Chinese Drywall Stink Fouls Markets

I'm really going to try to blog here more often-- been mostly doing SPY forecasts at youtube. But this Chinese drywall issue needs to be better understood by all of us retail traders, myself included. The current story has got little traction with mainstream media-- yahoo finance is where i saw it last Friday, then it sunk slowly down the list of stories and just faded away... the main drywall story is old news-- but last Friday's development should be HOT news, and i mean HOT HOT HOT....
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In brief, the U.S. Consumer Product Safety Commission (CPSC) issued a report last Friday saying that ALL the bad drywall must come out, as it poses a safety hazard (they only rule on safety, not health issues- that's maybe the EPA?). This means that between 100,000-200,000 homes must be gutted, the drywall replaced, the wiring gutted and replaced, gas lines gutted and replaced, plumbing fixtures replaced, smoke alarms replaced, and A/C possibly replaced..... cost is estimated at about $100,000 per home. Getting the picture? This is HUGE. Who is going to pay? And that $100k per house doesn't even cover potential liability for injury to health, inconvenience, other losses, or punitive damages, or damages to appliances and electronics (devastating to computers).
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So i began looking for short targets. And doing some reasoning. About 30 seconds into the embedded video below (made friday night) i forecasted that China would start dumping Treasuries in order to pay off the drywall overhang-- whether they did or not on Monday is an open question, but something sure spooked the T-bond market into a hard gapdown Monday (see TLT or IEF charts, or watch my video at this link: China Dumps T-Bills on Drywall Overhang?). So i'm on track to comprehending the implications, i guess.
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(More of this post below the video)

Now comes the monkeywrench. In the above video, i say watch banks, homebuilders, and insurance companies, because they're all potentially liable for the $100k per house pricetag. So monday they all pretty much went up, leaving me wondering what kind of fakeout crap this might be. Bottom line, i began to run some FLIR2 synthetic trendlines and h2o5 on BZH and it does look like it could run up some thru April, but then may face a massive downside. On researching various insurers, i came up with Allstate (ALL:nyse) as the only major insurer with significant exposure (might be others) and sure enough, today it began to slip after yesterday's fakeout. But, in truth, with all the cross-bets and CDSs (credit default swaps) of these clowns, i expect them all to take a major hit as the spring and summer wear on, including the banks and homebuilders.
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In the whole mess, i think the homebuilders may fare the best, i.e., lose the least, because they'll be paid to fix all that crap. USG (United States Gypsum) actually looks pretty good on synthetics, so (ironically) they may be expecting to recover most of their damages outlay from China, even though their monday fakeout was exposed today by a sharp downturn.. And China has no choice but to pay for the rehabs-- because if they don't, then the USA has an excuse to default on at least part of its debt to China. See what i mean?- this whole thing is monkeywrenches tied up in knots with wet bubblegum.
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So, it seems to me, it all boils down to this---- ALL is cooked; Treasuries are french-fried; homebuilders are roasted after April; and USG should be scalded but gets away with only first-degree burns. Why do i say USG "should" get scalded? because they (apparently) relabeled Chinese drywall as their own, as apparently did National Gypsum (NGCO:AB, Saudi Arabia Exchange). I think the most reliable plays will be shorts/puts on t-bill ETFs-- a bit tricky because China won't dump all at once but in stages of dumps with small bounces to suck in retailers. So i'd place puts some distance out (in time) 'til dumping's over.  I'm also about to run FLIR2 on some charts for Home Depot, Lowes, Builders Square, etc.--- these may have some legal exposure but might also actually profit in the long run from this fiasco.

p.s.-- no matter where you live in USA, you may have bad drywall. see a lawyer. SYMPTOMS: rotten-egg smell, or ammonia smell (or like cat urine), or sweetish smell-- these odors may "disappear" due to olfactory fatigue after a few minutes; may not even be noticeable in low-humidity regions, but try to notice after showering or after cooking/boiling something; black deposits on wiring or inside smoke alarms or on A/C coils; respiratory or sinus symptoms may indicate bad drywall- in some dry states, this is the only symptom. HOME TEST: crumble some drywall into a large jar, sprinkle a few drops of water to create humidity (not to soak it), drop in a shiny copper penny, cap jar and set in sunlight for two weeks. If penny corrodes or turns black, you got bad stuff. If still shiny, it's good stuff. NOTE: your builder or remodeler may have used drywall from more than one supplier, so a "good" test is not necessarily definitive.