Monday, May 12, 2008

I'll Bet You Anything

Since recommending SRS multiple times on this site, this double-inverse commercial real estate index has fallen on hard times. But this isn't an options play. It is sort of an option unto itself due to its 2-1 leveraging by nature. With that said, commercial real estate is doomed to take the next hit. Perhaps without quite the severity of its residential brother, commercial property drops tend to lag and its once contribution to GDP is already starting to drag. Bloomberg reports "First, commercial real estate tends to lag behind housing trends. The residents of new developments need stores to shop in and offices to work in, so commercial projects are planned after a town starts booming and are completed in the following quarters. So when times are good for housing, commercial property makes the real-estate investment news even better." Also, banks didn't limit their risky loans to homeowners. Construction projects got way ahead of themselves and will now suffer the unfulfilled promise of vacant stores. ``It is quite possible that the tighter credit conditions and economic slowdown has barely started to filter through,'' Merrill Lynch & Co. economists Sheryl King and David A. Rosenberg recently wrote. ``We have little doubt, though, that it will. In spades.''

Following with another favorite, Jim Jubak of MSN Money says not to get too high on Visa and Mastercard results. Aside from increased usage, he notes that as AmEx said CC use is up almost 14%, they also set aside $800 million for new delinquencies/defaults and they expect those numbers to increase. Speaking of Mastercard, they said demand for motor fuel based on their purchasers slid 2.5% recently. With oil now over $126, "We're engaged in a painful experiment in discovering how high the price has to go before it really, really hurts, before it hurts enough to slow demand globally," said Adam Sieminski, chief energy economist for Deutsche Bank. Up to $4 officially in these parts, and I know that I must continue to drive. Anyone else thinking about driving less or happy to have a company car to run into the ground?

As far as my gamblers/ambitious readers, check out www.intrade.com. This site basically provides options on current events, including political and financial situations. Points are reflective of a mere 10 cents, so contracts can cost as little as 10 cents. One thing I'm looking at is the Obama option. Bid/ask is around 55/56 currently to win the whole thing, while McCain stands aroung 37/38. Thus, an Obama contract would cost you around $5.50. A win would produce about an 80% return. Also, these trade until "expiration of the event" like options, so if McCain makes a push, you could always dump for a limited loss. I will work on a hedge to post here in case someone thinks McCain has a chance.

http://www.bloomberg.com/apps/news?pid=email_en&refer=columnist_sperling&sid=a.X91SkgOd8g

http://www.washingtonpost.com/wp-dyn/content/article/2008/05/09/AR2008050902702.html

4 comments:

Tiger Coach said...

Ax... You are right on the money with the SRS play. There is no way in heck commercial real estate will sustain itself. In the end, there are too many retail buildings. couple that with a recession that we are currently in...and you have a group of real estate "investors" that will be left holding the bag. I do think areas like Houston, and Tulsa will continue to do well due to the oil market in those areas.

MA and V are a couple of bubbles. Check on the Anti-Trust problems MA is having in Europe. The US is always behind the curve in any type of regulation. Throw in the current bill that is in the house of reps. and you have a sticky situation for all those pigs that are cannibalizing the "poor defenseless consumers". It is a business that is way too easy to vilify...watch the Presidential debates on these guys...just you wait!

Intrade is pretty sweet. I signed up for an account. While I have not made this play yet, my prediction is that McCain will be a ONE term President... While I think any of the candidates would do a reasonable job...it just seems likely that whoever the Dems put up this time are going to be in a bit of trouble. I will write more on this subject in a future blog.

AX said...

Interesting article on itulip from John Williams of Shadowstats.com. He notes that no incumbent party since 1908 has won an election in a year in which GDP was growing at less than 3.3%. Ain't no way that's happening. However, if you believe McCain will win, you are looking at better than a 150% return in 6 months, not bad. I will work out some sort of hedge this week and post. Thanks!

Tiger Coach said...

FYI Intrade does not allow credit card sign-ups. Instead, it looks as though they need bank account info. I will read into other options for instance wiring money etc. For some reason, I just don't like giving my bank account out to people in other countries!

AX said...

Way past that step after signing up for Bodog a few years ago. They make it easy to get money in, hard to get out. What do you think of the McCain hedge?