More Rate Cuts to Come?

Bloomberg is reporting that the FED is certain to cut rates again before the end of the year:

"Government bond traders, who predicted six of the last seven recessions, say the Federal Reserve will lower interest rates again before the end of the year as the economy comes to a standstill."

Just to be clear, the FED is crazy to lower interest rates at a time when the United States' government depends so much on borrowing money from other countries. But the real question should be "How can a savvy investor use this information to make money?" Aside from gold and the gold funds that have previously been recommended, one way to take advantage of the prospect of lower interest rates is through American Century Tarket Maturity 2025 (BTTRX). Tim Middleton offers an explanation:

"The fund owns nothing but zero-coupon Treasury bonds maturing in 19 years, and therefore is a pure play on the direction of interest rates. If they are headed lower, as they would in a recession, this fund would soar."

The most savvy of savvy investors would have purchased shares towards the end of June; but that doesn't mean that tomorrow isn't a good time. The fund peaked at the beginning of September and has since dropped about five percent and appears to be gearing up for another shot up. And of course there's a very real possibility of a recession and more rate cuts, which make this fund worthy of consideration.

A Little Too Late...

I've been a bit predisposed the last couple of weeks, and in doing so, I've seen some profits dry up a little bit. At this point, I'm advising people to cover their shorts for Bear Stearns, Goldman Sachs, Citigroup, and JP Morgan. Closing prices for the respective corporations are as follows: BSC 117.32, GS 209.98, C 47.51, and JPM 47.13. I could have seen returns of 24 percent, 24 percent, 12 percent and 10 percent had I covered the shorts one month ago; but really, who expected the economic downturn to end in August? As it is, I'll still recognize some modest profits.

I still don't think we're at the bottom, but the recent rate cut from the FED has sparked a resurgence. I don't think it will last; Bernanke's just putting off the inevitable. But for now, cover your shorts...and be more observant than myself!

Graduate School is a Bitch

I've been super busy with school the last ten days. I guess that's what I get for taking a mini-vacation. One more week and I'm done for the summer. Don't expect any new posts until then. I'd like to take this opportunity to drop the Brazilian ETF I trumpeted a few weeks ago, EWZ. The fund has lost 17 percent since my recommendation. Enough is enough. It's my belief that the problems we're seeing in the US economy has been spreading to the world economy; perhaps no country is safe. EWZ closed trading today at $56.62. I recommended it at $68.22.

I'll see you in a week or ten days. Be weary of the market!

Gold Funds That Make Sense

One of the purposes of this blog is to educate myself. I have been educated. I'd like to address the issue of gold funds right now. I recently suggested three gold funds that I thought were good buys: XAU, HUI, and GDX. Apparently, they are more sensitive to price changes than the previous ETFs I suggested: IAU and GLD. I made a mistake. To illustrate, let's look at the return (or loss) from both. Here's the first group:

I recommended XAU at a price of $158.26. Since then, we've seen a drop to $147.25. That equates to a loss of 6.95%.
I recommended HUI at a price of $368.93. Since then, we've seen a drop to $345.79. That equates to a loss of 6.27%.
I recommended GDX at a price of $42.99. Since then, we've seen a drop to $40.30. That
equates to a loss of 6.26%.

Now let's look at the losses incurred by the second batch over the same time period:

IAU's closing price on the same day of the recommendations was $67.43. It closed trading today at a price of $65.67. That equates to a loss of 2.61%
GLD's closing price on the same day of the recommendations was $67.47. It closed trading today at a price of $65.65. That equates to a loss of 2.70%

What I see here is that the first two funds I recommended seem to be much less susceptible to the volatility seen in the precious metal market. The first three funds lost much more equity than the last two. For this reason, I recommend that the funds I first suggested be the ones to focus on for your portfolio. I hate flip-flopping so soon after recommending them, but sometimes it only takes a few days to analyze the implications. XAU closed at $147.25. HUI closed at a price of $345.79. GDX closed at a price of $40.30. Reallocate your portfolio to reflect removing those funds and place the diminished proceeds into IAU and GLD; over the long term, gold will continue to rise. I will record the losses of the other three in shame. (And here I thought I was making progress...at least I have the homebuilders)

