We have just a minor position in Lennar (LEN) to play the "thesis" of home recovery - it is just a random homebuilder I chose with a decent cash position and no debt; there is nothing specific to this name that I favor over 2-3 other names in the group - it is just our proxy for the "thesis".
The stock has been on fire the past few days as Obama will save us all... but now is down 20% today on a website report from Barry Minkow (former fraudster himself) who now devotes himself to uncovering fraud. In this environment where we have the Madoffs and Satyam's (SAY) of the world, it's a great opportunity for hedge funds to start rumors and buy puts - shoot first, ask questions later. This angle was working wonders last year with the financials. Make profit - watch SEC do nothing - rumor mongoring is the new gold. I have no idea about the validity of these claims (and Minkow is not a hedge fund) - but it's a 10 year old transaction that he is questioning. However, if the stock does not bounce when the other homebuilders bounce on the next 52,000 programs the government announces to "save the housing market" we'll just switch our proxy to one of the other names.
Personally, I don't like drama - so we'll see how long this hangs over Lennar's head - many other homebuilders are down in the 10-20% range on the earnings report of KB Homes (KBH) that signals business is bad and not improving despite all the efforts of the government to stop the free market from working. Once again - we are stuck in thesis (home market will be saved by Super Obama!) versus reality (Americans are in deep trouble and we have a once in a lifetime housing crisis - the housing market will be in trouble for far longer than the thesis mongers believe). In my 2009 Outlier Predictions I said we'd see an epic number of programs by Obama & Co to address housing and they are coming fast and furious already - again, you will hear "cram down" and "principal forgiveness" a lot this year. I do want to have something in this arena to have exposure to these program announcements, because just as you see in dry bulk shipping (global growth will be back any second now!!!) it just takes a whiff of "good" news and the daytraders jump in with 2 feet - Lennar has jumped from $9 to $11.50 in 2 sessions over the past week. (we missed most of it since we had only a 0.3% stake)
- Shares of Lennar Corp (LEN.N), the second-largest U.S. homebuilder, plummeted on Friday after a letter questioning a late 1990s transaction involving the company surfaced on the Internet.
The letter to the U.S. Securities and Exchange Commission, the FBI and Internal Revenue Service from California pastor Barry Minkow, who served time in jail for stock fraud, concerns a joint venture between Lennar and a private developer to build a high-end housing project and golf course in California.
It was posted on Minkow's website, frauddiscovery.net. Minkow, who served more than seven years in jail for stock fraud, now works to uncover fraud through his Fraud Discovery Institute.
We believe the comments on this website is the catalyst for this harsh sell-off in Lennar shares and where 61,000 puts changed hands in the first hour of trading," said Jon Najarian, a founder of Web information site optionmonster.com.
Again, if the next time housing stocks bounce, Lennar does not due to this issue - we'll just exit and buy a new name to get the same "housing recovery" exposure. I really don't care which name I own as long as it has a huge load of cash and no debt - which is why I chose Lennar. The stock has fallen exactly to the 50 day moving average of $9 ....
EDIT 1:40 PM: Lennar seems to be holding support so I am going to buy some here in the $9.40s - will take it to a 1.2% stake from 0.3%.
Long Lennar in fund; no personal position
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