Worldwide Stock Exchanges; June 16, 2011

Stocks at 2-Year High Amid Encouraging Economic Data

^^ That's an AP headline from today. And I quote:

http://finance.yahoo.com/news/Stocks-edge-higher-on-apf-2601339914.html?x=0&sec=topStories&pos=main&asset=&ccode=

NEW YORK (AP) -- An encouraging trade report and signs that a tax cut package would pass the Senate sent stocks to their highest levels in two years Friday. Bond prices fell for another day as investors expected the tax deal to lead to economic growth and higher budget deficits.

   It's not apparent now but stocks are headed to all-time highs and beyond. Corporations are raking in profits like never before but you're not supposed to know that. Those record profits aren't being blared across the newswires because it's not supposed to be that way amidst a recession. Understand me? Good news is bad news and bad news is good news. As I've mentioned many times before, BUY and HOLD. That strategy's been out of style in the lost decade for stocks but it's coming back. Feel me.

Stocks recover ground after weak employment report

NEW YORK (AP) -- Stocks staged a late afternoon rally after spending most of the day weighed down by an unexpected rise in the unemployment rate. Indexes wound up closing higher for the third straight day.

   YAWwWnn. Why wouldn't stocks go up and continue going up? We're in a bull market. Even though the masses are still scared of the market, it'll continue to go up and as it skies ever higher, Joe Sixpack will bite his lip and stomp his feet as the DOW roars towards 18,000 in the next few years. I've addressed this before but it bears repeating because memories are short and I'm right on this. Could there be a chance that we're not in a bull market? Nah, erase that thought from your mind. The bear is slovenly because he's eaten well and a fatted animal is lazy and apathetic.

   My advice is simple, buy the dips but don't sell the rips. In fact, keep buying the dips and hold the line. Hold on like you've never held before because there's gold in them thar hills and the adage of "buy and hold" is swinging back into fashion.

Ryland Shares - Update

   Last week, I mentioned that Ryland was my favorite housing stock. I also mentioned that I wasn't buying yet because I don't buy on weakness but on strength. When I wrote my post last week, Ryland shares were trading at around $16.50. Today, those shares are down to $14.98 because of a middling earnings report earlier in the week. From Reuters:

http://www.reuters.com/article/idCNN2812963920101028?rpc=44

Oct 28 (Reuters) - Shares of Ryland Group Inc (RYL.N) fell on Thursday, the day after the seventh-largest U.S. homebuilder reported a quarterly loss and a 37 percent drop in orders. Ryland shares were down 4.5 percent at $15.20 in midmorning trading on the New York Stock Exchange, compared with a 0.9 percent dip in the Dow Jones U.S. Home Construction Index .DJUSHB.

    The shares are off about $1.50 from last week. So, am I looking to scoop any shares up NOW? Not yet. As I've mentioned before and I'll mention it again in the future, I don't start a position on weakness. I know that the shares are a nice bargain now compared to last week but there's a chance that prices will be discounted further in the next 1-2 months. I'm a patient investor and my time horizon is usually a minimum of 5 years. I do have a price in mind where Ryland shares would be so compelling that I'd have to break my buying rule and start a small position. In general however, I'm looking to buy size in Ryland only on strength.

My Favorite Housing Stock

   Nah, it's not Toll Brothers or D.R. Horton nor Pulte Group. My favorite home builder stock is Ryland (RYL) which I've followed and traded since the 90s. Their profile is as follows:

The Ryland Group, Inc., together with its subsidiaries, operates as a home building and mortgage-finance company in the United States. The company’s operations cover various aspects of the home buying process, including design, construction, and sale. It offers single-family detached homes; and attached homes, such as town homes, condominiums, and mid-rise buildings, as well as sells land and lots. The Ryland Group also provides mortgage-related products and services, as well as title, escrow, and insurance services to its homeowners and subcontractors. It markets its homes to entry-level, and first and second-time move-up buyers. The company was founded in 1967 and is headquartered in Calabasas, California.

   Ryland's near 52-week lows so I'm not buying now. I do think ~$16 is a good price for each RYL share but as mentioned before, I normally don't buy on weakness. I prefer to buy as a stock goes up and then pyramid the position as higher prices lead me upwards. The market's pulling back today but housing stocks are nursing middling losses. This doesn't mean anything based on a 1-day snapshot but I am of the opinion that housing stocks will recover way before the real estate market recovers and they're my indicators for the impending real estate recovery.

Speculative Activities

   Before the Great Depression whacked America, there was a big boom in all speculative activities. People were betting on stocks, commodities, horses, and more. Read Reminiscences of a Stock Operator by Edwin Lefebvre for a taste of what was going on back in the Roaring 20s and 30s before it all ended in tears.

   More recently, there was a lot of speculation in real estate before the big crash in housing. You know what I'm seeing a lot of speculation in nowadays?

   Websites.

   With sites like Flippa, DigitalPoint, and Sitepoint providing marketplaces for domain names, web services, and entire websites, anyone can get into the game of flipping websites and speculating in them. While the activity isn't at an alarming level yet, I do foresee it ramping higher in the coming years as speculators try their hand at buying a site for $100 and then flipping it for $1000 after doing some cosmetic surgery and updates.

   The company I work for has been acquiring various websites over the past year and we've been forced to pay higher prices because of amateur bidders coming in with competing offers. How do we know they're amateurs? Because they ask basic questions like "Can I become like Ebay with this penny auction site?" and "What does PHP and MYSQL stand for?" The sellers love it because they're able to lead amateurs with grandiose visions of how much money they'll earn with Adsense when anyone who's been in the game knows it's not easy because there's a lot of competition out there. We're going to watch how prices go as the economy recovers but we think prices can only go up for well-designed sites with potential as amateurs and speculators start spending. There'll be a crest and then the inevitable crash. Watch for it.

House Prices Are Still 10% Too High, Says Barry Ritholtz

   Barry, be honest and tell everyone that house prices are 20% too high. Maybe even 30% too high. Who's to say what's too high anyway? In the middle of a market crash, what's a stock like Pfizer (PFE) worth? Some sellers are willing to get out at any cost so figure $8 on the low end. Sure, it makes no sense but when prices are crashing through the floor, some people would prefer $8 than the possibility of $4. Others won't sell at anything below $20 while another portion of the investing public are happy with $15. This is what makes a market and what causes people to buy when others are selling.

If Barry won't say it, I'll say it. Housing prices are 20% too high. If the economy creeps along for another decade or so, Housing prices are 30% too high at this point. Anyone who's capable of buying now and acting on that impulse is trying to catch a falling knife. That's my opinion and I'm sticking by it. Link to the article below:

House Prices Are Still 10% Too High, Says Barry Ritholtz
http://finance.yahoo.com/tech-ticker/house-prices-are-still-10-too-high-says-barry-ritholtz-535388.html?tickers=&sec=topStories&pos=2&asset=&ccode=
Money-manager Barry Ritholtz has a message for the National Association of Realtors, the trade group that always puts a sunny spin on the outlook for the housing market, no matter how horrific the facts may be:
You're making the problem

Ritholtz, who runs Fusion IQ and writes The Big Picture blog, says that the NAR's happy spin is making homeowners too optimistic about the prices they'll be able to get--thus encouraging them to price their houses too high.