2-4-04                                                                                           Vol. 7: No. 2 RealtyStocks' Observer If you're not receiving this free monthly e-newsletter, please register. Monthly Feature: INVESTMENT CAUTION MARKS THE BEGINNING OF 2004 But Eludes a Strong Monthly Performance by Realty Stocks A. Caution & Hesitation Marks the Beginning of 2004 B. Election Year Issues C. REITs Finish the Month Strong D. Equity REIT Performance E. Large Cap REIT Performance F. Mortgage REIT Performance G. Realty Corporations H. Real Estate Mutual Funds A. CAUTION & HESITATION MARKS THE BEGINNING OF 2004 Through the first few weeks of 2004, most stock sectors that performed well last year continued to do so and interest rates actually dropped to a six month low. With the run-up in many equities, apparently many investment managers were diversifying or hedging their portfolios with a greater proportion of bonds, while, simultaneously foreign central banks were buying treasuries to improve their currency values. Both these factors contributed to a recent contraction of interest rates. Although this didn't seem to disrupt equities initially, the recent Federal Reserve meeting provided a signal that interest rates would likely be raised sometime this year, causing a fairly broad based market decline over the last week. Despite generally strong quarterly earnings for the last quarter of 2003, it appears that this performance is not going to continue to lift the market in the near term. Besides concerns over rates, continuous mutual fund scandals and improprieties, which are now coming to light, have cost investors billions of dollars and may impact dollars flowing into equities. Other key issues like the Iraq war, job growth, the trade deficit and the devaluation of the dollar continue to concern investors. However, the largest influence on financial markets this coming year may prove to be the coming Presidential Election.   Top B. ELECTION YEAR ISSUES Many felt Howard Dean was not a serious threat to President Bush, but with the emergence of another JFK in the democratic party, John F. Kerry, a more formidable adversary could develop. An eventual ticket of possibly Kerry and Edwards could also have a broad based geographic appeal to both the north and south. Although it's much too early to call the final democratic ticket, it is becoming more apparent that President Bush could be in for a fight. It appears the primary issues that may determine this coming election will probably be the economy, health care, the Iraq war - and possibly more protectionism to preserve American jobs. The situation in Iraq has not shown improvement even with the capture of Saddam Hussein. This combined with significant public unrest concerning health care and job growth could place more pressure on President Bush. Furthermore, the President does not have particularly high marks in health care and the wait for strong job growth continues. What concerns investors most, is regardless of whomever is elected, government spending will likely be significantly increased. This could worsen our national deficit and stall or even reverse the improving economy. Top C. REITs FINISH THE MONTH STRONG If only the final results for the month are viewed, REITs again continued to perform well. However in the first couple weeks of the new year, REITs actually were one of the industry laggards. REITs seemed to surge as other industry groups stumbled during the last week or two of the month. As a result, this appears to indicate that the recent REIT boost is a short-term sector rotation issue. And it looks like it could position REITs as more of a constrain play; making REITs perform well if other industries perform poorly, and vice versa. Since we still believe the equities can perform reasonably well this year, we therefore, still are concerned with the strength behind REITs. Though recent quarterly earnings of most REITs look good, as we have previously mentioned, REITs will need a favorable environment of low interest rates and job growth to perform well. If these fundamentals behind higher REIT prices falter, REIT prices will have a difficult time attaining stellar returns, even if other equity groups also under perform.   Top D. EQUITY REIT PERFORMANCE Equity REITs posted a gain of 4.04% for January. The best monthly performers were Retail Regional Malls and HealthCare, up 10.34% and 7.58%, respectively. Only two of the groups were negative for the month, Mobile Home Parks and Apartments, losing -1.49% and -0.7%. The best performing Equity REITs for January were Jameson Inns, Inc.(JAMS) and First Union Real Estate Investments (FUR), gaining 28.5% and 24.5%, respectively. The worst monthly performers were Tarragon Realty (TARR) and Manufactured Home Communities, Inc. (MHC), losing -15.2% and -10.8%, respectively. (Please see Equity Gainers and Losers.).   Top E. LARGE CAP REIT PERFORMANCE Large Cap REITs had a gain of 3.8% for January, just slightly behind the broad based REIT performance. The best large cap performer for January was Simon Debartolo Group (SPG) followed closely by HealthCare Property Inv. (HCP) gaining 12.3% and 10.7%, respectively. The worst performing large cap REIT for the month was Archstone Communities (ASN), falling -2%. Please see Large Cap REITs.)   Top F. MORTGAGE REIT PERFORMANCE The mortgage sector posted a positive gain of 4.14% for January, just slightly ahead of Equity REITs. The best performers for January were Dynex Capital (DX) and Novastar Financial, Inc. (NFI), up 23.1% and 14.3%, respectively. The worst performer was BRT Realty Trust (BRT) losing -27.2%, respectively. (Please see Mortgage Gainers and Losers.)   Top G. REALTY CORPORATIONS Realty and Housing Corporations had a price gain of 3.95% for January, slightly behind Equity REITs and Mortgage REITs. The best monthly industry performers were Construction & Engineering Co's and Developers, gaining 11.5% and 9.72%, respectively. The worst monthly performer of these groups, was Tech & Net with a loss of -4.7%. The best stock performers for January were Lipid Sciences (LIPD), up 62.3% and Bluegreen Corporation (BXG), up 43.8%. The worst monthly performers were Hovnanian Corporation (HOV) and Ryland Group, Inc. (RYL), down -15.3% and -14%, respectively. (Please see Realty Corp. Gainers and Losers.)   Top H. REAL ESTATE MUTUAL FUNDS (REMFs) The average total return for real estate funds for January was similar to the broader REIT performance of about 3.11%. The best performing monthly REMFs were Profunds and Munder with respective overall returns of 5.08% to 4.23%. (Please see REMFs.)   Top Stock Changes. Cap Pacific Holdings (CPHJ.OB) changed to CPHJE.OB. Southern Energy Homes Inc (SEHI) changed to stock symbol SEHI.OB. Note: In reporting group percentage changes, stocks that were under $1 are excluded from our calculations. If a stock is under $1 for more than two months, it is subject to removal from our coverage. All gains or losses regarding Realty Stocks are price changes only; dividends are excluded, and are calculated as of the end of each month. Disclaimer: The material provided herein should not be taken as endorsements or recommendations to invest in a stock, fund, a group of stocks or other securities. No guarantee can be made as to the expected performance of such investments. Investors should consult all available information, including data external to RealtyStocks and associated Web sites, and exercise own best judgment before making any investment decisions. The author may have equity positions in some of the companies covered in RealtyStocks, which may change from time to time, and will divulge such information upon request.   Top InRealty Sponsors Inquire about our special advertising banner promotions! E-MAIL: stocks@inrealty.com Copyright ©2004, WebVisers Inc. All rights reserved .