US Bank Exposure to Euro Debt

Housing: Metro Areas Boom & Bust

Metro Area Home Price Appreciation 2000-2008

source

China’s Economy: Chart of the Day

source

Daily “Ways-to-Play” The News Before the Moves 3/31/2010

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4 Reasons to Consider Utility ETFs

There are a gazillion ways to play the energy sector with exchange traded funds, but you’re not just limited to oil, natural gas or solar power. Utilities might be an off-the-beaten path way to invest in the nation’s changing energy picture.

ETFDesk users see this as a potential opportunity to: buy Rydex S&P Equal Weight Utilities ETF (RYU)

buy Vanguard Utilities ETF (VPU)

buy iShares S&P Global Utilities Sector Index Fund (JXI)

buy iShares DJ US Utilities (IDU);

Check out how others are using ETFs to capitalize on this news or add your own opinion

Are Home Prices Cheap?

Analysts at Deutsche Bank attempt to answer the question “Rent of Buy?” in a new research piece out today. While falling home prices and declining interest rates have narrowed the rent-buy gap, home affordability is not high by historical standards.

ETFDesk users see this as a potential opportunity to: sell iShares DJ US Real Estate (IYR);

Check out how others are using ETFs to capitalize on this news or add your own opinion

Long-Term Rates Finally on Verge of Breaking Out

ALTHOUGH THE FED HAS reaffirmed its low short-term interest rate policy, it cannot control long-term interest rates. In fact, the yield on the benchmark 10-year Treasury note has risen from a low of 3.23% at Thanksgiving of last year to its current level 3.87%.

ETFDesk users see this as a potential opportunity to: sell iShares Lehman 20+ Year Treasury Bond Fund (TLT)

sell iShares Lehman 7-10 Year Treasury Bond Fund (IEF)

sell iShares Lehman 10-20 Year Treasury Bond Fund (TLH)

buy UltraShort Lehman 7-10 Year Treasury ProShares (PST)

buy UltraShort Lehman 20+ Year Treasury ProShares (TBT)

sell PIMCO 7-15 Year U.S. Treasury Index Fund (TENZ);

Check out how others are using ETFs to capitalize on this news or add your own opinion

M&A surges in Asia while US and Europe suffer

Mergers and acquisitions boomed in Asia in the first quarter in sharp contrast to a slump in deal volume in Europe and the US, underlining a global shift in activity in the wake of the credit crisis.

ETFDesk users see this as a potential opportunity to: buy Gabelli Global Deal Fund (GDL)

buy IQ ARB Merger Arbitrage ETF (MNA);

Check out how others are using ETFs to capitalize on this news or add your own opinion

Oil in Big Macs: Chart of the Day

The idea for this comparison of Oil to Big Macs, is that a Big Mac is representative of a basket of agricultural goods and thus compares the relative advantage of trading food for oil. Whats interesting about this is that theoretically, it should be a somewhat inflation-adjusted measure of oil prices. As of now it appears agricultural goods is undervalued relative to Oil.

ETFDesk users see this as a potential opportunity to: sell United States Oil Fund LP (USO)

buy ELEMENTS – Rogers International Commodity Index Agriculture Total Return (RJA);

Check out how others are using ETFs to capitalize on this news or add your own opinion

Oil in Big Macs: Chart of the Day

Source: Gregor.us

The idea for this comparison of Oil to Big Macs, is that a Big Mac is representative of a basket of agricultural goods and thus compares the relative advantage of trading food for oil.  Whats interesting about this is that theoretically, it should be a somewhat inflation-adjusted measure of oil prices.  As of now it appears agricultural goods is undervalued relative to Oil. 

Interesting to see how the plays out in a pairs trade?

Short Oil (USO  United States Oil Fund LP)

Long Agriculture (RJA  ELEMENTS – Rogers International Commodity Index Agriculture Total Return)

Hedge Fund Industry Returns, Not as Good as They Appear

An interesting study by a couple of Seton Hall University economists shows a “hidden” gap in historical hedge fund returns.  The authors found a suveriorship bias in hedge fund returns, amplified by failing funds that stop reporting their performance.  An interesting study indeed…

Are Home Prices Cheap?

Analysts at Deutsche Bank attempt to answer the question “Rent of Buy?” in a new research piece out today.  While falling home prices and declining interest rates have narrowed the rent-buy gap, home affordability is not high by historical standards.

According to Deutsche Bank, the rent-buy gap has narrowed by 5.2% in Q4 2009 to 88.5% the second highest level since Q1 2003.

national rent-buy gap (rent as % of after-tax mortgage payments, ATMP)

 

source: Deutsche Bank “Rent or Buy?”

While home affordability has improved, rents remain more affodable compared to income.  The cost to rent in Q3 2009 was 9.4% of household income, while the cost to own is 11.3% of household income. Notice the graph below, ATMP as % of household income has fallen signficantly from its peak in Q2 2006 of 17.2% but not below historical trend levels.

source: Deutsche Bank “Rent or Buy?”

 

However, other affordability metrics have shown housing affordability at alltime hights. For example, the most commonly cited metric – the National Association fo Realtors (NAR) index has set highs since December 2009.  However, the Deutsche Bank analysts question this as an appropriate measure. NAR looks at housing costs in isolation.  This grossly underrepresents the dwelling options of any individual.  As we all know, renting is a viable option, so any index that does not take into account the cost of renting a home vs. owning a home is fundamentally flawed.

source: Deutsche Bank “Rent or Buy?”

Using a Price-to-rent ratio, akin to a price-earning ratio, Deutsche Bank analysts argue that home prices could decline another 11%.  During the early 1990s, the average price-to-rent ration was 16.2.  During the mid 2000’s the ratio reached a peak of 24.7 in Q2 2007 and has since fallend to 18.2 in Q4 2009.  However this 18.2 reading is still elevated compated to that of the 1990s. 

During  the  1990’s  a  booming economy did little to push price-rent ratios out of equilibrium as both home prices and rents
moved in the same general direction. In our view, rents are likely to decline, thus prices may
need to fall even further than the 11% that the price-to-rent ratio implies.

source: Deutsche Bank “Rent or Buy?”

source: Deutsche Bank “Rent or Buy?”

With mortgage rates starting to creap up as the FED is signaling the end of mortgage buying, it doesn’t seem like a stretch to think that as rates go up, home prices will fall in order to keep some sort of equilibrium in affordability. 

With the tax credits expiring towards the middle half of this year, continued increase in forclosures, headwinds still persist for the housing market.  Now might be a good time to start building shorts in IYR in the face of exhubirant optimism with the recent Case-Shiller index.

source: www.etfdesk.com

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