Bernanke and Housing

In his recent speech, Bernanke from the Fed announced that a housing downturn will be weathered by incomes. Put another way, he said that he thinks that a loss in wealth from a fall in housing prices will not matter because Americans make enough money. Housing is paper wealth and incomes are real disposable money and a drop in paper wealth will affect things but not much.

Bernanke is willing to sacrifice housing. That’s a key thing to note. He either doesn’t think that the drop will be as great OR he thinks the economy can shrug it off. Either way, he is sending the clear message that he is not going to create circumstances to rescue the overvalued housing assets. For what its worth, I think that the downturn will be quite severe.

So the housing stocks will begin crashing. I notice that ETH announced yesterday that – surprise – furniture sales are actually a lot slower than they expected. But they just announced a few weeks ago and already they have to revise business down? That’s not good for them. We own the Puts, so that’s very good for us

BMHC has been resilient. I am thinking about loading up more puts.