Harry Newton's In Search of The Perfect Investment
Technology Investor. Harry Newton
AM EDT, Monday, October 12, 2009: Commercial
rents have cratered. Many buildings are in default on their loans, or soon will
be. The banks are not dealing with the mess, but will have to soon. The next
shoe to fall will be real estate stocks and REITs. Friends are shorting REITs.
This piece from the Wall Street Journal's MarketWatch
last week is instructive:
stocks' run may be near an end
REITs surge despite jitters over commercial property; analysts debate outlook
-- Talk about climbing a wall of worry. Real estate investment trusts have
doubled since early March despite persistent warnings from the Federal Reserve
and economists that commercial real estate could be the next big shoe to drop
in the financial crisis after the residential housing bust.
During the market's
seven-month climb, riskier sectors that fell the hardest during the sell-off
have posted the sharpest gains, and that's certainly been the case for REITs.
The group, which gives individual investors a way to participate in commercial
real estate sectors such as offices and apartments, has risen 30% over the
past three months.
Many Wall Street
analysts say the sector has climbed too far, too fast. REITs face multiple
economic headwinds as the U.S. tries to shake off the recession. The market
for commercial mortgage-backed securities is in shambles, rents and occupancies
are weakening, and tenants are feeling the chill of the economic downdraft.
Property values are down, and delinquencies and defaults are rising.
Mall giant General
Growth Properties Inc. was forced to file for bankruptcy in April when it
couldn't refinance its crushing debt load.
a cautious outlook on the space, as the recent sector rally is ahead of fundamentals
-- we expect further economic headlines that will pressure shares," said
Stifel Nicolaus & Co. analysts.
On the positive
side, some of the stronger companies have even been able to tap the markets
for fresh capital during the rally, and dividend yields are attracting some
though, have been forced to slash dividends during the market carnage, and
some have resorted to paying out stock rather than cash. But Stifel thinks
the sector's yield has bottomed out.
have bolstered their balance sheets, as the capital markets began to thaw
in March," the analysts said, adding the sector has completed nearly
60 equity raises since the middle of March, improving the survival odds for
overlevered REITs. "Some issuances were purely defensive and destroyed
shareholder net asset value, and will weigh on future earnings growth."
for commercial real estate remains bleak and the Fed has been trying to prop
up the market for commercial mortgage-backed securities. Federal Reserve Chairman
Ben Bernanke has been warning that defaults in commercial real estate are
one of the most serious challenges facing the U.S. economy.
REITs were one
of the hardest-hit industries when credit markets went into cardiac arrest
last year, and the sector is closely tied to the health of the overall economy.
recent bounce, the SPDR Dow Jones REIT ETF was still off 29% for the year
ended Sept. 30. The exchange-traded fund was lagging the S&P 500 Index
by nearly 22 percentage points, according to investment researcher Morningstar.
The ETF's top
holdings are bellwethers such as Simon Property Group Inc. , Vornado Realty
Trust , Public Storage Inc. , Boston Properties Inc. and Equity Residential
. The fund's dividend yield currently tops 4%.
crisis, in particular, has shaken the foundation of REITs," said Morningstar
analyst Scott Burns in a profile of the fund. He said the companies are "highly
leveraged and have little cash on hand" because they're required to
pay out at least 90% of their annual earnings to shareholders as dividends.
are currently enduring the perfect storm: a lack of credit and weak economic
fundamentals," Burns said. "Even lenders who have the capacity to
make loans are skittish to do so, given worsening economic fundamentals and
deflating asset values."
Late 2008 and
early 2009 was simply a disaster for REITs as the companies found themselves
shut out of capital markets -- the sector lost a third of its value in the
first quarter of 2009 alone. ...
tracking the REIT sector are advising investors to take the money and run
after the powerful rally. ...
Fees. And more fees. With the stockmarket recovery,
Wall Street is, once again, creating new product -- whose sole aim is to part
you and me from fees. Say NO loudly.
Google will go higher, yet:
accounted for 71.08% of all US searches conducted in the four weeks ending
Oct. 3, 2009, while Yahoo (YHOO) Search, Bing and Ask.com received 16.38%,
8.96% and 2.56%, respectively, according to an analysis by Experian Hitwise.
Despite a significant
challenge from Bing since the alternative search engines introduction
in June, Googles share of search increased 1% over August 2009, when
it stood at 70.24%. And while both Yahoo and Bing together account for 25%
of US search share, Yahoo saw a decline of 3% vs. September, while Bings
share slid 5%.
52 search engines in the Hitwise Search Engine Analysis Tool accounted for
1.04% of all US searches.
Don't even think
about using Microsoft's Bing. It's semi-useless.
End of Easy Money and the Renewal of the American Economy. Review
of new book by Peter S. Goodman. From weekend reading:
motif that enlivens Peter S. Goodmans otherwise sobering new book on
economic delusion suggests that weve been living in Neverland. The fairy
dust of easy money heedless borrowing by homeowners and investment
bankers alike has lost its magic, and now we have returned to harsh
Goodman, a national
economics correspondent for The New York Times, doesnt go so far as
to match literary characters with real-life figures, but clearly the former
Federal Reserve chairman Alan Greenspan would be his Peter Pan: the fantastical
flying boy who wouldnt grow up to confront the adult world, where his
theory of pristine, self-correcting markets simply doesnt work the way
he wishes it would. If Greenspan is Peter, then his band of Lost Boys who
live with him in Neverland would include the current Fed chairman, Ben Bernanke,
and the chief White House economic adviser, Lawrence Summers. Unless our Lost
Boys imitate their literary counterparts and return to the gravity-bound world,
we could face further rounds of economic disaster.
