Mega Millions Jackpot Winner

If you just won the Mega Millions Jackpot of some $636 million, you’re going to need a place to invest it. Given the gains in stocks this year, with the SPDR S&P 500 (NYSE: SPY) up 27.6%, you might have the inkling to select stocks or an index fund for investment. Based on the historical performance of stocks over the long-term, that probably makes sense, but I think there’s good reason to avoid investing in the stock market now, at least for the near-term. Rather, I would suggest a good portion of your lottery winnings be invested in real estate, including both residential and commercial property.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Buy Real Estate

Stocks, bonds, a yacht, a Lamborghini or a trip around the world... ah the options for your windfall are limitless if you have just won the humongous Mega Millions jackpot. But of all the options available for parking some dough for safe keeping and for income and growth too, I favor real estate.

I’m a stock picker at heart, so I would buy individual stocks of course, but I would not buy the market here at the start of Fed tapering and eventually the end of easy money. Stocks will demand continued solid economic progress moving forward and interest rates are likely to increase, which means a higher cost of capital for companies. In other words, the once low-bar for economic value creation will be raised a bit. Stocks are bound to backtrack, especially given their gains this year, unless economic developments astound. Stocks have come a long way and put up awesome year-to-date performances, so profit taking won’t take much of a catalyst here.

Security	Year-to-Date
SPDR S&P 500 (NYSE: SPY)	+27.6%
SPDR Dow Jones (NYSE: DIA)	+23.9%
PowerShares QQQ (Nasdaq: QQQ)	+32.3%

When interest rates rise, bond prices are pressured. Now the Fed is doing its best to not significantly impact bond or stock values by taking it slow and making sure everybody knows it will be data driven. Still, bonds are not my cup of tea, and given the danger of itchy trigger fingers among other investors in the securities because of the dangerous rate environment, I’ll steer clear here as well.

Gold I like, and its relatives are not too bad either for a short to intermediate term taste. I’m speaking of the SPDR Gold Shares (NYSE: GLD), iShares Silver Trust (NYSE: SLV) and the MarketVectors Gold Miners (NYSE: GDX). However, I would still not buy gold now, assuming Comet ISON fragments aren’t on the way to disrupt Christmas; in that case, I would buy a lot of gold. We have to assume normalcy here I suppose, and in an environment where the Fed is cutting back on its easy money policies, however slowly, precious metals remain out of favor. That is why we have seen the decline that we have in these securities and the spot metals over recent months.

So what do you buy then? I say real estate. Sure rising interest rates threaten capital appreciation and price gains, but they also could limit the ability of others and ourselves to buy real estate in the future. I think it’s of utmost importance to have your own shelter now that it is still relatively affordable and while financing costs are still favorable. Though, given the Fed’s featherweight foot braking, mortgage rates might not spike as high as investors once feared.

The Fed does not want to disturb the recovery of the housing market, and so will monitor the situation as it tapers back asset purchases, including those of mortgage-backed securities. It’s also mindful of the economy, obviously, and so should not impede commercial real estate opportunities nor demand for residential rentals. And even if it does, I would much rather hold hard assets with the ability to reduce rent if necessary to keep them filled and earn income than hold paper money that I’m not sure will always have value.

Does that mean real estate relative stocks are also worth holding? For that derivative investment I would look first to the REITs like Education Realty Trust (NYSE: EDR) with its 5% dividend yield and 11.5% projected long-term growth; Apartment Investment & Management (NYSE: AIV) with its modest PEG ratio, good growth and 3.7% dividend; Health Care REIT (NYSE: HCN) with its focus on senior living and health care properties; and of the homebuilders, just a name like Toll Brothers (NYSE: TOL), which possesses pricing power; and Annaly Capital (NYSE: NLY), the mortgage REIT I think will benefit as the Fed slowly exits the MBA market. Obviously, Bank of America (NYSE: BAC) continues to benefit from Fed mastered Goldilocks rate and economic management. I understand the Mega Millions jackpot will be divided by two winners, but it’s still significant enough to put to serious and good use; for that, I suggest real estate.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Why War with Syria Would Benefit Annaly Capital and Real Estate

