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Don’t look now … but anything related to construction or real estate is really getting rocked here!
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Mike’s Moves to Make Buy: Inverse real estate ETFs; put options on construction, housing, real estate stocks; consumer staples; food and beverage stocks Sell: REITs; construction suppliers; home improvement retailers; toolmakers; appliance and HVAC companies |
Those multifamily Real Estate Investment Trusts (REITs) I’ve been telling you to stay the heck away from? They’re dropping like flies. The latest was AvalonBay Communities (AVB). Its shares tanked to within a whisker of a two-year low this week after the apartment company missed quarterly profit targets, which it had issued only three months earlier, and then warned of lower-than-expected earnings going forward.
The problem? We’re swimming in apartment supply from sea to shining sea because of a massive construction boom fueled by an epic wave of easy lending. That’s causing rent concessions and vacancy rates to rise.
Then there are the companies that make and sell everything from faucets to cabinets to paint to appliances. Several of them got crushed this week after reporting lousy earnings and revenue, and they are warning of worse days ahead. Whirlpool (WHR) plunged more than $18 on Tuesday alone, while Sherwin-Williams (SHW) tanked $30. Masco (MAS) dropped 9%, while Home Depot (HD) sank 3.5% to a seven-month low.
Have you ever seen those Mobile Mini (MINI) temporary offices and storage units at a local commercial or residential construction site? They’re the beige ones with the blue signs and white writing on the side. Well, that stock plunged almost 16% on Tuesday after both sales and earnings dropped from year-ago levels.
Meanwhile, contracting and construction-management company Tutor Perini (TPC) has given up every penny of gains since its May breakout. And Manitowoc (MTW), the maker of construction cranes you’ve probably seen on your local skyline? It pre-announced weak results a few days ago, sending its shares to the lowest level since March.
Why is this happening? Because of the ongoing turn in the credit cycle! Just like I warned multiple times over the past several months here in Money and Markets, the easy money that fueled the latest mania in commercial real estate and construction is starting to dry up.
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| A maker of construction cranes saw its shares drop to their lowest level since March. |
That means REITs, housing stocks, construction suppliers, and lenders with heavy real estate exposure are going to be pure poison for your portfolio. I trust you already sold these stocks months ago when they were near their highs, and have dodged the carnage. If not, do so now.
Or better yet, join me in my All Weather Trader service. That’s where I’m putting my credit-cycle experience to work for my subscribers, recommending investments that RISE in value as vulnerable stocks in sectors like construction and real estate FALL. I’d love for you to join me.
Not ready to take that step? Still too heavily exposed to real estate investments, either in the form of shares or physical property? Then at least consider hedge investments like the ProShares Short Real Estate (REK) or the ProShares UltraShort Real Estate (SRS).
Just remember that these inverse ETFs have issues with longer-term tracking errors. You need to manage these kinds of positions as a result, buying on pullbacks and selling on big rallies (or as I said earlier, you can let me do the work for you in my All Weather Trader service).
If you’re a more conservative investor who doesn’t want to go that route, then another great strategy for avoiding problems in real estate is to invest completely AWAY from the sector. Focus on less economically sensitive, more stable companies in sectors like food-and-beverage and consumer staples.
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I’m seeing some incredible bargains there, and some of them are paying off nicely for subscribers to my Safe Money Report. I recommended Reynolds American (RAI) a few months ago, for instance, and it just received a takeover offer at a substantial premium to where the stock was trading. You can get on board with those kinds of picks here.
One last word of advice: The deterioration in construction and real estate … and the increasing woes in other sectors like autos … aren’t good news for the U.S. economy. They’re starting to lead to layoffs at companies like MTW, temporary plant shutdowns at companies like Ford Motor (F), and other problems. That’s one reason I’m still relatively cautious on the stock market overall, and recommend you stay that way, too.
So what do you think? Did you dump these turkeys in the construction (and auto) sectors months ago? Will those problems slam the overall economy and the markets? Or can strength elsewhere offset that? Where are you seeing the most opportunity right now? Let me know in the comment section.
