Bricks & Mortar Portfolio: The Half-Year Mark

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The recent action in the stock market reminds me of the storyline of Don DeLillo's classic White Noise. In that novel, an airborne toxic event unleashes a lethal black chemical cloud that floats over a small city in Middle America, forcing residents to evacuate their homes to prevent acquiring the resultant disease.

These days, the toxic cloud that's spreading on Wall Street is a brutal bear market in equities. Investors are fearfully fleeing their stock portfolios. The market's industrial accident has been a mix of several violent incidents: the unwinding of the credit crisis, a terribly battered U.S. housing market and skyrocketing oil prices.

My Bricks and Mortar mock portfolio has not been immune to this carnage, but it has outperformed the S&P 500 thus far this year. The long-short mock portfolio was down 2.1% year to date as of Tuesday's market close, compared with a 12.5% decline in the S&P 500 and a 5.6% drop in the U.S. MSCI REIT Index.

So with the first half of the year over, I'd like to offer a breakdown of the portfolio and my take on where I see stocks and sentiment headed in the homebuilding, casino, lodging, construction and REIT sectors.

Casinos: Hedging the Bet

The long-held theory that casinos are recession-proof blew up earlier this year, as weak results rolled in from Las Vegas operators. Stocks have now nosedived across the space. Analysts are warning about more pain ahead in the sector due to high gas prices and reduced air travel to the region. Worries are also circulating about how increased competition in Macau will hurt profit margins.

Melco Crown Entertainment (MPEL Quote), a pure-play on the Macau casino market, continues to get beaten down. Analysts recently have been arguing that Macau casinos deserve to trade at lower earnings multiples today given that profits have become more uncertain.