Where we are now: good and bad news for traders. We have the Fed committed to QE2 (quantitative easing) through the second quarter of 2011, and now we have a few early indications of an improving economy. This is good news — but it makes the QE2 trade a little more tricky.
The QE2 trade is short dollar/long commodities/long commodity and international stocks. To the extent that better economic news means a somewhat stronger dollar, it can put a strain on that trade...if the dollar gets stronger as a trend, not just a one-day move up.
Still, more money is going into hard assets--and with interest rates so low, it's also driving investors to higher yielding investments. One investment class is both a hard asset AND a big dividend player: Real Estate Investment Trusts (REITs), which have been strong recently — many are at new highs, like the iShares Cohen & Steers Realty , an ETF that is a basket of REIT stocks sitting at a two-year high. Look at the yields from some typical REITs:
Mack Cali 5.25 percent
Macerich 4 percent
Kimco 4 percent
Tanger Factory Outlet 3 percent
Vornado 2.9 percent
Not bad considering the S&P 500 has a yield of 1.65 percent.
Another plus: banks are coming alive. They've lagged for months, but now the combination of a steeper yield curve, the WSJ article saying banks may soon start paying dividends, and some decent economic data are putting a bid in banks...they've had their best three-day run in months. "This sector is a coiled spring because no one owns it," one financial trader wrote to me.
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