Friday, October 19, 2007

Not quite 10/19/87 but I'll take it

On this 20th anniversary of Black Friday, we get a fun little mini-crash.

What do you know? Caterpillar warned today because the housing market crash may be worse than "experts"predicted. Well I'm no "expert"but I predicted this crash many moons ago. I am no expert and I have been banging the housing crash drum for over a year while being told I was nuts and over reacting. Housing never falls right Wall St? Housing is the best investment you could ever have right NAR? Goldilocks economy right Larry Kudlow?

Well OK here's your over reaction. S&P down 2.5%. All hell breaking loose on Wall St yet again due to some big surprise about housing. This is just downright comical now. How many warnings does someone need before clueing in? Let me spell it out as clearly as possible. Anything that has to do with housing is toast. Lenders. Heavy equipment. Bricks. Cement. Lumber. Furniture. Appliances. Home Depot. Lowe's. Moving companies. Harley Davidson. GM. Ford. When Home Depot announces yet one more round of layoffs, don't be shocked. When Lennar goes bankrupt, don't be surprised. When Countrywide's CEO is arrested for Enron style shenanigans, do not be stunned. When Bear Sterns announces another $3B worth of MBS bonds are not worth the paper they're printed on don't act surprised. When GM comes out sand says nobody is buying cars anymore don't be surprised. They aren't buying cars and boats and ski-doos and motorcycles anymore because the HELOC magic is gone.

Anyone with 1/4 of a brain could see this coming. But nobody **wanted** to see it coming. The gravy train was too good. The fat was too delicious to imagine it would ever go away. Well it has and it's not coming back any time soon. The emperor's clothes are gone. He is buck-ass naked. Get it now?

On a related note my favorite shorting opportunity made some people a ton of money today. Yes you guessed it FXI. Today was options expiration and FXI fell below $200. The $200 puts expiring today went up over 200% just today, up 400% for the week. I got in on this fun ride a little myself. I bought and quickly sold Feb '08 puts on Thursday. Made a decent return, but nothing close to the grand slam had today. To any of you out there with balls of steel to play the options game so close to expiration...I salute you.

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