johnthebear

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  • After GE's Miss, Who’s Next?
    Great call on GE Chris. Now with this call and your discussion in an earlier post about the REITs and their likely drop in value, I have greater confidence in my short position on IYR. (using SRS) I was just reading in National Real Estate Investor that Capitalization Rates on New York real estate on property bought in 2006-2007 was only 3%-4%. (UK cap rates in this same time period were reported to be 4.56%) In my judgment, a cap rate of 6% would be the lowest reasonable rate justifiable for an all cash purchase.

    The projection of revaluation of overvalued prime real estate over the next 6 quarters is bang on, in my book. GE will likely take a hit here as well. I agree with your call of $28-$30 range to buy back GE for a long term hold. Also, I think that we will all be shocked at how long it will take to recover from the housing and commercial property bust. I read that the AIA has reported the architects have almost no new business, which is a 9 month leading indicator for commercial construction. With the lack of bank financing at attractive interest rates this is certainly reasonable. You know, another factor no one seems to appreciate in the home lending business is that there are a huge number of mortgage companies have gone out of business and employment is down sharply. It will take a long time to rebuild the lending process so that each loan approval will be efficient. Just think, they may even require honest appraisals for both residential and commercial property again! The lenders have been forcing appraisers to make values high or they get no work. I am sure that will change. So, from the real estate side of the market, this will be a long painful process, perhaps many years to recover to the 2007 highs in real estate. As for the "real economy" some like to talk about, I am not sure there is a difference. After, it is built on the consumer and with the enormous loss of wealth in markets all over the world there just is no credible wealth to rebuild with except the sovereign wealth funds, and I would not count on that to redeem us.
    Apr 13 18:08 pm |Rating: 0 0 |Link to Comment |View article

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