Programmer's Investing Notebook         :: Investing notes from a software developer :: | About Me |

Housing market is a mess right now. But house prices are still expensive. I believe we have ways to go. And this article, Home Prices Keep Falling, Prolonging Financial Crisis, supports my view. Here are a few excerpts...

"It looks to us that at least one half of the peak-to-trough price decline has already occurred and that we should see an outright bottom either late next year or in the first part of 2010."

"If prices were to moderate back to where they were relative to income in the mid and late 1990s, the S&P/Case-Shiller 20 City index would have to decline 35.1 percent in total compared with its 17.5 percent fall thus far."

"Regardless of which index you believe, the important measure is that we are only 50-60 percent of the way down."

Reference
Home Prices Keep Falling, Prolonging Financial Crisis, CNBC.com article

It's not easy to be in the stock market in the past few days and weeks. I had a feeling that the stock market recovered a bit too high too soon. I should have capitalized on that. How? By betting that it will correct itself. How do you do that? By "shorting," which is a way to make money when a stock goes down: you're basically betting that a stock will go down, and when it does, you make money. I just discovered that there are now ETFs designed specifically for that purpose. That's a very good investor's resource, in my opinion.

Here are a few ETFs that do the "shorting" for you:
ProShares Ultrashort (QQQ) - rewards a fall in the Nasdaq;
Proshares Ultrashort S&P 500 (SDS)- rewards a fall in the S&P benchmark
Proshares Ultrashort Dow 30 (DXD) - rewards the fall in the bluechip industrials.

Rydex recently rolled out eight new ETFs, half of which offer double-inverse plays on the energy, financial, health care and technology sectors. The Rydex Inverse 2x Select Sector Financial (RFN) - up more than 8 percent in light Thursday trading.

Keep in mind that "shorting" can cause unlimited losses: if stocks go up, you lose. But these ETFs do limit the risk somewhat and that is a very good think.

Reference
Shorting Stocks Could Be Way to Play This Market, cnbc.com article

When will housing reach bottom? Not too soon according to a Wall Street Journal survey.

Reference
U.S. Economy Hasn't Hit Bottom, Survey Says -- WSJ.com ($$$)

Reference
Pace of Decline In Home Prices Sets a Record, WSJ

Take a look at the chart.

And we're not at the peak yet!

According to The Economist...

Nationally, people are defaulting on mortgages at a faster pace than at any point in recent decades. According to the Mortgage Bankers Association, some 5% of all mortgages are delinquent and the share rises to almost 15% for “subprime” mortgages—those lent to people with shaky credit histories. In the second quarter of 2007, almost 3% of subprime loans entered foreclosure (the process of default and repossession). RealtyTrac, a company that tracks foreclosures, reckons up to 1.5m households will enter the process this year (see chart), double last year's figure. And with some 2.5m adjustable-rate mortgages resetting to higher rates before the end of 2008, everyone knows there is much worse to come.

I think we will not see a recovery in housing till at least 2009. But in housing, everything moves slowly. So this downturn might not be over well after 2010.

Reference
The hummer drops, The Economist

I don't think housing is out of the woods yet. In my opinion, the worse is still to come. Take a look at these stats released by the WSJ today.

$31.8 billion in subprime adjustable-rate mortgages got adjusted this month - the highest amount of subprime ARMs due to reset over a one-month period in this housing cycle.

In August, foreclosure filings rose 36% from the previous month and were up 115% from last year, according to RealtyTrac. As ARM resets reach a peak, more homeowners will have trouble meeting payments.

It would take 9.7 months to sell all of the single-family homes now on the market, near the previous peak set in May 1989.

All this means that housing in the months to come will most likely get worse, not better.

Reference
Housing Slump Could 'Reset' Itself Again, WSJ

Being well diversified is the key to long-term investing. If you were not, you probably learned from the recent correction. I began moving towards big, dividend paying, safe companies for some time. As a result, my portfolio is in good shape after the correction. The fact is, though, the economy is slowing and might even go through a recession. It doesn’t mean that there are no good picks. Actually, the best time to buy is during market downturns.

Here are some of the stocks and ETF that I’m currently looking at. I think technology is a good place to be in the near future. There is decent growth and the stocks do not look overpriced. I am going to have to pick on technology oriented ETF and invest in it.

Software and Technology ETFs
Software ETF (SWH)
iShares S&P GSTI Software Index Fund (IGV)
PowerShares Dynamic Software ETF (PSJ)
Technology Select ETF (XLK)

Town Sports Intl (CLUB)
Strong membership growth; profits should follow.

I fell for it. Have $25K in your accounts and you will get 30 free trades every month -- that's the offer from Bank of America (BoA). Because I had that amount with some cash and money from my Interactive Brokers account, I went for it. Now that my account is transferred to BoA it turns out I’m charged $10 for each trade!

The catch?

You have to have $25K outside of your investing account! Wholly shit! Who the hell is going to keep $25K in their savings/checking accounts? Definitely not me! I don’t need more than $5-10K in my savings account. I want to have my money invested, not sitting idle in an account.

I am going to look elsewhere and transfer my assets out of Bank of America.

One possibility is Zecco. They also have free trades and it seems like a good offer. I don’t see any catches – not yet, at least. :-) If that does not work out, I’m going to go back to Interactive Brokers ($1 per trade; 10 trades/month minimum), where I had my account for the past several years.

I guess the lesson for me is to read the fine print.

Americans are getting heavier. That's a fact. Companies that deal with that will benefit. Which companies? Good question.

Life Time Fitness (LTM, $53), is a "Lexus experience for Toyota price. This is a health-club chain, where members for about $60/month enjoy amenities usually reserved for facilities that charge a lot more: wood panel rocker rooms, yoga, Pilates, pools, care, and day-care centers, and more. They currently operate in Minnesota and Texas, but are expanding to Georgia, Phoenix, and Salt Lake City areas.

Reference
Kiplinger's, March 2007 issue

Related
Nautilus (NLS), Bowlex maker

Excellent article on state of the housing... and things to come.

The worst is yet to come for the U.S. housing market.

The jump in 30-year mortgage rates by more than a half a percentage point to 6.74 percent in the past five weeks is putting a crimp on borrowers with the best credit just as a crackdown in subprime lending standards limits the pool of qualified buyers. The national median home price is poised for its first annual decline since the Great Depression, and the supply of unsold homes is at a record 4.2 million, according to the National Association of Realtors.

“When all these people see their mortgage payment and it’s up 40 or 50 percent, they’re going to say, `We can’t stay in this house,”’ Pimco’s Kiesel said. “And there are millions of people in this situation.”

Some owners are selling their homes at “fire sale” prices to avoid foreclosure after seeing their adjustable mortgage rates spike, said Lawrence White, an economics professor at the Stern School of Business.

“Prices will continue to soften for as long as we have distressed sellers,” White said. Some regions of the U.S. could see price declines of 10 percent in the next six to 12 months, he said. The slump probably won’t cause a recession, he said.

Reference
Rate Rise Pushes Housing, Economy to `Blood Bath' - Bloomberg.com: Worldwide