer.
<<< He saw the signs - he tried to warn us. Now, in our darkest hour - he's got a plan, to save us all. RUUUUNNN!!! >>>
Too funny. IMO, anyway.
* - Disney copyrighted quote inside the <<< >>>.
Valuations are calculated on earnings multiples, the PE ratio, not absolute dollar amounts. The PE norm for the S&P is still 14.5 no matter what the inflation of the last 25 years. And we are now at a ratio of 22.6.
Now if the average U.S. equity PE ratio is 14.5, it means it takes 14.5 years for that company to earn back the full purchase price per share, whatever a dollar is worth.
<I could see a confluence of events that takes the Dow down to 4000 but find it fairly unlikely. The financial sector would have to undergo a complete meltdown which would cause a severe depression. 8000 is a more reasonable bottom over the next few years. A lot depends on what China and Japan do. They can really shaft us if they want to.>
Don't forget that you have to take inflation into account when projecting future prices of anything.If the Fed is successful in creating inflation elsewhere to catch up with housing inflation then the Dow doesn't have to fall at all to be a loser in inflation adjusted prices.Before 1980 1000 on the Dow was considered high.Now 10000 is equivalent to 1000 in 1980.
Well, what I see is a major reversal pattern on the 20-year chart that coincides with years of unprecedented overvaluation on a historic basis. What triggers a major meltdown is anyone's guess. The 1929 meltdown was triggered by overvaluation---and just plain psychology. Interesting, too, that it should come only a few years after the Florida land bubble. We just had the tech bubble.
You don't a meltdown will happen? It always has and it always will. We are set up for it by human nature and the nature of greed. And we are long overdue. There's plenty of stuff out there right now that could, if given a push, trigger a meltdown. If Paul Volker is worried, you ought to be. Why is it that people can never see these things? All the elements are in place. We have been constantly alluding to them on this very board.
Furthermore, do you think that a bursting bubble in housing will remain in isolation? A housing collapse may be the trigger. But markets have always returned to normal valuations and then some. It's really up to you to explain why this time it won't.
I could see a confluence of events that takes the Dow down to 4000 but find it fairly unlikely. The financial sector would have to undergo a complete meltdown which would cause a severe depression. 8000 is a more reasonable bottom over the next few years. A lot depends on what China and Japan do. They can really shaft us if they want to.
Your analysis of the Real Estate market is weak, you do not include key issues affecting our economy, which can't be control by home builders.
The most crucial issue is our trade imbalances, at one point foreign centrals bank will cut in the purchases of US Treasuries, unless you think that is possible for USA to keep borrowing an average of $2 billion per day indefinetly. When that takes place the dollar will plunge and interest rates will shoot up higher. This alone will crush the RE market, now add the fact that 35% of mortages taken by people during 2004 were ARM, acceleration of inflation, falling wages, and a bunch of stupid speculators with little knowledge about the RE market. And the ending result is inevitable, our economy is very fragile pretty much like Paul Volker said "we are an economy in thin ice", and we are heading towards collapse.
Party is over........
With respect, Paul VolCker has a 'C' in his name. Just feel that someone deserving respect should have their name spelled correctly, not some Pretender like Greanspan.......Good luck to all.....
Technically speaking, I don't necessarily disagree with Alex that this COULD be another pullback (and he obviously means $200 to $300 by the end of the *decade* or something like that, not the end of the year).
PHM hasn't even broken below the 200-day EMA, so the drop is not that significant yet. The stock has to go much lower from here before "it's over." My educated guess, however, is that it is over, or nearly over, long-term, because when you look at the major averages and consider their own patterns (I have posted the link to the 25-year Dow chart before), it's difficult to imagine how PHM can break into new high territory if the Dow or S&P can't exceed theirs. General weakness will keep the homebuilders in check until the housing bubble bursts, and then the consequences of Greenspan's money policies will hit the fan. The debate is, unfortunately for Playthekeys, a macro debate.
<<< he obviously means $200 to $300 by the end of the *decade* or something like that, not the end of the year >>>
Yes I meant this decade, not this year. Before the end of 2010. Thanks Davenport.
<<< it's difficult to imagine how PHM can break into new high territory if the Dow or S&P can't exceed theirs. >>>
But they have, many times this decade. Significant pullback for PHM, followed by new highs, yet the DJIA, S&P500, etc. did not make new highs.
