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Markets Wanted: "Exceptionally Low" and "Extended"

Last week markets wanted to hear three most important words which were worth billions of $$ and they got what they wanted to hear. In his semi-annual update to Congress, Bernanke did say that Fed Interest rates would stay "exceptionally low" for "extended" period of time !
And what a difference these three words made - on that particular day, markets went up by 100 points which is worth many billions of $. As investor, low rates are very crucial particularly at this juncture since economy is just coming out of ICU and unemployment is still near double-digits. So low interest rates are serving as "oxygen" for economy. "Extended" means Fed won't start raising interest rates for at least 6 months. So road is clear for investors for at least six months except for "European" mess !

Now coming to "Greek" problem: Last week Greek and Europe were playing game of chicken and finally Europe is coming to terms of helping Greek by potentially buying its new issued bonds. At this time, Europe has more to lose if out of desperation, Greeks decide to leave EU and abandon Euro since that would mean end of Euro as we know it. We hope that Europeans realize it and address this mess soon before it's too late.

In last post, I recommended energy sector which is looking good. This time, my recommendation is to look at REIT sector (Disclosure: I personally invest in many of my own recommendations). With multiple bidders for General Growth (which declared BK last year), REIT sector started seeing some action. So here are my recommendations:
  • iStar Financial (SFI: $3.6, SFI-D: $14) - this is kind of betting on recovery of commercial real estate and survival of this company. It has BV of $15 and if it survives should reward its investors tremendously. By the way, it's preferred shares (SFI-D) have given dividends of $.50 throughout 2008-2009. It's pretty good yield (17-18%) if you can tolerate the risk
  • Diversified developers (DDR: $10.50) and Pennsylvania R.E.I.T (PEI: $10) - both are shopping mall REIT and could benefit from consolidation in shopping mall sector. Both of them have been paying dividends and could soon increase dividends
  • Direxion Daily Real Estate 3x (DRN: below $115) - this is for those who can tolerate most risk with potential of most rewards. This is bet for overall real estate sector recovering in 2010-2011. Since it has leverage of 3 times, DRN sees extreme volatility and hence has good potential of selling covered calls against your position. If real estate really recovers as predicted, DRN could cross 200 by end of 2011
Finally let's pray for Chileans who have been hit by one of the strongest earthquake Chile has seen.

/Shyam

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