Friday, April 3, 2009

REIT'S Rally???

I have been scratching my head wondering how in the world REIT's rose so much today. Then I found this link.

I am sorry, but by diluting shares, that causes a stock to go up over 25%???? Who is kidding who. Kimco was on its way to bankruptcy when it pulled this rabbit out of the hat. Kimco sold off over 90M shares meaning it basically printed up 90M more common shares on top of its current 271M common shares. Thats right. It went from 271M common shares to over 360M shares in one day. AND THE STOCK PRICE SKYROCKETTED???? SAY WHAT???? A 33% DILUTION OF SHARES???

Go figure. Other REIT's such as SPG have also done this recently. The idea is to raise capital from the private investor in order to pay of massive amounts of debt in order to boost private share equity while diluting common shares. Yet, for some reason KIM goes up 25%.

Another fact. KIM's debt is $4.5B. That's B for billion. The net proceeds from todays 33% dilution of their common shares raised about $717M to pay off debt. That means they still have a debt of $3.8b after the 33% dilution of common stock equity.

Now, you tell me, WTF????

This is why SRS took a dive today. It makes no sense at all how a stock goes up 25% after a 33% dilution of their shares. This is pure and utter manipulation. All the execs are doing is raising cash so they can cash out before the company goes bankrupt.

Now PAY ATTENTION! Keep in mind these shares were offered at $7.10 a share. 90M shares at $7.10. And then the stock shot up to $9.40. That means these investment firms somehow got their hands on these shares at $7.10 and turned around and sold them for over $9 a share to some suckers out there.

This my friends is a true ponzi scheme. Make no mistake. Print up more shares to make cash which does not come close to handling the overwhelming debt. Watch for these REIT's to be on an episode of American Greed coming to a television screen near you.

I am now quite confident in my SRS shares once again.


  1. i lost 18 k this past week from shorting.. should i cover.. im very scared.. i lost a lot in faz as well.. im gonna die..

  2. I've been following your VIX/PCR bottom graph for quite some time and made some good money lately.

    I bought several hundred shares of SRS @ 38.xx. Do you think SRS still has downside?

    I'm still long technology and energy stocks from S & P sub 700. So, SRS should be a good hedge

    EWT guys (kenny, daneric) talking 857 on S & P or even 875.

  3. had to get the hell out of srs with all my avgd in (twice) positions. still believe that it's worth a lot more than $38 but i'm gonna wait for the uptick before i jump back in this one even though the whole situation reaks of bull semen

  4. Beamer,

    I have a "hunch" that money is targeting the ultrashort etf's. If you look at the behavior of SKF/FAZ you'll see that JPM is a major component and is the primary target of end of day painting the tape. Similarly, SRS has KIM as a component (along with SPG, etc) and it was targeted today. I think the new uptick rule is going to have provisions that exclude ultrashort etf's from the rule and the PPT's basically eliminate them by targeting the strongest components for upside moves.

    Why is it that you feel "more" comfortable with SRS after seeing the action in KIM toay ? Are you not concerned that SRS will continue to take a dive ?

  5. Beamer Dog,

    Are you still on for the AAI trade that you mentioned several days ago? Thank you very much for the blog.

  6. well, I liked SRS at $50 and even $80. The REIT's are just trying to buy some time hoping the Fed throws them a rope. I don't see how TALF can extend into CRE. It is not big enough to do what it is intended to do. How can they spread it thin on CRE too?

    The EWT guys are now saying 857, but yesterday they were saying 843 was the top and we should have gone down today. Its a tough market for sure.

  7. KIM ... here is WTF.
    a) Chairman Milton Cooper is a well respected legend.
    b) KIM price probably overly depressed as those in the know knew about the offering and drove the price down / shorted ahead of it to get the best price and hose KIM. Price was at something like all time lows and down what 90% from highs ?
    c) Raising what $700 M in equity in this market for retail real estate, at whatever price is impressive and a vote of confidence.
    d) Erases any questions about Kimco's survivability.

    All that accounts for price rising, despite dilution. Share price is still completely trashed as far as long time holders are concerned.

    Hope that answers WTF. Sometimes dilution is a positive (vs the alternative).

  8. "Why is it that you feel "more" comfortable with SRS after seeing the action in KIM toay ? Are you not concerned that SRS will continue to take a dive ?"

