Real Estate: Two numbers - and a huge mistake - could mean millions for investors

By Adam Lass & Sara Nunnally

Power Crisis: $330 Million in 30 Days

Blue-Chip Investing
Non-residential construction -- that’s lodging, office, commercial, health care, educational, religious, public safety, amusement and recreation, transportation, communication, power, highway and street, sewage and waste disposal, water supply, conservation and development and manufacturing -- is revving at an ever-faster pace, picking up gains every month for 15.4% over the past year.

Material Profits
In the past 30 days, experts estimate that this industry has lost $330 million. That’s $11 million a day.

Blue-Chip Investing
Real Estate: Two numbers -- and a huge mistake -- could mean millions for investors

There are only two ways to make money in the stock biz, and quite frankly, one of them doesn’t really work either.

There is long-term value investing. That’s where you buy a piece of a decent company with a share price that will grow in time as the company sells whatever widget it makes for a modest profit. This is where most work-a-day cubical-dwellers plow bi-weekly chunks of their paycheck, via either 401(k)s or mutual funds.

The catch? If these guys and gals are really, really lucky, that share-price growth will exceed inflation by a point or so. In the end, they will probably not be living in a cardboard refrigerator box eating cat food, but they may as well trash those cool retirement brochures with all the pictures of tanned 55-year-olds at the helm of 36’ sailboats and smiling duffers in stupid pants at Saint Andrews.

Then there’s speculation: you know, where you ride a hot tip from a Pakistani cabby on the way out to Kennedy that makes you soooo many Ben Franklins in one fell swoop that you can call your boss a piker over your cell as you string up a hammock on your very own tropical island?

Okay, this scenario is even less likely. In order for it to work, in fact, in order for virtually any speculation to work, there must be an imbalance of information. You have to know something most of the other investors out there don’t, and that’s damned hard to do these days, what with some 30,000 of my fellow financial journalists sucking up facts like some kind of colossal Hoover, stacking them up eight ways from Friday and spitting them back out as hot buys on the Internet.

But every now and then, there is the most wonderful thing: a “wisdom” lag. This is when all the facts are known, but most folks are just too lazy to stop and really read the details. That’s when real money can be made, and fortunately for you, my friends, that’s exactly what is happening right now.

First, two facts: Construction was down 2.9% between May 2006 and May 2007. See: I told you that the facts here were known. You probably don’t need me to tell you about how bad real estate was doing right?

You’re half right and half very, very wrong. But don’t feel bad, because most everyone you know is wrong too. When the pundits and talking heads say that real estate is in the toilet, they are speaking about home builders like Toll Brothers (TOL:NYSE) and Ryland Group (RYL:NYSE). And I couldn’t agree more: these guys are portfolio poison right now.

But there’s a lot more biz that gets done under the “Real Estate” rubric than just building spit and cardboard condos in Florida’s Hurricane Alley, and fortunately, it is all being tarred with the same brush. I’m talking about commercial real estate, here, both the building of it and managing of it. Malls, office buildings et al are still being built, still being occupied and still making beaucoup bucks for the folks who do manage them.

Now you can look up the track records of individual companies like Simon Properties (SPG:NYSE), Vornado (VNO:NYSE) and Prologis (PLO:NYSE). What you’ll find is that they are all rock solid and profitable.

But if you want to shorten the process a little, you can just look in on the stat section at the National Association of Real Estate Investment Trusts, where you would discover that unlike their brethren in the carpentry biz, real estate investment trusts have cranked out an extraordinary run, beating all major equity benchmarks for the past 3-, 5-, 10-, 15-, 20- and 30-year periods. Did you marvel at the S&P 500's 15.79% gain in 2006? The REITs more than doubled that, returning 34.35% to investors that year.

But heck, don’t take a lobbyist’s word for it. (Heck, don’t take a lobbyist’s word for anything. In fact, if you’ve been talking to lobbyists lately, you should probably check for your wallet, watch and keys.)

As I said, the hard facts here are available to anyone with a decent enough work ethic who is clever enough to understand what they are looking at. For example, if you wanted to dig beneath the “Failing Construction” headline, you could head over to www.census.gov where you could discover for yourself that residential construction is indeed down -- but not by a mere 2.9%. Rather it has collapsed a hideous 17.3% since May of 2006!

But non-residential construction -- that’s lodging, office, commercial, health care, educational, religious, public safety, amusement and recreation, transportation, communication, power, highway and street, sewage and waste disposal, water supply, conservation and development and manufacturing -- is revving at an ever-faster pace, picking up gains every month for 15.4% over the past year.

And therein lies both your wisdom gap and your opportunity. Right now, most investors can’t tell the difference between the two types of biz. As a result, you can still pick up shares of the iShares Dow Jones US Real Estate (IYR:AMEX) -- which bundles the aforementioned Simon Properties (SPG:NYSE), Vornado (VNO:NYSE) and Prologis (PLO:NYSE) among others -- for around $80.

This discount will not hold. Money flow for the IYR is already on the verge of turning positive. Daily average volume for the past 200 days is 2,332,200 shares. But the average volume over the past month has increased 89% to 4,408,741 shares.

We are perhaps only minutes away from the “tipping point.” Once every New York cabby and Connecticut caddy will be babbling about the REITs, it will be too late.

Adam

Material Profits
Power Crisis: $330 Million in 30 Days

Last month, I told you about Argentina’s power crisis, and how it’s affecting industrial production because of low gas volumes and poor power reliability.

That affect has just been monetized.

The manufacturing industry accounts for 17% of Argentina’s GDP, or approximately $103.5 billion. In the past 30 days, experts estimate that this industry has lost $330 million. That’s $11 million a day.

An IndustrialInfo.com report noted, “Commercial shops have limited deliveries because they receive less stock from factories, whose production has been affected by the energy cuts.”

Meanwhile, the country’s energy imports stand at a paltry $490 million, while its energy exports have soared to $2.3 billion.

Argentina’s supposed to get about 7.7 million cubic meters a day from its neighbor, Bolivia. Right now, it’s only getting about 4.6 million. On Monday, Bolivian President Evo Morales announced he was visiting the Middle East and Russia next month to court investors for its oil and gas industry.

After Venezuela decided to nationalize its energy industry, Bolivia followed suit. As a result, foreign investment stalled.

This could be one reason Argentina’s not getting the natural gas it needs from Bolivia.

Morales’ trip hopes to bring joint ventures with the state-owned Yacimientos Petroliferos Bolivianos worth somewhere in the neighborhood of $3 million.

Perhaps that will relieve Argentina of some of its power crisis… but it won’t be a quick fix.

In the meantime, it will have to rely on power imports from Brazil.

That, or cut its power exports, which will most likely mean breaking a contract and slashing revenues from its energy export sales of $2.3 billion.

Either way, it’s not a good scenario for Argentina.

Sara