Financials Save The Day…Who Would Have Thought?

When the markets closed yesterday, Apple and American Express both announced disappointing earnings. Apple’s shares were down 11% and Amex was down 4.5% in after market trading. European markets sold off on the news. I went to work this morning expecting a real ugly day and it started off that way.

Low and behold the Dow Jones was up 1.2% and the TSX was down marginally with our major banks reversing early losses with upward movements between 2% – 4%. Looking at some of the US financials, they are up 50% from their lows just a week ago.

Sub-prime loan losses seem to be stabilizing although there is still weakness in home loans guaranteed by Fannie Mae and Freddie Mac.

The guys shorting financial stocks have been getting killed over the last few days and the pain of holding on. Oil stocks have been getting hurt as well as demand has been dropping. You can read my posts of last week on short covering of financials and “Buying Oil can be bad for your Health” as those themes continue into this week.

Dennis Gartman, who publishes The Gartman Letter and is followed by analysts and portfolio managers around the world is increasing his exposure to US stocks highly correlated to the index and is shorting oil with the belief that oil prices will continue their downward trend over the short-term.

Even some of the preferred shares I mentioned last week are up about 10% in just a few days as 7.25% bank backed investments are too attractive to ignore. What’s next?

I haven’t mentioned REIT’s. The acronym stands for Real Estate Investment Trusts. I dont follow US or Global REIT’s so my comments pertain to Canadian REITs. As an individual investor, it can be hard to diversify Real Estate holdings. By investing in a REIT, you get broad diversification in a portfolio of holdings, monthly distributions and preferrential tax treatment. REIT’s have been trading well below their highs of a year ago. Most are trading well below their net asset value with sustainable distributions in the 7% – 11% range. Top tier names include Riocan, Primaris, and Boardwalk. Expect some smaller names to be taken over in the next 12 months as this sector moves back in favour. The beauty of REIT’s as well is that you have complete liquidity with the ability to buy and sell a real estate portfolio in the open market on a daily basis.

 

What are your thoughts? Do you think REIT’s have upward potential in the coming months?

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