Take Your Profit

I'm recommending selling oil and taking the profit. I realize this would have been a great move on Friday, but I'd rather lose a few percent from a price decline than lose ten or fifteen percent from selling too early. It seems that OPEC is willing to increase supply if needed:

"Iran said on Tuesday Opec would inject more crude oit to the market if it was needed, the official IRNA news agency quoted Javad Yarjani, head of Opec affairs at Iran's oil ministry as saying."

"'In case the oil market needs it, Opec will inject more oil into it,' Yarjani said."

OPEC knows a few things. First of all, the members know that increasing energy costs cause slower economic growth. Slower economic growth means OPEC would sell less oil, albeit at a higher price. But if economic growth were to grind to a halt, OPEC would sell virtually no oil. In addition to this, OPEC realizes that if they increase supply which creates downward pressure on prices, then the people will buy more. This could lead to greater profits than selling less oil at a higher price. Of course, this is all me hypothesizing about their intentions.

I recommend selling your crude and wait for a jump in point at the end of the year or the beginning of next year. As of this writing, crude futures are selling at 73.28.

More Metal ETFs and Indexes

Gold and other metals are poised to rise. Here's a few more recommendations for cashing in:

XAU: "The XAU is an index traded on the Philadelphia exchange. It consists of 11 precious metal mining companies."

HUI: "The AMEX Gold BUGS(Basket of Unhedged Gold Stocks)Index represents a portfolio of 14 major gold mining companies.The Index is designed to give investors significant exposure to near term movements in gold prices."

GDX: "Global Markets Vectors tracks the Amex Gold Miners Index, which includes a total of 37 large-, mid- and small-cap U.S. stocks and ADRs. It is heavily weighted with two Canadian firms, Barrick Gold at 14.45% of assets and Goldcorp at 9.45%, followed by Newmont Mining at 9.51%."

As the dollar continues to weaken and adjustable mortgage rates continue to reset (leading to more bad mortgage-backed securities), gold and other metals will continue to rise. And because mortgage-backed securities are illiquid, the bull market should be slow, long, and drawn out. Over time, a bubble could develop.

XAU ended trading at $158.26; HUI ended trading at $368.93; GDX ended trading at $42.99.

Jumping Ship on US Stocks

I'm jumping ship on some stock recommendations I've listed as "buys". This includes:

(1) AMN Healthcare - Stock symbol AHS
-Recommended on 6/25 at a price of $22.41
-Closed trading on 7/19 at a price of $21.48
-Net Loss of 4.14%

(2) Cross Country Health Care - Stock symbol CCRN
-Recommended on 6/25 at a price of $16.85
-Closed trading on 7/19 at a price of $17.26
-Net Gain of 2.43%

(3) Intel - Stock symbol INTC
-Recommended on 7/14 at a price of $25.97
-Closed trading on 7/19 at a price of $25.26
-Net Loss of 2.73%

(4) Hewlett Packard - Stock symbol HPQ
-Recommended on 7/14 at a price of $47.25
-Closed trading on 7/19 at a price of $48.40
-Net Gain of 2.43%

I'm keeping all metal ETFs, mining stocks, foreign ETFs, and GE for their alternative energy holdings. Also, I'm keeping sells on the banking and homebuilder stocks I've previously indicated. I'll be recommending more foreign ETFs and metal funds later this evening or tomorrow.

Why the change? I'll give you four reasons: here, here, here, and here. The fourth reason might be the most important. From the Market Oracle:

When this game is over and the music stops there will not be chairs for all players. There will be some winners and many losers. We believe the winners will be those investors that have aligned themselves to the natural resource sector and the many different ways to invest therein.

