This page has been archived and commenting is disabled.
Frontrunning: October 7
- UK faced "bank runs, riots" as RBS and HBOS neared collapse (Bloomberg), but now it is all so much better
- Yakuza's Series 7 exam is harbinger for economy (Bloomberg, h/t Eric)
- Is REIT rally rooted in reality or wrongly rising? (WSJ, h/t Geoffrey)
- Here's your answer: US office vacancies reach five year high of 16.5% (Bloomberg)
- Evans-Pritchard: China calls time on dollar hegemony (Telegraph)
- The $3.4 trillion problem that refuses to be swept under the carpet: Fed frets about Commercial Real Estate (WSJ)
- Joining the bandwagon, Baa1-rated Lithuania has issued $1.5 billion in dollar-denominated debt (Bloomberg)
- Sterling slides as UK recovery stutters (FT, h/t Paul)
- Defaults to soar by year-end before trailing off (Bloomberg)
- Stephen Roach: Crisis breeds short memories (FT)
- We aren't there yet - unwarranted optimism about the US recovery (Forbes)
- Satyajit Das: Still the masters of the universe (Wilmott)
- US Credit Perspectives - Tighter Fairways (PIMCO)
- UK corporate profitability falls (FT)
- Obama, labor's lackey (LA Times)
- The Fed exit and the role of the BLOBs - part 2 (Cumberland advisors)
»
- 3393 reads
- Printer-friendly version
- Send to friend
- advertisements -
The Alignment of Asset Reflation and a Collapsed Economy
http://gregor.us/crisis/the-alignment-of-asset-reflation-and-a-collapsed...
Support Builds for Tax Credit to Help Hiring
http://www.nytimes.com/2009/10/07/business/07tax.html?_r=1
The gregor.us article is very good. Thanks.
Tax credits to support hiring... as in jobs?
Ha ha ha... we don't need no stinking jobs... that's why we sent them overseas... tards.
You left off the thingy about Geithner warning the world that the US is going to start saving money and will no longer be the consumer colony they are all used to and suggested they figure out what to do with all their production.
http://news.yahoo.com/s/nm/20091007/us_nm/us_economy_geithner
Pretty much a confirmation of Peter Schiff's theory that the US will become the caboose of the consumption train and these other economies will grow without us. Eventually.
We are in a backwards spiral now.
Either a backwards spiral or a stall before the plunge. One of the reason the stall is so deadly is that it's unexpected, meaning everything appears to be OK and then suddenly the plane falls out of the sky.
Often, the stall happens when the rate of climb is too great and can't be sustained by the air flow rate over the wings. Lift disappears, none of your control surfaces seem to work and suddenly you're praying to God to get you out of the mess you just put yourself in.
We've tossed all economic engines and lost control of all money velocity. It'll be ok.
With Sully as the pilot, you got a perfect ditch into the Hudson
With Ben at the controls ... I'm thinking it will be more like the Air France result off the Brazillian coast
Aeronautical engineering and structural engineering concepts meet those that believe they can defy the laws of physics while chasing the dragon of hopium.
I'm going to short me some hopium futures...
Should make a killing. My changium futures are trading sideways...
Don't forget the 'beta' shaking that occurs at stall onset. They should have pushed the stick forward years ago...
We have negative airspeed right now and our altitude is well... er... very... er... not so good.
Ditch in the river (reset) with Sully is preferable to systemic crash.
http://investorrelations.discoverfinancial.com/phoenix.zhtml?c=204177&p=...
"Only 19 percent expect to spend more in the next 30 days, continuing a 4-month decline and down a point from August. Fifty-four percent said they planned on spending the same amount, up 2 points."
So what do UK savers get now?
Nothing for keeping their money in the bank and if they owe money on a credit card the interest rates just keep going higher and higher
Geithner: Americans must save more.
Translation: We need more suckers to buy Treasuries. "Get your Treasuries here, red hot Treasuries here! Can't watch the ballgame without 'em"
Agreed. The next great American bubble.
The Yakuza piece is hilarious. What they don't point out is that they have moved from drugs and hookers to finance because that is where the real crime/money is. At least they have some enforcement. I wonder if we could outsource the duties of the SEC to the Yakuza?
