Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

U.S. Real Estate Investing, Why It's Time to Buy REITs

Housing-Market / US Housing May 13, 2009 - 05:18 PM GMT

By: DailyWealth

Housing-Market Best Financial Markets Analysis ArticlePorter Stansberry writes: Just a few weeks ago, I introduced my new theory of "The Great Re-Leveraging" to readers of my investment advisory.

What is the Great Re-Leveraging? And how is it going to hand investors 60% in the next six months?

It all comes down to what's called an interest rate spread. This is a critical concept for investors to understand...

The constant devaluation of the U.S. dollar via inflation makes it difficult to measure asset prices over time. For example, gas is really much cheaper today (at $2) than it was 10 years ago (when it cost $1.50). That's because the purchasing power of the dollar has fallen by about 50% over the last 10 years. (And it's about to fall a lot more...)

Inflation makes it difficult to judge the relative value of financial assets. That's why financial analysts spend so much time talking about various ratios – like the price-to-earnings and price-to-book ratios. These ratios are much better measures of value than nominal prices because nominal prices change with inflation. Ratios don't.

The most important ratio for REITs is the ratio between the dividend yield investors can earn from REITs and the interest they can earn on a "risk-free" Treasury bond. Most investors buy REITs for income. So the Treasury-bond yield heavily influences the prices of REITs. If you could get 10% annually from Treasury bonds, you wouldn't accept the risk of owning a REIT unless you could get at least three or four percentage points more from it. These extra percentage points of income are the "spread."

The chart above shows the spread, in percentage points, between the dividend yield of REITs (measured by the DJ REIT index) versus the yield on a 10-year U.S. government bond.

As you can see, most of the time, investors demand a premium of between two and four percentage points compared to Treasuries. But... from time to time... investors become enamored with real estate. During 2006 and 2007, investors would have actually made more money investing in U.S. Treasuries than in REITs. That was a huge warning sign that real estate was extremely overvalued.

On the other hand, we'd never seen investors demanding such a large premium over Treasury yields to buy REITs as we saw in early March. Investors wanted more than 7% annually on top of Treasury-bond yields to own REITs. That's the widest spread of all time.

While it's possible for conditions in real estate to get worse and for investors to demand still more premium in the future, I think we've likely seen the peak of the REIT spread. And that means REIT share prices are likely to continue rallying.

Why do I think the bear market in REITs is over? Because the floodgates of new capital have opened.

In March, Simon Property, the nation's largest publicly traded REIT, was desperate to raise new capital to fund operations. It raised $500 million by selling stock – at $31 per share. That offering was only the second time any REIT had been able to raise new equity during 2009.

But since then, many other REITs have followed. Several billion dollars has been raised in only the last month. This move of capital back into real estate has caused REIT prices to rebound and the REIT spread over Treasuries to decline for the first time since mid-2007.

Sentiment and access to capital play a huge role in real estate prices. The more capital that's available, the higher prices will move. The higher prices move, the more capital becomes available – because there's more collateral. Sentiment is incredibly important to these markets. It opens the flow of new capital. And sentiment is now completely different than it was in March.

Simon Property recently announced another equity offering – this time $800 million in new equity. You might expect the market to react warily because these new shares will dilute the existing shareholders. But instead, the stock rallied – almost 10%. The reaction was so strong, the company was able to increase both the price and the amount of the offering – raising $1 billion at $50 per share.

The fact that REITs have this kind of access to capital tells me the yield spread has peaked and it's time to buy REITs.

Good investing,

Porter Stansberry

The DailyWealth Investment Philosophy: In a nutshell, my investment philosophy is this: Buy things of extraordinary value at a time when nobody else wants them. Then sell when people are willing to pay any price. You see, at DailyWealth, we believe most investors take way too much risk. Our mission is to show you how to avoid risky investments, and how to avoid what the average investor is doing. I believe that you can make a lot of money – and do it safely – by simply doing the opposite of what is most popular.

Customer Service: 1-888-261-2693 – Copyright 2009 Stansberry & Associates Investment Research. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This e-letter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of Stansberry & Associates Investment Research, LLC. 1217 Saint Paul Street, Baltimore MD 21202

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Daily Wealth Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


ted nash
14 May 09, 10:10
investing in reits

Enough with bulshitting ! the commercial real estate is a dead cow ! what simon property group does is a play with #s! Their stock has tobe @ 20$ a share not 50. So you know how empty are the malls ,commercial plazas have 70 % vacancy in most cases! Nothing can reverse that trend !Puting money in reits is like killing youself .And I can tell you one thing brother that I lost a lot of money on reits and so will you.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in