I don't quote the Market Oracle very often; in fact, this might be the first time. The reason? I seem to always agree with their positions. Two weeks ago, the Oracle had an article stating that the downside risk outweighed the potential gains in US stocks. Had I heeded their warnings, I wouldn't have lost face with Google. Although I gained a few percent with HP and Cross Country, I lost plenty more.

In addition, the Bloomberg stock option report also weighs heavily in my mind. If people are betting against the market at a two to one ratio, then the optimism has turned to pessimism. Consider the options report to be an investor confidence index that's turned south.

Therefore, I'm reducing my exposure to US stocks. The risk just isn't worth it.

Google Misses - Market to Drop Tomorrow

Look for a stock decline in trading tomorrow. It's almost guaranteed now that Google has missed analysts expectations for the second quarter:

"The Mountain View, Calif., Net giant made $3.56 a share on a non-GAAP basis. Net revenue, excluding the money Google shares with its advertising partners, was $2.72 billion."

"Analysts surveyed by Thomson Financial were looking for a $3.59-a-share profit on net revenue of $2.68 billion."

So there you have it. Revenue was up, profit was down. Google needs to retain that level of revenue while wrangling in costs. I expect Wall Street to overreact as they have in the past:

Indeed, bulls might well note that previous profit disappointments have provided good buying opportunities. When Google last missed a quarter back in January 2006, shares tumbled into the $370s in a 15% after-hours selloff.

I have learned a valuable lesson and hopefully, by observing me, you have too. Flip flopping on stocks (the way I did on Google) is generally not a good idea.

This should lead to a precipitous drop tomorrow among all stocks, or even act as a catalyst in bringing about the market correction. I haven't decided if I should close the recommendation or persist. I'll update this post later today with a recommendation on Google.

***********************************************************
Update 7/19/07 7:28 PM: Last I checked, Google was down seven percent in after hours trading. Since there are plenty of investors who don't have access to after hour trading networks, I think the stock will decline further tomorrow. Sell at the opening bell. To be fair, I will close my recommendation at the price that the stock opens with tomorrow.

Update 7/20/07 7:08 PM: Google opened at $511.90.

A Pure Play on the Brazilian Economy

After perusing The Street, I came across an article written by Jonas Elmerraji which discussed ETF investing in South America, as well as Latin America. In the piece, Jonas suggests an ETF tied directly to the Bovespa stock exchange in Sao Paolo, Brazil:

"The ETF mirrors the MSCI Brazil Indes, an index that was designed to measure Brazil's domestic market equity performance. What that means is that EWZ essentially tracks the performance of the hundreds of Brazilian companies that trade on the São Paulo Stock Exchange."

"The ETF is heavily weighted in Brazil's key economic areas -- materials...and energy...as well as quickly emerging service areas, such as financials."

I think the Brazilian ETF, EWZ, is a splendid pick. The fund has gained 88 percent since a year ago. This fact certainly doesn't take away from the fact that the economy is still growing at a breakneck pace; in fact I think it will continue to do so. Jonas explains:

"Brazil has the most powerful economy in Latin America. The country manufactures everything from sophisticated turbine aircraft to orange juice, and it has a well-established professional services sector."

"Of the four BRIC (Brazil, Russia, India, China) countries, Brazil arguably has the most developed economy."

Mr. Elmerraji also notes that Brazil's infrastructure is superior to the other BRIC countries. So if Brazil has the lead in infrastructure and is the most developed economy of the four, why hasn't it seen the kind of growth that the Chinese stock markets has seen over the past five or so years? I think the economy, as well as the Sao Paulo stock market, has a ways to go before its growth slows down; thus my recommendation of the EWZ. The fund closed trading on July 17, 2007 at $68.22.

GE Ditches Subprime Sector (and Other Reasons to Buy)

It was recently announced that General Electric is in the process of getting out of the subprime mortgage industry:

"The Fairfield, Conn.-based company...announced it is exiting the U.S. subprime-mortgage business, and that it has already sold off $3.7 billion in loans to reduce its exposure to turmoil in that market."

