Archive - Dec 2009 - Story

"I Did Not Run For Office To Be Helping Out A Bunch Of Fat Cat Bankers On Wall Street. Some people on Wall Street still don't get it" - Barack Obama

Unfortunately, the people on Main Street get it, and at this point they can see right through your ever-escalating hypocrisy.

Continuing our series of impending Commercial Real Estate debacles, today we focus on CMBX 3 (H1 2007 transactions). As Fitch disclosed on Friday, the November delinquency rate across CMBS increased by 43 bps to 4.29%, while more than double, 9.16% of the entire Fitch universe, was in special servicing. Of this CMBX 3 (together with 4) hold the brunt of the collapse in CRE. Of the 25 deals in CMBX 3, those performing the worst as of the latest remittance report were:

• COMM 06-C8, with 18.3% of all deals delinquent or in special servicing ($680.4 million of $3.7 billion total)
• CSMC 07-C1, with 16.5% of all deals delinquent or in special servicing ($552.3 million of $3.3 billion total)
• LBUBS 07-C1, with 15.6% of all deals delinquent or in special servicing(576.4 million of $3.7 billion total)

And highlighted below are the properties most indicative of the CRE collapse within CMBX 3, and in CRE in general. Once again, this is merely a sample with many other properties already in foreclosure and/or delinquency.

Populist anger is starting to awake all over the world, as the G-20's actions continue favoring only the "aristocratic" banker class. We hope Berlusconi's mistresses will still find him just as attractive even with a black eye, bleeding lips and busted teeth.

With a charactersitic [sic] bout of nerve over wisdom, let me offer just one more reply:

What exactly are you arguing about here? Whether I'm a jerk or a tool? Is that even worthy of a single reply? Ok, don't answer that.

What would seem to be worth everyone's time is the focus on the issue raised by the essential disagrement between Rick and myself: are the jobs numbers improving or not and what is the right investment play relative to the direction of jobs and the economy?

-Steve Liesman

Earlier today the general public got one of its first public disclosures of what Goldman believes its prop trading operation contributes to the firm's top and bottom line. For those uninitiated with banker lingo, prop trading is basically the profit that Goldman makes by transacting exclusively as a hedge fund: this is not agency or facilitation revenue, but merely principal positions that represent balance sheet risk for the firm. Of course, with the Fed having made clear that America would fail before Goldman does, the definition of risk as it applies to Goldman is laughable. Yet considering that Goldman must disclose a trading VaR , or value at risk on a quarterly basis, which over the past year has averaged over $200 million, one can back into what the actual prop capital and revenue generated by prop strategies is (VaR is simply a statistical calculation of how much Goldman would stand to lose if a "one in twenty" event occurred. It is not the maximum loss risk that Goldman has exposure to - a good example of a terminal event, i.e., one which would leave the firm bankrupt overnight, or aVaR of infinity with a narrower confidence range, would be something like the recently notorious "what if" of an aborted AIG bankruptcy, courtesy of Tim Geithner). Goldman's head of PR claims the Goldman's prop trading accounts for only 12% of net revenue. Zero Hedge disagrees, and we would like to pose a question to Mr. van Praag which we hope Goldman will answer for us in order to refute our observation that Goldman may be disingenuous in its public statements.

Any day that has Roubini making waves, means Rogers (of R'n'R dynamic duo fame) can't be far behind. Which is precisely the case today: as per the interview below, Jim is still bullish not only on dollars (a contrarian play) but on gold, which he seems to value just a tad more than spam, expecting the precious/worthless metal to hit "several thousand dollars an ounce some time in the next decade." Roubini: ball is in your court. Or maybe it is just time to let this one die.

If the recent $750 million Clear Channel deal was not indication enough that the high yield market is now back to 2007 market top levels, the sudden resurgence of dividend recap deals should be a sufficient and necessary condition that company boards are now willing to throw any debt leverage caution to the wind and extract as much proceeds as possible during the current HY offering megaspree before the window closes with a bang. And with investors no longer even demanding any negative covenants, the rush to relever and cash out existing equity-holders will definitely end in tears. Of course, the Fed is there to backstop each and every balance sheet. If Goldman is too big to fail, bond investors will claims, so is 10x leveraged port-a-potty maker UnitedSiteServices (or so PE sponsor DLJ Merchant Banking would hope). And if there is one entity that is ecstatic with the current HY mania (in addition, of course, to equity sponsors who a year ago were staring bankruptcy in the face and are now extracting hundreds of millions on the back of gullible and potentially semi-retarded "long-onlies"), it is Wall Street banks, which have perfected the art of finding retarded idiot investors (in exchange for a meager 3% fee) who are happy to ignore the whited-out "Use Of Proceeds - dividend payment to existing equity" and throw their LPs' money down said port-a-potty.

In a headline piece on roubini.com, Nouriel Roubini writes an extended article slamming both gold bugs, and the so-called gold bubble, which he believes is far too volatile, and which, contrary to ever increasing claims to the opposite, will likely not get to the mythical price of $2000/ounce, and instead will head lower. The argument presented, as is widely the case, boils down to the trifecta of i)gold having no industrial utility, ii) no intrinsic value (no associated cash flow streams) and iii) costing an arm and a leg to store. While Roubini's thesis is attractive on the surface (if somewhat Keynesian and thus often reiterated by mainstream Economists), we present some counter arguments to Roubini's thesis.

A chart of the past two days' cumulative trading volume speaks...well, volumes. At this point it is safe to say that even machines no longer derive any binary pleasure in scalping humans, and are off to spend the spoils of having run up markets to such heights that nobody will either buy or sell any longer, but merely stare with disbelief.

Capturing energy from the earth’s heat is pretty easy pickin’s for geologically-active areas of the world like Iceland, Indonesia, and Chile. In some locations, hot fluids are so near the earth’s surface that heat from naturally-occurring hot fluids can be directly circulated through buildings for heating. Iceland, in particular, takes advantage of this low-hanging energy fruit. However, in most areas of the world where geothermal energy is captured, the heat is used to generate electricity.

Dark pool operators, who have quietly been redirecting shady order flow via dark pools of "liquidity" with minimal supervision and below the radar for many years, are getting spooked by a proposed SEC rule which would have these same dark pools identifying their trades in real time, thus removing the benefits associated with what is effectively an OTC equities market. Their response: blame it all on the HFT guys, who use the information that would leak to front-run the crap out of the "long-onlies." Yet weren't these same HFTs claiming just yesterday that all they do is provide liquidity and tighten spreads? ... Someone is lying.

"Leaders in Great Britain and France have recently announced proposals to tax the bonuses of financial executives--if the United States remains silent on the issue, we will in effect be leading the world in a ‘race to the bottom’ of international efforts to regulate the financial services industry." - D-OH Dennis Kucinich

"While the rest of the country suffers, this stock market is booming." Note the not-so-High Frequency Trader counting the trade tickets.

Stock trading is getting more boring each day, unless you want to buy a Dow stock that goes up $1 to a new high for the move. However, for the Forex Megadroid Gridbot junkies, things seem to be spiraling out of control, unpredictable moves everywhere. Why didn't stocks tank when the dollar took off today? Many questions for the weekend.

"Quick comment: I was wrong about what the program is called. Rick is right: It's emergency unemployment claims. I've reported on this number several times before (even making the same point that it's been higher than the topline continuing claims number.)

But I stand by my read of the data and disagreement with Rick, who said, "all the non-seasonally adjust numbers were much, much higher than the headlines." That's just not true."

- Steve Liesman