If we see a continued rise in interest rates, I think this group will crack, and in a huge way. It trades pretty much in lockstep with all of the other REITs, which you can easily track via
iShares Dow Jones US Real Estate
, and that sector is the worst in the chart book.
I think General Growth is by far the best sell in the group, and that it can easily be matched against any of the players in a hedge. But I think the highest-quality company, Federal Realty, is the natural match-up. The lower-quality Kimco, which sports a 4% yield -- the REIT with the biggest yield differential to Ackman's General Growth -- might also be good for a pair trade. If I were still at my old hedge fund, I would be doing this trade aggressively, even if I didn't know that the weak-handed Ackman had a position in it. That's especially after last week's crummy retail numbers.
I feel the exact same way about Ackman's stake in Air Products, the gigantic position he's just taken in the industrial space. This worst-of-breeder, at least when compared with the almost identical but faster-growing
, is teetering. The shares are holding just about a key technical level, and I think they can be knocked over with a feather.
Here's why: The real way to affect change at Air Products is to add Ackman to the board of directors -- and, after the J.C. Penney fiasco, who the heck is going to do that?
Perhaps Air Products can be broken up somehow. Maybe the sum of the parts can prop up the stock. But this group could be a short, anyway, if industrial-production numbers begin to roll over -- and, again, the sector has diminished yield support because of the sudden lurching-down of the Treasury market. What the heck are these stocks doing selling at an average of a 19x multiple? They aren't simply growth cylicals, and they can't be trusted if we are to see a downturn in the once-red-hot cyclicals. What a terrific hedge if the market rolls over here. That's particularly for the cyclicals, which have been a stalwart here -- but it certainly won't stay that way if interest rates continue to charge higher.