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Submitted by Doug Hornig, Senior Editor of Casey Research
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Commercial Real Estate and Credit cards have to be next. Geithner, Summers and Bernanke are no help.
This is a sad state of affairs, indeed.. FASB - f'ing assholes. I yield the floor to Spekulatn.
Seeing the relentless bid underneath REITs, I'd say the Government is already doing a back door bailout.
REIT equities must be AAA paper at the FED discount window.
IYR gains 4.7% today on no news, following a line upwards so straight you could shave your face with it.
Once the decision was made to endlessly print, there's no such thing as "too much" printing, at least in the minds of the masters of the universe. Thus the endless bid everywhere we look.
Welcome to The Twilight Zone.
I thought this was a pretty good summary of the CMBS and CRE problem until I read the last paragraph:
".....warning of the commercial real estate debacle since September 2008"
Really? September 2008?? I work in the industry and it was pretty clear back in 2006-07 that it wasn't going to end well.
"the banks will do the same thing they did last year: run to the government, palms outstretched."
Record bonuses will have surely killed any hope for that. The tax payers will likely want the banks to go fuck themselves and fail. Misery loves company...
Don't bet on it. Our "Congress" are a bunch of conmen who spend a lot of time on their knees with their mouths assuming the position when it comes to banks.
They don't give a shit about "us".
http://4.bp.blogspot.com/_eB31NsfANe8/SvG0uNoAn4I/AAAAAAAABBQ/U_FsTKXJdP...
So we really have CRE and another 1.5 in residential washing to shore together on top of the 1.5 trillion subprime mess.
JAnd our leaders are doing what? Health Care and First Time Buyers. They are so stupid they should wear helmets.
"They are so stupid they should wear helmets."
May I amend your comment to read "They are so stupid we should wear helmets."
On another note, the Chris Martenson blog hasn't been quite the same since you stopped your daily (hourly?) postings there. Oh well, their loss is hopefully our gain though Chris Martenson is one of the saner voices out there whose volume needs to be turned all the way up.
Welcome DavosSherman.
That train has been going off the tracks for a long time, just ask the SRS suckers.
At what point do we stop doing the math and just have faith that all markets will be propped up? There will be no great crash because there cannot be. Until the great financial powers that be have a vested interest in collapse, there will be no collapse.
Why is that so hard to figure out? Or is it that its just hard to swallow one's free market idealism?
While I'm not discounting what you are saying, anon (as if any of us has a crystal ball that actually works), a continued policy of propping up the economy from all this "credit manufacturing" (money printing) will have a sizable consequence if gone unchecked.
In fact, we are seeing early signs of it now, as the DXY continues to approach new lows, and foreign governments are reducing their dollar-denominated assets for "real things", like gold. In baseball terms, the consequences of our "bailout policy" is perhaps in the 1st inning of a 9 inning game.
If the Fed is intent on running the freight train at full bore, well-- there really isn't/hasn't been much we can do to stop the process. I do suspect, though, that the Fed itself is in the early stages of reducing the degree of credit manufacturing. Not because they want to, but because even they know that devaluing the currency is a very risky venture.
On the other hand, sometimes I think Ben Bernenke is a modern-day Victor Frankenstein, as he may well continue to pursue mad scientist devotion towards flood-filled Keynesism until it either (a) he declares the economy "it's alive"; or (b) all implodes with not much left to salvage.
Can someone please explain to me why no one seems to point out that Keynes lost his shirt during the stock market crash?
Helmets indeed.
Don't you see? By losing his shirt he single-handedly increased the size of the available workforce. He then patroned various restaurants, where he destroyed the bathrooms, and thereby increased the demand of janitorial work. I think that's where the term White Collar Janitor comes from. <some, or all, of my account may be a figment of my imagination, but it sounds right>
You see! Project Mayhem stimulates what's left of this dead-horse economy!
Death to bathrooms! I wonder what Hazlitt would say about it.
I switch from SRS to DRV and got pounded today. I'm out totally tomorrow. We are headed to a super crash of everything now - stocks, bonds, and dollar. Until then the melt up will continue.