Now a total collapse of major averages would not be helpful to PHM's short term performance; this is the likely reason the homebuilders went down in mid 2002, even though their earnings were strong.
The assumption that the "housing bubble" will burst, or that there even is a "housing bubble" is fairly widespread. I realize that the purveyors of "gloom n doom" are all convinced of this, or at least that they make a good living out of selling their "gloom n doom" to others. But if it doesn't happen? If the sky doesn't fall? There's always next year, as Chicago Cubs fans used to be conned into believing (kidding there, sort of). If the "bubble doesn't break" this year, then there's always the chance it will the next year, or the next year, or the next year, or... Chicken Little might not have actually been wrong, just early. But the longer we go and the sky doesn't fall, the more likely it is that PHM will return to new highs. What's clear to me is this - IF PHM makes the numbers that are projected for the next few years, it would take a massive amount of pessimism to keep it from making new highs, much higher than the former ones. The question is, will they make the numbers? It's not about "they must exceed" or "they must accelerate" EPS, it's about making the numbers, even coming close to those projections. They do that, and the pessism disspates, as it has so many times before (though not completely, or it would have had a higher valuation than it's had, even at the peaks).
Now if the economic "gloom n doomers" are right, and soon, then PHM will not be exempt from the carnage. So far, all we've had is TALK that the sky is falling. TALK can only take us down so far. Pretty soon, the sky better fall, or people are going to start to wonder if Chicken Little might actually be nuts. Meantime though, fear is definitely ruling the day. It's just a matter of how long fear can rule. Then it's a question of whether the sky will really fall, soon. I'm betting on PHM, not Chicken Little. But as I said, we'll see. Davenport, I have no interest in seeing you lose money, so I hope you'll play this hand wisely.
Any technician knows everything is a "pullback" until it isn't.
No doubt the longs can make a case for the builders to go up even though the broader mkts go down. That's how they started in the first place in 2000.
But as I've said many times, dopes like Alex are victims of their own luck. Gambler's fallacy is all that is at work here psychologically. Just because the builders have had a five year run does not give them a better chance of doing so for 6 years.
Along with the charts, the action is much different than when these stocks were truly just "pulling back". There's not much strength or staying power in the rallies. They "feel" much different for lack of a better term.
But I agree with you, now that the top appears to be in both fundamentally and technically for the group, all news will be circumspect and bad news will be really bad.
Consumers are really getting squeezed, and with today's beige book report, interest rates are suddenly seeming to be important.
Even to the HBs whose idiot proponants on this board claim they are all but irrelevent.
Also agree that Greenspan's policies have been horrible, and he only has one option.
All he can do is raise rates now.
His "conundrum" will be how to do it without throwing the economy through the windshield.
He got us going so fast that we're still careening through the streets in terms of easy cheap money, and he's gotta slow us down before McDonald's fry cooks are buying the "median" priced one million dollar home with money back at closing and a 200 year interest only loan.
We're going to hear many long, whining rants from Alex and his ilk about how "smart" and "strong" he and what a "long term" investor he is with lectures about that crazy "Mr Market" and the "wrongway efficient market theory" bears.
Alex, our "greatest" fool mascot is Alive and well. As bagholder in chief, he is an excellent indicator, and we should wish him well... all the way to the bottom. When he panics, we should probably cover. LOL
But perhaps unlike you, I don't think we're in so much of a bear mkt as a consolidating mkt or side ways mkt. (I mean the S&P)
The monthly chart to me looks like the S&P
is trying to plateau and base, and hasn't really gotten too ahead of itself in terms of PE or the chart. S&P has only recovered about 50% of what it lost from 2000 and seems to be basing in the 1000+ area. I don't think we're going back down to the lows.
Very important, however, to have on good shorts, if for no other reason a hedge.
And the HBs should do very nicely in this regard.
This will be no different this time. Investors will throw the baby out with the bath water, hold the wrong stuff, and just when they should be getting long they'll be out or wiped out.
Then, of course, we'll start a bull leg and probably a powerful one.
Of course, by then the builder will have hopefully lost both legs... and arms.
Thanks for your posts Alex.I think this would be a boring message board if only negative posts were here.You must be doing something right or you wouldn't be getting the many responses to your posts.