Recapping Two Central Themes for 2013

The housing thesis is still on track, with new homes sales at the highest levels since 2008. Moreover, the 16% gain in January was the best in over two decades.

Japanese Prime Minister, Abe, is still fixed on “creating” inflation. While many view this as reckless economic policy, I believe it is bullish for equity valuations in Japan, as pressure mounts on the Yen, exporters benefit.

So let’s examine these two core thesis trades and see what’s working.

The PPT‘s Housing Resurgence index is chugging ahead, once again.

Within the index, over the past week, the following stocks were the best performers.

MTG +38%

PATK +15.8%

PGTI +11.5%

Z +10.6%

TPX +9.7%

My core holdings in the housing industry are USG and BZH, +1% and down 1.7% respectively.

Over the past month, the following housing related stocks performed best.

ANGI +36%

MTG +32%

Z +22%

CSTE +20%

PGTI +16%

Most of the bigger winners are speculative small cap names. Moving up the market cap ladder we can get a better feel for what’s working.

Month to date returns for housing stocks with market caps over $5 billion.

CBG +11%

MSM +6%

MHK +3.8%

FBHS +3.8%

MAS +3.5%

1 week returns

CX +6.2%

HD +5.2%

WHR +4.9%

RLGY +4.2%

SHW +3%

As you can see, the gains are still very robust. Albeit, my positions have yet to yield spectacular results, I am comforted by the fact the industry is still in a sharp upward mode. Both USG and BZH are “battle ground” stocks with huge short positions. In USG, 22% of the float is sold short and in BZH 27%. Many of the shorts are “legacy”, remnants from the 2008 housing crisis meltdown. It is my belief, as the housing market improves, these shorts will be forced to cover, allowing the shares of  both USG and BZH to run wild, like a naked man inside of a Japanese brothel.

Keep in mind, part of the driver in housing is the emergence of  private equity and REITs in the residential space. As of today, Blackstone (BX) (my top position) and Public Storage (PSA) are the number 1 and 2 owners of US households in the country, from a corporate position. I suspect these trends will continue, effectively drying up inventory and pushing home prices higher.

Japanese equities have traded sideways over the past month, after huge gains. However, last week, they surged again.

SNE +8.1%

ATE +4%

IX +4%

CAJ +2.2%

Both TM and HMC are about flat for the past month. It’s only a matter of time before the weakness in the Yen (-16% over 6 mos) allows the big auto makers to peels the skin off their idiot competitors. I am long term bullish on both.

At the moment, my only long Japanese position is MTU (+1% for the week), but have an interest in reacquiring shares of SNE and HMC for a longer term duration.

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