Archive - Aug 2010 - Story

After Charlie Rangel was humiliated recently by the Congressional Ethics Panel, and faces ethics charges that included failure to disclose assets and income, nonpayment of taxes and doing legislative favors for donors to a college center named after him, today we learn that another democrat, prominent member of the Financial Services Committee, and the funniest Ben and Tim interrogator by a mile, Maxine Waters, is about to face an ethics trial herself, dealing a huge reputational blow to the Congressional Black Caucus, where it now appears pretty much everyone in a position of power had been allegedly abusing their privilege for years. Of course, this means the other 358 members of Congress are perfectly honest and clean. Then again, perhaps it is not a bad thing that Maxine will soon be gone from the FSA, as her repeated questioning of Tim Geithner and Ben Bernanke was a farce of such moronic magnitude, that it actually made the Fed chairman look good during Q&A (we dare you to watch the clip below with a straight face). Either way, it will be amusing to watch all of Maxine's faux indignation now that she will be on the receiving end of questioning that should be at least a little smarter than her own.

It is one thing for HFT's to end each and every day in "all cash", once the daily stock churn is exhausted, having made a few risk free dollars from collecting liquidity rebates and from pushing NBBOs around from all that bid stuffing. It is something else for big, macro funds to advertise that their asset exposure is of the most liquid variety. While reading an investor letter from just such an asset manager, the following data from caught our attention: the fund advertises that 100% of its assets have a sub-1 day liquidity.

In continuing with the trivial approach of actually caring bout fundamentals instead of merely generous (and endless) Fed liquidity, we peruse the most recent RealPoint June 2010 CMBS Delinquency report. The result: total delinquent unpaid balance for CMBS increased by $3.1 billion to $60.5 billion, 111% higher than the $28.6 billion from a year ago, after deteriorations in 30, 90+ Day, Foreclosure and REO inventory. This represents a record 7.7% of total outstanding CMBS exposure. Even worse, total Special Servicing exposure by unpaid balance has taken another major leg for the worse, jumping to $88.6 billion, or 11.3%, up 0.7% from the month before. And even as cumulative losses show no sign of abating, average loss severity on CMBS continues being sky high: June average losses came to 49.1%, a slight decline from the 53.6% in May, but well higher from the 39.6% a year earlier. Amusingly, several properties reported loss % of 100%, and in some cases the loss came as high as 132.4% (presumably this accounts for unpaid accrued interest, and is not indicative of creditors actually owning another 32.4% at liquidation to the debtor in addition to the total loss, which would be quite hilarious to watch all those preaching the V-shaped recovery explain away. Of course containerboard prices are higher so all must be well in the world). Putting all this together leads RealPoint to reevaluate their year end forecast substantially lower: "With the combined potential for large-loan delinquency in the coming months and the recently experienced average growth month-over-month, Realpoint projects the delinquent unpaid CMBS balance to continue along its current trend and potentially grow to between $80 and $90 billion by year-end 2010. Based on an updated trend analysis, we now project the delinquency percentage to potentially grow to 11% to 12% under more heavily stressed scenarios through the year-end 2010." In other words, the debt backed by CRE is getting increasingly more worthless, even as REIT equity valuation go for fresh all time highs, valuations are substantiated by nothing than antigravity and futile prayers that cap rates will hit 6% before they first hit 10%.