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John Gilluly

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  • Is It Safe To Return To REITs? [View article]
    I suppose buying the banks the first week of March in 2009 was a success. But I was unprepared for the financial crisis before it happened, and didn't see it coming. I was nauseated all that summer (2008). That should have told me something.

    My success was buying some amazing stocks in March of 2009, and my failure was in not sticking with them. Ford for a buck, BAC for $2-$5, GE at $7, KLIC for a $1. I was so scared of losing my winnings at the end of that year that I bought a house with the money.

    The home builders gave me a second chance in 2012, and I guess that is where I found a niche market that I could understand; one that involved real things bought by real people (very different from tech with its allure, vaporware, and software dreams) , which led me to studying interest rates in the summer of 2013 (I had to know why I was getting clobbered).

    Safe to say, an understanding of interest rates is the biggest of big deals. The global financial universe seems to hang on the TNX. I never knew that before, I know that now. The cost of credit is what makes capitalism go. To my mind, the study of U.S. interest rates is both an aesthetic thing and a technical thing. Historical periods of high interest rates have a particular sociological character, as do low-interest rate environments.

    I think the Great Recession could end up being the dominant financial memory for the next two decades. People can't "get over it" because it affected them so deeply. Even after one of the greatest bull markets in memory (2009-13), the public is still very under-invested because of the persistence of this memory.

    In my articles on the housing sector, 75% of the comments could be characterized as negative, some even cynically dismissive. Meanwhile, I had a 600% return on the home builders in 2012-13. There was one real estate agent from Phoenix back then who wrote positive comments. He had bought a bunch of houses in 2011 and Pulte stock, and he sold houses in Phoenix too. He kept trying to tell people how good the Phoenix market was. They wouldn't believe him.

    Now I am into the REITS. The insider buying in the REITS is indisuputable. Union Trade Assoc's comment below about HTA is accurate. Those guys were buying their own stock throughout 2013. They must feel good about something there, yes?

    Another long term play I would look at is NSM - Nationstar Mortgage. They service loans. Yes, the re-fi market has dried up. But what about the purchase market? There has been a large increase in housing starts slated for 2014. If rates stay low and new home sales pick up, NSM should start showing a profit (again). It's down 50% in the last 90 days, and they are the best of the best at what they do. BAC sold them their portfolio of servicing rights last year on billions in mortgages.
    Feb 4 02:47 PM | 2 Likes Like |Link to Comment
  • Is It Safe To Return To REITs? [View article]
    Charlie, Good Point. That would have been a better title. But from the charts I'm looking at, seems like the market lumped all the dog REITS and crow REITS into one house of pain and treated them the same. HTA followed the same fate as NLY.
    Feb 3 09:23 PM | 1 Like Like |Link to Comment
  • Is It Safe To Return To REITs? [View article]
    Bruce,
    That's true, but I was looking at the relative probability, the way in which the proposition is "leaning". My NLY entry point is before the ex-dividend date (at $9.89), so I have some cushion currently ($1.13/9.89). A complete round-trip down to $8 would take NLY all the way back to 1997. I'm prepared to add if it does that.

    ..."By the time it looks good, you're too late". (Helene Meisler, technical analyst, The Street.com)
    Feb 3 05:49 PM | 4 Likes Like |Link to Comment
  • The Fed Saga Will Continue, But Annaly Capital Could See An 18% Increase [View article]
    Regarded, take a look at Scott Grannis's November article: "Quantitative Easing Myths" (http://bit.ly/1i8ddlh). You might like it.

    Also, the home-builders are planning on a 25% increase in new single family housing this year. Should be good for private MBS purveyors and originators, and those who invest in them - like Analy - especially if the Federal Reserve is easing off on their purchases. Tapering will open up the market for others to get involved.

    I'm hoping that Analy will return to its customary $12-14 range by the end of 2014. It is still trading at a discount to its $12 book value.

    $2/share in price appreciation and $1.20/share in dividends in 2014 would make for a nice 32% return off a sub-$10 investment in Analy. With modest leverage, it could be even more. 2013 was one of those once-in-a-blue moon opportunities to start a long-term savings and re-investment plan in MREITS.