"In the first quarter, GE laid off more than 460 WMC Mortgage employees and took a $500 million charge when it sold off part of its residential subprime assets. On Tuesday, Moody's Investors Service downgraded 399 subprime securities, including home loans originated from WMC Mortgage."

As the subprime mortgage industry continues to crumble, the smart players are positioning themselves for protection. That's precisely what GE has been doing. The company also reported a ten percent increase in profit for the second quarter:

"General Electric Co. shares notched a five-year high Friday after the conglomerate reported a 10% increase in second-quarter earnings, due in part to strong revenue growth in its infrastructure businesses, including aviation- and energy-equipment sales."

I want to focus on their energy-equipment sales. In his book, The Coming Economic Collapse, Stephen Leeb takes a few pages to discuss General Electric's alternative energy ventures. Leeb describes GE as being a leader in the area of wind:

"General Electric is the world's largest integrated wind company and the second-largest maker of wind equipment. Over the past three years, wind revenues, admittedly starting from a small base, have grown by 50 percent a year. [The edition I have was published in 2006.] The Street projects the percentage growth from this division will be in the low 20s over the next five years. We think it could easily exceed 30 or even 35 percent."

Leeb also touches on the fact that energy-related products and services make up 12 percent of revenue (in 2006). A quick glance at GE's most recent earnings report indicates that orders for energy related equipment increased by 72 percent in the second quarter of 2007. Furthermore, revenues from their energy business increased by 17 percent, while total profit in the energy business increased by thirty percent. Those are strong increases that should continue, even despite a possible market downturn. That's why I recommend buying GE. The company closed trading on Friday at $39.50.

Tech Talk - Intel and HP

Upon reviewing Jon Markman's recent MSN article, I think Intel could be a good stock pick:

"A Cowen & Co. study found that two-thirds of large businesses and three-quarters of small businesses plan make the switch to Vista over the next 12 months after Microsoft publishes its first Service Pack...Most plan to implement Vista via new computers, not by upgrading existing machines -- leading to a surge in demand for the Intel chips that serve as their brains."

I've been tracking Intel's stock price since late last year. From last November through March of this year, the price languished at around twenty dollars. It quietly crept up to $22 in May and $24 in June. It closed trading at $25.97 on Friday. There's no reason why it shouldn't get another boost, especially if other tech stocks report earnings comparative to analysts' expectations. And that's in addition to the idea that more companies plan on switching to the Vista operating system.

Markman also offers some PC makers who stand to benefit from the Vista switch: Dell, Apple, and Sony. I'm shying away from these companies for now. One computer maker I do like is Hewlett-Packard. HP was mentioned in a recent Marketwatch article:

"'They've stabilized management, reduced costs and streamlined operations,' Scott said. 'They're more of a classic growth play now with a good sustainable upside going forward.'"

"'Their strategy is to continue to bring new products to market that successfully shifts their focus back to retail distribution,' Scott said. 'They've forced Dell, which had been concentrating on direct sales models, to enter the retail channel. It shows that they've been able to move the battle for new customers into HP's sweet spot.'"

HP closed trading on Friday at $47.25.

Changing Course

As new information comes to light, I am forced to make adjustments to my portfolio. As much as I hate admitting being wrong, to do so is to learn and to grow. I was wrong on a few assumptions.

1. Merrill Lynch. Despite the fact that I think the subprime mortgage market is in huge trouble, I can't overlook this:

"Despite problems brokerage firms reported last month with the subprime mortgage business, analysts are more sanguine about results for Merrill Lynch, and they expect the firm to post a more than 20% rise from year-ago earnings per share."

You cannot ignore news items such as these. If you'll recall, Merrill took a very activist approach when it came to getting rid of subprime securities. While JP Morgan Chase was canceling auctions over fears that the entire subprime CDO market would be recognized for its true value, Merrill persisted. They rid themselves of highly risky debt obligations and by using an auction format, they were committed to doing so no matter the losses they'd incur. That, coupled with the news release, is my reason for changing course. If you shorted the company, buy enough stock to cover the short. If you sold your original stocks, too bad. I won't issue a buy for Merrill at this point because I think the banking industry is still due to take a large subprime hit.

