Archive - Nov 4, 2009

Riddle me this. An industry gets into trouble due to chasing fads, loading up on debt and overpaying for property. Many participants in said industry flirt with insolvency due to difficulty meeting debt service and asset values that have dropped below liabilities. This industry has been gifted with a special...

Many big hedge funds (and private equity funds) become asset gatherers, collecting 2% on huge assets. When you see more marketing personnel than investment professionals visiting you, pull the plug fast!

Even as the entire HFT industry is on edge, and fighting against very justifiable allegations that it is setting the market up for another October 1987 type event due to the increasing preponderance of computerized trading, the ever so vocal industry leaders have had no time to do precisely the one thing that they are accused of: understanding their own business. According to a recent survey by Finextra.com, two thirds of quant analysts think their supervisors do not understand the work they do.

Below are the heatmaps for the North American components of IG, as of November 3 intraday and Month to Date. We will provide today's update as soon as we have it. Notable yesterday was that not only 5 Yr AIG widened even as the stock was melting up ever higher, the curve was flattening, with 7 and 10 years of both AIG and ILFC (right AIG column) tightening. The days of flat (or, heaven forbid, inverted) curves, so ubiquitous a year ago, just may make a come back yet. The widening in financials was all of the place, with only Black and Decker, Clorox, MOT, Constellation and CBS moving tighter. It is still too early in the Month to Date category to extract any trends.

If multi-apartment REIT BRE Properties is any indication of the housing "recovery" that is currently occurring on the West Coast, then look for several more decades of "exceptional" interest rates (when the exception is the norm, will any future rate hike be announced as exceptional as well... some time in 2020?). BRE, which together with REIT Duke Realty, is one of the few REITs that seem to have pissed Goldman off at some point, likely refusing corporate finance advisory services to the hedge fund with just one trading day loss in Q3, and as such merit a Sell recommendation, announced earnings today which demonstrate ongoing pain in such key housing markets as Los Angeles and Seattle. As Goldman points out, "Los Angeles and Seattle remained the weakest markets with rental rate declines of -11.5% and -8.5%, respectively."

The Federal Reserves is doing what they always do, bailing out their pals on Wall Street. My findings have strengthened my bullish outlook on the stock market even more, and they offer undisputable proof that the Federal Reserve is involved in illiquid CMS excepting activities via TALF. I do not think commercial real estate will be a problem. Remember, the commercial mortgage bond market is only $700 billion. The
residential mortgage bond market is $8.95 trillion.

The history of mankind is dominated by politics. Since the early gathering communities until the present postmodern political environment. All great historical events can be traced back to a series of political decisions, which were either done by the ruling political option or its opposition. The main purpose of this short article is to present the underlying realities of that what is considered political, and also to give a critique of the present state and define its anomalies and irregularities

Why economists REALLY got it wrong...

"Credit performance for CMBS worsened at an accelerated pace this month versus the recent trend. Thirty-plus day delinquencies across the fixed rate universe increased by 41bp, to 5.50%, partly owing to the deterioration of loans that were current but transferred to the special servicer last month. This compares with the trailing three month average of 34bp. The trend of accelerating delinquencies is expected to continue throughout 2009 and early 2010, given the long lag times associated with commercial real estate." - Barclays

Each quarter or so, we have to go through all the drama and anxiety surrounding the utterances out of the FOMC. Where thousands upon thousands of traders sit bug-eyed at the computer screens, watching the 1 min. charts of the EUR/USD, SPY, TLT, trying to get an "edge" over the other 428,584 daytrading jockeys on Wall St., all looking at the exact same thing. All with their fingers madly punching the F12 and F11 keys as if their puny keystrokes are going to make any difference 48 hours from now.

In a segment earlier on CNBC, the ever cheerful Bob Pisani, whose only recent specialty on CNBC has been to find new and improved concepts that equate with "victories for the bulls" (global thermonuclear warfare, mutated viral contamination of water supplies, mass extinction events?), broke one of TV's cardinal rules by providing tax advice in a market primetime broadcast. In the clip below Pisani describes the tax trap associated with a wash sale. While he did not screw that up, he subsequently went on to describe how one can find other ETFs that would allow the viewer to get around the was sale rule, in essence providing a tax (avoidance) service, and also how viewers can avoid paying taxes. Of course, intent is a part of any comparable transaction, and one wonderswhether CNBC cleared this segment in which Pisani comes dangerously close to describing a method to evade taxes, which is a felony offense.

To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. The amount of agency debt purchases, while somewhat less than the previously announced maximum of $200 billion, is consistent with the recent path of purchases and reflects the limited availability of agency debt. In order to promote a smooth transition in markets, the Committee will gradually slow the pace of its purchases of both agency debt and agency mortgage-backed securities and anticipates that these transactions will be executed by the end of the first quarter of 2010.

D'oh!

Is the Fed really considering this maniacal path, or are the PD's just bullying for more QE business?

I know some company executives may be a little pissed at me for revealing what I see as weaknesses in their opertations. Please let it be known that I am quite fair and do not have an axe to grind or set agenda, other than the dissemination of the truth. I can do this since I am truly independent and disinterested and can take any side of a trade. I do not have clients that I need to appease, or consituents that I need to bend the truth for. With that being said...