I just had dinner with a friend last night, and I wanted to share some of my insights on our conversation with you. This friend of mine was a very active trader during the bull market in late 1999 and early 2000. In fact, by speculating on micro-cap companies, he was able to turn $200,000 into over a million. I still remember having dinner with him and his wife back in January 2000 and telling him to take the money and run, as I felt the market was way too extended and was set for a fall. His response was that I was wrong, and he even quoted a book he was reading that called for the DOW to reach 20,000!

 In other words, he was your typical greedy trader who thought he was invincible at a time when anyone with money could have made money in the market. Guess what? He kept his holdings, refusing to consider taking any profits or setting stop-loss levels for his stocks. He was stubborn and was the kind of guy that believed only in his own analysis.

 Well, that same millionaire's trading account is now worth less than $100,000, and my friend has all but stopped trading. Over the years, I came to realize that he was in fact a pretty decent contrarian indicator.

 When he was bullish, I would short, and vice versa. Following this strategy, it has worked out pretty good. Now, at last night's dinner, he was at it again. He mentioned how he and his wife were ready to speculate on the hot real estate market, firmly believing it had a lot upside left. He said he would buy a condo with 5% down and try to flip it. He would borrow the down payment. Problem is, given the price appreciation in real estate these days, he may be late in the game. And being a good contrarian indicator, I thought it might be a good time to short real estate stocks.

 In a report released by Richard DeKaser, chief economist of National City Corp., in an examination of 299 metro areas in the U.S., 53 cities were rated "extremely overvalued" as far as single-family homes. The risk was the potential of a major price decline. By overvalued, DeKaser meant a market where prices were 30% above his estimates. For your information, leading the pack of overvalued areas was Barbara, California where houses were estimated at 69% overvalued. As far as overvalued regions go, they included California; Southern Florida; parts of the Boston area; Long Island, N.Y.; counties of Nassau and Suffolk; and Ocean City, N.J.

 I may forward this report to my friend... but then again he would probably brush it off.