How different investments have done over the past 12 months, 6 months, and month.
1PowerShares DB Gold, 2iShares MSCI Emerging Markets ETF, 3iShares DJ U.S. Real Estate Index, 4iShares S&P Europe 350 Index, 5Green Haven Continuous Commodity Index, 6iBoxx High Yield Corporate Bond Fund, 7JP Morgan Emerging Markets Bond Fund, 8PowerShares DB US Dollar Index, 9iBoxx Investment Grade Corporate Bond Fund, 10PowerShares DB Oil, 11iShares Barclays 20+ Year Treasury Bond
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Posted by: Andy Hyer
A recent report by a major firm, covered in Bloomberg, indicates that the home ownership rate is declining:
The U.S. homeownership rate has fallen below 60 percent when delinquent borrowers are excluded, a sign of the country’s move toward a “rentership society,” Morgan Stanley said in a report today.
The national rate, which stood at 66.4 percent at March 31, would be 59.7 percent without an estimated 7.5 million delinquent homeowners who may be forced into renting, according to Morgan Stanley analysts led by Oliver Chang. The lowest U.S. homeownership rate on record was 62.9 percent in 1965, the first year the Census Bureau began reporting the data.
The homeownership rate reached an all-time high of 69.2 percent in 2004 as relaxed lending standards fueled home sales and President George W. Bush promoted an “ownership society.” Mortgage delinquencies, foreclosures and tighter credit for housing loans are reducing property buying, Chang said.
“Taken together they are forcibly moving the country away from being an ownership society,” Chang, based in San Francisco, said in an e-mail. “This change is only beginning, and is moving the country towards becoming a rentership society.”
The analyst discussed the investment implications of the change:
The shift provides opportunities for builders of multifamily homes and investors in single-family houses leased to renters, Chang said in a phone interview. The U.S. apartment vacancy rate fell to 6 percent in the second quarter, the lowest in more than three years, research firm Reis Inc. said July 7.
Here’s the part I find interesting: the market figured this out long ago, as you can see from the two-year chart below comparing REZ to the S&P 500.
Click to enlarge. Source: Yahoo! Finance
Based on price action, you can see how much stronger residential REITs have been than the general market. Of course, no one ever knows how long a trend will continue, but this particular trend has already lasted long enough to be quite exploitable by typical relative strength methodologies. As usual, price responds more quickly than the analytic community.
Disclosure: Dorsey, Wright Money Management owns various REIT equities and ETFs across many different account classes.
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Posted by: Mike Moody
According to a CNBC.com article:
Moody’s downgraded Greece’s bond ratings by a further three notches Monday and warned that it is almost inevitable the country will be considered to be in default following last week’s new bailout package.
The agency said the new EU package of measures implies “substantial” losses for private creditors. As a result, it cut its rating on Greece by three notches to Ca — one above what it considers a default rating.
Source: Clusterstock
This was an inevitable outcome, apparent when the Greek debt crisis first entered consciousness last summer. Now, it may seem like a year of wrangling was overly painful and completely counterproductive, merely delaying the inevitable, but consider the positive consequences of the foot-dragging:
1) Markets have had an extended period of time to adjust expectations, thus smoothing market action if and when a default occurs, and
2) Debt holders have had an extended period of time to accumulate capital reserves to deal with the losses.
If you are a major European bank that holds a significant amount of Greek bonds, it’s politically and financially complicated to sell your position. But you can use the year to build a loan loss reserve to cover yourself. (If the CFO hasn’t done that, they probably deserve to go out of business.) This doesn’t happen if you just rip off the band-aid immediately.
The final result is still going to be some kind of partial default and subsequent haircut, but the long negotiation process provides cover for financial markets and bag holders. Investors have time to adjust to new trends or to reconsider their positions. This is one reason why a systematic relative strength process is often so effective. Once again, process is much more important than investors typically believe.
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Posted by: Mike Moody
With a return of 8.06% YTD, 2011 is turning out to be a very good year for the Arrow DWA Tactical Fund (DWTFX). It has outperformed 92% of its peers YTD, 97% of its peers in June, and 94% over the past year.
Source: Morningstar, as of 7/25/2011
Holdings of this go-anywhere-fund, are shown below:
To receive the brochure for our Global Macro strategy, click here. For information about the Arrow DWA Tactical Fund (DWTFX), click here.
Click here and here for disclosures. Past performance is no guarantee of future returns.
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Posted by: Andy Hyer
You are currently browsing the Systematic Relative Strength blog archives for the day Tuesday, July 26th, 2011.
