Tater’s Takes: REITs, UBB

April 12th, 2011 by Potato

I like the note in this story about the advisor making clients check the box “I want to buy low and sell high” or “I want to buy high and sell low.”

Michael Geist had a tonne of UBB-related posts up this last week or two. I haven’t had a chance to read any yet, but I’ll get around to it (and likely posting on it) soon. If you can’t wait, go ahead and read him yourself!

Last time around I briefly mentioned Tokyo Electric Power, with a pointer to Financial Uproar’s take. After that little bump I mentioned, it just tanked. I was surprised by that: my take was that the cleanup costs would be several billion (let’s say $10B), and the liabilities were capped by Japanese law. What transpired was that that last part looks like it may not be true: though there is a law in place to limit liability for “exceptional” natural disasters, and that it would be a no-brainer that the worst quake/tsunami to ever hit Japan would count as “exceptional”, that’s not automatic, and the government is apparently not going to make that declaration. I don’t have expertise in Japanese law to say one way or the other, but I’m anxious to see what happens in court down the road.

Supposedly the reason for that is that, because of the public scrutiny, etc., the politics wouldn’t be very good of letting them partially/mostly off the hook. But no matter what, the lay public is going to have a bee in its bonnet about nuclear plants for some time to come now. If the Japanese government leaves TEPCO out to dry on the liability thing, despite the unprecedented size of the natural disaster and the existing laws, that could send a chill down corporate spines, and that would really sink nuclear power in the country (and possibly, everywhere).

Be sure to check out the comments section of my previous post on REITs vs Condos. Rachelle had some good points about the risks of REITs, and I realized that though I much prefer REITs to condos, I didn’t quite emphasize enough that I’m not hugely keen on either. After all, REITs are only 3% of my portfolio now. I’m not sure under what circumstances I’d go to zero allocation — even in my active portfolio, passive thinking on asset allocation means that, to some extent, I’m willing to risk losses to get exposure to a sector. I also explain further what I meant by “somewhat” interest-rate sensitive (TLDR: less leverage than retail condos, and the effective rates today aren’t as far below “normal” 2007 as CMHC-insured residential rates are, so the correction shouldn’t be as bad).

The Globe had an op-ed on the housing bubble here, saying “signs point to a severe housing correction.” Nothing new to BbtP readers (though he does trot out the hot asian money meme). I think the most remarkable thing about this article is not what it says but the very fact that it not only got published as-is in the Globe, but it was featured prominently rather than buried (or in a point-counter-point pair). If I was in a more optimistic mood, I might say that the big drop-off in sales volume for the 2nd half of March and the uptick in such articles in the MSM finally marked the top… but we’ll have to have passed it by months/years before we can really say where the top was. As always, patience.

A good TED talk on apathy in politics. I like his proposed zoning notice for Toronto. The topic of apathy and politics is perhaps particularly apropos with the current federal election.

Oh, humans, can I ever get you to stop relying so much on your limbic system? On the internet today: “nothing is more horrifying or ignorant than to hear the pro-nuke faction rushing forward to boast, as they are doing these days, that nobody-has-died-yet-from-radiation-at-fukushima.” Yes! Damn them for trying to inject facts and rationality into our Fukushima fear and outrage orgy!

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