It seems like the next shoe in the financial crisis is dangling above our heads. Is it about to drop?
Karen Finerman has been pounding the table for months about her commercial real estate concerns. She believes it’s just a matter of time before weakness in this area sends the entire stock market into a tailspin.
The thesis is simple. As the economy falters two very bad things happen for commercial real estate. 1) layoffs and 2) people spend less.
The layoffs lead to vacant office space while the reduced spending forces stores to close and warehouses to stand empty. People also travel less so hotels take a hit. As a result a glut of vacant space comes onto the market leaving landlords (and REITs) holding the bag. In turn, they can’t pay their loans which creates turmoil for banks.
And it seems more and more people share Finerman’s opinion.
In fact according to Thursday’s Wall Street, “Some experts say it now looks as if the current commercial real-estate slump will rival or even exceed the one in the early 1990s, when bad commercial-property debt played a big role in dragging the economy into a recession. Then, close to 1,000 U.S. banks and savings institutions failed.
Yikes! That sounds like a big shoe that’s ready to drop.
Can you profit from this pain?
Karen Finerman thinks you can. She recommends shortingBrookfield Properties , a REIT that has a lot of exposure to the real estate market in the New York City area. Or, she suggests playing it broadly by shorting the iShares Dow Jones US Real Estate ETF.
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Trader disclosure: On Mar. 26th, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Macke Owns (AAPL), (POT), (WMT), (MOS), (GE); Seymour Owns (AAPL), (BAC), (FXI), (EEM), (POT), (TSO), (TCK); Finerman's Firm Owns (MSFT), (RIG), (MSFT); Finerman's Firm Is Short (IJR), (IWM), (MDY), (SPY), (USO), (BPO); Finerman's Firm Owns (BAC) Preferred; Finerman's Firm Owns (WFC) Preferred; Najarian Owns (C) Call Spread; Najarian Owns (ASH) Call Spread; Najarian Owns (AAPL) Call Spread; Najarian Owns (BX) Call Spread; Najarian Owns (GD) Call Spread; Najarian Owns (MS) Call Spread; Najarian Owns (PALM) Calls; Najarian Owns (XHB) Call Spread; Najarian Owns (SWY) Calls; Najarian Owns (ASH) Calls