New York Times, ”Just How Much Steam Do REITs Have Left”, some points of interest:

Dividends that average near 4%
Pebblebrook Hotel Trust (PEB), a REIT that currently owns no property

A recent article in the Wall Street Journal, “A Fund Manager’s Worst Nightmare”, highlights fund manager Jack Silady’s difficulty in managing Black Rock Global Financial Services Fund during the current banking crisis. 

I worked for Citibank US Card Products Treasury Group during the previous banking crisis.  A neighbor of mine was a bank analyst with Prudential Securities and he was always scratching his head in confusion when it came to deciphering the bank stocks financials.  At that time (1989-1993), Citibank’s stock had sunk from about $60 a share to $10 a share. 

While working in treasury I had the opportunity to observe the credit cards division’s net profit of $1 billion, yet the bank on an overall basis was treading water. This meant that the rest of the bank had to be losing at least a billion dollars in order to offset the net profits from USCPG.  I believed eventually the other divisions would write off all their losses and the $1 billion credit cards division profit would go right to the bottom line pushing Citibank’s stock to $100 a share.  Eventually Citibank’s stock climbed to $400 a share (adjusted for splits) from the then $10 a share. 

Bank stocks financials are difficult to decipher.  There could be hidden losses or gains.  Banks can defer their gains and losses using hedge accounting.  In addition, there are a lot of synthetic products for which accurate valuations are difficult to obtain because over the counter products have no liquid markets. 

In the end, Mr. Silady may be our best friend for investing in the banking sector, but that depends on his ability to decipher the true condition of each of the financial services companies he tracks.  Recently I attempted to pour over the financials of some of these financial stocks but eventually I realized that I was not going to be able to make heads or tales of the information, regardless of having been an auditor for Deloitte Haskins & Sells for the banking sector for three years and having worked in treasury and trading for nearly 20 years.

Fed cuts short-term rate by 75 basis points and the 10 Year US Treasury Note yield ends the day at 3.484% the close of Tuesday January 22, 2008.

The 10 Year US Treasury Note Yield fell to 3.64% ending Thursday January 17, 2008 as the probability of a recession and slower economic growth increased, ”Stocks Extend Plunge; Dow Falls 306 As Manufacturing Index Falls”.

Article in the Wall Street Journal, ”Trader Made Billions on Subprime”.  That is what you call foresight.

The 10 Year US Treasury Note Yield fell to 3.85% the week ending Friday January 4, 2008 as the probability of a recession and slower economic growth increased, ”Recession Fears Pummel Stocks”.

Looking at a historic graph of the US Treasury Ten Year Note yield on yahoo.com, we can make the observation that during the early 1960’s the 10 year yield was about 4% and gradually increased until it reached a high of about 16% in the early 1980’s, after which it began a continuous decline to a recent low range of 5.35% to 3.85% where it has remained since early 2004.  More recently the 10 year yield began a fall (six months ago) from about 5.35% to 3.85% from May 2007 until early December 2007, and then about a week ago the yield bounced back with much volatility closing on Friday December 14 at 4.235%. 

A comment made today by one of the major television networks, “How investing in Lukoil and other Russian oil securities may help boost your portfolio returns!”.  I am not going to mention the source of this comment because ultimately it is irrelevant to my concerns.

Nonetheless my hair stood on end when I heard it.  In a similar circumstance, an individual I met recently spoke to me about Downtown Jersey City and Hoboken as though he had discovered America for the first time.

Ten years ago Lukoil was $2 a share (now $87) and LETRX was $5 a share (now $76)?  In my opinion, comments such as the two mentioned above (made 10 years subsequent) have little foresight and add almost no value.  Granted Russian oil stocks and Downtown Jersey City may still be very good investments, however much of their potential has already been discovered.  Ten years ago many investors were investing in Downtown Jersey City and/or were buying the aforementioned Russian securities, both at a time when such investments were considered unsound and extremely risky.

What concerns me now? Many investment comments give the perception of having incredible foresight when in reality they have little or none. 

To better understand $80 a barrel oil prices and other rising commodity prices should we not be considering the devaluation of the US dollar? Is the weakening dollar just another indirect tax on the US consumer?

I am selling my home. I paid $250,000 for a home in 1992 that I can now sell for $495,000. “Oh what a profit!”, my realtor exclaimed passionately.

This is a gain of $245,000 before adjusting for inflation, a 98% increase over a 15 year period or an approximate annual rate of return of 4.75%. However, if I took my dollars overseas they would be worth half what they were worth 15 years ago, hence I would actually have incurred a small loss after adjusting for the change in the US dollar / Eurodollar exchange rate.

This I perceive as an indirect tax incurred through the dilution of our currency which is most probably a result of our US federal debt and annual budget deficits.

Consider the price of oil, gold, and other commodities including the cost of building materials for a home. If gold is $800 an ounce and the dollar has depreciated by 50% against most major foreign currencies, then gold’s appreciation from $400 to $800 an ounce is more a function of the depreciating dollar rather than a true increase in the price of gold.

This holds true for oil as well. If oil has risen from a price of $15 a barrel 10 years ago to a price of $88 a barrel today, then what amount of that dollar increase is a result of the depreciation of our own currency (the US dollar).

Oil and gold are “international currencies” and many of the building materials we use in our homes are affected by long term changes in exchange rates. What does this mean for housing prices today and in the future and what does this mean for the cost of construction now and in the future?

Are we deceiving ourselves? Take our CPI index. How realistic is CPI as an indicator of inflation? Few speak of the devaluation of the dollar when they refer to high commodity prices. How might a weak currency affect real estate values and inflation over the long term?

All photographs on RowHouser.com were taken with the Canon G9 along with the following accessories: conversion lens adaptor, wide converter lens and various lens filters. This is an easy to carry (on the run) compact professional camera.