Like I mentioned in March, CFC finally has began to crack. I tried unsuccessfully to short it a few times and then I missed the big decline!
Insiders have been dumping for quite a while now, so they pretty much now what was coming. Even if they claim that the housing slump was unexpected. Kind of strange considering that I’ve been expecting a housing decline for 2 years now, especially in Southern California.
The housing slump in SoCal is far from over. Prices have dropped 10-30% and I expect another 20-30% drop over the next few years. If we see a large contraction in liquidity, it might be more severe. There’s talk that the cheap money for the private-equity buyouts is drying up. Mortgages have become more difficult to get. The 100% financing for broke, jobless borrowers with lousy credit has completely disappeared. Countrywide stated that the delinquencies in Alt-A and Prime mortgages has been much higher than expected. Could the availability of these loans also dry up?
I sold naked calls on August iShares Dow Jones US Real Estate (IYR) on Monday. I would’ve made more money if I had bought puts instead, but I still did okay. The calls are almost worthless and I can buy them back to close out the position for 70% less than I paid. I’ll be keeping a close eye on CFC and other home-builder stocks to see if there are any other shorting opportunities in future.