ETF,s and REIT's
Independent Investment Research

by John Dalt

01/23/09

Jan 13, 2009 I wrote about how to guarantee $1.70 gasoline for your family in 2010, you might also consider the DXO etf. This ETF tracks the price of crude times two, when oil starts up it will go up twice as fast. I set an alert on it for $2.00 DXO was up today, but do not get sucked in thinking you are missing the rally. Oil stocks are still climbing, Cushing is full, and tankers are being leased to store it for future delivery. Unless there is a terrorist action, or other event that scares the market, the trend is still down. Part of using these ‘Ultra’ ETF’s or ‘Doubles’ as some call them is that they do not follow the cash market exactly. Just because oil goes up 10% does not mean the ETF will go up 20%, it is not exactly relative. They are priced off the first month’s futures contract, not the cash spot market. This is important to keep in mind with all ETF’s, as none follow the cash market exactly. They are priced with futures or options, calls and shorts; they are correlated, but not exactly. I have been disappointed when one falls twice as fast as the index it tracks, but climbs back at 1.6 times the gain! It is somewhat frustrating, but it would take an MIT PhD in mathematics to understand and predict. I have never had one fall at 1.6 times but recover at two times, go figure.  Today, for example, spot Crude was up 6.4%, USO was up 7.69% today, and DXO was up 12.55%.

Circuit City announced this week that they were closing all their stores and going out of business. This puts Real Estate Investment Trusts (REIT) in a hurt. Forty thousand square ft sitting vacant with no rent and no prospects will be a drag on malls all over the country. This sector is being killed; do not go hunting thinking you are going to get a deal on one of these companies. They are caught between a rock and hard place. They have to pay 90% of income out to shareholders, to protect their tax status as a trust. This keeps them from building any cash to weather a downturn in the economy. Most are highly leveraged with loans that must be renewed in the current credit crisis. With increasing vacancies, they are not generating excess cash to cover loan renewals. Woe is me.  A picture is worth a thousand words:

Which way are they going?

Reader Comment: 

"While I too happen to agree with the ‘Guy From Boston”, he COULD say it with fewer 'f-bombs'. Distracts from the message!"

Subscriber R. M.

Nevertheless, it was Funny, and TRUE

John

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With the Senate, having consented to Hillary as Secretary of State and about to confirm Timothy Geitner as Treasury Secretary this quote seems appropriate.

“It is said that power corrupts, but actually it’s more true that power attracts the corruptible.”  David Brin

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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