Hey, did you hear? Interest rates are going up.
You know what that means: we should sell our real estate investment trusts (REITs).
Well, that’s what Wall Street would like you to believe during periods of rising interest rates.
After all, REITs borrow a lot of money, so their borrowing costs will go up and cash flows will shrink, and they might have to cut their dividends. Higher rates mean more competition from fixed-income investments. That urges investors to sell their REITs then take that cash to go buy bonds, thus dragging REIT prices lower.
I mean, the Federal Reserve began raising rates in June 2004, going from 1.25% to 5.25% by summer 2006. That’s a massive increase in just two years and had to have been horrible for REITs.
There’s just one small problem with this thinking, though…
In fact, if you look at the most recent period of rising interest rates, REITs performed exceptionally well.
And it looks like we’re entering yet another period of rising interest rates in which we can outsmart Wall Street at their own game, collecting profits from undervalued REITs every step of the way…
Last week, I took a trip up to Maryland to visit my publisher, Money Map Press, and attended their annual holiday party.
The party was international themed this year, and quite extravagant if I don’t say so myself. I didn’t hesitate to take full advantage of more than a few free cocktails at the open bar throughout the night, but I still remember seeing a Chinese dragon and few fan and umbrella bearing women dressed in traditional Chinese attire.
Prior to the party, I brought along some copies of Mario Gabelli’s book, Merger Masters: Tales of Arbitrage, and handed them out to my team of editors as little Christmas gifts. If you want to learn a little more about what you can gain from reading the book, including how to make lots of money doing arbitrage, take a look at my most recent article.
And in that same spirit, I want to give all my subscribers a little gift this Christmas season. For those of you who are not already a member of my exclusive Heatseekers service, today I want to pass along an uncut version of my latest weekly video where I provide a stock recommendation.
Click here to see the video and the stock recommendation.