That'd be sooo cool. I've got a new script idea for Quentin Tarentino. Or maybe the Cohen brothers. Can you see these slick tattooed mother fuckers showing up on GS doorstep on 85 Broad? This may actually be one for...
The Wachowski Brothers
Not only is it where the real criminal money is, it's where the real respectable criminal money is.
If you rob a bank wearing a three piece suit and work from the inside, that's respectable. Only the guys with the guns or those breaking legs are the bad guys in today's society.
Non-violent theft is so "in". Speaks volumes, doesn't it?
Not only is it in, the fed will make good the loses and the DOJ will assist you in keeping it all quiet so as to limit disruption. Classic interpretation of moral hazard courtesy of the Federal Reserve, the US government and indeed policy makers from around the globe.
Today - Series 7. Tomorrow - setting monetary policy for Bank of Japan. Who says we aren't trend setters?
Talk to Nomura since they fill that part of the great circle route... Tarentino doing a spin off of Sin City would be cool.
I am J.A.F.O. and I will never go back for any amount of money.
Ten years ago I helped a (Chinese national) set up a factory in Shandong. He built the thing up until it was the largest of it's kind in the world. Four years ago he turned over the management to others and went into government work. That is where it REAL money and corruption is.
Well the FED is basically the US version of the Yakuza..except the yakuza is known to everyone as a crime syndicate. theres simply no bargaining with the FED, its their way or the highway.
Fair enough, sick the Yakuza/SEC (80,000 of them) on the Fed. The Fed is probably some of the source of their problems anyway. I'm easy to get along with here!
The Bloomie article on bank runs kills what The Economist has been writing for a solid year and half on this crisis. Don't think for one second the US wasn't in the S*** My Pants Panic (SMP) moment.
From the WSJ article on REIT valuations, an incredible statement:
"I think real-estate prices have already troughed, and the numbers we're using show they've bounced back a little bit," says Mike Kirby, Green Street's director of research.
Last week, SL Green was trading at about $41 a share, a 38% premium to what Green Street believed was the net value of the company's assets.
He's speaking of commercial real estate prices. We just had a Fed Governor say in a speech that cap rates have gone from 5% (i.e. 20X cash flow) to 8% (i.e. 12.5X cash flow) so IF you had stable cash flow in a property prices would be down 37.5%. But cash flows aren't stable, they're declining. Rents are declining and the Bloomberg story notes that office vacancy rates have risen to 16.5%. So it stands to reason that commercial real estate values are in general down much more than 37.5% from the peak, probably 50% or more. The owner of a property bought in the last 2-3 years with 20% equity is hopelessly underwater and the bank that made the loan faces a huge writeoff when it comes time for the loan to roll over, the owner walks away and the property has to be dumped on the market. An enormous amount of commercial real estate has financing rolling over in the next 1-3 years. The securitization market has collapsed and banks won't and/or can't lend. They're already choking on commercial real estate loans.
So how can this director of research for Green Street say that commercial real estate prices have bottomed and then risen when there are virtually no transactions taking place that can be used to gauge market prices? Here are some articles documenting the lack of commercial real estate transactions:
http://retailtrafficmag.com/investments/trends/true-cap-rates-hard-estimate-0721/
One of the big challenges facing the retail real estate sector is that with so few investment sales getting done there is little confidence that the prices paid reflect true property values or cap rates.
In testimony before Congress' Joint Economic Committee on July 9, Jeffrey Deboer, president and CEO of the Real Estate Roundtable, said, "With a scarcity of property transactions, there is no effective price discovery, and this further exacerbates the real estate market crash."
According to the most recent data from Real Capital Analytics (RCA), a New York City-based research firm, cap rates on closed sales of retail properties averaged approximately 7.75 percent in May, a comparatively slight increase from the 7.5 percent reported in January. (At the peak of the market, in 2007, cap rates were in the 6 percent range). But RCA researchers note that the limited market data in the absence of new transactions make it hard to come up with a true benchmark for retail caps. The average cap rate for May is based on total retail sales volume of just $418 million, down 89 percent from May 2007, according to RCA. Further, most of the sales getting done are on stabilized properties—the only kinds of deals that can get financed in the current environment. If more distressed sales were occurring, market participants think average cap rates would be quite a bit higher.