    I am concerned it may take another dive, but the reason it went down today had nothing to do with fundamentals or the true sign of the economy. It went down due to a REIT raising capital by diluting its shares. While that may buy some time hoping for a bailout, it is a knee jerk reaction based on hope of the REIT investors. The dilution of the shares should bring KIM down to about $5 within a couple of weeks. Earnings is just around the corner and that will shed a lot more light on the situation. Notice all the REITs doing this before earnings. Why? Because after earnings, their share price will be much lower and thus, they will fetch less capital in a stock sale. KIM earned .04 a share in Dec. Estimates are for .43 right now before dilution. I suspect they will miss by at least .30 cents if not much more.

  9. Coach, all it does is delay the inevitable. They are just raising money to survive a few more months in the hope the fed will bail them out. $4.5B in debt. $700M to refinance some of the debt. Just digging a deeper hole.

  10. And on top of that, they cut dividends to .06 a share. Who is buying this crap?

  11. should i cover beamer.. im gonna die losing 18k shhh

  12. that's some good reporting there bsen, and yes, that sounds about right.... they have a small window of opportunity for dilution and they are taking it..... the banks should hurry up, they will lose their chance to dilute before their shares fall again.... time waits for noone...

  13. Joey, if you can't sleep at night, it means you bought too much. You should have hedged it via covered calls or puts. Never put too many eggs in one basket.

  14. You forgot to mention that ML and DB were underwriters on the stock deal.

    ML and DB are long to the gills in CRE

    ML upgraded KIM to a BUY concurrent with the equity offering.

    This reminds me of the Jack Grubman dayz but with the banks long the krap Grubman was pitching!!!

  15. Beamer Dog; while I agree w/ you that Real Estate is in trouble; I disagree with the thesis that all RIET's get killed or go to zero. Kimco could go to the teens. $5 ? I doubt it. Possible; I don't know the risks in the company that well. But to think folks bought 700 million in stock with the expectation that it will go lower is lunacy. There should be a lot of support in the 7-8 range.

    From there, it depends on what happens with retailers and credit markets.

    Personally, I believe that there will be sufficient liquidity provided to real estate sector. Most of the loans the good REITS have will be fine so long as there is no liquidity induced crisis.

    As policy, this HAS to be avoided, b/c the implications of not avoiding it are insane.

    Note that I am a professional in the Real Estate industry w/ 25 years experience in addition to being a trader.

    My caution to you is not to go overboard on your real estate thesis. Yes, the fundys suck; but no, not everyone is designed to explode.


  16. Coach, I don't know what you are refering to when you say you disagree with all RIET's going to zero. I did not say that. If KIM is a $7 stock at 271M shares, it reasons that it is a $5 stock at 360M shares. How is it that a company's equity goes up by making a secondary offering? What it does is just by some time for KIM to pay off some due debt to avoid bankruptcy. They do not have enough assets right now to pay off that debt. Even after the secondary offering, they still do not have enough cash to pay off the debt and they will actually take on some new debt to pay off the old debt. You think this is a stable company??? Come on now. Taking on debt to pay off debt is the first stage of bankruptcy. They are living on borrowed time.

  17. Perhaps its not really a $7 stock is my point.

    How does a company's equity go up by making a secondary offering ? Happens quite often in fact. Many times a stock gets sold down by those in the know. This way, they buy more of the company for less. Give you one example: HK (PetroHawk) in the energy space. Just did equity offering at 17.50. Now 22.00 +. Still way off its highs.

    Kimco may have gotten too beaten down at $7 is all I am saying. Of course, they look like schmucks for not doing an equity offering when stock was much higher; but in this environment apparently it became necessary.

    You seem to be saying that because they take the dilution at $7, therefore the stock must go lower. I don't agree with that thinking. If that were the case, nobody would ever buy a secondary. They buy it because they think the stock is a good buy

    People (foolishly) bought secondary offerings at the top as well. CHK at 67 (now sub 20). SLG sold shares at like 150 (now 13). Better to buy at the bottom than at the top, no ?

    Only time will tell. Certainly the upside in KIM is much more limited than it once was because of the dilution. But that does not mean it must go down. Raising capital changes the perception of the ability of the company to survive, weather the storm, and perhaps thrive.

    And that is why a stock like this can turn around and go higher.

    Will it ? I have no idea. Just pointing out where I thought your argument was incorrect.

    Not picking a fight mind you; you do good work.

    And I am long SRS ....

  18. Coach, respectfully, your comments do not hold water, IMO. I think perhaps you are too close to the Real Estate market and may need to take a step back and see more of the picture. First you state, "Many times a stock gets sold down by those in the know. This way, they buy more of the company for less"

    While that may be great for investors, It makes 0 sense for the company. If you say KIM is worth $10 a share, why does a company allow its shares to get priced down to $7 in order to sell 90M shares? They are pissing off $270M. Makes no sense at all. They are desperate for that money. Probably a sign of more poor management and another reason not to invest in KIM.