Banana Ben doesn't get it. He will keep printing until he sees inflation. Problem is that it will strike like lightening and probably start with a 40-50% devaluation in the dollar within 24 hrs. Hope all of you are prepared with food, guns etc. I'm getting mine now!
Until the great financial powers that be have a vested interest in collapse, there will be no collapse.
Boy, a statement like that would normally get you a one way ticket to the funny farm if it were posted in any MSM outlet. That's just crazy talk. :)
But things make a lot more sense when you expand your universe and begin to think the impossible. So let me try this as well.
After all the debt (but not the underlying asset) has been safely transferred out of (the great financial powers) hands and into the warm embrace of Mr. & Mrs. taxpayer, it would seem that some great financial powers that be have a vested interest in collapse.
There, that was easy. Fun even. Let's do this more often, shall we?
Yes, yes, that is our plan Mr. Dissonance.
Please keep the upcoming gigantic transfer of wealth to yourself.
Or you will find your account #09773825682 filled with zeroes (Heck, everyone's account will effectively be zero soon enough).
BB
God, I gotta remember to flip on the <sarcasm> light more often. These junkers are killing me.
"Please keep the upcoming gigantic transfer of wealth to yourself."
I'm going to assume this is in fun and I shall respond as well. If not, it still works.
Upcoming? What the hell do you call what's going on now then? The transfer of wealth is now in progress. I was simply talking about how they'll skip town without paying the bill.
Don't think so? Please dispense with the magical thinking for a minute and explain to me how the "taxpayer" is ever going to pay the bills? It's either default, which won't happen when you own the printing press, or massive inflation, which is exactly what they're desperately attempting to kick off now. Or collapse.
I'm open to other ideas but considering the massive amount of debt being shifted to the taxpayer, who in their right mind thinks we will even be able to service the debt, let alone pay principle?
I pledge allegiance to the Banana Republic of the United States of America.
Just another opportunity to steal.
Just another reason that inflation has to be the Fed's approach. Anything else levels the economy, with special hurt on the banksters who pay politicians to do their bidding. The only question is whether controlled inflation will be possible or if it will be Argentinaweimarzimbabwagary.
I see reit wholesalers coming into our firm once a week with a pitch and an expensive lunch. Our brokers buy in hook line and sinker and management allows this to go on because of the commissions it produces. Sheep herding sheep to the wolves. Drink the good wine now.
+1 heard the same thing from my bud at DB. CNS came to pitch why REITs were gonna be the last men standing in real estate (btw - same pitch as the home builder anal-ysts were pitching in '07).
Same here. Calls once or twice a day. "Can we come by and talk to you about a great opportunity?"
I put a cross on the door and garlic around my neck. It's worked so far but nothing works forever.
Wear a Related Cos T-Shirt and present your membership card..lol
Actually, you should force them to watch Twilight (the movie). Gawd awful. Should send them running (that or 2 girls and a cup...)
I bear witness to the same dog and pony show. Steady stream of suit wearing jack offs, credit card in hand waiting to buy our team of brokers a free lunch they are all to happy to eat. Promises of monthly dividend yields for roping in sucker clients, who won't be able to do a darn thing once their non-liquid reit shares become worthless.
Commishy on those products in 7%. Grubb & Ellis Healthcare REIT anyone?
Will never happen Bernanke will monetize Fed is all powerful etc etc
I know, Uncle Ben will save us. I'm not worried.
Wow, maybe I will actually make money on my SRS, figure it is worth a gamble. Only game the FED is playing is print to hyperinflation and wash there debts away , on way to the NWO.
"Until the great financial powers that be have a vested interest in collapse, there will be no collapse"
not quite correct. when pressures and anxieties build, the vested interests will turn on and cannibalise each other.
as with the Fed taking GS & JPM to higher ground while Bear & Lehman fell behind to the mercy of the hell hounds
+10000
"...vested interests will turn on and cannibalise each other."
Like rats in a sack. They're doing it now.
This article highlights just how monumental the debt problems really are-- and how the inital "bailout approach" by the Fed ups the ante for something catastrophic.
