oftwominds-Charles Hugh Smith

Profiting from the Housing Bubble Popping


Is there some way to profit from the deflating housing bubble? Perhaps.

Let's get one thing straight: the following is not investment advice. It is merely a series of "if-then" statements with which you may or may not agree.

IF you believe that the real estate industry is losing steam/trending downward/dropping in value, THEN note that the Ultra-Short Real Estate ETF (exchange-traded fund) rises 2% for every 1% drop in the ETF's constituent stocks--hence the descriptor "ultra-short." ETFs trade like stocks. Here is a chart of the fund, which only started this year; note that it rises in value as the ETF drops in value.

Please go to www.oftwominds.com/blog.html to view the charts.

IF you believe that Fannie Mae, the quasi-government mortgage outfit, holds a lot more risky mortgages and debt than Wall Street reckons, THEN note the negative indicators on this chart which support the notion that this stock is about to drop through its 20-day moving average support:


IF you believe that the entire banking/lending sector holds a lot more at-risk debt than Wall Street reckons, THEN note the negative indicators on this chart; this ETF has dropped below the critical 200-day moving average support:


IF you believe that lenders such as Countrywide Finance Corp. hold substantially more at-risk (subprime, ALT-A, ARM) mortgages than Wall Street reckons, THEN note the negative indicators on this chart; this stock has dropped below the critical 200-day moving average support:


IF you believe that a stock/ETF will drop in price, and you want to gain from that drop, THEN you either sell the stock/ETF short or purchase put options on that stock/ETF.

IF you aren't familiar with these terms, THEN please do some Web searches to find out more. TO REPEAT (sorry for shouting): none of the above, or anything on this site, is investment advice. It is a series of if-then statements with which you are free to disagree, ponder, ignore, explore, etc.

NOTE: at the time of this posting, I have no position in any of the securities mentioned above.