Great traders and true value investors know that it’s not only the return function that dictat...
To-Buy-List for a Housing Slowdown
10/20/2006 12:00 am EST
Popular speaker and veteran advisor Doug
Fabian is wary of economic changes as a result of a continued housing
slowdown. In a recent missive to subscribers, he outlines several investments to
serve as a protection against possibly declining share values...
"The 800-pound gorilla in the Fed's boardrooms seems to be the housing market--the factor that has me the most worried about the future of the economy. It might take a few months, but we could start to see the housing bubble spur a substantial slowdown in the economy.
"Data keeps coming that confirms my suspicions on the housing market.
According to a recent report from the National Association of Realtors, the
median home price in August was $225,000, down 1.7% from a year ago. It's the
first year-over-year decline since April 1995, and the biggest year-over-year
drop since the record 2.1% decline in November 1990, when we were in the midst
of a recession.
"The general malaise in housing supports our position in ProFunds Short Real Estate (SRPIX). This inverse fund, designed to seek the opposite performance of the Dow Jones U.S. Real Estate Index, is set for a potential big move up if the recent buying-in-the-face-of-the-facts results in a steep and violent pullback when the sell off in the sector begins.
"Secondly, real estate has the potential to disrupt the current party in the equity markets. I've recently told subscribers that due to the high level of risk that remained in the market, they should refrain from any allocation to stocks at this time. Those who have the primary investment goal of generating income from their assets will be much safer and much better off sticking with a heavy dose of long-term Treasury bonds and avoiding equities all together right now.
"So, if you are looking for a little extra juice in your bond allocations, use ProFunds U.S. Gov't Plus (GVPIX), which seeks daily investment results, before fees and expenses, that correspond to 125% of the daily price movement of the most recently issued 30-year U.S. Treasury Bond, and the Rydex U.S. Government Bond fund (RYGBX), which seeks daily investment results, before fees and expenses, that correspond to 120% of the daily price movement of the most recently issued 30-year U.S. Treasury bond.
"Our current base recommendation remains the iShares Lehman 20+ Year Treasury bond (TLT AMEX). I favor the ETF because the expenses are much less than mutual funds, there is no redemption fee imposed when selling and your only cost will be the transaction fees. Plus, it will be a bit less volatile than leveraged bond funds due to the absence of leverage."
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