It sounds wacky I know, but bear with me, because war with Syria really would serve Annaly Capital (NYSE: NLY) shareholders and the entire real estate market in my estimation, and for a very tangible reason. If the U.S. were to eventually take military action against Syria, it would drive a “flight to quality,” and despite U.S. involvement, that means increased buying of U.S. treasury securities. Increased demand for U.S. debt would drive up the price of that debt and lower the cost of debt for the U.S. When U.S. treasury yields fall, longer term interest rates decline including mortgage rates. Just as higher mortgage rates have hurt the real estate market and NLY shares, lower mortgage rates serves the housing market and Annaly.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Chart at Yahoo Finance

Annaly Capital (NYSE: NLY) shares have been especially impacted by rising mortgage rates since speculation began about Fed tapering in early May. The situation was only exacerbated when the Fed Chairman actually suggested tapering would likely start this year. This week, the Fed backed down from its prior warnings and held off the tapering of its asset purchases. That supported Annaly Capital, American Capital Agency (Nasdaq: AGNC) and the rest of the real estate sector. Still, the threat of near-term tapering remains, and that was priced back into long interest rates and mortgage rates yesterday a bit, and served to sink Annaly shares again.

Now, you might think a U.S. war or strike against Syria would drive capital out of the U.S., but the opposite is actually more likely. Given the distance between the U.S. and Syria, and the immense difference in military might between the two nations, any injury to the U.S. would be unlikely in such a conflict. Obviously, if something significant did occur on U.S. soil, the argument would not hold and interest rates would not decline, but instead increase. Despite the threats often made against the United States when it threatens nations in the Middle East and North Africa, history has shown a lack of follow through against the blitz of power the U.S. has displayed. More often, serious threat is directed toward Israel, Europe and western allies in the Middle East. So on a relative basis, the United States has tended to be the destination in flights to quality. In the future, someday, that may change, but today it remains likely.

You might ask how sustainable a change in interest rate trends might be in such a scenario. While a military strike might only last a few days, the concern and worry about the region would last longer. Also, the U.S. Federal Reserve would be expected to favor accommodation in such a time, which further serves lower interest rates. And the dependence of the entire globe on Middle Eastern oil, and the importance of the U.S. strategic oil reserve and new status of the U.S. as a net exporter of energy, only solidifies the U.S. status as destination in flights to quality.

As interest rates have increased, investors and pundits have expressed concern about the structure of mREIT asset portfolios and their exposure to rising interest rates. Annaly shares are down in price by 22% since May 1st, even after adjusting for dividends. The SPDR S&P 500 (NYSE: SPY) is up by 8.2% over the same span.

Security	05/01 – 09/16
Annaly Capital (NLY)	-22%
SPDR S&P 500 (SPY)	+8.2%
iShares US Real Estate (NYSE: IYR)	-10.4%
SPDR S&P Homebuilders (NYSE: XHB)	+0.2%
American Capital Agency (AGNC)	-26%

The entire group of real estate relative stocks sensitive to changes in interest rates has underperformed the broader market since May, but the mortgage REITs, including Annaly’s peer American Capital Agency (AGNC), have done the worst. Thus, they should also outperform if rates were to change direction and turn lower. While none of us would like to see war or conflict of any sort, it is interesting to note and perhaps prepare for the possibility that some stocks might benefit from the effects of a flight to quality. Among those, I find real estate relatives and especially Annaly Capital (NLY) of special interest for capital resting on the sidelines.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Renter Nation

Housing hounds will likely snarl at my take of the latest Housing Starts data, but the truth must be told. While housing starts gained ground in January, that ground was overwhelmingly taken through the construction of multi-family projects upon it. If the investment community thinks a renter nation is a healthy nation, well then it has been misled.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Relative Tickers: NYSE: ACC, Nasdaq: AGNC, NYSE: AIV, Nasdaq: AMTG, NYSE: ARR, NYSE: AEC, NYSE: AVB, NYSE: BRE, NYSE: CPT, NYSE: CCG, NYSE: CLP, NYSE: CYS, NYSE: EDR, NYSE: ELS, NYSE: EQR, NYSE: ESS, NYSE: HTS, NYSE: HME, OTC: MRTI.PK, NYSE: MAA, Nasdaq: NYMT, NYSE: PMT, NYSE: PPS, NYSE: SNH, NYSE: SUI, NYSE: TWO and NYSE: UDR.