Goodman, a fair-minded
reporter and a clear writer, demonstrates how both Bernanke and Summers, along
with most other major economists and Wall Street plutocrats of the past two
decades, became entranced by the Greenspan-Chicago School notion that
financial institutions can be trusted to police one another in the absence
of rigorous government oversight. Summers opposed the regulation of credit
derivatives during his years in the Clinton administration, helping to open
the door to the reckless trading and lending that brought Wall Street to its
knees. Bernanke failed to appreciate until way too late that the subprime
housing bubble would not necessarily deflate on its own.
one of historys most galling now-you-tell-us moments, confessed last
October that his magical thinking had turned out to be false. Thankfully,
hes gone from the public stage. Bernanke and Summers remain in positions
of tremendous influence, and they have failed, so far, to articulate specifically
just how wrong Greenspan was, and how they intend to reshape the worlds of
banking and financial regulation. The Obama administrations initiative
to stiffen the spine of the Securities and Exchange Commission and curb derivatives
speculation is apparently losing momentum. Goodmans book reminds us
that this situation contains the seeds of future fiascoes.
Drawing on his
experience covering the technology industry as well as broader economic trends,
Goodman performs a tremendous service by showing how the context of market
manias changes but the essential content remains the same. The tech boom
of the late 1990s gained dangerous momentum when financial seers reassured
investors that traditional rules companies ought to make profits
derived from real demand for their goods and services no longer applied.
Crash! More recently the fallacy was that home prices would rise forever,
defying the conventional relationship between supply and demand. Thats
why banks gave anyone a mortgage, and Wall Street bought those mortgages and
turned them into an endless stream of bonds. But when real estate inevitably
collapsed, the mortgages went sour, the bonds turned noxious, and, well, here
indicators are pointing in hopeful directions these days. But we could still
see a painful reversal, especially when all those booby-trapped mortgages
punish borrowers with interest-rate jumps over the next year. To date,
lenders have deftly resisted pressure from Washington to revise the bulk of
shaky home loans, heightening the risk of a worsened foreclosure crisis that
could drag the larger economy back into recession before we ever reach a solid
recovery. Wall Street, for its part, defiantly insists that derivatives
trading should remain beyond the reach of the financial police. We desperately
need the Lost Boys to wake up and deal with the truth.
bashing has become super fashionable. From
the latest issue of Fred Hickey's High-Tech Strategist:
cable television viewership audience for Fox News has been growing at double-digit
rates according to Nielsen Media Research. CNN, MSNBC and even CNBC are losing
viewers. Fox's government-bashing slant has resonated with an ever-growing
audience. The latest Nielsen ratings for prime time found that Fox's programs
attract an average 2.5 million viewers, more than all the viewers of
CNN, MSNBC, CNBC and CNN-Headline News combined.
Glen Beck's show's audience (three million viewers) is now five times larger
than CNBC's Chris Matthews "Hardball" and ten times larger than
CNBC's "Fast Money" show in the same time slot.
are ultra-cheap these days. But you mustn't ever:
automatic renewals -- where they build your credit card until eternity.
2. Renew with
the form they send you. My wife got a renewal from Cook's magazine. Price $24.95
a year. In the same mail, she received "a special charter rate" subscription
offer for $19.95.
BusinessWeek subscription. Only 60 cents an issue delivered. Click
for your grandkids. Playgrounder is a web magazine helping parents
and kids find the very best stuff. Our team digs up the best toys, games, gear,
clothes, DVDs and more. New items are posted daily. playgrounder.com/
is the Most Desirable Place to Live. The UNs Human Development
Report 2008/2009, done annually, ranks Norway numero uno because of the country's
human development index ratings, which evaluates certain criteria, including
educational factors, gender equality, and life expectancy. Australia comes in
number -- followed by Iceland (last year's number one), Canada, and Ireland.
Geographic rates Norway as one of "Our Best New Trips in the World."
Watch last night's 60 Minutes piece on The
Birdmen, shot in Norway (where else?).
to make Windows XP startup faster: Some useful tips at WikiHOW.
Ignore the tip on Hibernation. Don't do it. Too dangerous. For more tips, click
lesson. To my brain, this is more about today's economics than school-taught
Two guys are drinking
in a bar. One says: "Did you know that Moose have sex 10 to 15 times a
says his friend, "I just joined the ELKS...!"
This column is about my personal search
for the perfect investment. I don't give investment advice. For that you have
to be registered with regulatory authorities, which I am not. I am a reporter
and an investor. I make my daily column -- Monday through Friday -- freely available
for three reasons: Writing is good for sorting things out in my brain. Second,
the column is research for a book I'm writing called "In Search of the
Perfect Investment." Third, I encourage my readers to send me their
ideas, concerns and experiences. That way we can all learn together. My email
address is .
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