We have been watching commentary regarding the US housing/real estate/construction sectors over the last few months with interest. There seems to be a common theme coming through. That is, a flat refusal to entertain the possibility that we have already seen the bottom of the US housing market, or that the US housing “bubble” has been deflated. It would seem that if you wanted to get yourself dragged off to the nut house by strange men in white coats all you have to do is publically announce that you are bullish the likes of KB Homes, Toll Brothers, or Simon Property Group! Let us look to the liquid markets for indications as to what is happening on the property scene.
If we knew no better (and we are none the wiser), it looks as if the US property market has already bottomed! A number of key indices/indicators are either at resistance levels or have already broken through. Of course you can argue until the cows come home about how bleak the outlook for the US housing/construction sector looks but have you stopped to think what will need to happen to turn you bullish? We cannot help escape the echo of John Templeton’s famous quote “invest at the point of maximum pessimism”. We think that this point is about now.
It is encouraging to note that the ETF IYR has performed more or less in line with the Dow over the last 9 months. Given that there is more bearish sentiment towards IYR than the Dow we think that there is probably more upside potential in real estate stocks than regular “blue-chip” industrial stocks(a dividend yield of 8% also helps somewhat). This may seem to be complete madness, but we just cannot help ourselves. Remember, when everybody thinks alike the opposite is most likely to happen!
Our wealth creation portfolio is up 15% from the beginning of the year with approximately 40% of the volatility of the S&P 500.
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