Although vacancy rates haven’t hit their recent 2003 peak, they should surpass it in the next month or two.

This is a clear signal that most commercial real estate investment trusts (REIT) are going to see their earnings take a big hit.

We already saw commercial REIT Developers Diversified Realty Corp. (NYSE:DDR) take a huge hit.

But DDR has already dropped too far to be an attractive short.
(As a general rule, if a stock is selling for under $5 it’s too cheap to short).

Kimco Realty Corporation (NYSE:KIM), on the other hand, still has a ways to drop.

Better still, KIM recently hit new lows and is sure to suffer as the commercial real estate market continues to fall apart.

This from Investment U:

Investment legend John Templeton insisted that everyone’s long-term investment goal should be the same: maximum total return after taxes.

In my experience, investors spend plenty of time thinking about risk and return, but not enough about taxes. That’s unfortunate. Especially since – unlike the stock market, interest rates or inflation – taxes are controllable.

Yet too many investors are surrendering far more to the taxman than they should. A Vanguard study, for example, found that the typical investor is giving up 2% a year to the IRS.

That’s nearly 20% of the long-term return of the S&P 500. How can you stop this and still remain a law-abiding, civic-minded individual?

It starts with tax-managing your investment portfolio…

Tax-Managing Your Investment Portfolio – 5 Basic Steps

Here are the five basic steps for tax-managing your investment portfolio:

• 1) Use your retirement account for short-term activity. If you like to trade for short-term profits, do it in your qualified retirement plan. That way all those short-term gains compound tax-deferred. (The downside in a bad market, however, is that losses in a retirement account are not tax deductible.)
• 2) Minimize turnover in your non-retirement accounts. Realizing gains on investments held less than a year means subjecting yourself to short-term capital gains taxes as high as 35%, depending on your tax bracket. As Warren Buffett once said “the capital gains tax is not a tax on capital gains, it’s a tax on transactions.” Hold winners for at least a year, if possible. If you do, you’ll qualify for long-term capital gains treatment at the maximum rate of only 15%.
• 3) Offset capital gains with capital losses. The IRS allows you to offset all of your realized capital gains with realized capital losses. And you can take up to $3,000 in additional losses against earned income. If you want to take the deduction for 2008, you need to sell your losers by the end of this month.
• 4) Reduce your taxes on interest income. Use your IRA, pension, 401(k) or other tax-deferred account to own corporate and Treasury bonds (since interest income is taxed at the same rate as earned income) and real estate investment trusts (since REIT dividends are taxed the same way).
• 5) Cut your management fees. If you invest in mutual funds, use index funds rather than actively-managed funds in your non-retirement accounts. Index funds tend to be highly tax-efficient because changes to the index are rare. Managed funds often have high turnover and Federal law requires them to distribute at least 98% of realized capital gains each year. You can get hit with a big capital gains distribution even when you haven’t sold a share and even if the fund is down for the year. That hurts on April 15.

Take these steps and you will substantially lessen the government’s tax bite on your investment portfolio. The few remaining choices are simple ones like owning tax-free rather than taxable bonds if you reside in a high-tax state like New York or California. (That is especially true today, since tax-free bonds are yielding more than Treasuries.)

While tax-managing your investment portfolio, if you’re looking to reduce your taxes further:

• Buy business equipment this month
• Pre-pay businesses expenses for 2009
• Fully fund your IRA, 401(k) or other retirement accounts.

Tax-Managing Your Investment Portfolio – Fine Art Donations

Consider investing in fine art and donating it to a charity to tax-manage your investment portfolio. The 1995 Tax Act allows you to donate to any IRS-approved charity works of art at their fair market value, not at their cost basis. Moreover, you can deduct the charitable gift’s fair market value on your return without being subject to the dreaded alternative minimum tax.

This is not just for fat cats, by the way. You can invest in art with just a few thousand dollars. (For more information, contact Mike Kuschman, president of Fine Arts Ltd, at 800.229.4322 or 407.702.6638.)

