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What's Behind The Advance In REITs?

Interest rate sensitive stocks are the market leaders today. Banks, REITs, and home builders are all strong intraday.

The advance in REITs (Real Estate Investment Trusts) is curious, since the fundamentals on commercial real estate remain poor.

However, the REIT Index is at its highest level since January, with many REITs up double digits today.

This fuels speculation that many are under-invested in some sectors, and despite a poor outlook many feel compelled to get in.

Possibly helping banks is CIT, which is sweetening the terms of its bond buyback offer. That will help allay bankruptcy fears, as well as counterparty risks.

Caterpillar: demonstrating the power of cost cutting on the bottom line. Caterpillar is having an analyst meeting today.

The key takeaway is that CEO Jim Owens is giving commentary about 2012. 2012? Yes, and this may be smart politics on his part--to concentrate on execution in the next up-cycle.

Owens is talking about total sales "approaching" $60 billion ($32 to $36 billion is likely range for this year), so he is talking about a 2X increase in sales in four years.

But look at earnings. He is talking about 2012 profit of $8-$10 per share. This year they are talking about profit of $1.15-$2.25, with analyst consensus at $1.43.

That is a profit boost of 6X 2009 earnings.

Here is the power of cost cutting-they are implying a 2X boost in revenues will result in a 6X boost in the bottom line.

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