There is a famous quote attributed to John Maynard Keynes, “Markets can remain irrational longer than you can remain solvent.” It’s one of the reasons we end our post with, “stay tuned, stay profitable and stay solvent” because we take this true to heart so it’s with great sadness that I report a $16,000 loss on our XHB and other home builder puts. The puts expire today and unless these equities crash by the end of the day (highly unlikely) we’ll be taking a loss of about $16k.
Our thesis was predicated on the fact that inflation was high and the Fed would raise rates very high which it did. We expected housing to become very unaffordable, which it did, and a resulting crash in home prices and transactions would occur. The transactions did crash but home prices remained stubbornly high. Ironically this is the headline from CNBC today:
We still think home builders will crash but we don’t know the time frame and we’re not betting any more money on it.
Losses happen, it’s just a fact of life. If all of our trades were profitable we would be trillionaires but that’s not the real world. On the positive side of the ledger, all of our DIVOS trades and TLT have been very profitable so far and have more than offset those losses. Additionally, most of our investment pool is in short term T-bills earning over 5% return because we continue to feel this market is over valued and will only nibble at strategic equities trading at a discount.
We will continue to sit on cash until we have a major market correction as the Fed rate cuts are now in question given the strong inflation data from December 2023. We’ll continue to look for opportunities but we’re content keeping our money safe in short term t-bills and a few key strategic equities so stay tuned, stay profitable and stay solvent…