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The attraction to the stronger dollar doesn't make any sense to me, because it tends to make our exports less competitive and thus reduce GDP growth. Nick de Peyster Undervalued Stocks
In a basically macho country, it's the words strong and weak that drive the support for one over the other. If high and low were used, people might see some merit in both high and low arguments about the dollar. Meanwhile strong is healthy and weak is unhealthy.
I'm not quite sure he actually has an "attraction" to a strong dollar. During the campaign he accused China of devaluing their currency, which is false, but if he wanted a strong dollar then it doesn't seem like he'd be picking on China. I tend to think some of the things he's said he supports, like cutting taxes and infrastructure spending result in a stronger dollar rather than wanting a strong dollar specifically.
Nonetheless, the real question for REITs is whether they can raise rents to keep up with higher interest rates and that should determine whether higher rates are good or bad. Considering the point is that REITs have been suffering since the election it would suggest most won't be able to increase revenue as fast as costs would rise.
I guess also it depends on the type of REIT, too. Malls, gov property, retail, residential, medical all probably will have different risk profiles in the new administration/Congress.
"Donald Trump's election in November further contributed to those trends. The election and his attraction to a stronger dollar have helped spur higher rates ...". This quote has it backwards.
It's the other way around. Higher rates since the election caused the Dollar to soar against other curriencies. (The author suggests the opposite). And I'm not sure there was any intent on the part of Trump either. Investors, fearing higher inflation if he funds massive infrastructure with debt have reacted predictably by demanding a higher rate of return on money lent. That's why rates have risen since his election. Currency traders, seeing the now higher rates available on U.S. debt have consequently bid the dollar higher against other currencies. Remember, however, the dollar was already sitting at multi-year highs before the election. Even at 1.37% on the 10-year the dollar looked attractive against many other currencies where negative rates had been imposed by central banks desperate to spur growth and inflation. (The Federal Reserve also contributed to higher rates, but the trend was well in place before they acted.)
As suggested by others, a strong dollar cuts both ways. It makes imported goods cheaper for Americans to buy but harms U.S. exporters by making their products more expensive (and less competitive) abroad. Perhaps missing from the article/discussion is that a strong currency can have deflationary consequences. That's one reason nations around the world have been attempting to weaken their currencies. As for REITS, don't feel too sorry for them. I purchased a small hold in OREAX in early September, 2015. In fewer than 16 months it's up 17.5% - not too shoddy.
The columnist doesn't seem to know how to read a stock-chart. The REIT ETF, VNQ peaked in price on 8/1/16. At that point, its price move YTD was 14% -- an outsized gain for a full year, let alone 2/3 of a year.
At that point, its price receded until the week of the election. --- during that time, right up until election day, the likelihood of a Trump victory seemed to recede every week. -- So if politics was effecting the price of REITS, the decline was discounting an HRC victory, not a Trump victory. Its price is up modestly since then. --- which is a standard seasonal bullish period (Nov-Dec), for stocks generally, and also for REITs specifically.
So really, "nothing to see here". But of course, journalists don't get paid to write that.
Real Estate Annual Performance Review from Hoya Capital Real Estate Hoya wrote a brief annual recap this week, "REIT Awards: 2016." We noted the moderate 6-7% total return in the REIT indexes hides significant divergences within the real estate sector.So how does 2016 stack up by historical standards? Believe it or not, the seemingly strong 6% return is actually among the lowest annual returns since the beginning of the "Modern REIT Era" in 1992, a testament to the robust performance of the real estate sector over the past quarter century. http://seekingalpha.com/article/4033516-real-estate-weekly-reits-end-2016-high-note-christmas-retail-sales-surge
Comments
Nick de Peyster
Undervalued Stocks
Nonetheless, the real question for REITs is whether they can raise rents to keep up with higher interest rates and that should determine whether higher rates are good or bad. Considering the point is that REITs have been suffering since the election it would suggest most won't be able to increase revenue as fast as costs would rise.
It's the other way around. Higher rates since the election caused the Dollar to soar against other curriencies. (The author suggests the opposite). And I'm not sure there was any intent on the part of Trump either. Investors, fearing higher inflation if he funds massive infrastructure with debt have reacted predictably by demanding a higher rate of return on money lent. That's why rates have risen since his election. Currency traders, seeing the now higher rates available on U.S. debt have consequently bid the dollar higher against other currencies. Remember, however, the dollar was already sitting at multi-year highs before the election. Even at 1.37% on the 10-year the dollar looked attractive against many other currencies where negative rates had been imposed by central banks desperate to spur growth and inflation. (The Federal Reserve also contributed to higher rates, but the trend was well in place before they acted.)
As suggested by others, a strong dollar cuts both ways. It makes imported goods cheaper for Americans to buy but harms U.S. exporters by making their products more expensive (and less competitive) abroad. Perhaps missing from the article/discussion is that a strong currency can have deflationary consequences. That's one reason nations around the world have been attempting to weaken their currencies. As for REITS, don't feel too sorry for them. I purchased a small hold in OREAX in early September, 2015. In fewer than 16 months it's up 17.5% - not too shoddy.
At that point, its price receded until the week of the election. --- during that time, right up until election day, the likelihood of a Trump victory seemed to recede every week. -- So if politics was effecting the price of REITS, the decline was discounting an HRC victory, not a Trump victory. Its price is up modestly since then. --- which is a standard seasonal bullish period (Nov-Dec), for stocks generally, and also for REITs specifically.
So really, "nothing to see here". But of course, journalists don't get paid to write that.
@Edmond
Thanks to both of you for your comments. A good new year to all.
http://seekingalpha.com/article/4032479-real-estate-weekly-record-high-home-prices-consumer-confidence-reit-rally-pauses
Regards,
Ted
Hoya wrote a brief annual recap this week, "REIT Awards: 2016." We noted the moderate 6-7% total return in the REIT indexes hides significant divergences within the real estate sector.So how does 2016 stack up by historical standards? Believe it or not, the seemingly strong 6% return is actually among the lowest annual returns since the beginning of the "Modern REIT Era" in 1992, a testament to the robust performance of the real estate sector over the past quarter century.
http://seekingalpha.com/article/4033516-real-estate-weekly-reits-end-2016-high-note-christmas-retail-sales-surge