Ultrashort Real Estate Drop Demonstrates Unlimited Faith in a Recovery

Simply amazing moves on thesis. Ultrashort Real Estate (SRS) is now at the low for the year which means the inverse index (effectively all sorts of REITs) are at the high. The faith in federal government saving all our commercial real estate is apparently unlimited. Quite amazing.

I owned this for many of the past 15 months when it did nothing in the $70s - just waiting for the fallout. Apparently all the fallout is done with, and we can go back on our merry way. It is now down in the mid $50s. Folks this was in the $280s just weeks ago. "It's all priced in" - so say the commercial REIT stocks.

I'm afraid to add to the position here simply because of my "year end" manipulation up thesis, but this is a lower price than I was able to buy it at any point this year, so it's getting mighty tempting. Maybe I can get it at $5 at this pace, by Dec 31st.

I have a post scheduled to go up tomorrow morning re: malls based on a story a reader sent me. But that is based on fact. In the casino, thesis rules.

Anyhow, I am just glad the government has my back and I can buy any stock with full confidence now. No matter the sector or fundamentals. Boo Yah.

Long Ultrashort Real Estate in fund; no personal position (but soon)

Comments

[Thomas J. G...:]

Good article. I have owned this for a long time too. There is something funny about srs. I bought it a long time ago. It's underlying reits are half or less from when I bought srs. but srs is below where I bought it. srs is buying its swaps or whatever and they are expiring and when they expire, you start over again. You do not get continuous performance from when you buy vs. the index you are trying to short. I'm not mad. srs did very well for a while and did what they said they would. I may write an article on this. Do a yahoo finance compare on srs vs. spg and you'll see what I'm talking about. But people investing in these ultra short vehicles have to understand these limitations. On one board this was stated as what srs was shorting against:

Top 10 Index Companies1 Weight
Simon Property Group Inc. 7.37%
ProLogis 5.23%
Vornado Realty Trust 4.65%
Boston Properties Inc. 3.94%
Public Storage Inc. 3.81%
Equity Residential 3.81%
General Growth Properties Inc. 3.23%
Annaly Capital Management Inc. 3.06%
Kimco Realty Corp. 2.78%
HCP Inc. 2.74%

2008 Dec 17 08:13 PM

[dwfm20:]

"Simply amazing moves on thesis. Ultrashort Real Estate (SRS) is now at the low for the year which means the inverse index (effectively all sorts of REITs) are at the high. The faith in federal government saving all our commercial real estate is apparently unlimited. Quite amazing."

I too was confused by the valuation of SRS being so low vs. early this year. What I have learned the hard way is that you can only count on the valuation of this for a very short term, and even then it will play tricks on you.

If you look at Ishares IYR, a single weight long ETF tracking the Dow Jones US Real Estate Index, which is supposed to be the same index SRS is double shorting, you will see it is no where near it's high for the year.

IYR close today 38.53, high for year is 71.76
SRS close today 57.19, previous low for the year is 61.00

SRS is great if you hit the timing right in the short term, like a week or less, but a disaster if you think you can buy and hold until the trend comes around.

2008 Dec 17 08:56 PM

[Thomas J. G...:]

do people think there is "market psychology" pricing in srs? When it was above 200 that was just because everyone one thought for a while that no reit in the country was going to be able to refinance their loans? The market is buyers and sellers and the buyers of srs when it was over 200 were not reacting to the fundamentals of what proshares was doing for srs?

2008 Dec 17 09:21 PM

[keithpiccir...:]

Karen Finerman of Fast Money said to buy it below $60 a day or two ago.
If you look at the list of companies Flash Gordon has included, these are the very good REIT's, as Kenneth Heebner of CGMFX had at least 2 or 3 from this list.
I still play SRS, but pick my spots.
A continued push for a drop in mortgage interest rates does not help real estate short psychology.

2008 Dec 17 09:52 PM

[Savvy Nuggets:]

Well these laymen of mathematics don't seem to understand that you can't really compare its price now to what it was before the huge spike. Say SRS is at $100 and the real estate index drops 20% in one day so make $40. Then it rises 20% the next day so you lose .4*140=$56 and so on. Even though the shorted index is right where it started you're still $16 poorer. I can't believe how people buy and hold this thing. It's meant for trading only. Past prices are meaningless!








you can't really


On Dec 17 08:13 PM Flash Gordon wrote:

> Good article. I have owned this for a long time too. There is something
> funny about srs. I bought it a long time ago. It's underlying reits
> are half or less from when I bought srs. but srs is below where I
> bought it. srs is buying its swaps or whatever and they are expiring
> and when they expire, you start over again. You do not get continuous
> performance from when you buy vs. the index you are trying to short.
> I'm not mad. srs did very well for a while and did what they said
> they would. I may write an article on this. Do a yahoo finance compare
> on srs vs. spg and you'll see what I'm talking about. But people
> investing in these ultra short vehicles have to understand these
> limitations. On one board this was stated as what srs was shorting
> against:
>
> Top 10 Index Companies1 Weight
> Simon Property Group Inc. 7.37%
> ProLogis 5.23%
> Vornado Realty Trust 4.65%
> Boston Properties Inc. 3.94%
> Public Storage Inc. 3.81%
> Equity Residential 3.81%
> General Growth Properties Inc. 3.23%
> Annaly Capital Management Inc. 3.06%
> Kimco Realty Corp. 2.78%
> HCP Inc. 2.74%

2008 Dec 17 10:24 PM

[Savvy Nuggets:]

I should've said it goes up the next day to where it started not "it rises 20%" but you get my point.



