Contrarians: Time to Ditch Gold, Look at REITs

The World Gold Council released a survey of investment advisers that shows gold at the top of the list of preferred investments this year.

When everyone is in agreement that gold is the place to be, that’s when you should be heading for the exits. Two of the interesting things from this survey stuck out to us – apart from the fact that gold may be getting ahead of itself…

One, almost 60% of the respondents expected better market conditions next year. Interesting, considering the broader markets have been hammered to the point beyond rational flights to safety. It tells us there’s a lot of advising of clients to “wait.” But wait for what? When will these “advisers” encourage their clients to get back in?

Two, at the bottom of the list was property. Apparently, no one wants to buy property. And as a good contrarian, that tells us that there are bargains within the REIT and real estate sectors.

“Throwing out the baby with the bathwater” is an old expression, but it reminds us that as investors have been running for the exits from sinking REITs, they’ve been trampling the good ones in the process. Recently, we highlighted First Trust/FIDAC Mortgage Income Fund (FMY) for its ability to withstand the collapse of the mortgage-backed securities market.

The REIT market is a junkyard of wreckage. Therein lie companies like General Growth Properties (GGP) – which is eying bankruptcy after years of aggressive acquisitions that have come back to haunt them. There are also companies like Alexander’s Inc (ALX), which just beat numbers expectations and is holding up well.

For contrarians, there are lots to pick through, but the rewards will be great for the successful bargain hunters. Luckily, you know you’re one of the few “hunting,” right now.

Comments

[Dave Shafer:]

Good advice, wrong REIT. Try HCN which owns health care facilities and has long term leases on them. I have owned it for years and the dividend payout is 12% based on my purchase price. At current levels you could purchase it and get a 8.5% yield. Stay away from the REITs that invest in shopping malls or retail spaces or office buildings. Consider health care REITS, commercial REITS, or apartment building REITs. Remember all real estatate is local and there are many areas that are still fairly strong. Do your own research and analysis before investing in anything.

Feb 27 08:52 AM

[Chris B:]

There are a lot of scared herd followers out there who are just trying to do what everybody else says is safe - which is inevitably what went up previously. Real estate used to be considered the safe bet and its high valuation was defended with gusto. Now it's gold, and many of the same victims of groupthink are again defending an aging trend.

That said, there are many REITs I would never touch, such as malls and mortgages. Meanwhile, with residential, hotel, and industrial REITs, the problem is that many of these companies overpaid for properties in 2004-2008 and are stuck with higher notes than fresh competitors would have to pay. Eventually these competitors will beat them with their lower costs. I'd be interested in new REITs buying up distressed properties at pennies on the dollar, but I'd NOT be interested in taking over too-high payments by buying their established competitors.

Feb 27 09:11 AM

[Chris B:]

Hey Mad Hedge Fund Trader,

What are your thoughts on SSS or EXR? Both have recent insider buys, but I suspect rents will be pressured as people dispose of their junk in the down economy.

Feb 27 09:19 AM

[Paul Killinger:]

A little levity is always enjoyable at times like this.

Feb 27 09:35 AM

[Paul Killinger:]

A friend of mine used to run a small bank. He liked to tell me that real estate loans were best because sooner or later the underlying value of the property always enabled them to be repaid. Unfortunately, his institution is no longer in existence.

Feb 27 09:41 AM

[Paul Killinger:]

As always in real estate, many of the eventual survivors will be entities that may not even be in business yet.

Feb 27 09:44 AM

[Steve Ward:]

Gold is clearly overpriced in allcurrencies at this moment.However, that is only a fleeting thing. As of today, the numbers were announced for various economies around the world, Chile, the Norse countries, Taiwan, they are far greater than anyone imagined.
Eastern Europe wants 230 billion from Western Europe to bail itselfout.
This is no longer recession but the D word.
No one is throwing out the baby with the bathwater, for there is no baby left to worry about.

If you want to take risk, try Sprint or Nextel bonds. Yielding 16 percent to 22 percent respectively. They seem to have stopped the customer hemmoprage for now. Buy some of these then hedge with gold.
All the reits are risky and we can all afford to wait and wait and buy some gold in the meantime.

Feb 27 10:49 AM

[kelm:]

This article would have a lot more impact if you actually listed the REIT positions you had taken.

Feb 27 11:22 AM

[traderstraffic:]

As much gold and silver that has been sold in the last two months, gold should be 2500 silver at 50. There is shortage in both, mints not minting, waiting time to get gold and silver. If that many houses had been sold in the last two months, do you think housing stocks would be going down if you had to wait months just to get a house, no those stocks would be going to the moon. Can you say MANIPULATED market.

