Chart of the Day LEN: Stock Bubble Reflated!

by Dan September 24, 2012 1:03 pm • Commentary

LEN reported better than expected results on most metrics, the stock was intitally trading up over 3% pre-market prior to the conference call.  The stock is now trading down about 2.25%, which for now is shy of the implied move of about 5% and the 4 qtr trailing avg move of about 5.4%.  

I posted this chart earlier on QuickHits, but looking back to the peak of the housing market in 2006/07, LEN’s chart is quickly approaching some key resistance at the $40 level, which served as support near the peak of the stocks run prior to the collapse in 2007/08.

[caption id="attachment_17013" align="aligncenter" width="490" caption="5 yr LEN chart from Bloomberg"][/caption]


The recent leg higher in the Home-Builders can partially be attributed to the Fed’s intention to buy MBS in their latest iteration of QE, in an effort to reflate home prices so that homeowners will again go buy flat screen tvs in each room of their home and thus solve our unemployment problem, but at some point something has to give between runaway stocks and tepid fundamentals.  It seems odd to me that they many investors are so willing to jump back into a sector that clearly benefited for the better part of last decade from easy money policies of the Fed, only to have them burst into flames, and now jump right back into the same pool.  We know how this ends, wash, rinse, repeat.  My sense is that the predominate lift off of the bottom in the residential housing market is by the activity by those with credit, and presumably large investment pools picking up large quantities of homes at big discounts, primarily on spec.  In a world where yield is impossible find, but credit for some is plentiful, why not target one investment area that the Fed is dead set on inflating.  Have a ball with that one, I am far too dumb to participate in something so obvious.