Too many investors are oblivious to the tax ramifications of their investment moves. Using the government tax breaks and tax-managing your investment portfolio can change that.

Tax savings should never be your sole consideration, however. In December 1996, for example, I sold my shares of Best Buy (NYSE:BBY) at a small loss, solely to offset some capital gains, then watched in horror as the stock rose nearly 30-fold over the next few years. (I still consider that one of my most bone-headed investment moves.)

Managing taxes is essential. It should be a priority. But it is not your most important one. Risk and return are your primary concerns. Taxes and expenses come next.

Focus on these four factors and your long-term investment success is virtually assured.

Source: Tax-Managing Your Investment Portfolio: There’s Still Time to Cut Your 2008 Taxes

The following is taken from this week’s Market Insights video featuring Todd Schoenberger.

Krista Das: We’ve heard a lot about the U.S. housing market lately. Probably too much. But there’s another avenue into real estate that doesn’t require you to buy property. It’s called a real estate investment trust, or REIT for short and is a security that acts like a stock with the major exchanges.

So, tell us a little about investing in REIT’s.

Todd Schoenberger: Okay. Well, a couple of things. One there is some significant tax considerations for investors to consider when investing in REIT’s. That’s a big plus if you’re looking for some type of an income adjusted investment.

The other side of it is that REIT’s offer a safety component whereas instead of just investing in actual tangible real estate, you can actually invest in an investment trust that holds many properties of real estate. However, there are different types of REIT’s and there are some that investors may want to consider and others they may want to stay away from.

Krista Das: So what are the advantages of owning REIT’s versus owning another stock or owning property?

Todd Schoenberger: That’s a great question. One issue is that clearly the tax consideration and the income that you do receive from those REIT’s.

A couple of different REIT’s that are out there are apartment REIT’s, hotel REIT’s, even housing REIT’s. I always like to look at shopping center REIT’s. I think this is where the economy is pushing the consumer and mainly in the form of higher gas prices.

Right now you have gas prices at four dollars north at the pump and therefore, you’re going to have more of an inclination of consumers that to go these shopping centers that do their one stop shopping. Maybe do their grocery shopping. Get their coffee, their cleaning, everything at just one stop because the days of actually going from store to store to store are pretty much over with these higher gas prices.

Krista Das: And what about other specialty REIT’s? What are some other ones that you would recommend?

Todd Schoenberger: Well, there are a number out there, a number of different REIT’s. There’s some hybrid REIT’s actually that are out there.

But right now, I would say you want to focus on the shopping center REIT’s for a couple of reasons just like I said before, for the one stop shop, but also thinking that these are where the real income is going to come in for investors.

For example, retailers are now thinking look, I want to have my shop in the shopping center places so that I know I’m going to get all the walk around traffic. Mainly because, like I mentioned before, you just want cars that just go in one spot, they stop and then they go from there.

The leases that are actually being sold here are going out three, four or five years for some of these shopping center REIT’s. One is Cedar Shopping Centers, which clearly they’re located here in the mid-Atlantic, as well as in the northeast. That is one shopping center that you actually see a grocery store chain. You might see the Wal-Mart there. You’ll see the Starbucks.

What it’s doing is it’s causing all these other little mom and pop shops to actually rent out and lease those open areas. Therefore, those heavy leases and that increase in money that’s flowing in is going to be then returned back to investors.

Using my example of Cedar right now, their dividend yield is paying 7 ½ percent plus investors might actually receive some type of capital appreciation if Cedar decides to sell any of these shopping centers in the future.

Krista Das: Now where does Cedar exchange on?

Todd Schoenberger: New York Stock Exchange, trading in the low teens right now and it would be something to consider for investors that are thinking of a derivative play as a result of the higher gas prices.

Krista Das: Where do you see the stock going in the near future?

