US Position Payoff Profile

This diagram illustrates my current US portfolio looking towards month end duration.

 Here is the same diagram with all the underlying options making up the portfolio for the US.

STILL NOT 100% SURE

The Bear Growls

Having remained bearish since Mid May it feels like a lifetime. It has
also felt so right quite a few times along the journey to justify the
belief that bear market round 2 has begun.

The month started off with a bang and on day 1 we were up 4.5% and
then we gradually gave it back plus another 3.5% as yet another false
break down materialsed and we made new recovery highs.

Now the market is starting to present another bearish picture yet I am
currently not perfectly positioned for the bear story as there is
another game in play and that is risk management or damage control.

The message here is that in keeping with my policy of no regret it is
still important to build a framework to cater for the probability of
yet another bear fake.

I am comfortable with this overall strategy. What remains for me to
consider is how protective I become over P&L with month end on Wed
next week and Yom Kippur on Monday.

This will be partly decided in the next few hours.

Sent from my iPhone

China I believe continues to lead the way

US REIT downgrade to market perform.

Today BMO recommend taking some profits as they feel the market
reflects fair value.

I sense any profit taking will launch a landslide of selling.

The bearish case is starting to take shape.

Sent from my iPhone

AN OVERVIEW OF THE A-REIT MARKET

23 Sep. 09

This is a rough overview of the A-REIT (Australian) market over the last couple of years. I will essentially present it via charts and tables with a small commentary section.

VISUAL LANDSCAPE OF A-REIT MARKET

Chart 1:

In chart 1, you see a 5yr chart of A-REIT price action as reflected by the index on the left axis. I have superimposed the weekly volatility of the price action as measured on the right axis. You can clearly see the extreme in volatility at the March 09 low.

For sake of comparison to the Global REIT market I have created a relative chart 2, which compares the performance of A-REITs to Global REITs. The dotted black line is the mean of the relative ratio. What is clear is that the A-REITs have clearly underperformed in the last year stretching the ratio more than 2 std deviations away from the mean. Assuming reversion to the mean, Australia offers relative value.

Chart 2.

Using similar logic to the previous chart let us now look at the relative performance of A-REITs to the SA REITs as measured by the JSAPY index. Clearly Australia has underperformed the SA market to a slightly lesser extent than the Global Index.








Chart 3.

 

 

 

A-REIT STATISTICS

In this table you can get a feel for the hammering in market cap the sector has undergone.

	Free Float	Div	Total Real Estate
	Mkt Cap - AUD (million)	Yield	v Listed Real Estate
Mar-07	$121,451	5.36%	38.66%
Jun-07	$124,938	5.56%	38.66%
Mar-09	$40,847	13.84%	33.62%
May-09	$48,546	13.69%	32.71%
Aug-09	$72,928

• The average gearing level across the sector at the end of June 2009 was 31.4% compared to 43% at the end of 2008.
  
• JP Morgan anticipate a further A$8.1bn in write offs over the coming 12 months.
  
• Available liquidity is enough to cover the next 2 years of debt maturities.
  
• Bank lending is currently around a margin of 400bps.
  
• Current valuation cap rates on average 7.9%
  
• Development pipeline over the next 2 years has been slashed to rough A$5.1bn, 45% is applicable to Westfield.
  
• A value of A$12.4 billion traded in August 2009.
  
• Goldman Sachs today lowered their expected dividend yield on the sector for 2010 to 5.4% which is below the 10yr government bond yield of 5.8%.
  

Conclusion

The sector has clearly undergone a massive correction from its 2007 highs. Since March 2009 the sector has rallied some 72%. Clearly there remain valuation question marks; going forward dividend earnings are under pressure and the sector is expensive relative to the bond market. On the positive relative to the global REIT space and South Africa AREITs are cheap.

Global REIT Index

this too looks like it has done enough to begin the down draft.

LOOKING TOPPY

I am fighting myself from getting to excited that the wait is over. If the wait is over I dont have the ideal bearish portfolio, but then again it is more important that I stay in the game so I bought some near dated calls during the session. If this is it I will get my chance to add to the short side. BE VIGILANT as there are not going to be easy entry points on the short side if this is a 3rd wave.

Exhaustion

For some reason I am feeling extremely tired. Late nights early mornings will do it to you.

Hourly US REIT

Short Term Chart

A-REITS ARE EXPENSIVE RELATIVE TO BONDS

.

An Outsiders Wave Count

It was a great treat that I came across this chart from a wave counter that I really respect.

AUTUMN EQUINOX

For some reason, stocks, commodities and currencies have a curious
tendency to make major tops or bottoms on this day, as Paul Macrae
Montgomery points out in a special study edition of Universal Economics
newsletter entitled, "A Date Which Will in Infamy." While it is a bit of
hyperbole to equate Sept. 22 with FDR's characterization of the Dec. 7,
1941 attack on Pearl Harbor, the number of huge reversals that took
place on or about that date is stunning.

