Don't Bet Against, or For, this Market
The market rallied (Dow + 410) in the last hour on Treasury Secretary Henry Paulson's proposal to set up a bad bonds facility similar to the Resolution Trust Corporation, set up in 1989 to house the failed assets of the savings and loans debacle. The Fed has been acting as a pure wild card in moving the markets, using surprise announcements as weapons for market optimists and pessimists alike. I'm surprised anyone is investing at all, but trading volumes are booming:
Bet against stocks and the Fed steps in with measures - today's bad bonds facility, surprise rate cuts, a bailout - that promotes a market sigh of relief.
Bet for financials, like buying Freddie/Fannie and the Fed unexpectedly bails them out and drives the equity price to zero. Then, the Fed will pull out the "moral hazard" joker as they did with Lehman, to ensure that investors don't get used to the idea that the Fed is Santa Claus (on behalf of the taxpayer...)
This is like playing that kind of poker game little kids play - where 2's, 5's, 7's and J's are wild - after a few rounds, it's tiresome to be holding random hands and out of control outcomes.
Hmmm.. sounds like there are many reasons to invest in real estate... as long as it has a positive cash flow with the most leverage possible.
With everything going on... do you really want to rely on some of these people making decisions that can have a big impact on your investments?
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Great point. The mount of rigging in this market is unbelievable. In addition to th things you mentioned there are many other factors at play as well. For example short covering to lock in profits can cause rally's even when sentiment may be otherwise.
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I agree with Paul, but more broadly than on real estate only. The fundamentals of a market will tell you where to put your money. Are there people moving into an area? A healthy economy? In the long run, real estate will do well. Does a company have a strong management team and long-term market opportunity? Buy for the long run.
Buying short-term is almost always speculation, and when the rules of the game change daily, it's even riskier.
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I think it's an interesting time for long-term holders to look at quality, high yielding REIT shares that have been beated down. First Potomac (NYSE:FPO) is one local to my area, Washington DC, an area whee the Federal Government provides an insulating effect. It's macabre, but the credit crisis might actually be a boon to the DC economy. FPO is trading around $16 ps with a yield north of 8%, down from highs in north of $30 in 2007.
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