Is Commercial Real Estate the Next Shoe to Drop?

Markets
by 

Jason and I received an excellent question from a reader yesterday. "I am doing a 30 day trial of TradeMaster and have watched you last couple videos…an[d your]…email this morning suggesting [ULTRASHORT FINANCIAL(NYSE: SKF)].  
What I am concerned about is Ian’ other letter today the "Daily Profit" which does not mention anything about a pullback. In fact, in that letter he eludes more to a continuation of moving higher (maybe 26% as some analysts are saying), suggesting to buy quality stocks on dips. It appears Ian is working with you (since he sent the SKF alert today), but do you both agree on this idea of a significant pullback down to 930 and then even 880 on the S&P? Why is Ian promoting entering long positions in one newsletter, and short positions in another?  
I am confused. Can you explain?" 
I think I can explain. The basic confusion here is because of time frames. TradeMaster Daily Stock Alerts is a short-term trading service that captures profits from short-term swings in the stock market. Daily Profit, and my other advisory letters like SmallCapInvestor PRO and Top Stock Insights, have a longer-term orientation.
Daily Profit, especially, is focused on discussing the trends and news that are driving stock prices. I may recommend a stock or ETF in Daily Profit but that’s not really the point of my daily letter. 
Now, let’s get to the specific discrepancy. In yesterday’s Daily Profit, I was discussing the fact that analysts have raised forward profit estimates by 26%, and that some even believe a 26% rally is forthcoming. I hope I was clear that I’m a bit skeptical that stocks are on the verge of a 26% rally. That would put the Dow Industrials at 11,457! 
Stocks have been rallying pretty steadily since March 10. My advisory services have done very well. So has TradeMaster Daily Stock Alerts. 
Jason has made his traders money on both long and short positions with an approximate 70% win rate over the last few months. My letters like 
SmallCapInvestor Pro do not play the downside. Rather, we may take some profits when the indices look toppy, and we’ll add stocks on dips, or whenever it’s appropriate. (And we’ve put up a phenomenal 93% win rate at SmallCapInvestor Pro.) 
Stocks have been rallying for four months. That’s pretty good. And while I am long-term bullish on the American economy, I also see Jason’s downside scenario. In fact, I took 65% and 20% profits on two stocks from the SmallCapInvestor Pro portfolio last week based on conversations with him. 
At present, I have no intention of going to 100% cash in any of my advisory service portfolios. I will take profits, and I will also buy quality. And I’d point out, too, that when the indices looked ready to roll over before during this rally it hasn’t happened. 
Quite frankly, I don’t know if the real estate bubble is done popping. I suspect it is not. And so I have been quicker to take profits in my advisory services than I might otherwise be. But the bottom line is: you have to have exposure to stocks in order to have a profitable portfolio. 
I hope that helps clarify the apparent conflict.
*****If there is another shoe waiting to drop on the U.S. economy, its commercial real estate. Bloomberg reports that $165 billion in commercial real estate loans mature this year. They must be refinanced or sold. Either way, it seems like some losses must be taken. 
As of July 8, $108 billion worth of properties were in default, foreclosure or bankruptcy. That’s a lot. Throw in the 22-year high of vacant apartments, and you get a picture where landlords are really struggling. 
*****Goldman Sachs (NYSE:GS) took $700 million in losses from commercial real estate in the last quarter. And it did so without a hiccup. And we have the various government bailout programs to thank for that. Without the government sponsored ability to earn their way out of this mess, that $700 million could’ve been a much bigger deal. 
The one hope regarding commercial real estate is that the problem is pretty well known. And so far, it’s not moving the market. 
*****Bloomberg threw out some big numbers for regional commercial real estate debt that was due in June. $463 million worth of office loans in Houston, $986 million in industrial mortgages in Portland, Oregon, $96 million in retail property in Orlando. 
Was this debt paid? Was it refinanced? Is it in default? We don’t yet know. And we won’t know for up to 90 days, which is a typical grace period. It will be a while before we know whether these loans will become losses. Here’s the link to that Bloomberg article, if you’re interested.
Best Regards,
Ian Wyatt
Editor
Daily Profit

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