Montgomery recalls living through the October "massacres" of 1978 and
1979, the crash of 1987, the mini-crash of 1989, the 1997 Asian collapse
and the Long-Term Capital Markets plunges, which started to cascade
downward in late September. And while gold bullion topped in January
1980, gold stocks made their highs on Sept. 22 of that year, he adds.
That date also saw the peak in many oil stocks.

Why the apparent coincidence of these market upheavals beginning around
Sept. 22? Montgomery posits a possible link to the Autumnal Equinox,
which takes place Tuesday afternoon in the Northern Hemisphere. And he
also observes an increasing incidence of market reversals around the
time of Vernal Equinox in the Spring.

This year's Autumnal Equinox comes after a historic six-month rally in
stocks and a persistent, if much less dramatic, drop in the dollar, he
says. Traders should be alert for reversals in stocks, currencies and
gold for possible reversals, Montgomery advises. Long-term position
accounts shouldn't act without corroboration from other models, he adds.

Correlations are not causality, of course. Montgomery contends that the
typical explanations for market swings, such as the Lehman collapse or
Russia's debt crisis, are ex post facto. He asserts that certain cycles
tend to recur because of the human nervous system.

"At certain predictable times, subtle neurologic extremes are going to
occur, and these extremes are going to prompt behavior aimed at
ameliorating the attendant perturbation," he writes. Those reactions
supply the fundamental events, such as wars, political upheavals or
devaluations, that become the fundamental events to explain the market
swings, he concludes.

Whether you believe such alternative explanations for market actions is
beside the point. The notion of perfectly rational and efficient markets
has taken a huge, if not fatal, blow by the events of the past two
years. That so many wild things happen on this date is reason enough to
take note.

Ahoy there are ICEBERGS AHEAD

Most U.K. Commercial Property Loans Are in Default, CBRE Says
2009-09-22 12:32:26.35 GMT

By Chris Bourke and Simon Packard
Sept. 22 (Bloomberg) -- Most U.K. commercial property loans are now
in default after values slumped in the past two years, according to CB
Richard Ellis Group Inc., the world's largest real estate broker.
About 200 billion pounds ($327 billion) is needed to refinance
existing loans secured against 450 billion pounds of properties during
the next five to seven years, though only about half that amount is
available, the company estimates.
"Almost every senior, and every junior, loan is in technical
default," Robin Hubbard, a director of CBRE's real estate finance group,
said at a press conference today in London.
"There's limited financing available for new loans or refinancing other
people's loans."
Investors borrowed 360 billion pounds to buy stores, offices and
warehouses in Britain using about 90 billion pounds of their own cash,
according to Los Angeles-based CBRE. They now owe more than the
properties are worth after the global financial crisis ended the
market's five-year boom.
Average property values have fallen 44 percent since mid- 2007,
according to Investment Property Databank Ltd.
Banks are choosing to extend most of the 45 billion pounds of
commercial real estate loans due to mature this year, though only for
short periods, Hubbard said. This is only deferring the defaults, he
said.
The biggest challenge facing owners of U.K. commercial properties
is the leasing market, which "could be the straw that breaks the camel's
back," Hubbard said. The recession and rising unemployment are leading
to more vacancies and fewer tenants.
"Nobody's going to throw money in to get things back, unless it's
for new, nice, prime kit," Hubbard said. "There's only so much magic
dust you can sprinkle on the rubbish stuff."

For Related News and Information:
For more U.K. real estate news: TNI UKECO REL <GO> CMBS loan reports:
LRP <GO> Real estate resources: RE <GO> Top Bloomberg News bond stories:
TOPH <GO> Top Bloomberg News real estate stories: TOPR <GO> Stories on
banking: NI BNK <GO>

--Editors: Anne Pollak, Ross Larsen

To contact the reporter on this story:
Chris Bourke in London at +44-20-7073-3808 or cbourke4@bloomberg.net.

To contact the editor responsible for this story:
Alan Mirabella at 1-212-617-4149 or amirabella@bloomberg.net.

Volatility is Going Cheap

The market is back to the old days, "bullish" with low volatility. This promises to end in tears.

I think wae v up just started

 

Relative Trade

I am holding myself back from entering the relative trades I like to enter at momentum extremes.
Ideally I would prefer being long Australia relative to short the US but for now I remain steadfast short across the board.

All The Same Markets

Check out the correlations of these property indices relative to the S&P500, it is also worth noting the Beta of the US REITs to the broad equity market.

Where Does China Fit in

Is this index the leading indicator to the next leg down in world markets?

Check the DAX

I was busy looking at the DAX and couldnt get over how similar this final wave C of wave 2 is identical to the IYR chart in the US.

A longer term perspective

Close but still not there yet

US REITs still need one more rally