Todd Schoenberger: Well, right now it seems to me that you’ll have some of the bigger rates that are out there, some of the private equity firms that are looking for some type of cash flow, some type of income that is coming in.

What is happening is now some of these shopping center REIT’s are now being looked at as potential acquisition targets. But because of that you have the potential of maybe being acquired, but even then so you have a higher yielding investment right now, plus the potential of capital gains in the future.

So realistically, yeah, you can look at a 25 to 30 percent upside potential in this stock and that’s before the end of the year. But again, it’s all prevalent to the higher gas prices. It’s just a derivative play of thinking of how you to make money when you have to pay four bucks at the pump.

Source: Buying REITs

As you might expect, the U.S housing slump is reducing demand for finished lumber. Meanwhile, timber, pulpwood, and paper prices are rising worldwide – but curiously, profit margins are eroding.

What’s up with that?

The global commodity boom has created a supply/demand price imbalance between the four distinct industry sectors that rely on timber as a raw material. In fact, that imbalance is a huge mismatch. And savvy investors may be able to wring substantial returns from the winner.

You see, timber companies have shrewdly maintained monopoly-like control of raw materials to hold the line on prices, despite the economic downturn. They are doling out enough – and only enough – supply to maintain sufficient revenue streams to pay the bills. Meanwhile, their downstream relatives are suffering.

In a sense, timber owners are weathering the storm. And when the storm is over, their profits should explode.

It’s a complicated scenario being driven by a number of economic factors including the declining U.S. dollar, classic market demand/supply ratios, emerging markets growth, and even export quotas and tariffs.

Investors who tune in may catch lightning in a bottle. The end game could send timber company profits – and your portfolio – soaring in the next 12 months to two years.

Let’s take a look.

Housing Slump Wreaks Havoc on Lumber Mills

As lumber prices have swooned to a five-year low, wood has been piling up at lumber mills. Sawmills throughout the United States and Canada have been reeling since the second quarter of 2007, when lumber prices collapsed to below the cost of production.

Here’s what’s happening now:

* In the United States, single-family-housing starts dropped 1.7% in April to a seasonally adjusted annual rate of 692,000 units, the lowest monthly production rate since January 1991, and a jaw-dropping 42% below 2007.
* U.S lumber consumption is expected to drop, from 64 billion board feet to 43 billion board feet from 2006 to 2008. A drop of 21 billion board feet in the span of three years is simply staggering, equal to the total production of the Top 20 softwood lumber producers in the U.S. market for all of 2007.
* North American lumber at the Chicago Mercantile Exchange has fallen as low as $209 per thousand board feet, down a whopping 56% from its peak of $473 in 2004 – at the apex of the housing boom.
* Lumber companies in the Billion Board Foot Club, a measurement of the largest lumber companies in the world, was reduced from 22 to 15 in 2007. Six of the victims to be cut were in North America.

Particularly hard-hit are the big lumber mills in Canada, which ship much of their production to the United States. The key factor was the unprecedented run-up in the Canadian dollar. With sales denominated in U.S. dollars and costs accrued in Canadian dollars, a wide range of Canadian producers were running in the red and simply ran out of money.

In addition, Canada mills must pay a 15% duty to ship lumber into the United States. That puts the price at those mills at about $175 per thousand board feet, said Gerry Van Leeuwen, vice president at International Wood Markets Group, a Vancouver-based lumber consulting firm. “There is just no way anyone is making any money,” he added.

In the past, sawmills only needed to wait for interest rates to decline before ramping up production. Now, however, they will have to wait until the housing glut is over before lumber demand gets back to normal.

And that’s not likely until mid-2009 at the earliest. Our advice is not to bet the farm on lumber companies right now.
Global Growth Buoys Pulpwood and Paper Mills

Meanwhile, pulpwood and paper has been in a strong bull market for almost two years. Demand for paper and pulp remains strong – from overseas markets, in particular. And that demand doesn’t appear likely to ebb anytime, soon.’

