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The Worst Chart a Real Estate Investor Can See Right Now

By Brian Hunt, Editor in Chief, Stansberry Research
Monday, October 6, 2008

For the past few months, the behavior of one asset has reassured me that – despite the worst news in decades – "things aren't so bad" in the real estate market...
 
The bearer of good news was the surprising strength in the iShares Real Estate Fund (IYR). This ETF is full of America's largest apartment landlords, mall operators, and office-building owners. It's also one of the world's largest and most liquid ways to own a basket of commercial real estate stocks.
 
From early 2007 to mid 2008, this liquid asset flowed straight down the toilet. This was around the time folks started realizing real estate prices couldn't rise 15% every single year into perpetuity. During the decline, IYR fell 40% from its highs to around $57 in July 2008.
 
While this sort of fall is commonplace in banking and commodity stocks these days, for a diversified basket of blue-chip real estate assets, it counts as obliteration. But after falling, real estate stocks held steady in July and August, despite the horrid news coming from Fannie Mae, Freddie Mac, and Lehman Brothers.
 
A trader could only look at this positive action in the face of negative news as a sign commercial real estate could be putting in a bottom... that the market was saying, "The worst may be over."
 
Last week, however, the market changed its mind. It's screaming, "The worst isn't over at all." As you can see from this chart, IYR just plunged past its July bottom to reach its lowest point in years:
 
 
 
This new low has erased any hope an investor had for a bottom in commercial real estate. The market is saying credit- market weakness, a declining economy, and falling asset prices are crushing America's largest owners of commercial property... so it's no wonder commercial real estate insiders are selling stock in huge amounts.
 
What's an investor to do? Well, you can't know the future... but you can know the trend is still down for stocks, employment, and real estate prices. And you can know market trends tend to last longer than anyone thinks is possible.
 
My advice? Avoid real estate stocks for the time being.
 
An economic crisis always creates tremendous values in both stocks and land. And these securities are offering substantial yields in the 4%-6% range. But the trend in real estate stocks just got started on another leg down. The economic headwinds we're facing will make that trend last much longer.
Good investing,
 
Brian Hunt




Market Notes
Citigroup leads a brutal Friday for financials... down 18%
 
The party's over... Diageo, world's largest booze maker, hits a two-year low. Gambling stocks Las Vegas Sands, Penn National Gaming, MGM Mirage, Pinnacle Entertainment, and Melco Crown also at new lows.
 
REITs search for bottom... Macerich, First Industrial Realty, CBL & Associates, and AMB Property hit new lows.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 37.77 +1.5% -2.8%
Gold 135.20 -0.1% +13.4%
Silver 27.93 +0.4% +47.9%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 19.39 -9.2% -8.2%
Gold Stocks 564.53 +1.3% +10.6%
10-Year Yield 3.00 +1.4% -9.6%

World ETFs
Symbol Price
Change
52-Wk
USA 122.56 +1.3% +10.2%
Canada 30.44 +1.3% +13.8%
Russia 21.63 +2.3% +16.7%
India 37.73 +1.9% +20.0%
Israel 16.47 +0.9% +9.7%
Japan 10.58 +1.0% +7.4%
Singapore 13.88 +1.0% +19.2%
Taiwan 14.72 +1.6% +17.8%
S. Korea 56.56 +1.7% +22.8%
S. Africa 70.85 +3.9% +22.9%
China 45.06 +1.4% +0.1%
Lat.America 52.82 +1.4% +6.7%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 136.18 +1.5% +14.8%
Big Pharma 64.13 +0.6% -3.3%
Internet 72.13 +0.7% +22.3%
Semis 16.03 +2.1% +28.9%
Utilities 31.21 +0.3% +1.6%
Defense 18.51 +1.3% +10.1%
Nanotech 9.99 +1.3% +0.0%
Alt. Energy 9.95 +1.4% -4.4%
Water 18.31 +1.1% +12.2%
Insurance 16.07 +1.2% +18.3%
Biotech 20.58 +1.1% +27.1%
Retail 19.65 +0.1% +28.4%
Software 24.59 +0.9% +24.1%
Big Tech 53.73 +1.0% +21.9%
Construction 12.99 +2.1% +13.3%
Media 13.57 +1.1% +25.0%
Consumer Svcs 67.26 +0.8% +23.3%
Financials 54.87 +2.4% +5.2%
Health Care 64.22 +0.7% +1.3%
Industrials 63.25 +1.6% +19.7%
Basic Mat 73.57 +1.6% +21.6%
Real Estate 55.24 +1.4% +23.8%
Transportation 91.17 +1.4% +25.6%
Telecom 22.48 +1.1% +17.1%

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