When I say “the little sonofabitch,” you all know by now which stock I’m referring to: Beazer Homes USA. We’ve tried several times to short BZH shares, and each time, we’ve been stopped out when the stock subsequently rampaged higher. Our losses have been negligible, though, because we’ve employed a very conservative strategy. The last time we tried to short the little s.o.b., we caught a cyclical peak within a dime. This allowed us to take partial profits on the pullback and to apply our gains to a relatively wide stop-loss for our remaining shorts. Beazer ejected us soon thereafter, and we’ve been waiting ever since for a new opportunity.

My guess is that we’ll see one soon. The stock appears to be consolidating for a rally of about 5 percent that could mark the finale of the powerful bull cycle begun just before Halloween. Beazer is currently trading around 173, but if it pops as expected, the stock would encounter formidable hidden-pivot resistance at exactly 184.47. We should be prepared to buy some near-the-money puts if that happens. To that end, I’ve done some calculations that are on view inside Rick’s Picks. I doubt Beazer will hit our target in time to give the March 180 or 185 puts a play, so I’ve focused on the Aprils.

(Click on image to enlarge)

Freakish U.S. ‘Recovery’

I’ve long considered Beazer -- along with Citigroup -- a bellwether for a freakish economic “recovery” that has produced zero income growth. When the stock finally falls it’s going to fall hard, making the relative nickels and dimes we’ve risked shorting it seem inconsequential in comparison with the profits that it will be possible to rack up in just a few short days (hours?). Lest we forget how ripe the homebuilders’ shares are for shorting, here’s an excerpt from a story that appeared last week on the front page of the New York Times. With respect to Beazer, we may get the timing of it wrong yet again. But when stories like the one that follows begin to appear, you can be reasonably certain that the all-but-inevitable catastrophe is not far off:

Housing Speculators

“SUNNY ISLES, Fla., Feb. 25 - Within six months last year, Carlos and Betti Lidsky bought and sold two condominiums. Then they bought and sold two houses. They say they will clear a half-million dollars in profit, and none of the homes have even been built. Now Mr. Lidsky, a lawyer, and his wife, a charity fund-raiser, have put down a deposit on a fifth property, a $1.3 million condo in a high-rise under construction, and are planning to sell before the deal closes, without even taking out a mortgage.

"It is much better than the stock market," Mr. Lidsky said. "This is an extraordinary, phenomenally good result."

“In several metropolitan areas, from Miami to Riverside, Calif., where the real estate market is white hot, rapidly rising prices are luring a growing number of ordinary people into buying and selling residences they do not intend to occupy, despite warnings from some economists that prices cannot continue to rise as steeply as they have in the last few years. According to LoanPerformance Inc., a San Francisco mortgage data firm, about

8.5 percent of mortgages nationwide in the first 11 months of last year were taken out by people who did not plan to live in the houses themselves, up from 5.8 percent in 2000. In some markets, that proportion is much higher: in Phoenix, more than 12 percent of mortgages were taken out by investors; in Miami, the figure is 11 percent.

“The National Association of Realtors, a trade organization that represents real estate brokers, said in a study being released on Tuesday that the percentage of homes bought for investment might be as high as one-quarter of the 7.7 million sold last year.

"Americans are treating real estate as a viable alternative to stocks and bonds," said David Lereah, chief economist at the Realtors association. And some are buying at least two properties at a time.”

***

A Hyperinflation ‘Must-Read’

Jim Puplava has written an illuminating essay concerning interest rates, which he thinks are about to head much higher. Although I remain moderately bullish on bonds for now for purely technical reasons, I find Jim’s argument very compelling. It is only his assertion that we are headed toward hyperinflation that I disagree with. More to the point, I categorize those who believe hyperinflation is coming as closet deflationists, since by definition, hyperinflation is unsustainable. It seems logical that even if we do hyperinflate, bailing out debtors while destroying savers and creditors, the detumescence of a hyperinflationary spike can only lead to...deflation.

Jim makes the point that debt totals are now so colossal that they will have to be liquidated via inflation. For debtors, at least, that would be good news. But as I’ve repeated here many times, I doubt that Murphy’s Law will be so kind to tens of millions of profligate borrowers around the world.