2. Apple. The iPhone figures have yet to be released, yet the stock pushes upward. I'm not going to wait for it to hit $200 before I change course; I'm changing course now. Buy enough to cover any shorts and wait to see if the price comes down.

3. Google. This stock is the only one I'm reversing course on. From Marketwatch:

"Analysts polled by Thomson Financial expect Mountain View, Calif.-based Google to post a 44% gain in earnings from the period a year earlier, to $3.59 a share, while revenue is expected to grow 60% to $2.68 billion."

"Meanwhile, Cowen & Co. analyst Jim Friedland said in a note released Wednesday that he expects Google's share of its traditional search market only to grow ever-higher.

"'We believe Google will achieve a share of at least 90% of the search market over the next decade,' Friedland said."

If you shorted Google, cover your short. In addition, I recommend buying more shares. Google closed trading at the end of Friday at $552.16.

*************************************************************************************
Investing is about constantly re-examining your positions. Sometimes investment decisions are the wrong ones, while other times you'll be right on the money. For these three stock picks, I believe I made choices that were reckless, choices that were based on cursory research. I failed to use a proper amount of prudence. I shall try harder.

The Silver ETF

I recommend entering the silver market. As with gold, when paper currency floods the market, the price of precious metals goes up. Consider this argument from silverstockreport.com:

"Silver has been consumed by industry. The world is running out of silver; industry consumes more than the mines produce."

"There's no room for any investment demand to enter the silver market without driving the price sky high. We've just begun to see a little bit of investment demand."

"The current ratio of silver to gold is 50:1, 50 ounces of silver will buy 1 ounce of gold. The historic ratio is 15:1, that means you can make 3 times your money owning silver, but if we do better than the historic ratio, due to the scarcity factor, we could make 6-10 times as much money in silver than in gold."

Gold will make you money; silver could make you rich. The newly introduced silver ETF, iShares Silver Trust (SLV), is the easiest way to get in on the action. It closed trading today at $128.45.

Gold Funds, Mining Stocks

Gold is getting primed to take a shot up. To cash in, I suggest these ETFs: iShares Comex Gold Trust (IAU) and Streettracks Gold Trust (GLD). The former ended trading today at $65.10 while the latter ended trading at $65.02. I also recommend two mining companies: Newmont Mining Corp (NEM) and Barrick Gold Corp (ABX). The former ended trading today at $39.89 while the latter ended trading at $29.79.

This graph displays the three measures of the money supply:


You'll notice that M1 and M2 extend further out than M3. (Definitions of the components of the money supply can be found here.) The government claimed in 2006 that M3 didn't produce enough useful information to justify the cost of tracking it. You can see where it was heading - up up up. The textbook definition of inflation is an increase in the supply of money. An increase in the money supply causes prices to increase. Since the beginning of the NASDAQ bubble, the money supply has taken off. Major contributing factors include low interest rates, relaxed mortgage lending standards, and major expansions in revolving credit. With every loan made, the money supply expands causing inflation. Inflation is WONDERFUL for gold, gold funds, and mining stocks, thus my recommendations.

Beazer Fires Chief Accountant

Wow. Simply wow. Beazer Homes is in deep:

"Beazer Homes USA Inc., a homebuilder that's under investigation by the FBI for potential fraud, fired its chief accounting officer for violating the company's ethics policy by attempting to destroy documents."

The investigation is a result of offering mortgages to prospective home buyers based on expected future earnings, which is prohibited. It's bad enough for the company that they happen to be a homebuilder in a slumping housing market. Adding the fact that the company is under investigation and the fact that the CAO just got canned for attempting to destroy documents makes for a tough case. On top of all that, inventory makes up around eighty percent of Beazer Homes' assets.

This is an easy one - sell Beazer (BZH). The company closed trading today at $28.54, which is at the lower end of the 52 week range ($27.32-48.60). Still, after all is said and done, I think the stock will be trading closer to $20 than to $30.

