Jeff Yastine: Why REITs Will Soar Later This Year

Jeff Yastine Predicts Rising REIT Prices in the Near Future

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Jeff Yastine, the finance expert and editor of Total Wealth Insider, predicts that 2018 will be a lucrative year for people holding REITs in the retail sector. He predicts that now is a great opportunity to exploit some misconceptions about one of the most “unloved” sectors in the investment world.

Defining REIT

Jeff Yastine is referring to the real estate investment trust, or REIT. A real estate investment trust is a company that owns and operates real estate intended to produce income. Consider your local stripmall. The stores and their brands are owned by corporations or franchise investors, but the physical buildings often belong to an outside party. This outside party is usually a real estate investment trust. The price of a real estate investment trust partially depends on the demand for the products of the retail stores. Basic economics demonstrates that high retail sales leads to high REIT prices. People who are currently selling REITs expect retail sales to fall in 2018. Yastine and other smart investors are counting on retail sales to rise in 2018.

Common Misconceptions

According to Jeff Yastine and several experts at CNBC, many investors believe that retail REITs no longer offer high returns. This belief stems from the idea that the retail sector has been completely displaced by the online retail behemoth Amazon. Per the process of creative destruction that the economist Joseph Schumpeter once observed, many investors expect demand in the brick-and-mortar retail sector to be replaced by demand for online products. This is a logical prediction, but physical retail stores have not yet been replaced by Amazon.

There are still plenty of opportunities for profits in the brick-and-mortar retail sector. Since demand for physical stores remains high, Jeff Yastine believes that retail REIT prices are undervalued. By buying retail REIT shares now, investors can realize large returns by the end of 2018.

Pay Attention to Amazon

While online retail will not displace retail stores in 2018, investors should still track Amazon’s activities. The massive online retailer has plans to expand its enterprise into several key sectors, including healthcare and telecommunications. Amazon will eventually displace or transform the strongest contenders in the physical retail sector, so retail REITs may not be a good long-term investment. Treat your retail REIT investment as an opportunity for large short-term returns, but do not expect Amazon to fade away unless you have insider knowledge about government efforts to take down a monopoly.

The Federal Trade Commission’s regulators could save the physical retail sector from Amazon with antitrust laws. Unfortunately, antitrust action by the FTC would come at a steep cost. Such action is also improbable. Amazon has a large share of the retail market, but the company is not engaged in monopolistic behavior. According to the American economist William Baumol, a monopoly is not determined by its size or market share. Instead, a monopoly is determined by its behavior. To be a monopoly, a company must restrict its output to increase prices. Furthermore, the presence of potential competition due to few barriers to entry will prevent a company from becoming a monopoly. If the FTC follows this logic, it is unlikely that Amazon will be labeled as a monopoly. Wise investors expect Amazon to continue to grow over the next decade.

In short, retail REITs are a good short-term investment. Investors should pay attention to both Amazon and physical retail store statistics to determine the proper time to sell. Now is the time to buy retail REITs.

Why Retail REITs Still Thrive

It should now be clear that many people have avoided retail REITs because the long-run outlook of retail stores is poor. The opportunity for returns exists in short-run investments. Any wise and critical investor is probably wondering why this is the case. The explanation is simple. Retail REITs have excellent fundamentals, but poor investor outlooks have driven prices down. When investors realize that the revenues of retail stores continue to yield profits, the REIT prices will climb. This spike in prices will be followed by a boost in REIT purchases. Prices will continue to rise, and early buyers of REITs will enjoy large returns.

This situation depends on good current fundamentals. While Amazon is often blamed for the downfall of the retail sector, the online retail giant is truly the cause for the strong fundamentals of the most important players in the physical retail sector. Since 2016, Amazon helped eliminate the weakest businesses in the retail sectors. Other businesses noted the downfall of their former competitors. Reinvestment plans, reorganization strategies, and new business models were implemented by physical stores to compete with Amazon. The current players in the retail sector now have excellent fundamentals.

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The Interest Rate Factor

In mid-2016, the US Federal Reserve began a strategy of contractionary monetary policy. By reducing the money supply and increasing the federal funds rate, Federal Reserve Chairperson Janet Yellen aimed to increase investment across the economy. This policy is continued by Jerome Powell, the new Federal Reserve Chairperson under President Donald Trump.

Higher interest rates have led many investors to be skeptical of REITs due to falling returns. In general, this skepticism is warranted. However, a growing economy can cause REITs to be favorable during times of high interest rates. Jeff Yastine believes that 2018 will be an exceptional year for retail REITs because the higher interest rates will boost the overall economy. Yastine used his formal education to determine that economic growth depends on the macroeconomic theory of contractionary policy.

Consider the fact that interest rates are both the costs of borrowing and the returns to lending. Higher borrowing costs may deter consumers from using credit cards or taking out mortgages, but higher lending returns encourages banks to issue loans to businesses. Bank lending has been at historic lows since the Great Recession, so higher interest rates may be the boost the economy needs. Higher interest rates could lead to greater capital investments and greater employment by businesses. In turn, consumer spending increases and the retail sector grows. The outlook for retail REITs is good.

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