On Dec 17 10:24 PM Cool Beans wrote:

> Well these laymen of mathematics don't seem to understand that you
> can't really compare it's price now to what it was before the huge
> spike. Say SRS is at $100 and the real estate index drops 20% in
> one day so make $40. Then it rises 20% the next day so you lose
> .4*140=$56 and so on. Even though the shorted index is right where
> it started you're still $16 poorer. The author of this article seems
> to be ignorant of the concept. I can't believe how people buy and
> hold this thing. It's meant for trading only. Past prices are meaningless!
> The man who wrote this article is an idiot.
>
>
>
>
>
>
>
>
>
> you can't really
>
>
> On Dec 17 08:13 PM Flash Gordon wrote:

2008 Dec 17 10:30 PM

[Savvy Nuggets:]

What am I talking about? my math was perfectly right the first time. Sorry, im high :P


On Dec 17 10:30 PM Cool Beans wrote:

> I should've said it goes up the next day to where it started not
> "it rises 20%" but you get my point.
>

2008 Dec 17 10:35 PM

[Tony Petroski:]

Mr. Mark. You are not an idiot. I just thought you may like to know.

2008 Dec 17 11:33 PM

[pitaking:]

At the end of this current rally, (S&P 1000?) this will be a screaming buy along with SDS, SMN ect... but at this pace it might meet the URE at the $15.00 mark.

2008 Dec 18 12:42 AM

[bt310:]

Fact or Fiction:

After the holiday sales, the so called last gasp, many retail stores will close.

When dividends are cut and bondholders begin hiring attorneys, shareholders are safe.

Ratings agencies finally get the picture and downgrade your debt.

2008 Dec 18 05:21 AM

[DaveW:]

The pricing movement of SRS vs. URE is very curious - SRS at all-time low while URE is nowhere near it's all-time high of $60+. Like TM I've been salivating over this since it dipped below $90. So, if the buy target has been changed so drastically, how much will the sell target change? Will SRS reach $200+ on a market low revisit or new lo? I was thinking my purchase at $60 was a no-brainer, if SRS goes to $20 it'll be a 2-bagger just to get back there. hmm, curious times...

2008 Dec 18 09:54 AM

[Griz:]

Could it be possible that Madoff was involved and is somehow depriving us of our gains on these double shorts?

2008 Dec 18 01:48 PM

[Thomas J. G...:]

Is Cool Beans saying that SRS closes out it's positiions every day?

2008 Dec 18 02:30 PM

[Urbane Gori...:]

These double ETFs don;t really always trade in a way that you'd expect.. I've seen DIG/DUG, FXI/FXP and others both trade down or up at the same time... Lately, I suspect that money is being sucked from these pairs into the 3X models and causing weirdness.

jegan

2008 Dec 18 04:35 PM

[toomuchgas:]

So it seems it is time to sell SRS and go long. That what the FED is telling us. Most of the REITs are paying dividends in the high teens so I expect the dividend is one of the costs to being short REITs.

2008 Dec 18 05:38 PM

[Thomas J. G...:]

toomuch... I asked on the yahoo finance board once what srs uses to beneift if reits go down. The person said "swaps", not puts, not shorts but swaps. So srs is probably not paying shorted dividends. I'm not sure how a swap would let you short something but that's what the person said. The person also claimed it is explained on the proshares web site.

2008 Dec 18 07:06 PM

[Thomas J. G...:]

the other thing I'm saying about srs is that the index that srs is shorting is about 15% higher than when srs was selling above 200. Something very extreme is going on here. I'm guessing it's investor psychology, not anything Proshares is doing.

2008 Dec 18 09:53 PM

[jaybny:]

I think there is and end of year tax event on all the short ETFs. Since they had major capital gains... they have to pay taxes.. this may be why the short ETF are at lows and the long ETFs are not at highs.

look at SKF vs UYG, makes no sense... there are many professional ETF market-makers.. and this should be arbed out.

2008 Dec 19 12:02 AM

[jaybny:]

this explains it all.

seekingalpha.com/artic...

and this too

biz.yahoo.com/etfguide...

2008 Dec 19 12:31 AM

[Thomas J. G...:]

I don't buy the tax explanation. I've seen mutual funds do big capital gains distributions. They make the distribution and the share price drops accordingly. I just checked my holding of srs and there has been no distribution from proshares in either cash or shares in the last month. The seeking alpha article says the double inverse funds have to pick their time period to attempt their investment goal, daily, weekly, monthly. If they pick one time period, you aren't going to get your investment goal for different time periods. That makes some sense. I hope Proshares told people what their time period goal was somewhere.

2008 Dec 19 01:09 PM

[johnthebear:]

It would be truly incredible if someone would explain the typical investor how the SRS vs IYR double short functions. What makes is it work? After Maddoff, I wonder if we are all being sucked into another big web of fraud?

I have asked this question several times, but no one seems to know.

I am shifting from SRS to buying calls on SRS. The high volatility should pay off with an even bigger multiplier, if I am right. I bought $75 strike Feb 09 calls and hope for the best. Right after I bought my calls the price of IYR dropped below $50 and my calls dropped from $6.5 to $4! Boy, this is a rough game!

Jan 09 12:00 AM