The Bad News Victims of 2008 are the New Victors of 2009

The Bad News Victims—
Profits from Selling Short
The Homebuilders

From an economic point of view, no group was hit harder in 2008 than the homebuilders. In past years, when new home starts fell below a rate of 1 million per year, it was a real bottom. We are now at a rate of 622,000 per year and falling, and builder confidence, on a scale of 1-100 is 9 with 50 being the midpoint between optimism and pessimism.

This index has outperformed the market but selected names have completely blown up. For example, Hovnanian (HOV) is down 66%, Beazer (BZH) 71% and so on. Are there names left to blow up? You bet! I foresee two or three bankruptcies in 2009, and the first one will trigger a meltdown in all these stocks.

Look for housing stocks to be another great “short” trade in 2009. Names like Toll Brothers (TOL), KB Homes (KBH) and Hovnanian (HOV) could continue to crack.