Smith Blog:

While screaming-head entertainers/pundits can call all the “bottoms” they want, even a cursory analysis of the HGX chart suggests the bottom is a long way down. Not shown on the chart is the third downleg, which will bring the index down to 50 or even lower.

Impossible, you say? Recall the dot-com meltdown, if you will. Take a real company such as Akamai (AKAM) which ran to $348 at the height of the dot-com mania in early 2000. It subsequently fell to 56 cents in October 2003. If the housing sector continues to build unwanted inventory and dumps that inventory for losses, why would anyone buy housing stocks? For the land, which is depreciating rapidly? For the book value of deteriorating assets?

I would say fair value of the housing index at the real bottom several years hence will be about 38. Give or take a few points; check back in October 2008 and we’ll see where the index stands at that point.

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