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Tuesday, November 25, 2008

REG - More Color on Downgrade

I shorted ESS, a REIT, at $92 on November 3, Read Blog Entry after Goldman Sachs downgraded it with a sell rating. It closed at $63.95 on November 19 for a 31% gain.

Shorting REITS have been profitable, but in a bear market you have to keep one foot out the door as bear market rallies can be fast and furious. Stocks like ESS and REG can shoot up $2-$3 in minutes. That being said, this morning Goldman Sachs downgraded REG, a commercial REIT to sell. If the markets and the commercial REIT sector continue to fall I expect REG to take a fall from the $33 range where it is now. It is important to note that the REIT sector has had whipsaw action this week , with several end of day short squeezes. However, if this sector continues on a weakened path, REG is a great candidate to fall. The ETF with the symbol SRS, is a great way to guage the action in the REIT sector. SRS goes up when REITS are weak and drops when they are strong. Components of SRS

Read the Article here

"As long as the credit markets remain tight, several REITs may be forced to sell assets at sharply reduced pricing, cut their dividends as many have already, and issue new common shares to de-leverage," Habermann wrote.

Habermann added Regency Centers Corp. to his "Conviction Sell" list and downgraded the REIT to "Sell" from "Neutral," citing concerns over near-term debt maturities and a concentration in weak commercial real estate markets.

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