By Charles SizemoreReal estate investment trusts (REITs) have gotten absolutely crushed over the past three months, and particularly since Donald Trump's surprise victory.The perception is that Trump's economic policy will blow out the budget deficit, fuel inflation and send bond yields higher. And, as REITs have become proxies for bonds in the low-yield world of recent years, as go bonds, so go REITs.That's the consensus view, at any rate. I have my doubts. To start, surging budget deficits do not automatically lead to higher bond yields.
If that were true, Japan would have the highest bond yields in the world. Instead, Japanese yields are essentially frozen at 0% and have been for years.Furthermore, the biggest peacetime deficits in history happened during the 2008-2009 meltdown, when bond yields plunged to lows no one dreamed possible before.And all of this depends on Trump getting his budget through a Tea-Party-controlled House of Representatives that ties its entire identity to reducing the size of the government.
Nevertheless, REITs are taking it on the chin at the moment. This is the third time in four years that this has happened.The first and second, respectively, were after the 2013 Taper Tantrum and as Janet Yellen first raised the Fed Funds rate above zero this time last year.