REITs

Episodes of “corrections” are apparently happening more frequently according to BofAML's credit strategist Barnaby Martin and given the extremities of liquidity, profits, technological disruption, regulation, and income inequality, BofAML warns 'gently' that the potential for a cleansing drop in asset prices cannot be dismissed. Most likely catalysts: Consumer, Rates, A-shares, Speculation, High Yield. "We advise selling risk into strength, buying volatility into weakness, advocate higher than normal levels of cash and would add some gold."

"The median stock in the S&P 500 is the most expensive it has even been (for as long as we have data). That's never a good sign! If your favorite valuation indicator is not at 'the highest ever', then it is likely now at 'the highest ever except 2000'. That's not good company unless you are a short seller."

Operating and reported earnings have turned sharply lower over recent quarters which has historically been associated with major market peaks. As shown below, it is also important to notice that revenue has tended to lag these downturns in earnings previously. This is because the measures used to substantially boost profitability from each dollar of revenue generated through accounting gimmickry, share repurchases, and cost cutting are finite in nature. When the effect of those manipulations fade, so does the inflated profitability generated from each dollar of revenue. This will be something worth watching closely over the next few quarters particular as the commentary of a "continued secular bull market" continues to hit the headlines.

There’s a big macro theme playing out in Europe – a once soft economic environment that allowed lots of inefficiency is becoming tougher and forcing companies to restructure, says Chris Mayer, author of Capital & Crisis and Mayer’s Special Situations.

There is compelling evidence that 2015 will see a global slump in economic activity. This being the case, financial and systemic risks will increase as evidence of the slump accumulates. It can be expected to undermine global equities, property and finally bond markets, which are currently all priced for economic stability. Even though these markets are increasingly controlled by central bank intervention, it is dangerous to assume this will continue to be the case as financial and systemic risks accumulate. Precious metals are ultimately free from price management by the state. Furthermore, they are the only asset class notably under-priced today, given the enormous increase in the quantity of fiat money since the Lehman crisis. In short, 2015 is shaping up to be very bad for fiat currencies and very good for gold and silver.

Run away... just 6 weeks ago when we first highlighted the FBI was probing multi-billion-dollar REIT American Realty Capital, the company's stock crashed, wiping out billions leading the CEO to note, "we don't have bad people, we had some bad judgment there." Now, as The WSJ reports, it appears the CEO David Kay, COO Lisa Beacon, and founder & Executive Chairman Nicholas Schorsch have all decided to "stabilize the company and... strengthen future leadership and strategy," by jumping ship. We are sure their jets will be fueled up and ready for the nearest extradition-free nation...

You thought gold was "only" for wealth preservation? You ain't seen nothing yet.

If there were no puppet masters in Washington DC or the Kremlin, what would happen next week?  

While the Fed and the BOJ were by far the biggest news of the past week, explicitly admitting that the world simply can not exist without one central bank passing the monetization torch to someone else, a surprising, and scare for its shareholders, development took place when REIT American Realty Capital Properties, with a then-market cap of over $10 billion, announced, under the cover of the Fed ending QE3, that it had overstated its adjusted funds from operation, a cash flow key metric used by REITs, from the first- and second-quarters of 2014.As the WSJ reminds us, while the amount of money involved, some $23 million, was "relatively small", the irregularities resulted in the resignation of the company’s chief financial officer, Brian Block, and chief accounting officer, Lisa McAlister.The result: a crash in the stock that wiped out nearly 30% or nearly $4 billion in market cap.

When Calpers buys an international asset for its investors, is it intervening in the forex market on behalf of the US?

Japan’s aging population needs rising prices like a hole in the head. The more “successful” Mr. Kuroda becomes in forcing prices up, the less money people will have to spend and invest. The economy will weaken, not strengthen, as a result. The advantages the export sector currently enjoys are paid for by the entire rest of the economy. moreover, even this advantage is fleeting. It only exists as long as domestic prices have not yet fully adjusted to the fall in the currency’s value. If one could indeed debase oneself to prosperity, it would long ago have been demonstrated by someone. While money supply growth in Japan has remained tame so far, the “something for nothing” trick implied by the BoJ’s massive debt monetization scheme is destined to end in a catastrophe unless it is stopped in time. Once confidence actually falters, it will be too late.

Bankruptcies in Japan more than doubled in the first nine months of 2014 compared with the same period a year ago. Japan has embarked on a radical monetary experiment to spur inflation. But it may backfire and lead to stagflation and in a worst case scenario a German ‘Weimar’ style hyperinflation ...

The week ahead, as if it mattered.

The last note briefly addressed the benefits associated with the reverse repurchase facility (RRF). Indeed liabilities have increasingly moved from bank balance sheets to the Fed, freeing lending capacity. One must recall reserves are not fungible outside of the banking system (but can act as collateral for margin). With flow decreasing, the opportunity for small relative volume bids spread over a large quantity of transactions (most instances per unit time) decreased with market prices in many asset markets. Is more downside coming?

“Money amplifies our tendency to overreact, to swing from exuberance when things are going well to deep depression when they go wrong.”