The housing mess

Last week, BusinessWeek did a cover story on the meltdown in the U.S. housing sector, specifically the homebuilders, their overbuilding, entrance into the mortgage business, and even possible criminal misdeeds during the boom. It's worth reading. Unfortunately, this is just the sort of thing that occurs during any boom. Things become so good, so many people are making easy money, that no one notices fraud and other crimes being committed. These ugly realities are only revealed once the boom goes bust. Jim Cramer actually made a great point about this industry on Monday; this is a very small industry with a total market cap of 35 billion! Some homebuilders will go belly up, but that's not such a big deal. This used to happen all the time.
It's been tough shorting these stocks. Any hint of a rumor of good news sends these stocks through the roof. I've been up 40% on the position at times, and then the next day, been down 10-15%. I've hanging in there though. If you don't have the financial wherewithal to handle the swings, maybe you should look at buying puts as a way of reducing your cash exposure.