Nursing Shortage

This article discusses the looming shortage of nurses and how to profit from it, suggesting two companies who staff nurses and other health professionals:

"THE aging baby boomers will set off any number of health-care booms, and staffing companies that place nurses in hospitals are among the most obvious beneficiaries. But investors needn't go gray waiting for those demographic trends to bear fruit, not with AMN Healthcare Services and Cross Country Healthcare poised to ride a near-term cyclical upswing."

"This can't help but be a healthy niche in the long run. It's a sad fact of life, but the boomers, those 78 million Americans born between 1946 and 1964, will be spending more and more time in hospitals in the coming years. When you consider that the number of Americans in the 55-to-64 age group is expected to expand 40% by 2014, it's no wonder hospitals are in the midst of a $100 billion construction boom, their biggest in years."

My closest friend happens to be a nurse, recently graduated. The demand for nurses is incredible. She had a job in place two months before graduating, as did most of her classmates. And the pay was none too shabby. If only for that reason, I recommend dipping a few toes in each of these stocks. So finally, after recommending many sells, I've found a couple investments to buy. AMN Healthcare Services (AHS) closed trading today at $22.41. Cross Country Healthcare (CCRN) closed trading today at $16.85.

Mortgage Rate Reset

It's amazing the way things are unwinding: very slowly and very predictable. This could have served as a warning of things to come for Bear Stearns:

"Bear Stearns Funds Own 67 Percent Stake in Everquest"

"Funds run by Bear Stearns Cos. own two- thirds of Everquest Financial Ltd., a firm that invests in debt backed by subprime mortgages and buyout loans"

On May 11th, the same day the article was published, Bear Stearns closed at $156.40. At the end of trading today, Bear closed at $139.10; Bear has lost 11 percent of it's value since May 11. It will continue to drop, we'll see where the bottom is. This chart, found on page 47, is dated March 12, 2007:


Looking at the graph, we can see that the fifth month, May 2007, was about the starting point to a rough time for homeowners with adjustable rate mortgages. As if on cue, foreclosures jumped 19 percent from April to May. If this chart is an indicator of times to come, the late summer will see another spike in mortgage resets, which should lead to an increased foreclosure rate.

Financial institutions and hedge funds that hold those mortgages should get hit harder in a few months than they are right now. This article (which I've referenced before), implicates JP Morgan Chase, Citigroup, and Merrill Lynch in the Bear Stearns fiasco, which is just picking up speed. I'm bearish on all four. I've already recommended selling Bear Stearns. Now I recommend selling the other three. This article implicates Goldman Sachs. Sell Goldman Sachs. There will be companies that will end up with the bad debt - it doesn't just disappear. A bailout from the government, a possibility depending on the severity of defaults, would be very beneficial for gold (which I've previously recommended buying).

Citigroup (C) ended trading today at $51.69. Merrill Lynch (MER) ended trading today at $83.98. JP Morgan Chase (JPM) ended trading today at $48.36. Goldman Sachs (GS) ended trading today at $216.74

"Bloodbath" Economy Predicted

From Bloomberg comes this telling article:

"The national median home price is poised for its first annual decline since the Great Depression, and the supply of unsold homes is at a record 4.2 million, the National Association of Realtors reported."

"New-home sales will decline 33 percent from 2005's peak to the end of this year, according to the Realtors' group".

