Back in June, I introduced readers of my blog to UltraShort Proshares ETFs. I wanted to let the less sophisticated readers know that there are ways to make money in down markets for us mere mortals who cannot afford to invest with George Soros and Jim Simons.
UltraShort Prohares ETFs are a way to make money on specific industries that you think are due for a deep correction. In June, I recommended to invest in the SRS, the UltraShort Real Estate ProShares and I warned investors not to hold onto these shares too long because they are volatile. Make your money and take your profits. Why? Look at what happened today. After a parabolic move up over the last two weeks, the SRS got whacked this afternoon, down 14%. The other UltraShort Prohares that got whacked was the SKF, the UltraShort Financials Proshares, down 12% today. (You can click on the image above to see today's performance of all the UltraShort Proshares ETFs I track every day).
So what is going on here? Aren't financials in trouble? Isn't commercial real estate diving? Of course they are but stocks do not go down forever and any sharp move down will be met by buying interest at some point. There is a relief rally going on and it could last a few days or it could last a few weeks.
But I can assure you that real estate is in big trouble and the fundamentals for U.S. real estate investment trusts (REITS) are very weak. I quote the following from this article entitled, Goldman Dour on Commercial Real Estate:
"The total returns of equity REIT, at about 3.9%, have run higher than Standard & Poor's 500 index of -10.2%. However, the report predicts that equity REITs will deliver returns of -10% this year, a trend that will continue through 2009. Rising unemployment, higher costs of living, and slowed demand for real estate are some of the many factors eroding the fundamentals of commercial real estate, the report notes. Also, a rising unemployment rate will result in a reduction of real estate needs by corporations. Habermann warned that down cycles in commercial real estate tend to lag behind other trends. Following the 2001 recession, commercial real estate did reach its bottom until 2003, the analyst noted."
Just like in financials, I would use any relief rally in real estate shares to reduce exposure to these shares and build short positions. A great way to short this sector is to buy UltraShort Proshares ETFs. If the SRS continues to decline as this relief rally gains some more believers, I will look into reinvesting in this ETF for a quick trade.
Keep an eye on a blog called Trends I'm Watching. It is on my blog list and I check it every week to see which ETFs moved that week. It is a good way of keeping up-to-date on big sector moves.
Finally, take the time to remember Sir John Templeton, a famous investor who died today in Nassau, the Bahamas, where he had lived for decades. He was 95. Mr. Templeton was known as an astute investor and philanthropist who amassed a fortune as a pioneer in global mutual funds, then gave away hundreds of millions of dollars to foster understanding of what he called “spiritual realities.” Last year's winner of the $1.5 million Templeton Prize was McGill University's Charles Taylor. I was lucky enough to take a few of professor Taylor's classes while studying at McGill. I highly recommend his book Sources of the Self and his more recent work, A Secular Age.
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I am an independent senior economist and pension and investment analyst with years of experience working on the buy and sell-side. I have researched and invested in traditional and alternative asset classes at two of the largest public pension funds in Canada, the Caisse de dépôt et placement du Québec (Caisse) and the Public Sector Pension Investment Board (PSP Investments). I've also consulted the Treasury Board Secretariat of Canada on the governance of the Federal Public Service Pension Plan (2007) and been invited to speak at the Standing Committee on Finance (2009) and the Senate Standing Committee on Banking, Commerce and Trade (2010) to discuss Canada's pension system. You can follow my blog posts on your Bloomberg terminal and track me on Twitter (@PensionPulse) where I post many links to pension and investment articles as well as my market thoughts and other articles of interest.
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