Back to work

I have had several days/weeks to decompress now after the end of finals. I haven't been completely conscious of it - but I know that I am more rested and ready for a bit deeper commentary over the coming weeks. Other than a few small and insignificant trades in the grand scheme of things (re: PMI) I have a lot of dead time in the coming months while I wait for GGC to hit (hopefully.) I plan on using this opportunity to develop a comprehensive industry analysis for the real estate sector. Reader commentary is encouraged during this period in helping me to develop the correct framework for the analysis.

So far I have segregated the general real estate sector in too subsectors and then broken out specific companies in each subsector. I then track the % that each stock and subsector is down from its 52-week highs. This really isn't enough though. All the data will tell me is which stocks are weaker relative to the others and also which ones are likely below their 200 day moving averages and in downtrend as opposed to an uptrend. This is helpful information, but as commented - it is not enough. The really useful information would be understanding how the different subsectors relate to each other and when fundamental weakness in one sector would leak into another sector and in what timeframe.

So far I only have three basic concepts of the interrelationships:

1) The decline may start in the transactional subsectors (re: homebuilders, title insurance, etc.) because. Default risk hitting the mortgage lenders and mortgage insurers would show up much later, that is - at least 12-18 months.

2) The REITS may function less on weakness to the bond sector and more as a function of bond yields. As treasury yields increase into the 6-7% range - a REIT that is yielding 2-3% becomes much less attractive, especially as NAV for the REITS is likely peaking.

3) The last is a question more than a concept - mainly how do you distinguish a decline in the real estate subsectors from a general market decline. That is - would it be smarter to just choose a more liquid proxy for the market - re: the SPY etf and buy PUTS on that. I still don't know.

Just a few thoughts I am throwing out there - we will discuss all of these ideas in more depth in the coming weeks. I look forward to any feedback - positive or negative - as I am not going to solve this one on my own.

Best regards,

BG

New Position and Portfolio Update

Portfolio is just tickin up pennies at a time, one day at a time. I initiated a new position in PMI by buying the June $45 Put Options. I picked up 20 of them for $0.50 each for total cost of $1,000. I have expectation that the stock could decline into the 42-43 are which could be a potential gain of 3-5K. We will see how it turns out.

Here is the portfolio snapshot:


I would consider adding additional exposure to the PMI trade if the stock was to tick back up into the $47 range. The portfolio is at all time highs. If you add back in the $5,000 of redemptions year to date it gives a total of $15,758 which gives a year to date return of 50%+ and an all time nominal high for the portfolio. I am looking to capitalize on the portfolio's strength and make a push for the rest of the year. After the GGC trade is up I will be concentrating entirely on the precious metals and shorting.

Best regards,

BG

Vacation

I have really been enjoying vacation so far the past few days. I say "vacation" but it is not really full day off - just no school at nights. Believe me though - it is a major difference in quality of life. For past three years I am gone all day and all night - school and then work - and believe me when I say it feels like a lost three years. Oh well - only one year left and back to more important stock market happenings.

Right now I am watching PMI for a potential entry point. I would like to buy the June $45 put options once the stockhits the $46 area and the options are trading for about $.50. I am still long all the GGC calls and for now they are kicking ass. Their success has brought the portfolio bak up to $10K level and I find myself greedier than ever. The game plan is to sit on them. Just friggin sit - until August and let the marke do the work instead of my mind - as I have already put a lot of thought into the move and I cannot will it to move up any faster. It looks like it is building a new base in the 30-33 area and will then breakout again within another week or so. This time hopefully to the upside.

Best regards,

BG

Too much volatility

Portfolio is bouncing back nicely today thanks to miraculous end of week collapses in LEND and MTG. I have included the updated portfolio snapshot as well as the profit and losses for LEND and FHN trades. All in all I was in the PUTS trades for about 1 month and I made less than $100 bucks cumulatively. I still think the money to be made for the remainder of the year though is on the short side, so I will be probing again soon - probably in the similar names. Especially since Greenspan publicly announced "the end of the housing boom" recently:

http://news.yahoo.com/s/ap/20060519/ap_on_bi_ge/greenspan_speech

If Greenspan is announcing that the boom is over - I take that to mean that the collapse is just beginning and I plan to get heavily short in some of the preferred real estate spreadsheet names which I have developed over the coming days/weeks.

Here are the trade snapshots:


Here is the portfolio snapshot:

Two days ago the portfolio was at $4,000. $3,000 volatility or a 50% swing in portfolio values is probably evidence that you are either two leveraged or two concentrated i your positions. I have elected to limit any future short positions to maximum of two and preferably only one position - the *best one* that I can find - an then just focus on monitoring and better entry/exit.

Anyways - I think the market bounces here for a few days. I will be looking for position entry by the end of next week or early the following week. You know the names I am looking at. I am also looking for attractive leverage opportunities - a la MTG.