Until next time,
Mike Larson
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
{ 21 comments }
The bubble is and will continue to hurt American Investors .
Not only autos commercial real estate apartments but the big bubble is residential real estate .
It is more inflated than 07/08
Thank the Federal Reserve and Obama for fleecing your hard earned invested money
Mike are you Mike L? if not why do you think that residential RE is so inflated? What Real Estate does Larry E think the foreign inflows are going into?
Larry E is calling for wealthy non-American investors to buy high-end trophy properties. Those have topped out, but there’s still strong support for that market and will be for a while. Mike L is talking about the broad RE market.
the taxes on these reits are a real pain too.
My view is that America’s economy is shrinking and will not likely recover. I say this because our debt is growing much faster than our wealth creation. This trend is unlikely to change. We, and western economies, are countries economically in reverse. Eventually our only way out is super-inflation or default.
Careful shorting strategies is what investors should be concentrating on.
Yes, the bubble is beginning to deflate. It peaked in May/June and been on a slow but steady decline. While there hasn’t been a 12 month trend of declines yet, the price gains that were reported in the early part of this year’s selling season have reverted so that the year-over-year trend is flat. The inference is that effective demand for residential single family real estate has peaked. That’s the view from SoCal from an appraiser who has been hard at work as homeowners refinance to better rates as part of hunkering down for what appears will be an interesting winter.
I am just about to buy a small home in tiny community in the country (pop 300) in northern Arkansas. I am intending on using my va benefits using a VA home loan. Is this a good time to secure a home or continue renting?
Did you get any reply? Interested in your question too.. Heard some guru say buying is what he wouldn’t do now..but he was anticipating that prices would tank in the near future!
Depends on price but you have to live somewhere…if mortgage is cheaper or as cheap as rent might as well buy… Its not an investment for you, it is your home….
Enjoy.
I would take advantage of the low interest rate, and tax mortgage deduction; that is, if your budget allows and your income is stable. Otherwise, continue to rent, and pay off debt. Remember that your rent is paying someone else’s mortgage and eventually builds their wealth not yours! Get a good Realtor in Arkansas and make sure home is worth the selling price in today’s market. Just my thoughts…
What happened to the gold and oil quotes?
Very interesting and all true Mike. But, sorry to look away, but the most interesting thing to me these last couple weeks is how the Plunge Protection Team won’t allow the S and P to go below 2130, no way no how.. I really wonder how long they can keep it up. It’s been going on ever since Gunlach said a “close below that number and he is out” However looking hat the ups and downs, and where we are.. the PPT only seems to have control over 50 to 75 points on the Dow. I suppose they can stretch things out until something really bad happens, like what your reporting.. Anyone else have an opinion on that or am I hallucinating?
Mike, would like to hear today on the GDP report. They are saying 2.9%, but if you read it, it looks like 1.4 real GDP.. help us out here will you…?
Hi Mike!
The truly only safe place to be is in gold and silver…period!
I am paying attention – so Thank you.
We have Townhouse in Jupiter FL for winter use 4-5 months. Should we sell it, or just ride it out?
Where’s Toni Turners weekly market wrap up? I have been looking forward to it all day. She’s a great analyst.
James,
Keep your townhouse in FL as long as you use it and you can afford it.
I live in Boston ,Brookline MA , prices have gone up more than 200k here sine 2011 ,renting for for kids school here ,should I wait to buy even in Brookline or any other surrounding expensive towns here ? there are a lot of foreign investors are buying in cash. or keep renting for now till bubble bursts?
And is keeping savings for down payment or otherwise in cash at Banks is safe?
My current thinking regarding stocks is to short Europe, Japan, Asia, fertilizers and energy. And get ready to buy silver and gold. But what do I know—I’m a Farmer.
Is the Hudson Yards in New York
too big to fail?
How about Billionares Row?