I really don't know if the Fed will extend guarantees CMBS that goes bad over the next 6 years. The cold hard reality is that the smaller community banks are the ones in the crosshairs here-- and they could well be sacrificed to the TBTF gods as their loans and securities go down the drain. That seems to be a pattern I'm sensing from this Administration.
If the Fed does absorb extended CRE related losses, it may well hit a breaking point though either (a) hyperinflation; (b) social unrest; or (c) both.
Depsite what side of the investing coin we are on here, we should all be very concerned with what is about to unfold over the next 2-3 years.
I vote for (c), and I'm more than a little concerned. Small comfort is that hyperinflation has not resulted in mass violence in most countries that have experienced it. But the US does tend to do everything overboard and in its own way.
Americans are mostly too lazy for social unrest. They'll just blame Bush and hope American Idol gets stepped up to 2x a year.
They are lazy, yes... but also very prone to violence and in many cases not very bright. I wouldn't want to be living in an "up and coming neighborhood" next year.
Not that I would have the money to finance it, but imagine dropping of a case of these at local bubba establishments:
http://www.defendamerica.mil/iraq/iraqi55/
Just with a more timely and local theme...
(don't spank me!)
have you ever had one of those dreams where you just keep falling and falling, but never hit the bottom??
Yes, they suck. This one sentence explains the roller coaster vortex and this never ending black hole.
The research is shit. Doesn't address the Japanese solution of pretending and extending for the next two decades. Nobody big (read BAC or C or even EWBC) is gonna get k.o.'d from CRE. Vacancy needs to increase to a point where the debt doesn't yield treasury and property tax default displaces the lender. Might happen. Might not.
This isn't Japan of the 1990's. Heck, Japan today isn't even the same Japan of the 1990's.
Yes, they are trying to pretend that the bad loans don't exist by not filing NOD's. It's just more phony accounting and cooking of the books. So when has that trick ever worked out? There's a reason why the Texas Ratio came about.
Sure, it's all about cash flow now. You might want to recall what Janet Tavikoli (sp?) has been saying about that. It's just not happening.
There are other real good signs that the Banks' cash flow has not only been deteriorating, but that this has been accelerating too.
Do you have ANY indications to the contrary? I'd be real interested in learning about them.
I wish I agreed that it might not happen. The only hope that the Banks have is the new low-to-zero down housing bubble that Freddie and Fannie are trying to blow. That doesn't hasn't worked in the past. I don't see any reason why this time is different.
I don't even know how to reply to your post. Japan has pretended for the past 20 years, and their banks were totally insolvent between 1990 and 2000. Japan is still Japan.
Phony accounting works until it doesn't. It's like mean regression arbitrage (read LTCM) - it works all the way up until the day it doesn't - then kaboom. But so far, our phony accounting has worked since 1971.
The Texas ratio is hind sight analysis. Right now, it's impossible to address the non-performing assets because nobody is admitting to them. It's much easier to analyze bank failures after they fail.
Cash flow from lending is irrelevant when you borrow overnight for free and buy Treasuries at a 300bp spread.
Yes, Fannie and Freddie are creating another bubble - but that's not what we're talking about. We're talking about the banks failing because of CRE.
I don't even know how to reply to your post. Japan has pretended for the past 20 years, and their banks were totally insolvent between 1990 and 2000. Japan is still Japan.
Phony accounting works until it doesn't. It's like mean regression arbitrage (read LTCM) - it works all the way up until the day it doesn't - then kaboom. But so far, our phony accounting has worked since 1971.
The Texas ratio is hind sight analysis. Right now, it's impossible to address the non-performing assets because nobody is admitting to them. It's much easier to analyze bank failures after they fail.
Cash flow from lending is irrelevant when you borrow overnight for free and buy Treasuries at a 300bp spread.
Yes, Fannie and Freddie are creating another bubble - but that's not what we're talking about. We're talking about the banks failing because of CRE.
Sorry for the double post, but anecdotally, I heard today that the FDIC has verbally asked lenders not to file NOD's on SFRs because they need to find funding before they take over more local lenders. And SFR REOs are coming online big time in March. -- Totally hearsay, take it how you will.