Best regards,

BG

Drowning in a sea of red

So last night I had my last final of the spring semester. I am exhausted right now to say the least, but I figure a couple quick posts just to bring everyone up to date. The portfolio has suffered over the past two weeks. Other than a profitable end to the MTG trade, both FHN and LEND are down from where they were purchased and even GGC has had a major correction and is way down. Here is the portfolio snapshot:



Here is the P & L on MTG:

I am still bullish on GGC and would be buying more if I had more funds - but I don't. The game plan is to take the $2,500 to $3,000 that is left over after this week's expiration and probe bit more on the short side. I plan on paying a bit more attention to the moving averages and the entry/exits this time around, but I will still probably play it with a shorter term time horizon - picking the June 2006s.

Things may clear up in my head a bit this weekend - but for now I'm shellacked.

Best regards,

BG

Hangin on by a thread

Closed out the PDLI trade today. No good reason behind it. It made a nice little move and it may have gone even higher into 25-26 range if I had given it another week or so. Sold it at 22 and netted about $150. No biggy. I think that is part of the problem - the position moved so little when compare to my options positions that it was almost like holdig cash.

On that note my short positions in the banks are getting annihilated toda with all the stocks - re: FHN,LEND, and MTG hitting new highs. Just wait until end of the week though baby and we will see who has the last laugh. GGC is holding up admirably and has not had the expected retracement to 29-30 yet.

-BG

What a difference a day makes

Wow - did anyone see that huge move in the financials yesterday? I was feeling pretty good about my positions until all of the banks and real estate related stocks took off on Friday. Also DOW is within 150 points of its all time NOMINAL high of 11,723. I can't imagine the stock market blasting through that major resistance to make new highs - however as long-time readers well know - I can envision a retest of the highs followed by a monster decline. We even have the perfect catalyst in the fed meeting to generate the change in trend. Probably just wishful thinking on my part however.

Still, I am so glad that I put the gold ticker on the blog. It constantly reminds me of the importance in distinguishing between nominal and real returns. Even if the Dow was to reach its former high of 11,723 - that does not take into account INFLATION. Assuming a conservative inflation rate of 4% compounded over the past 6 years (since 2000) - I arrive at a 26% change in the price level. If we compare that to the Dow - the Dow would need to hit 14,833 in order to reach new REAL highs and I definitely do not think this is in the cards for this short cycle.

Anyways back to gold - it reached $680 per share last week and has had a huge move from the $450 level last summer/fall. I am not sure if this is sustainable in the short run and I expect a correction back to the low 600s before an advance into the 700-900 area later this year. So whats goin on with the portfolio? It is really too early to say. I will know a lot more by options expiration two Fridays from now. If my options plays work out I may liquidate PDLI and the shorts and take the extra capital and add a new speculation in PolyOne (POL) which is a competitor to GGC and is also reporting phenomenal earnings growth year over year and is in my humble opinion undervalued.

If they do not work out I will likely just liquidate the PDLI position and remain the small cash allocation along with the GGC call options. For some reason I feel a big move coming in both POL and GGC (possibly down first) but I could see a 40-50% advance over the remainder of the year. This is probably just wishful thinking on my part. :)

Best regards,

BG

PS - take a look at the positions to see just how nailed I got after the financials decided to levitate. I was flabbergasted to say the least:

General Update

Here is the portfolio snapshot, it has been awhile:

As displayed above, I am taking a bath in the banks but with a small gain in PDL and a good one running in GGC. I see a retracement of GGC back into the high twenties as imminent in the coming weeks, but my gut also sees the banks getting demolished after the fed meeting. In an ideal situation I will have profits in a couple weeks on LEND and MTG totaling 2-3K and I will be able to average down into more GGC options -this time maybe buying som of the 30s. We will see.

Best regards,

BG

New Position - PDLI

I added a new position again today - PDLI. I bought 100 shares at $20.63. Stock is currently at bottom of long-term (3 year+) trendline - but it has not yet broke the support level. If it drops below $18.50 it is a sale and a short. But I think that it bottoms here and I see 23-25 range within a few weeks. Here are the charts showing the trendlines I was discussing:

Identified on line chart:


Detailed on candle chart:





Best regards,

BG

Review of current positions

All of the following are current open positions. All are May expiration with the exception of GGC which is August. All are short positions with the exception of GGC. Enjoy:

GGC Chart:





FHN Chart:





LEND Chart:




MTG Chart:


Time horizons for several of above positions will be ending in next two weeks. All eyes are focusing on fed meetinig. These are interest rate sensitive securities and I believe that an expectation of further rate hikes and higher interest rates should tank these stocks. Likewise - the "one and done" camp may also emerge victorious. An end to the rate hikes could really juice the market - financials included over the short term and leave me bag holding with each position wiped out.

So what's the game plan? Ideal - would be to see some movement downward in anticipation of the meeting over the next couple days. If I can get in the money on LEND and MTG to the tune of 20-50% gains then I could sell off my original cost portion in each position and let the rest ride on the Fed meeting.

Best regards,

Ben

New Position - MTG

I added 10 put options on MTG today with expectation that price of stock will fall and options price rise. I purchased the May 2006 $70 put options.

Regards,

BG

New position - LEND

I purchased 2 put contracts trading for $7.10 each on LEND. The puts expire at the end of this month. I have expectation the stock price will continue to fall and the puts price will increase.

-BG