This month, Moody's/Real Commercial Property Price Indices reported a drop of 19.4 percent for retail assets compared to the same period in 2007, to 150.09. The retail index was also off 12.9 percent compared to one quarter ago. Moody's estimates that for all commercial property types, the Aggregate Price Index has declined 34.8 percent compared to its peak in October 2007.
Investment sales brokers say that in reality, cap rates on class-A multi-tenant assets have now passed the 9 percent mark, while class-B assets are trading above 10 percent. Meanwhile, because of the uncertainty in the market, no one is confident enough to project future cash flows on class-C assets, making cap rates impossible to pin down.
http://www.lasvegassun.com/news/2009/sep/25/silver-lining-declining-commercial-re-prices/
Appraising properties has been difficult because there aren’t a lot of sales to compare them to, Wright said. He said the commercial appraisals lately have been more about delivering bad news to property owners and lenders about how much values have fallen.
“The opinion of a value is truly an opinion because we do not have the facts and data set that we had before,” Wright said.
http://www.frontiersinfinance.com/14131.htm
A core challenge has been the lack of available liquidity for transactions. For instance, securitizing commercial loans, especially via Commercial Mortgage-Backed Securities (CMBS) has been a significant source of liquidity, fueling the prior growth in commercial real estate transactions. However, the freezing of the CMBS marketplace (issuances decreased from US$237 billion in 2007 to US$12 billion in the first half of 2008 with virtually nothing since then, according to JPMorgan Chase & Co. data) has caused transactions to grind to a halt.
This lack of transactions further complicates the ability to properly value property in the current marketplace. Real estate values have plummeted, and investors are waiting to see how low they will go. There is a fear among industry specialists that this investor inertia may cause a continuing downward spiral in prices, or, at a minimum, prolong the lack of activity.
Great post! Two big thumbs up.
The insanity of the argument that money can now buy CRE on the cheap and then ride out inflation in real estate holdings is reaching a peak right now. It's unbelievable how many times this is being said per day by the shysters. The sheeple are being told that everything has bottomed and sadly most are buying it. This includes investors with more money than common sense. When you bring up the matter of REIT's cap rates, FFO, rent rates not following projected inflation - there have been no rebuttals. And I'm in no way part of the business. This might explain the increasing headaches lately.
Quite correct.
We are lowballing large industrials at often 20% of asking. And we are getting.
A couple of months ago our primary CBRE agent informed us that only 4 (I think) tranactions closed in a 300+ person regional office that month.
Looks like there is interest in the Pension Fund and whale space to follow the investment lead of the Chinese Pig Farmers.
http://www.ft.com/cms/s/0/09fdd4ce-b29f-11de-b7d2-00144feab49a.html
Sigh, and another IPO bites the dust...
http://www.reuters.com/article/marketsNews/idCNNWNA516120091007?rpc=44
Another emerging market, to go with a wealth of bombs in Hong Kong.
Add in the REIT IPO performances in New York last week. Another example of asset price bubbles creating distorted economic decisions. You would think it would point to a top in this global market boom but we shall see.
What is it now, six epic failures in a row at HK?
um... has NObody seen the news coming out of Latvia?? unless they are just posturing, we are getting very close to a devaluation, and IMO, total chaos as Estonia, Bulgaria, et al follow suit leading to massive losses in Austrian, Swedish, and other giant banks (Deutsche Bank, anyone) and a massive implosion of risk assets. We will long for Asian crisis of yester-year.
http://www.ft.com/cms/s/0/55eb086a-b2a5-11de-b7d2-00144feab49a.html
http://www.ft.com/cms/s/3/bae382e8-b31c-11de-ac13-00144feab49a.html
This has been the talk that has fueled rumors lately of a bank (or banks) in trouble - large Euro with EE exposure. A lot of people are waiting for the Latvia shoe to drop and start the dominoes (along with the imposition of Basel II).
http://rlv.zcache.com/latvian_shoes_with_bartas_costume-p167202013002626770aqf0n_210.jpg
http://www.stockphotopro.com/photo-thumbs-2/A5TGX9.jpg
The dominoes would have been more perfect if they had been $ shaped. The S is a good start though.