Back to work

I have had several days/weeks to decompress now after the end of finals. I haven't been completely conscious of it - but I know that I am more rested and ready for a bit deeper commentary over the coming weeks. Other than a few small and insignificant trades in the grand scheme of things (re: PMI) I have a lot of dead time in the coming months while I wait for GGC to hit (hopefully.) I plan on using this opportunity to develop a comprehensive industry analysis for the real estate sector. Reader commentary is encouraged during this period in helping me to develop the correct framework for the analysis.

So far I have segregated the general real estate sector in too subsectors and then broken out specific companies in each subsector. I then track the % that each stock and subsector is down from its 52-week highs. This really isn't enough though. All the data will tell me is which stocks are weaker relative to the others and also which ones are likely below their 200 day moving averages and in downtrend as opposed to an uptrend. This is helpful information, but as commented - it is not enough. The really useful information would be understanding how the different subsectors relate to each other and when fundamental weakness in one sector would leak into another sector and in what timeframe.

So far I only have three basic concepts of the interrelationships:

1) The decline may start in the transactional subsectors (re: homebuilders, title insurance, etc.) because. Default risk hitting the mortgage lenders and mortgage insurers would show up much later, that is - at least 12-18 months.

2) The REITS may function less on weakness to the bond sector and more as a function of bond yields. As treasury yields increase into the 6-7% range - a REIT that is yielding 2-3% becomes much less attractive, especially as NAV for the REITS is likely peaking.

3) The last is a question more than a concept - mainly how do you distinguish a decline in the real estate subsectors from a general market decline. That is - would it be smarter to just choose a more liquid proxy for the market - re: the SPY etf and buy PUTS on that. I still don't know.

Just a few thoughts I am throwing out there - we will discuss all of these ideas in more depth in the coming weeks. I look forward to any feedback - positive or negative - as I am not going to solve this one on my own.

Best regards,

BG