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Now that my electricity is back – – and I've got a 7-pump chai by my side – I'm ready to dig in again.
I saw a very interesting parallel with real estate ETF symbol IYR. Take note of the wedges. I believe we are in the same place now as we were where I've put the other green arrow.
We. Shall. See.
The bulls have been stomping the bears' heads in (that, errr, would be mine) since June 4th, but I would quietly point out one sector that seems to be subtly turning – real estate. Perhaps it's dawning on at least one segment of the economy that higher interest rates won't be so peachy.
PREFACE FROM TIM: The world is divided neatly into two types of people. Complete Dorks, and SocialTraders. I met the gent below, House of Cards, by way of SocialTrade, and when he saw how much I liked the stuff he was stacking, he wrote and asked if he could write an article for Slope. I told him I'd be delighted for him to do so. It is below, and it's outstanding:
It seems that hedge funds and banks are buying up foreclosed single family homes with the intention of bundling them and securitizing to resell. I think this is a dangerous idea.
Let me start by saying I have always loved real estate and I think owning rental properties is a terrific idea for individual investors in today’s low-yield world. You can make money four ways: It provides a steady income stream from rents. Tenants pay down your mortgage, meaning you can profit further when you sell down the road. You can use the tax advantages of depreciation and long term capital gains rates. And it is a great shield against inflation. I believe you can triple your investment (including after tax and adjusting for inflation) in just ten years (if leveraged: all cash doesn’t work out as well.) Here’s a real world example from the Pacific Northwest: A 25 unit, nearly new complex sells for $2,000,000. Net operating income is $137,000 a year. With 20% down, a mortgage (10 year term/ 30 year amortization) at 4.5% costs $97,000 a year, leaving an income stream of $40,000/year, tax free due to depreciation write-off. In 10 years, mortgage will have been paid down $320,000. If rents follow inflation as they have historically, both income stream and sales price increase, as well. Show me any other investment that pays the patient investor so well. A dividend stock paying 3%, on which you have to pay taxes?
Leveraged ETFs can be beast, but the one below is remarkably awful. It's the triple-bearish on real estate symbol DRV. I don't know what the percentage drop is during its lifetime, but it's definitely over 99%.
I'll be watching these two charts (Monthly and Daily) on XHB in relation to New Home Sales data to be released on Tuesday (sales are still near 2009 lows, as shown on the graph below).
Immediate resistance is just above at a confluence of a 61.8% Fibonacci fanline, 50 dma, Monthly Volume Profile POC, Monthly VWAP, and the lower 1/3 level from the 2006 high to the 2009 low…price needs to clear and hold above 21.00 for a potential rally…otherwise, I'd look for more downside movement…looks like lots of volatility building here.