Overall, world paper demand is moving ahead, buoyed by accelerating growth in Asia. The surge in paper demand in Asia is driving a huge appetite for both virgin pulp and recycled fiber. In 2006, alone, China’s imports of wood pulp jumped 150% to 7.5 million tons.

Increased exports have also helped pulpwood prices. The weak U.S. dollar makes it cheap enough for pulp and paper companies to purchase products in the United States and ship them overseas.

On top of that, demand from European utility companies for wood pellets should keep pulpwood prices elevated. Believe it or not, European utilities have turned to wood chips to produce power in order to lower their greenhouse gas emissions in accordance with the Kyoto protocol.

So you would think paper and pulpwood mills would be humming along, bringing in record profits.

Don’t make that bet.

The Big Squeeze

There is a huge fly in the ointment for pulpwood-and-paper mills.

Paper mills, of course, rely on pulpwood as raw material. Pulp mills, in turn, operate on small logs and wood chips – a byproduct of lumber production. And, as you might expect, the weak market has lumber mills cutting back on production. This is forcing pulpwood mills to rely on buying more logs or raw timber, says Daniel Stuber, of Forest2Market.com,. The lack of available chips has produced a big demand for small, lower quality logs.

The fact is, pulp mills are using twice as many logs as they normally would to satisfy production levels. And they’re getting hit right in the wallet.

“One of the bright spots for timberland owners is the demand from the pulp-and-paper industry,” Stuber said. “Land owners have been withholding stands with larger trees until saw-timber prices rebound, but they have been able to generate revenue through thinning practices and harvesting younger stands.”

After that column, REITs in general fell 25% in six months. Shares of America’s largest REIT fund manager, Cohen & Steers, were cleaved in half during the drop. After all, if folks don’t want to own REITs, they don’t want to own the guys who own REITs either.

As today’s chart shows, investors are warming back up to the sector. C&S has built a solid “floor” in the $25 area and sits at a six-month high. Rallies come on strong volume, corrections come on weak volume. CB Richard Ellis, the world’s largest real estate services company, sports a similar chart.

We can’t know what the future holds for U.S. commercial real estate. Times could get worse. Times could get better… The renewed strength in Cohen & Steers tells us the forward-looking stock market likes the “times are getting better” thesis.

The largest independent auto-finance company lost $300 million last year on its $25 billion auto loan portfolio as defaults rose higher than 7%. What will be next? Credit cards.

Even though interest rates on credit-card debt are sky high, the minimum payments are small, which is allowing people to keep borrowing. At least for now.

Equifax (a leading credit bureau) reports total credit-card balances increased 8.1% in the first quarter of this year – more than double the previous average rate of growth. Naturally, the steepest increases in credit-card borrowing occurred in the same states where the mortgage crisis is the worst. Credit-card balances rose nearly 15% in the first quarter in California and Florida and more than 20% in Nevada.

Like drug addicts, consumers cannot survive without more and more credit, and they’re now turning to the most expensive and unreliable source. They will soon hit bottom.

In the latest issue of my newsletter, PSIA, I tell my subscribers how to profit from the coming collapse of U.S. credit-card debt, which now stands at $1 trillion. If you never read another issue of my letter, make sure you read this one. Click here to learn about a risk-free subscription.

Interested in trend following? Ed Seykota, the system-trading pioneer, composed a bluegrass song outlining the basics of his strategy. Check out The Whipsaw Song here.

Oil prices hit an intraday record above $115 a barrel this week, and Jeff Clark is perfectly positioned to profit from the move. In Advanced Income, Jeff found the one undervalued oil sector: refiners. While every other oil stock is trading at all-time highs, refiners are at 10-year lows.

Jeff created a trade to profit from the turnaround in refiners, and it pays you 8% up front. He noticed a similar trend last month, and that trade is already up 18%. To learn more about Advanced Income and receive Jeff’s latest recommendation, click here.

