On April 17, I wrote about the massive train wreck coming in commercial real estate. As it turns out, my estimates of the coming devastation – which seemed outlandish to some at the time – have actually turned out to be too conservative. The problem is far worse than anything that’s been reported so far, particularly when it comes to our icon of consumerism: the shopping mall.

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!

The December Existing Home Sales report actually surprised to the upside, posting a gain of 6.5 percent versus November. This equates to roughly 290,000 units.

Here’s the bad news: These sales aren’t from eager buyers who got priced out of the market during the run up over the last few years. The buyers are vultures, swooping in and cleaning the carcass. Over 45 percent of the sales were “distressed” according to the report.

That is bad news for the market. It is just the beginning of a viscous cycle with three simple ways you could use to profit.