    Also, you say, "You seem to be saying that because they take the dilution at $7, therefore the stock must go lower. I don't agree with that thinking. If that were the case, nobody would ever buy a secondary. They buy it because they think the stock is a good buy"

    You do understand who gets into and makes money on the secondary offerings, correct? It is the insiders. And they don't hold the shares for more than an hour if more than a minute. They immediately cash and in most cases, have their shares presold to friends or other collegues for about .50 more, then this group sold theirs off to their friends or collegues for .50 more. That lead to some program buying just like in the IPO boom. There is nothing in the balance sheet that supports KIM's current price. They still owe over $3.7b and have to take out another loan to cover the short coming of their current cash reserves to pay off short term debt. KIM will be a $5 stock within a few weeks. Unless CRE suddenly turns around very soon with companies popping up and expanding left and right to fill in these empty buildings. I don't see that happening.

    But you are a RE expert and I would love to hear your opinion on what you are seeing with regard to activity in CRE. The one RE expert I know said refi's in RRE and purchases of foreclosures are the only thing happening in RE. CRE is flat dead according to him and his firm is renegotiating a lot of contracts to reduce rent on existing clients hoping to keep them.

    You are absolutely correct that only time will tell. But I am quite confident that CRE will continue to have difficulty throughout 2009. I am not overextended in SRS and I will never be overextended in a particular investment.

    Good luck.

  19. Coach, you really need to read the link below to understand how Wall Street manipulates a secondary offering and how the insiders use their leverage to create program buying. That is what happened to KIM and KIM should reverse relatively quickly.

  20. I just started trading a little and wondered if you would recommend a few good books to help me get started. I'll check out Daneric's site too as I think he lists some books. If you have any favorites or must haves for a beginner, I'd apprectiate it. Thanks!
    Peanut Dog



  22. Clearly we are no longer in a fundamentally based market. Less than two months ago, the "money managers" and "analysts" spoke "sell sell sell" and now, seemingly overnight, it has become "buy buy buy!" I've always thought that desperation and neediness were the mother and father of creativity and ingenuity, but this recently created "fake it til you make it" pyramid scheme takes the cake!!! I think the recent/existing market action is proving that the bandwagon of hyped illusion prevails; hence, the facts no longer matter and the emotional pseudo rally, based on cooked books, will continue. Forget about SRS; it won't win in this crazy market.

  23. Here is the link to a post at the SRS MB sharing similar sentiments:
    "Here's something YOU CAN DO today to make SRS go UP!!!!!"


  24. Horvat, sorry can't recommend books. It really comes from experience. The key is, risk management. I don't recommend 2x or 3x leveraged ETFs for beginners. Invest in things you know about.

    If I were a beginner investor, I would invest in non-leverage ETF's which are focused on a range of stocks. I would not be investing in individual equities. Look at ETFs which are based on market indexes or on a group of stock you think will do well like Russell 2000, emerging markets, S&P, etc.

    If you really want to invest in individual stocks, do your research in the company and decide if you want to risk your money in that company. You probably use an ipod or a blackberry or a cable service, etc. Research those companies. Look at their balance sheets, income statements, P/E ratios, and decide if you want to risk money into that company. I don't recommend basing your decisions on individuals recommending stocks or analysts making recommendations. But again, i don't recommend investing in individual stocks as a beginning investor.

  25. Mary, I agree, short term movements are driven by news. But fundamentals always win out in the end. Patience is a virtue in this market.

  26. TWC, thanks, I had read that article earlier. It is not a secret that what Kimco did was a manipulation and a way that Merrill got away with moving money into their own pockets. Unfortunately, with current SEC rules, this is completely legal. A bit immoral, but legal.

    So you have to wonder, why doesn't Cramer pick on something like this? Because Cramer is a perma-bull and will never point out immoral activity which will cause a stock to go up.


    bsen, check out his last 2-3 threads

    this guy is good

    he posts alot of things and interesting articles and opinions, but rarely makes market calls. (the last market call he made, was actually march 9th, calling a huge rally in finacials all the way up to april 2nd)

    at any rate, check out his last 2 threads

  28. Brian,

    I hope you don't mind if I also respond to horvatnurseries' request for books:

    First, I agree with Brian's advice.

    Second, on Brian's home page, on the right side, he lists some blogs he likes. Click on "Kenny's TA blog". On Kenny's home page, after it loads fully, on the right side, near the bottom of the page, Kenny lists FOUR PAGES of books that he likes and recommends.

    Of course, the public library and the local bookstore are also great places to consider.

  29. It never ceases to amaze me how much stupid money is in the world.