The ultimate carry trade

Cutten · Jul 17, 2008

1. Borrow Yen at 2% at IB.
2. Purchase a basket of J-REITs (Japanese Real Estate Investment Trusts) at single digit P/Es, 40% of book value, and double digit dividend yields
3. ???
4. Profit!

yayt · Jul 18, 2008

How long have these reit's been at such depressed prices?

donnap · Jul 18, 2008

Quote from Cutten:

3. ???

South Park

Cutten · Jul 18, 2008

Quote from yayt:

How long have these reit's been at such depressed prices?

They were cheap earlier this year but now they've had a 2nd leg down in the last 2 months and are even cheaper.

jasonjm · Jul 18, 2008

Quote from Cutten:

They were cheap earlier this year but now they've had a 2nd leg down in the last 2 months and are even cheaper.

scuse my ignorance on this issue, but what are some of the best names in J-REITs and how do I buy them / and their ticker symbols?

KS96 · Jul 18, 2008

So many "easy" trades with high expected yields show up on ET lately. Those "high" yields will be nothing if inflation shoots up to unexpected levels.

riaamaan · Jul 18, 2008

time stamp check

matgallis · Jul 18, 2008

I see massive boat of fail in this trade

piezoe · Jul 18, 2008

When something is cheap it is almost always cheap for a good reason. The trick in long term investing is to find things that are too cheap, with a price that is irrationally low, and buy them.

Cutten · Jul 19, 2008

Quote from KS96:

So many "easy" trades with high expected yields show up on ET lately. Those "high" yields will be nothing if inflation shoots up to unexpected levels.

Inflation is a bull factor for REITs. Their debts stay in nominal money, whilst rents increase in line with wage/price inflation and capital values follow suit.

A typical REIT that has say 50% borrowings, if the CPI doubles then its borrowings stay at 50 whilst its assets double in price. The yield would go from 10% to 20%, the asset value from 100 to 200, the debt would stay at 50. Thus, equity would triple, for a doubling in inflation.

REITs are an good inflation hedge. It is disinflation and deflation that is the real danger for real estate - the exact opposite of what you say.

Besides, inflation is not exactly soaring in Japan. Due to their persistent deflation problem, an emergence of inflation would actually be a *bull* factor for the economy and markets (except govt bonds).