AA Changes - 2

My first AA change was a minor change which resulted in an 1% increase to my Commodities exposure. My second change that I performed in the last week of Jan'07 was one with more impact on my AA. I think I violated some of the principles of AA in doing this change. First the details of the change.

I exchanged 1/3rd of my REIT's(VGSIX) allocation into Domestic Large Value(VIVAX). I have to accept the fact that this is dirty market timing. The exchange resulted in my moving away for my AA targets but the fundamentals behind REITs looked really poor. Also the following factors convinced me that REITs were due for a correction:

1. REIT yields compared to Treasuries. Right now REITs are yielding less than treasuries, which means that all the returns from thsi asset class have to come from price, P/E increases. This after REITs returned 35% in 2006 and 22% annualized over the last 5yrs, which leads me to believe that a price or P/E expansion is really difficult.
2. Also there is a lot of activity in the REIT market. Private Equity groups and other REITs are looking into a $40billion buyout/takeover. There is still a lot of money looking to invest in REITs when at the same time the individual home sales are crashing and bubble blogs are getting record number of hits.