Hi guys, Tim Melvin here, and welcome back to A Better Way to Wealth.
We had the meme stocks going crazy with GameStop going to around $400 a share, we had these massive moves up and down in the various cryptocurrencies and digital assets, we had big tech just going crazy and we also had all the madness in the special purpose acquisition company (SPAC) market.
Now, as a side note, we’re going to be talking a lot about SPACs in 2022 because if you know the right way to trade these things, they can be a goldmine.
I happen to be one of the ones that knows the right way to trade these things, and I’ve had a lot of success in it. We’re going to be working to bring you the tools that you need to make money in that market.
Yes, we saw a lot of craziness in that market early in 2022 with ridiculous valuations in space stocks and electric vehicle stocks that have since crashed all the way back to earth.
Many of them made our lists of toxic stocks at some point in 2021, so if you’ve been listening, you missed all of that madness that destroyed quite a bit of wealth.
But back to today’s topic… We’re starting to see a lot of the big tech stocks pull back. Crypto has pulled back. The Fed is telling us that they’re going to raise rates a lot faster than they’ve been telling us.
Remember, at this time last year, they were telling us with great conviction that we probably would not see an interest rate increase until 2024.
Then, they decided to play fast and loose with inflation, thinking they could let the dragon out, have a little walk around and it would just get back in the cage when they needed it to.
Folks, that’s not how dragons work, and Mr. Powell has been a little bit surprised how high inflation has gone, currently up to a 40-year high.
So, we’ll see what the numbers continue to look like in the months ahead because we have supply chain inflation and now we’re getting wage inflation, and the potential there could be messy.
The Fed may have to raise rates as many as four times according to some estimates and even make further reductions in the bond buying program.
Right now, they’re scheduled to stop in March but can continue reinvesting the coupons. They may have to stop doing that to support the economy and get the inflation dragon back in its cage.
And, of course, the danger is we get a Fed overreaction, which creates a potential recession sometime in 2023!
As for 2022, we are going to see an enormous, rotational shift from all the unicorns, memes and crazy, speculative instruments that we’ve seen develop out there back into real companies and real assets that are going to benefit greatly from higher interest rates and from inflation.
Two Massive Beneficiaries
Now, it just so happens two of my favorite sectors are going to be massive beneficiaries of this trend…
One beneficiary is banks, as I predict it’s going to be a banner year for these institutions!
We’ve talked about banks a lot. I know, banks are boring stocks your granny owns, but that’s why granny’s rich. Bank stocks are a wildly profitable investment when they’re done right!
We’ve also talked about real estate investment trusts (REITs) from time to time here at A Better Way to Wealth, and I think 2022 is going to be a huge year for the real estate investment trust.
Now, I know we’ve gotten into the mortgage lending rates from time to time, but for now we want to look at the equity REITs that actually own the properties.
It’s important to understand that equity REITs have outperformed pretty much everything, including the S&P 500, since Sam Zell and his cronies basically remade the real estate investment trust in their own image back in 1972.
It’s been a massive out-performer and tends to do very well in periods of rising interest rates. During most of the bad markets of my lifetime, REITs have done very well and produced positive returns.
One exception would be in 2008 when we saw the real estate crash… REITs didn’t fare as well then, but they did manage to recover very nicely.
On most occasions, however, REITs tend to do better than stocks when rates are rising and markets are falling, and that’s a condition we may well see for part of this year.
We’ve also got the fact that office properties are currently a little slower to recover because nobody’s in the office.
I think before Omicron hit, New York City was very excited that their office census was back up to about 33% of workers coming in, but that’s come to a screaming end as of late.
If Omicron plays out the way we think it is and continues to spike hundreds of thousands and even a million cases a day, it’s going to burn through really quickly.
The burn-through of that is going to turn COVID into an endemic virus much like the flu and some other viruses that we have to deal with every year. Then, the office returns to something that looks more normal.
That brings us to a REIT that I think is very attractively positioned and very safe in terms of rent collection…
Office Properties Income Trust
Office Properties Income Trust (OPI) owns office buildings that are leased to single tenants for most of the properties.
They have very high-credit tenants, with their biggest having just about the best credit on the planet.
Almost 20% of the properties are leased to U.S. government agencies and they tend to pay their rent because, if needed, they can just print the cash!
If you look at OPI’s other tenants, it’s Google, it’s US states like California, it’s Bank of America, it’s Northrop Grumman…
These are huge, creditworthy tenants that have no problems paying their bills.
They have 178 properties, which are currently 89% occupied, but with a full return to work, I would expect to see that 89% begin to creep back up a little bit.
Folks, OPI is in markets around the US that have very attractive economic characteristics… They’re growing, their population has above average incomes. They’re just in really good areas.
Currently, these shares are trading at 85% of the value of the properties that they own and paying 8.32% in dividends, so this is a nice combination of upside potential and income.
Other office properties are trading much higher valuations, sometimes even twice what OPI is trading for, because the single tenant segment of the market has tended to be ignored in the recovery.
However, I think that’s going to change as we move deeper into 2022, leading to that discount in that asset value going away and beginning to trade up to a larger premium. All the while we’re collecting 8.3% on our cash!
Guys, the total returns from OPI could be massive in 2022. Heck, I think it could be massive no matter what the market does or what happens with inflation and interest rates.
So, we’ll be talking more about real estate investment trust as the year progresses, but for right now, one of the best combinations of upside potential and dividend income is OPI, and that, folks, gives us A Better Way to Wealth.
Subscribe today and receive daily advice right in your inbox, guiding you to a better way to wealth.