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Mr. Market’s bad mood seisure

Mr. Market

The stock market is in a selling mood. But the selling isn’t that bad yet. It can get worse, although today the DOW was losing a triple digit loss.

When I woke up this morning – and I heck didn’t want to – I saw my account completely in red. The biggest losers were REITs and since my account is quite exposed to REITs I was losing a lot.

One idea struck me when looking at my account

I saw Realty Income losing a lot this morning… Well, still not that bad as AGNC or ARR or other REITs. And I was thinking why investors would be dumping Realty Income along with AGNC, AVB, EQR, ARR, and others.

Realty Income is a totally different business compared to AGNC, for example. I even cannot grasp why people are afraid of stocks like AGNC or ARR if the FED stops the stimulus. And I would appreciate my readers if you can educate me a bit thru the comments.

But here is how I see it

Many times I read and heard that FED stimulus caused REITs to shrink their margins and thus their ability to make money due to very low interest environment. I heard that their space for profit was very narrow. So my understanding was, that it would be better if the spread between interest rates on mortgages increases. So I felt FED actions to be bad for REITs.

And yet REITs ran up like a crazy horse

But that is (or should be) true when talking about REITs investing into MBS (mortgage-backed securities) such as AGNC, ARR and others named above.

But why the heck people would be dumping Realty Income, which owns properties and make money on renting it. This company has nothing to do with mortgages and any sort of MBS trading. Their risk is in a totally different zone. Their problem could be in tenants not paying on time or at all, inability to rent and have their properties vacant, etc.

The market was overbought and Realty Income was overbought as well, you can clearly see in any long term chart. But this sell off based on FED tapering the stimulus is just a pure excuse to profit taking and some short selling.

The only thing which makes me mad is that I bought too early yesterday. But sometimes that happens in the markets.

13 responses to “Mr. Market’s bad mood seisure”

  1. Weekly Recap – May 31st, 2013 | Common Cents Wealth says:

    […] Hello Suckers: Mr. Market’s bad mood seisure […]

  2. Jake Erickson says:

    I’m only in mutual funds currently and I’m enjoying the ride up so far this year. I know it can’t keep up this pace, but I’ll take it while it’s here. More room to fall and still make money later on!

  3. From what I read, REITs are all over brought. I stopped out of AGNC earlier this week and I’m sure many people had the same 10% stop loss order. I want to invest more in REIT, but I’ll wait a bit until they are cheaper. Should have bought a few years ago.

    • Martin says:

      I agree. But I do not use stops. I just wait for the dips like those we are seeing these days and start buying small lots ($1000 per trade) as the stock goes lower. When it is going up, I usually wait and sit on cash and collect my dividends.

  4. Love those days when the DOW is DOWN and my account is up. Diversification works! I learned the hard way from trading on my moods. One day my stock dropped about 8% and I was hurting again this was about 10am in the morning and I sold. Thinking I was a genius I left and checked it later that night only to find it closed up 5%.

  5. kolpin says:

    a variety of sectors are negatively affected by rising interest rates for different reasons. obviously mREITS are affected the most outright, but equity REITs like O are negatively affected because of increased borrowing costs to acquire new properties. in the current low interest environment REITs were able to refinance expensive debt with lower cost funding. on the flip side, you can also argue that as the economy improves, REIT tenants will be more financially stable, there will be higher occupancy rates etc.

    to some extent, I think the positives balance the negatives for equity REITs, which means the recent stellar performance may slide into more of a neutral zone. O will bring in great income for you, but perhaps not as much capital appreciation. i think that’s why you have to be careful of buying them when they’re overvalued, as O currently is. many equity REITs–OHI, MPW, NNN, etc. are very overvalued. one of the few that isn’t is DLR. I own a few of these already, but wouldn’t be a new buyer at these levels, as I think there is still more downside to come.

  6. Little House says:

    I try and stay away from personal stocks and instead lean towards mutual funds. I feel they’re more balanced. With the market on the upswing, my mutual funds have benefited.

    • Martin says:

      LH: that’s completely fine. If you feel comfortable with MUFUs stay with them. I like to be more aggressive, although sometimes I must admit that sometimes it is giving me a stomachache, but I am always saying myself that it is a great buy opportunity. Thanks for stopping by!

  7. Ben says:

    If that link didn’t work try this one: http://turnkeyanalyst.com/2013/05/do-reits-blow-u

  8. Ben says:

    The 10 year treasury yield has gone from 1.66% all the way up to 2.15% in one month. Huge move in interest rates so most yield stocks have been getting hurt this month. Utility stocks stocks are down almost 9% in the past month.

    I actually just saw a research report on the affect of rising rates on REITs. Turns out it’s inconclusive what the long-term affect really is. Take a look if you’re interested: https://www.dropbox.com/s/n7pog96hin8eyq3/REIT_YI

  9. Money Beagle says:

    Though the markets are down, all of the individual stocks I own are up today. Not sure that’s ever happened. Usually on down days, my stocks are down more than the market. I’ll take today and a few more days like them!

    • Martin says:

      Not with me. These days when REITs are being hit by sell off I see it almost all heavily in red. but I am fine with it, since I want to be buying more shares and this slow down can help me. I am adding REITs and if this will continue soon I will be adding stocks such as LO, MCD, KMP, T… all great companies to add.
      Thanks for stopping by!!

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