There’s nothing like a trade where the government is supporting both sides.
So consider real estate.
Not only is the government trying to prevent declines in U.S. real estate prices, but it’s also pushing down the cost of debt with its ultra-loose monetary policy.
And guess what people love to fund real estate purchases with?
Thus the ‘government distortion trade’ is to fund yourself in debt, and buy real estate. This is what most real estate investment trusts and private property investors do. It’s what homeowners do as well, with mortgages.
And while Real Estate Investment Trusts (REITs) have already had a nice year so far in the U.S., it’s not like this market distortion trade is finished. In fact it likely still has a very long way to go.
Take commercial real estate, for example. According to the Financial Times, the spread between U.S. treasuries and commercial real estate yields is as wide as it was during parts of the recent financial crisis. This means that selling debt (taking a loan) and buying property earns a rich spread for investors with access to cheap debt (note mortgage rates are near record lows), even still, with much thanks to government intervention in the markets.
So you can fight the tape, or you can play the terrain as it stands… and buying property while selling debt is the trade supported by government policy both right now and likely well into the future, thanks to the political realities of a vast American voting base comprised of homeowners.