[lewman]

Profund Short Real Estate Fund

Powayseller, as suspected this fund shorts property-related stocks and REITs by shorting the constituents of Dow Jones US Real Estate Index (see http://www.djindexes.com/mdsidx/index.cfm?event=showComponentWeights&rptsymbol=DJUSRE&sitemapid=1). I agree that this is one approach but my issue is I think we both agree that residential property prices in SD (and most of So Cal) is poised for a correction. But what about the rest of the country (I don’t know but I can’t imagine the same case for Iowa) and commercial real estates ? Plus a lot of the REITs included in the index may be mortgage REITs rather than equity REITs and mortgage REITs may have a lower correlation with property prices (actually I don’t know enough about commercial REs and mortgage REITs to say yes or no).

If you check out the index’s performance (http://finance.yahoo.com/q/bc?s=IYR&t=my), you’d notice an interesting fact that from ’01 to ’03 the index went nowhere, and that didn’t correspond to what we know of as the start of the boom of the property market. Fear is therefore if there’s a lagging effect between property prices and property stocks / REIT prices then shorting stocks & REITs at this point may be a little too soon.

I guess my point is the advantage of Profund Short US RE Fund seems to be a good broad-based exposure to the inverse of property prices but there are other factors that need to be taken into consideration and it doesn’t seem “focused” enough for my taste at the moment.

Lewis

[lewman]

Thanks powayseller. I also looked into shorting REITs and stocks of property developers, home depot etc but decided there are too many other factors such as stock market sentiment, that could cause the correlation to go out of whack. Thanks for mentioning Profund though. I looked into their other stuff before and they usually just use futures on the short side. But the Short RE fund could be different and worth a look.
Let’s keep each other posted and continue to share info.
Lewis

[lewman]

Rich, agreed. at least half my investment portfolio’s in non-USD assets. The US’s like a person with a maxed out credit card and an accident waiting to happen.

[lewman]

Rich, sure, that’s the reverse of the rising dollar—–>lowering import prices I mentioned; but I thought you were referring to “wage inflation” or rising wages.
Lewis

[lewman]

Rich, how would a debasing of the dollar cause wage to rise ?

I think there’s a very good chance the dollar will resume its fall (twin deficits, inability to raise rates …) after the last rate hike that’s expected to happen some time in the near future.

Lewis

[lewman]

… and if the cause of the “flatness” was indeed high inflation & rising wages, then I certainly agree that today’s conditions (low inflationary or even slight risk of deflation the way Ben sees it) aren’t conducive to a repeat.

[lewman]

Nhamlin: was still in my teens during the 80s so I don’t have much of an appreciation what happened; but that would certainly give a plausible explanation to a “flat” market in terms of nominal prices while the real value actually falls. thanks.
lewis

[lewman]

Diversification is the only golden rule when it comes to investments.

One of my themes over the next few years will be the drop of USD. Twin deficits coupled with 1) a slow down of the economy and 2) the world’s central banks saying they’ve got enough USD in their reserves already and therefore will reduce purchase of US treasuries. In 2005, USD rebounded due probably to 1) a tax break for US corporations to repatriate profits back to the US but this is now over and 2) a technical rebound from the past several years’ decline.

I like currencies with a commodity theme and that includes Canadian Dollar, Australian Dollar & New Zealand dollar.

[lewman]

Powayseller: Thanks for bringing up the point re: median price / per capita income. But you were talking about a price-to-income ratio. I was talking about price. Obviously two different things.

In addition to the CME link I posted, you can also check out the Office of Federal Housing Enterprise Oversight’s San Diego housing index (http://www.ofheo.gov/HPIMSA.asp) and it will also tell you that in the first half of the 80s San Diego housing prices only dipped by a small margin (around 3 to 5% during the whole period) after prices more than doubled in the latter half of the 70s.

You said “currently we are at med home pr/per capita inc = 14.5. To get back to the trough of 9, we would need a drop of 30%”. Actually we don’t, a 30% rise in income will achieve the same thing even if housing prices don’t drop.

What might have been the case was that during the early 80s, instead of a price drop, we saw income rising fast enough to bring the price-to-income ratio back down to a reasonable level, before prices rose again in the late 80s.

I’m not arguing that it would be the same this time around but for someone like me who’s trying to profit from the so-called “burst of the bubble”, I must take into consideration the possibility that if the economy continues to expand and income levels somehow find a way to rise (where the engine of growth will come from I have absolutely no idea), SD prices could stay flat (or just correct by a small percentage) over the next few years.

Having said the above which is me playing devil’s advocate to myself, I still tend to believe that this time prices have gone way too high compared to income, and when the correction does finally come, it will probably be steeper than previous cycles.

Peterm: Unfortunately CME and OFHEO only offer stats up to 2005Q3 so it’s lagging. Could you post the link for this MSL tracker site you mentioned ? thanks

Lewis

[lewman]

Shanghai House Prices

Stephan, I live in Beijing now and am interested to keep my eyes out for Shanghai property prices. Have you got any reliable source to go by ?

Lewis

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