They go so far as to describe the coming financial problems as a bloodbath. Yikes! The bears are coming home to roost. And this coming from the NAR means it's one of the rosier outlooks. I think Standard Pacific Corp (SPF) is the most susceptible of the public homebuilders. A Credit Suisse analysis from March 2007 (PowerPoint required, download viewer), reveals that Standard Pacific is the percentage leader in terms of revenue coming from subprime customers. Furthermore, they only receive 51 percent of their revenue from prime borrowers. If fifty percent of your potential client base can no longer get a loan because of rising interest rates or tightened lending standards, your company is in serious trouble. A look at quarterly earnings reports from KB Homes, Lennar, and DR Horton reveal income declines, but at least those companies are still profitable. Standard Pacific's quarterly report shows a company that lost forty million dollars in the first quarter of 2007. Standard Pacific holds $3.3 billion in inventory.
I recommend selling Standard Pacific because they're positioned to file bankruptcy before the housing bust runs its course. In addition to their subprime loan exposure, they're already losing money in a market that people are just now starting to call a "bloodbath". What will their bottom line show 18 months down the road?? Standard Pacific closed trading today at $18.67.
I'm bearish on the other homebuilders also. Remember the beginning of the housing boom? I do. I remember KB Homes trading at $20 in January of '02. They closed today at $42.18. I remember DR Horton trading at $10 in January of '02. They closed today at $21.01. I remember Lennar trading at $23 in January of '02. They closed today at $40.96. Considering the long road ahead, are these companies really worth the price they're trading at today? I bet Maya Roney thinks so. She asks the question: "Is the Worst Behind Us?"

"Stronger economic fundamentals -- job growth, relatively low interest rates -- may ward off a true "housing bust" this time, though the decline in May starts may postpone any housing upturn until late 2007 or early 2008."

Leave it to the bulls to act like ostriches! So we're not going through a "true housing bust" yet? Our interest rates are "relatively low"? They're relatively high over the last six years. And job growth means nothing if wages stagnate. We could have a zero unemployment rate with everyone working for minimum wage, but that doesn't mean they'd be able to afford a home.
What we have today is upward trending interest rates, decreasing sales, decreasing prices, and rising inventories. KB Homes holds 6.2 billion dollars worth of inventory. DR Horton holds 11.2 billion dollars worth of inventory. Lennar holds 9.1 billion dollars worth of inventory. Their respective inventories will continue to decrease in value as the housing bust runs its course and prices subside. Inventory makes up 73 percent of total assets for KB Homes, 77 percent of total assets for Lennar, and 83 percent of total assets for DR Horton. As inventories decrease in value, so should the stock prices. I expect them to survive the housing bust, but they're overvalued now and I would sell all three.

Sell Apple, Google

Two stocks I think are overvalued: Apple (AAPL) and Google (Goog).
They were both down during this past trading session; expect more of the same. The unreleased iPhone has priced itself out of the market at $499 for the 4 GB model. Furthermore, the 52 week range is $50.16 - $127.61. At the close of the market, Apple ended at $121.55. There's reason to believe that the price will decline as more bears flood the market. I expect the stock to retreat to under $100 over the next few months.
As for Google, the stock is priced above $500 with a P/E of almost 45. I think expectations are too high and the downside risk is too large. Google closed Wednesday at $509.97. My target price is around $400.
As we enter the summer months, stocks tend to under perform. Sell them both.

More Mortgage Woes

Subprime mortgages claim another victim?

"Two large hedge funds managed by investment bank and brokerage Bear Stearns are close to being shut down as their complex mortgage-related bets have soured, the Wall Street Journal reported."

"The Journal said the two funds held over 20 bln of investments just a few weeks ago, mostly tied to risky securities linked to so-called subprime mortgages."

Twenty Billion in a matter of weeks...I'm sure the bulls will continue to look the other way; there will always be a tidbit of good news to blindly focus on. But this newest revelation is only a stepping stone on the way to more major problems. Just a few days earlier, I found this article which outlined a trend of rising delinquencies, particularly among ARMs. Here's the most disturbing part of the article (conveniently tucked down at the bottom):

"More than 30 subprime lenders, including New Century, have gone bankrupt this year."

And I also found this:

"New Century is among more than 50 lenders that have halted operations, gone bankrupt or sought buyers since the start of 2006, according to Bloomberg data."

As if it weren't common sense, I recommend selling Bear Stearns (BSC). The stock is currently trading at $145.01, a loss of about one percent since the start of trading. To not see more of a precipitous drop is a case of blind bullishness.

Updated June 20, 2007 1:25 PM:
Bear Stearns closed the trading day at $143.20.