    Since my first purchase in December, 2013, I have increased my share count by 12%.
    Jan 31 03:53 PM | 1 Like Like |Link to Comment
  • Homebuilders Continue To Confound The Bears [View article]
    My slant to the housing market remains bullish.
    Jan 30 12:39 PM | 1 Like Like |Link to Comment
  • Homebuilders Continue To Confound The Bears [View article]
    Interest rates fell another 7 basis points today, almost 40 basis points since January 8th. This Fed-tapering could get interesting if it actually "cools" off the economy little pieces at a time, thus giving investors and home-buyers another shot at the builder stocks and the housing market this Spring, with the added effect of preserving the dividends of the mortgage REITS.
    Jan 29 05:36 PM | 1 Like Like |Link to Comment
  • Homebuilders Continue To Confound The Bears [View article]
    As an addendum to what I have just written, I saw this chart (http://bit.ly/1exz5zI) this morning in a recent article.

    The significant piece of information in this chart is the pattern of higher highs and higher lows since the early Summer meltdown; in what arguably has been a rising interest-rate environment (one that could have created a pattern of lower highs and lower lows).

    Takeaway: the solid fundamentals of the sector are continuously "eating-away" and absorbing the negative effects of higher interest-rates on home prices. It is also an indication that both the buyers of stock and the buyers of homes think the dips are buying opportunities. This is bull market thinking.

    The bulk of my real estate articles have been written at market junctures like the present, when stocks [e.g - BRP (@$19.50), TPH (@$14) and KBH (@ $6-$8)] could be bought at a discount.
    Jan 29 02:20 PM | 1 Like Like |Link to Comment
  • Builders Prepare For A Blowout Spring Selling Season [View article]
    I just saw this chart (http://bit.ly/1mXQTZq) this morning in a real estate article. The significant piece of information is the higher highs and higher lows evident in the chart, in what arguably has been a rising interest-rate environment (one that could have created a pattern of lower highs and lower lows).

    Takeaway: after the drop in June/July, the solid fundamentals of the sector are continuously "eating away" at and absorbing the negative effects of higher interest-rates. The short memories of home buyers have begun to remember the 3.5% mortgage rates of 2012-13 as something "long ago and far away" and not likely to be repeated.
    Jan 29 11:31 AM | Likes Like |Link to Comment
  • Builders Prepare For A Blowout Spring Selling Season [View article]
    I generally recommend the same builders, some of which are referenced in this article.
    Jan 29 04:59 AM | Likes Like |Link to Comment
  • Real Estate Market Not Immune To Rate Increase [View article]
    Some nice points. I would like to say that the rise in "real median household income that had been on the rise for decades" which you comment on is not a mystery and not just a sign of our poor economy today, or the disadvantage of our present times.

    Those decades span the time from when the baby-boomer generation first graduated from high school in the early 1960s til early retirement in the year 2000. These were their peak, median-income-making years, and yes, it was a time of inflation.

    Since that time, more workers - ratio-adjusted to population growth - have come out of the workforce that into it, and this process was aggravated by the Financial crisis and ensuing recession that's followed it. This is why I think we will remain in a low-rate environment until this process has completely run its course, which should happen by the end of the decade. I think that is when you will see this demographic improve, and long-term interest rates rise. Not until then.
    Jan 28 04:51 PM | Likes Like |Link to Comment
  • Builders Prepare For A Blowout Spring Selling Season [View article]
    Nice pop today on DHI's excellent earnings today (http://seekingalpha.co...).

    I think I'd have to go back to early 2012 to compare the bearish media sentiment that has come across the wires recently (January, 2014). "The Slowdown in Housing Has begun" (http://seekingalpha.co...); "The Housing Bear Market is Back" (http://seekingalpha.co...); "New Home Sales Freeze Up" (http://seekingalpha.co...); Red Flags all over D.R. Horton's Q4 Earnings report (http://seekingalpha.co...)

    Somebody should tell the guys actually building and selling the new homes how "bad" it is out there. Maybe they'd be amused? What if the media gave a bear market and nobody came?

