Shake Shack, GoPro, Housing: Doug Kass' Views

NEW YORK (Real Money Pro) -- Doug Kass shares his views every day on RealMoneyPro. Click here for a real-time look at his insights and musings.

 


 Why Housing Still Worries Me

Posted at 1:57 PM EDT on Tuesday, May 26, 2015

"Many existing home owners still have low teaser rates, low rate adjustable mortgage loans or have refinanced down to low fixed mortgage rates, all of which are no longer available or have limited availability.

Now, with fixed-rate 30-year mortgage rates rising above 4%, many existing homeowners who plan to sell because their home has grown inadequate relative to their needs and want to trade up to more expensive homes are likely to begin to be forced into not selling (and then buying a larger home) because they can no longer replace their low mortgage rates with anything close to their previous mortgage rates.

The rise in mortgage rates will also likely have a materially adverse impact on home refinancings. Refinancings have historically provided a significant impetus to home renovations and refurbishings, as it delivers cash directly available for home improvements.

In addition, home affordability also will be negatively impacted by the nascent rise in inflation (most notably the recent rise in crude oil prices and other commodities) that digs into real incomes and consequently affordability.

Look for softness in housing fundamentals (sales activity, home prices and in renovations) during the second half of the year and reconsider investment in home builders and home improvement companies."

-- Daily Diary, "The Housing Recovery Will Sputter in the Second Half of 2015" (May 6, 2015)

On Fast Money: Halftime Report today, Scott "Judge" Wapner asked why all the panelists were unanimously bullish on housing. The gang gave a number of reasons: rates won't rise too rapidly, household formations are climbing, an improving labor market and pent up demand were among many factors. Let's go to the videotape.

Respectfully, I hold to a different and more cautious view:

  1. While the high end will benefit from an "exclusive" economic recovery that has aided the well-to-do -- higher home prices have sowed the seeds to reduced affordability and will hurt mid-level priced housing sales activity going forward. (The issue has not been the cost of capital or the level of mortgage rates for years).
  2. Interest rates have to only rise slightly to adversely affect housing, as many are locked into low adjustables and teasers, so they are less likely to "move up" to larger and more expensive homes as they can no longer replace low-level mortgage rates. Mortgage credit is no longer freely available (as was the case eight years ago) as mortgages standards having been raised materially, so yesterday's no doc/lo doc mortgage of $250,000 (rates low or zero) is today's equivalent to a $450,000 mortgage (when normalizing the "terms").

I would avoid housing-related securities. 


 

Shun Shake Shack

Posted at 2:52 PM EDT on Wednesday, May 27, 2015

 

Early this morning, Jim "El Capitan" Cramer provided a clear view of the structural reasons that explained Shake Shack's  (SHAK) soaring share price.

To me, Shake Shack is a short, but given my core tenets of short selling -- never short when the short interest exceeds 7%-8% of the float and when the short interest is a multiple of the daily average trading volume -- I am a spectator in this yo-yo.

And today, the yo-yo is -$10.

My advice? Avoid SHAK (on either the long or short side) -- like the plague.

Just like GoPro (GPRO).

At the time of publication, Kass and/or his funds held no positions in the companies mentioned, although holdings can change at any time.

Doug Kass is the president of Seabreeze Partners Management Inc. Under no circumstances does this information represent a recommendation to buy, sell or hold any security.

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