Feb 27 12:13 PM

[Mayascribe:]

Yeah...let's get out at the beginning of housing bubble. Let's get out at the beginning of the dot.com bubble. Let's get out Google after making a 20 percent gain after the intitial offering. Let's get out oil when it was $50.00 heading toward $147.00.

Let's get out of all bubbles before they have a chance for you to make a killing.

I hope you get my humor, here.

Gold forming a double top is a great thing. That means it revisited a high. Most certainly, there is going to be a pull back. Anyone who follows this market knows that it is technically driven.

We all know what is coming. Inflation. When? I will offer not for a little while. But when inflation does come, it's going to come in a big way. And gold will go up, technically driven, of course.

I'm buying in small batches mining stocks as they go down.

Feb 27 01:01 PM

[Socialism c...:]

Real estate has only had its FIRST leg down. Get OUT while you can.

Feb 27 04:54 PM

[Bundee:]

"The World Gold Council released a survey of investment advisers that shows gold at the top of the list of preferred investments this year.

When everyone is in agreement that gold is the place to be, that’s when you should be heading for the exits."

Sorry, but not EVERYBODY agrees that gold is the place to be. when the likes of Fox News, CNBC, CNN, the investment advisors on local news stations all start saying "buy gold", then, and only then, will we know it is time to run for the exits.

The World Gold Council speaking well of gold, the commodity it deals with, the thing that gives it a reason for being in existance. Do you honestly think The World Gold Council would speak of gold as a terrible investment? As something a terible to own? Would they call it a terrible thing to buy? That would be a bit like DeBeers trying to convince people NOT to buy diamonds.
You don't speak ill of your product, you puff it up and talk it up as much as you can.

Feb 27 06:33 PM

[Roger Knights:]

"A friend of mine used to run a small bank. He liked to tell me that real estate loans were best because sooner or later the underlying value of the property always enabled them to be repaid. Unfortunately, his institution is no longer in existence."

The saying used to be, "Safe as houses"--that has a mordant sound today.

Feb 28 01:00 AM

[TERN:]

If Gold is the place to be when the great Inflation comes, then why whould leverageable Real Estate not be again the place to be too?

If the PM markets are manipulated, how about the new legislation that will "stave off" home foreclosures and "avoid" a further (overshooting) collapse of home prices (in the US)?

There will be enough time to take a position again. Real Estate prices tend to move a little slower than metals.

Feb 28 03:12 AM

[jasonjim:]

Gold will be the next bubble as the herd follows the latest fad. Some REITs are good buys today because all of them have been oversold, some to ridiculously low levels relative to value. Some of them still pay a healthy dividend as well. As soon as the banks recover so will the REITs. Just have to be patient.

Feb 28 04:40 PM

[Skeptical Ben:]

Kelm pointed out the article would be more salient if actual examples worth investing in were indicated, I got the impression GGP was a sucker bet. REITs have to distribute their profits so they can't stockpile cash without stockpiling debt. The REITs to buy are those that didn't buy much in the last 3 years, have still positive cash flows which aren't declining so much they can't buy back their own deeply discounted debt, as most REITs' bonds are mega cheap now. I've doubled down on NRF, they are trading as if they are bankrupt, they pay a 40% dividend at its pitiful $2 per share trading price, as they continue their policy of buying their own bond issues at 40 cents on the dollar. Hedge funds selling off REITs and short sellers have trashed this neat little REIT, and if you were going to invest in a few REITs with expectations the big winners will offset the bankrupt losers for big gains, this is a worthy candidate.

Feb 28 08:11 PM

[name:]

What silly advice: buy REITs during a time of massive economic contraction.

Feb 28 10:10 PM

[Mr. Ed, Jr.:]

Indeed.

I hope the expression "It's like money in the bank" holds up a little better.


On Feb 28 01:00 AM Roger Knights wrote:

> "A friend of mine used to run a small bank. He liked to tell me that
> real estate loans were best because sooner or later the underlying
> value of the property always enabled them to be repaid. Unfortunately,
> his institution is no longer in existence."
>
> The saying used to be, "Safe as houses"--that has a mordant sound
> today.

Mar 01 02:05 AM

[Chezfrederick:]

Too early at this time... While I conceptually agree with you I am waiting for further corrections in Real Estate along with further write down of commercial lending.

Mar 01 05:41 AM

[whisperonth...:]

I think it may be a bit early, but there are some that are showing a bit of promise. The problem is that every time our illustrious BHO uses another one of his dramatic phrases (dire, horrible, devastating), the market does the Music Man thing ("We've got Trouble, trouble, trouble, trouble..."), the worshipers throw up their hands and moan, and everyone runs for the hills. And still, some of those REITs are holding the line. So I'm watching, and waiting, and if BHO would just stop with the exaggeration, we might be able to get on with this thing.

Mar 03 10:28 AM