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What was Ignored by the Housing Bulls

Written By Brian Hicks

Posted December 17, 2007

It sickens me that the Fed, the government, the talking heads, and other, former bullish cheerleaders are now touting the fact that housing / credit is in real trouble.

If those groups acted responsibly instead of touting a turnaround that wasn’t coming, we wouldn’t be in the mess we are today.

We knew, despite the bullish cheerleader rants that, “Sub-prime lenders offered adjustable or teaser rates to those with bad credit, that loans like this made up 23% of the U.S. mortgage market in 2006 as compared to the 8% in 2001, according to Yahoo News… one in five sub-prime mortgages are now ending in foreclosure, according to the Center for Responsible Lending as mentioned by Yahoo News, at the time.

You could physically see that, in February 2007, the housing market was not bottoming, that subprime lenders were doomed. In fact, I was often quoted as saying, “You can continue to listen to the delusional madness pouring from the mouths of Street analysts, and the mainstream press, or you can listen to the homebuilder CEOs and the sub-prime lenders that have gone belly up because of a weak housing market. “

Even JP Morgan’s CEO, James Dimon, was bearish on the sector, saying, “’Mortgages are the one area of sub-prime lending where ‘we really see something taking place that looks like a recession….’”

That was just an inkling of the tumultuous future for sub-prime lending. believed, “The sub-prime sector still has another year of tough times ahead.” That’s supported by Countrywide Financial, which says, “We’ve got another eight, nine, 10, 12 months of headwinds. You’re seeing 40 or 50 (sub-prime companies) a day throughout the country going down in one form or another. I expect that to continue throughout the year.” Even a Center for Responsible Housing report projected that “2.2 million borrowers will lose their homes and up to $164 billion of wealth in the process.”

We knew we had a ticking time bomb in housing. And we knew the charade of housing bullishness would come crashing down. Its how and why we banked significant 2007 gains in subprime, Alt-A, credit, and homebuilder stocks.

Still, despite what looked like the beginning of a tumultuous future, Hank Paulson would often reiterate his “at or near bottom” theory. Bernanke would try to assure us that there’d be no spillover. The NAR bullish housing cheerleaders lead us to believe everything was okay. And the coming situation was ignored.

But like I said, I didn’t ignore it.

In 2007 alone, when I was still with Agora Publishing, some of my top gains were made from buying put options in housing, lending, and credit related stocks.

These were my top gains of 2007.

Fremont General September 2007 12.50 puts 291% in 16 days
Lennar January 2008 25 puts 279% in 40 days
Pulte January 2008 15 puts 224% in 40 days
New Century January 2008 25 puts 214% in 16 days
Centex January 2008 25 puts 207% in 40 days
Countrywide January 2008 27.50 puts 203% in 69 days
Thornburg October 20 2007 puts 188% in 6 days
MGIC Investments December 35 puts 175% in 80 days
Capital One January 2008 65 puts 160% in 59 days
Accredited Home September 2007 7.50 puts 141% in 4 days
Hovnanian November 2007 17.50 puts 136% in 13 days
Radian Group August 2007 60 puts 122% in 19 days
Standard Pacific September 2007 15 puts 111% in 2 days
Autonation January 2008 20 puts 105% in 49 days
New Century January 2008 25 puts 89% in 1 day

It was like taking candy from a baby. And all I and my readers had to do was be realistic.