A Renter Nation

Housing Starts, reported Thursday for the month of January, gained by 1.5% over December and ranked 9.9% above January 2011. However, single-family housing starts, which are typically seen as the key measure of housing health, actually fell 1.0% against December. The growth highlighted by the headlines was all found in multi-family units of 5 or more, where construction increased by 14.4%. A shift towards a renter nation is not indicative of a healthy atmosphere by most means. There’s just one driver we view healthy for multi-family growth, and that’s driven by demographics. Our aging nation is aiding the growth of the senior housing industry, as seen in the long-term chart of the Senior Housing Properties Trust (NYSE: SNH).

Still, we suggest that it is precisely the shift in the economic situation of a great many Americans and the shift in the lending environment, which has severely damaged the prospects of home ownership in America. Some of that change is of course for good reason, with no more liar loans issued and “no credit, no problem” guarantees made any longer. Higher scrutiny and regulation of the industry was of course a necessity after the alleged negligence (by several Congressmen at minimum) of the rating agencies. Standard & Poor’s (NYSE: MHP) and Moody’s (NYSE: MCO) regularly rated mortgage backed securities investment grade, due to the diversification provided by investment pools. Unfortunately, they missed the possibility of broad real estate value decline across the nation and also did not account for the bubble blowing, greed driven business that was happening at some financial institutions in the qualification of borrowers.

Bill Clinton’s revival of the American dream of home ownership has hit a serious snag today. Indeed, home ownership is on the decline after peaking in 2004 at 69.2%. It’s been falling over recent years, due to the financial crisis & resultant foreclosures, economic recession & resultant unemployment and the changed financing environment around real estate. In the fourth quarter of 2011, home ownership was measured at 66.0%, and that was down from Q3’s 66.3%.

Given the latest trend reported in the Housing Starts data over recent months, it appears home ownership will deteriorate further. While the popular press was touting it, and the stock market was celebrating Housing Start growth of 1.5% in January, we were pointing out the 1.0% decline in single-family property starts. While single-family activity is up 16.2% against the low bar set in January of 2011, single-family construction permits are up only 6.2% against the prior year. On the contrary, permits filed for multi-family units are up 61% against the prior year period. Take heed my fellow citizens, because the American dream is at stake.

In the zero sum game where many are suffering, some are getting richer. While the shares of residential real estate REITs had their issues through the crisis, and have traded choppy over the last six months, the last year’s trading has most of the largest players clear in the green. Market Cap leaders Equity Residential (NYSE: EQR) (+11.6%), AvalonBay Communities (NYSE: AVB) (+18.3%), American Capital Agency (Nasdaq: AGNC) (+24%), UDR, Inc. (NYSE: UDR) (+10.9%) and Essex Property Trust (NYSE: ESS) (+27%) are all sharply higher over the trailing twelve month period, adjusted for dividends and splits. The same goes for homebuilders over recent months, though we take issue there. The apartment managers should continue to benefit from America’s shift towards a renter nation. Though, given the ongoing economic issues plaguing our country, we wonder how many of those new renters are up-to-date on their rent. That said, net-net, gains still favors rental property managers.

This article should interest investors in residential REITs like American Campus Communities (NYSE: ACC), American Capital Agency (Nasdaq: AGNC), Apartment Investment and Management (NYSE: AIV), Apollo Residential Mortgage (Nasdaq: AMTG), ARMOUR Residential REIT (NYSE: ARR), Associated Estates Realty (NYSE: AEC), AvalonBay Communities (NYSE: AVB), BRE Properties (NYSE: BRE), Camden Property Trust (NYSE: CPT), Campus Crest Communities (NYSE: CCG), Colonial Properties Trust (NYSE: CLP), CYS Investments (NYSE: CYS), Education Realty Trust (NYSE: EDR), Equity LifeStyle Properties (NYSE: ELS), Equity Residential (NYSE: EQR), Essex Property Trust (NYSE: ESS), Hatteras Financial (NYSE: HTS), Home Properties (NYSE: HME), Maxus Realty Trust (OTC: MRTI.PK), Mid-America Apartment Communities (NYSE: MAA), New York Mortgage Trust (Nasdaq: NYMT), PennyMac Mortgage Investment Trust (NYSE: PMT), Post Properties (NYSE: PPS), Senior Housing Properties Trust (NYSE: SNH), Sun Communities (NYSE: SUI), Two Harbors Investment (NYSE: TWO) and UDR (NYSE: UDR).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.