Dan Amoss, CFA, is managing editor for Strategic Investment and a contributing editor for Whiskey and Gunpowder. He is a Chartered Financial Analyst and joined Agora Financial from Investment Counselors of Maryland, investment advisor's for one of the top small-cap value mutual funds. Dan combines his institutional background with a drive to seek out the most attractive investments within big picture trends.
Friday’s edition of The Wall Street Journal picks up on the theme of the long road of pain ahead for bank shareholders in the US. In ‘Banks on Sick List Top 400,’ the WSJ details several ugly highlights from the latest FDIC Quarterly Banking Profile, published last Thursday.
With vacation season ending in the Northern Hemisphere, we’ll start to see analysis rooted in experience and common sense driving stock prices. Through much of the summer, trading has been dominated by “quant” funds that are prone to “garbage in, garbage out” decision systems. You can see it in the tick-by-tick movements and in Level 2 quotes. These quant funds typically use backward-looking data on the U.S. economy to drive trading decisions, rather than assess how the outlook for the global economy has changed in the wake of last fall’s panic.
In the last 18 months, Strategic Short Report readers had the chance to make 432% when Lehman failed, 162% when Allied Capital (NYSE:ALD) came clean, and 220% on PNC Financial (NYSE:PNC)… This month my subscribers are poised to make money on the next bank drop.
Investors in common stocks tend to ignore warning signs coming from the credit markets, often at their peril. Right now, the credit markets are broadcasting the following warning: The equity of overleveraged REITs is at risk of elimination or permanent impairment.
Like bank stocks one year ago, REITs look cheap on paper…but very expensive on pavement. Out in the real world of plummeting demand for commercial space and constricting access to credit, commercial real estate is facing a very tough time. And that means the seemingly inexpensive shares of many REITs are not cheap at all.
Investors in common stocks tend to ignore warning signs coming from the credit markets, often at their peril. Right now, the credit markets are broadcasting the following warning: The equity of overleveraged REITs is at risk of elimination or permanent impairment.
I’m confident that the trend for REITs will be down through the end of 2009. That’s why I suggest buying the UltaShort Real Estate ProShares ETF (NYSE: SRS. Current price $18.52) as a way to profit from weakness in the REIT sector. But fasten your seatbelt! SRS will be volatile!
What do the Fed’s recently concluded “stress tests” have to do with commercial real estate? Everything. The stress test results convey the illusion that America’s largest banks possess adequate capital. But that’s not true. And since America’s largest banks possess inadequate capital, they will be reducing their exposure to commercial real estate loans. REIT-holders beware!
This bear market has pushed the price of many good stocks to bargain-basement levels. In my view, the stock prices of many oil and natural gas exploration and production (E&P) companies are irrationally low.