    As the Fed tapers this year, it will probably cap the top end of mortgage interest rates at about 4.5%. Meanwhile the builders will keep building (and selling, by the way) in land-constrained geographies where employment is improving and the ratio of starts to jobs is under-served.

    What is so damn hard about this to see? A builder builds homes where he can make a profit. Period. He doesn't build homes where he cannot make a profit. Why would he build where he could not make a profit? Doesn't make sense.

    The bears posting articles here (http://bit.ly/1k1UcPE) would have you believe that they are one-step-ahead of the publicly-traded builders who have unlimited access to capital, and who can pay the best researchers in the business to data-crunch every aspect of their business. I don't think so.
    Jan 28 12:51 PM | 1 Like Like |Link to Comment
  • A Picture History Of The Housing Recovery [View article]
    U.S. Housing affordability Index - Monthly payment (cost) - at current home prices and mortgage interest rates - as a percentage of income - 1975-2013. Chart by Beaconomics. See: http://bit.ly/1dCkqSR
    Jan 24 07:23 PM | Likes Like |Link to Comment
  • Existing Home Sales Down YoY And Down 10% From High For Second Month In A Row [View article]
    What do the December lows for home prices in 2009, 2010, 2011, 2012 and 2013 ALL have in common?

    They were the low point in home prices for each of those years. There is something to consider from knowing that. Housing is a seasonal business.

    I think freezing cold weather, holidays, kids halfway through the school year, and the low time of year for hiring skew housing statistics for this time of year. That's why these figures are always adjusted.

    In the final analysis, every year we go through where there are more people looking for less houses, the prices will rise and every house will get sold. And as long as this continues, with each passing year, the supply demographics for new home construction will continue to improve.
    Jan 23 06:37 PM | Likes Like |Link to Comment
  • A Picture History Of The Housing Recovery [View article]
    Tom,

    Thank you for your honesty. My comments come somewhat from bitter experience "after" the dotcom and tech implosion of 2001-2003, a time where I became captivated by bearish logic (John Maudlin, John Williams) and hadn't yet learned some basic truisms about sentiment and investing. As soon as I went long, however, in July of that year, I made back all my shorting-losses in a matter of 2 weeks. It really helps to be on the right side of a trade.

    Charles Biderman and Simon Maierhofer seem to have fallen victim to the same kind of thinking after the Financial Crisis (or at least they did for a few years), but to Charle's credit, once he started a mutual fund specializing in insider-buying and share buybacks, he was tapping momo stocks just before they happened. Maybe that's turned him into a believer? In any case, following the money flows of corporate insiders will definitely reveal something to you.

    Here's my big secret. Investors are primarily bullish, pollyanish even. They want to put their little seed into the ground and watch it grow. They like organic (all the better), but are not too interested in the dangers of climate change or the gazillion things that bears remind them are just about to go wrong. How did St. Paul put it? "Not many wise, not many prudent, find their way".

    A bear might say this is stupid. I would just say, "It's the way people are". Maybe they are not supposed to be that way, but they are anyway. If we are entering a secular bull market (and I think we are), the only reasonable investment strategy would be to follow the path of the 1950s and 1980s. Just close your eyes, not think too much, and buy the dips.

    I can tell you in retrospect, I sure wish I had held on to my Ford at $1, my GE at $7, and my BAC shares at $2 for a whole lot longer - even though everything in the wise wise world was screaming at me to SELL. The only way I will sell my NLY shares now (bought in December, 2013) is if somebody crowbars them off of me.

    I remember once I tried to talk my dad into selling his Litton Industries stock that he had received as options in the early 1960s. It was up 75% some year in the late 1990s and it looked like a blow-off top. He looked at me bemused. The stock had split numerous times during the years, and he had re-invested the dividends. "You know what my cost-basis is in that stock? It's under a buck. Why would I ever sell it?"
    Jan 23 04:16 PM | 3 Likes Like |Link to Comment
  • A Picture History Of The Housing Recovery [View article]
    Saw this demographic series on housing this morning. Published by the Market Realist on Yahoo finance. Excellent 5 part series (See: http://bit.ly/1mMdHhl).
    Jan 23 03:02 PM | 1 Like Like |Link to Comment
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