Nine Winning Trades For 2009
Houghton and Atkeson, March 22, 2009
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Trade #6: Real Estate Will Get Worse
We believe real estate values will continue to decline well into 2009. Although November housing starts and permits are hitting all-time lows, there are still more than 11 months of unsold home inventory on the market with demand running at ever more depressed levels. Additionally, the foreclosure rates are not slowing down.
Although the residential market is likely to decline further, we would rather focus on the commercial real estate market. Like lending patterns in residential real estate, commercial lending became irresponsible in the same way but a few years delayed. The impact of poor lending decisions and loan resets have yet to be felt fully in the commercial market. Additionally, with companies reducing the size of their operations and retailers closing stores, much of the highly levered commercial property will go vacant raising serious negative cash flow issues for its owners.
iShares Trust DJ US Real Estate Index ETF is one way to gain broad exposure the to the commercial real estate sector. ProShares offers double long and short ETFs that key off of IYR for those who enjoy extreme volatility in their portfolios.
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In the short-term, the government's bond auction is likely to be a key driver of stocks.
Treasury Auction Boosts Market
The Treasury's auction of two-year notes brought an upside surprise which should alleviate fears of a lack of demand for U.S. paper.
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The credit market, a reliable indicator of equity direction, suggests we will break out of the SPX's trading range to the upside.
The market seems to be saying that a 30% move up from the lows is ahead of the real economy and the market needs to allow the economy to catch up.