Energy costs rose 2.9% last month, while food prices rose 1.2%. The Fed cuts interest rates 100 basis points and injects more than $100 billion to prop up the liars and cheats on Wall Street, and I’m paying $5 for a box of cereal and nearly $4 for a gallon of gas. But maybe I’ll soon be paying a little less for gasoline…

It says right here in the Wall Street Journal Republican presidential candidate John McCain wants Congress to put a temporary halt on the 18.4-cent federal gas tax and 24.4-cent diesel tax from Memorial Day to Labor Day.

Tax cuts are the only true economic stimulus the government can offer. Everything else it does is merely a redistribution of seized wealth or a manipulation of the money supply.

China’s sovereign wealth fund recently invested $2 billion in oil major BP. A Chinese investment could soon become the ultimate contrary indicator…

In the past year, Chinese government-controlled entities invested $5 billion in Morgan Stanley, bought 9.9% of Bear Stearns (at around $150 per share), and invested $3 billion in Blackstone Group at the top in private equity.

Our favorite commodities bull, Jim Rogers, had a front-page Barron’s interview recently. Rogers told the same story (long agriculture/China, short banks), but gave some specific stocks this time.

He’s still short investment banks through the Amex Securities Broker/Dealer Index (XBD). He’s short Citigroup (C) and Fannie Mae (FNM). He’s also short some U.S. homebuilders, including Lennar (LEN). Meanwhile, he’s a big fan of international airlines like Lufthansa, Austrian Airlines, and Japan Airlines. He’s bullish on the renminbi, and his only exposure to emerging markets is through China and Taiwan.

If foreign stocks aren’t your thing, maybe you should check out our Monthly Dividend Program. Goldsmith compiled a portfolio of 10 stocks paying monthly dividends, and the portfolio is up 5% in a month.

Readers have already made 9% on an oil stock that yields more than 13%. They’ve also pocketed 9% on a hotel REIT yielding close to 7%. And that’s just capital gains. There are still 120 dividend checks on the way. To receive Goldsmith’s report, which shows you exactly how to pick the best monthly dividend payers and gives you our 10 favorite, click here…

Regards,

Porter Stansberry and Dan Ferris

That which does not kill us makes us stronger.
Friedrich Nietzsche

They must have noticed that we’ve entered into a recession. Aren’t they worried about their own earnings? With consumer spending slowing, who’s going to buy their products and services?

We know for a fact that companies are nervous because business spending is down. And if “nervous” is too strong a word, at least they’re uncertain enough about the future that they’ve put many of their purchases on hold.

Yet, the oil tanker company in one of my trade service portfolios – Tsakos Energy Navigation (TNP) – is treating the credit crunch like a gift from heaven.  Some shipping companies have lost the financing they were counting on to pay for new tankers. And TNP plans on taking full advantage of these canceled orders by scooping up these ships at huge discounts.

Then there’s the REIT in my INCOME portfolio. (This is a brand new recommendation I’ve made to my paid subscribers. I’m not allowed to reveal the name of this company at this time.). It’s pretty small. Its market cap is less than a billion dollars. Yet, it’s drooling over the current market. It has a generous credit line underwritten by a half-dozen banks. And when it uses that up, it plans on pulling in some joint-venture partners to help it buy up bargain-priced property with cap rates of 9-11 percent right now.

Neither of these companies are blue chippers with deep pockets. But they will more than survive the economic crisis we’re in. They’ll get bigger and stronger. And, as a result, their share prices should shoot up.

These companies are out there. Among the gloom and doom, their CEOs are saying bring it on. We’re ready. We’re going to come through this bigger and stronger. Their annual and quarterly reports give the same message, though more muted and qualified, as these reports tend to be.

Of course, companies love to spin. So some of this will be bluster. But if you’re too cynical and unwilling to dig a little deeper, you’re going to miss out on some great opportunities.

Money makes the world go around
The world go around
The world go around
Money makes the world go around
It makes the world go ‘round.
Cabaret: “Money”