Analyzing debt loaded companyies, Or should I buy KBH?

KBH has a market cap of $684 million at the current $8.79. Last quarter, they managed to come up with $300 million in cash flow. This looks cheap compared to market cap. However, if we look at the balance sheet, we see some huge problems.
Although cash flow was large, liabilities were only reduced by $30 million. However, assets fell by $340 million. In other words, asset selloffs of $340 million produced cash flow of $300 and reduced debt by $30. If assets are falling faster than liabilities, then equity must shrink. The long term trend shows this more clearly: over the last four quarters, assets fell by $1.1 billion, and liabilities only fell by $0.3 billion.

However, I will close this position today. First, it's a huge down day, and the foreclosure prevention plans and stimulus packages have been a big bust for homebuilder hope. It's time to buy the dip. I will sell the next rally. Second, at under 3.5% of my portfolio, it's time to close the position or short more.

Trade: buy to cover KBH @ $9.30 *the market recovered almost 200 points, but I decided to take some of my chips off the table anyway. I'm not happy about losing $80 writing this blog, but I don't want to be penny-wise, pound-foolish greedy either.

+38% on this

In other news, gold hits $1,000. David Rosenberg from ML reports that "Global
buying of gold bars and coins in 4Q reached 148.5 tons – an 811% surge from a
year ago." Since the end of last month, when the Chinese finance minister reiterated his intention to keep buying U.S. Treasuries because gold was the only other (dismissed as ridiculous) option I've been of the belief that consumer buying of gold as a safe haven against currency devaluation is greater outside of the U.S. than in it. In fact, I believe that this is precisely what is causing the curious phenomenon of gold rising along with the dollar.

I think it's time for another trade as Germany finally addresses the economic troubles of its neighbors. "German Finance Minister Peer Steinbrueck became the first senior policy maker to broach the topic this week, saying some of the 16 euro nations are “getting into difficulties” and may need help (Bloomberg)."

Time to sell EUO.

Trade: sell EUO @ $24.37. *I wanted $25 for this, but ultrashorts are craxy. One thing I noticed was that this is listed as "hard to borrow" on Schwab, which means I should go back in soon and hope for a short squeeze, if it doesn't happen now that I've sold it.

+ 12% here.