Last time I checked the FDIC was using the 500B Treasury extension loan facility to wash down the toxic bank road kill during Friday supper.
I didn't think they drew down on that loan yet (and I assume Bair would prefer not to draw). That's why they're trying to squeeze $45B out of the "healthy" institutions in 3 years worth of pre-paid insurance.
Lots of SFR REO's waiting in the wings. Turnaround from mortgage default to trustees' sales to evicting prior owners and finally listing for sale is stretching out longer & longer. Shhhh, it's not green-shoots happy talk about how we've reached the bottom. Let's just pretend this issue doesn't exist.
Yeah, well.. after today's market action I'm about to join the bulls. CRE might even be a good investment here.
LOL! Another 10 points on SPG and I'll join you. Makes me want to post photos of MAC intentionally not working on Santa Monica Place.
Buy, buy, buy. I love dilutive dividends! Umm...praying for the bend at the end.
I was curious about what was going on as Santa Monica Place. Maybe the city can take it over and build another momunment to stupidity.
".....warning of the commercial real estate debacle since September 2008"
Could not agree with you more although we started to believe in 2005 that at some point this was going to end badly. Acquistion underwriting got very aggressive, we chose to liquidate rather than compete. All you had to do was look at the terminal cap rates assumption after your 5 year hold. High risk with minimal upside.
The CRE market is ready for savvy and aggressive deal hunters. Specific locales, specific niches, downtown core districts. Going to take wading through rivers of sh*t and hundreds of crazy mezz and jr notes to find the few overlooked properties... but those willing to take mezz and buyout the senior tiers are going to make fortunes on the upside.
IBGYGB is switching over from ... 'let's extend and pretend...' to 'let's clear out this garbage so our CRE division can justify the payroll another quarter.'
imho
The way things are going, I am afraid Alex Jones is going to be the American version of Nostradamus.
Tyler, is there a longer passage of around 1,000 to 2,000 words where you set out this prediction of a commercial real-estate crash?
Serious question. I'm a British editor when I'm not being a Persian dinner jacket.
The policy will be extend and pretend and backdoor liquidity provision for bad debts, which at zero interest rates causes bad debt assets to be "good as gold, same as cash." There will be no crash of commercial RE in any real sense. Just a few pockets of failures here and there - no big deal. Now, that is bearish for REITS if you thought that they would be able to deploy the fresh capital courtesy of the public offerings by TBTF into cents on the dollar investments. There will be some of that, but not a whole heck of alot. However, the levels of failures will absolutely decimate the regionals and community banks, with FDIC takeover funded TBTFs swooping in to gather up the remaining good assets (all other assets covered under an insanve FDIC guarantee). Say goodbye to a local bank near you.
Time to drop the short ETFs and go long. The fix is in and there's no sense moaning and groaning over it. But don't forget your gold as the backstop.
anyone else read mishkin and kashyap's column in the wsj this morning?
http://online.wsj.com/article/SB1000142405274870440240457452557058360486...
what an intellectually dishonest and disingenuous piece of crap.
No better picture of what is wrong with Economics and its practicioners than this article by Mishkin -
http://www.ft.com/cms/s/0/98e7c192-cd5f-11de-8162-00144feabdc0.html
Simply breathtaking..a proxy Fed endorsement of equity inflating.
People have been talking about CRE failing for over a year now. And nothing. CRE has already failed but look at SRS, it's at its lows.
Seems like there's no where except going up at this point.
this guy just doesnt get it, by 2nd quarter 2010 the 'green shoots' will have grown to full size and the stock market will be higher than pre crash levels. What crisis?
Sigh, at least Aussie dollar is kickin ass! woohoooo headin for parity!
I know Andy Miller. His firm is Miller Frishman, not Fishman. He is a long time Denver real estate investor, developer and broker.
The article portrays the worst possible scenario, which I would only ascribe 25% or less chance of occurring. The more likely events are loan extensions and continued tightening of real estate underwriting, which will cause the market to be very slow for a very long time. Not collapse.