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No Green Shoots For Moody's REAL Index

Tyler Durden's picture




 

Whoever is buying stocks today sure ain't reading Moody's most recent REAL Commercial Property Price Index Report. Then again, robots aren't meant to read, they're paid to lead.

- CRE falls 7.6% in one month (May), on top of the 8.6% decrease for the previous month.

- Now -28.5% YOY and -34.8% from peak (October 2007).

- Transaction volume slows to its lowest level yet.

And this:

“This month also marks the first time that round-trip price-change returns on some properties have fallen below -40% per annum (that is, over the investment holding span between the buy and the sell dates). Two properties this month saw negative annual rates of return in the high 40s. One was an apartment property in southern Florida which was returned to the lender and sold thereafter to a third party. The other was an office building in Los Angeles owned by a company in financial distress, which contributed to the highly negative rate of return.”
- “In May, nearly 80% of all repeat sales transactions occurred in properties price less than $7.5 million, and there were no properties that sold for more than $100 million.”

 


hat tip Brad

 

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Mon, 07/20/2009 - 14:46 | 10409 Anonymous
Anonymous's picture

Apocalypse Now-

"In my experience, such episodes [rising or falling stock prices] are often not mere forecasts of future business activity, but major causes of it." -Greenspan quote apparently about blowing bubbles. He is saying that the markets CAUSE the rise and fall in economic activity. If you follow this train of logic, it leads you directly to the current manipulation we have with the government propping up the markets to try to stimulate real economic activity on main street. It’s like “Wag the Dog” with finance.

CRE should be the easiest short opportunity ever, there is a huge disconnect between the markets and economic reality.

Mon, 07/20/2009 - 15:03 | 10424 Anonymous
Anonymous's picture

No! Watch out for this! GS is planning a CRE bailout which will profit them hugely! CRE in toto, cannot fail. Think of CRE as one huge bank--the biggest bank of them all! How to screw the little guys, how to consolidate anything CRE remaining that has value, into the hands of GS--this is the issue. To think Obama--a hood--is just going to walk away from CRE, is absurd.

You'll see something within the next six months, some "comprehensive solution" to CRE.

Once health care is torpedoed, that is. Because who are those creepy 47 million uninsured? Would you let them in your house? NO WAY!

Mon, 07/20/2009 - 15:23 | 10444 Strom
Strom's picture

Speaking of healthcare, I heard something interesting today. Of the uninsured, 20 million could afford coverage, but choose not to pay for it.

Mon, 07/20/2009 - 15:53 | 10463 Gilgamesh
Gilgamesh's picture

Not sure about the 20 million number, but it could be that many who choose not to pay the premiums because they won't use much health care except for an emergency room visit or basic checkup.  I went some years in my early 20s without, and only used heathcare once - a visit for 2 IV bags, paid for out of pocket.

 

That 47 milllion or whatever bogus number they keep putting out includes a lot of people who went without for one month or so while changing jobs and such.  It also includes all illegals, which convienently are included as "Americans" even though they are not.  Has anyone produced the real number of actual Americans that want healthcare but cannot afford the premiums?  I'm sure a few have, but I haven't looked for it yet.

 

p.s.  How did Captcha go from "nine times (minus fifteen) =" to "26 minus eight =" !

Mon, 07/20/2009 - 14:48 | 10412 Anonymous
Anonymous's picture

take it down...we go lower tomorrow.

Mon, 07/20/2009 - 14:48 | 10413 Anonymous
Anonymous's picture

And yet everyone is going to be 'blind-sided' when some large financial institution is bankrupted because of this + option ARM + alt-A issues in the near future.

-30% stock market lehman collapse repeat

Mon, 07/20/2009 - 15:06 | 10427 Anonymous
Anonymous's picture

Again, no way! The power play is in the works.

Mon, 07/20/2009 - 15:37 | 10455 Anonymous
Anonymous's picture

Keep in mind the huge dip we had in February and early March had more to do with bringing the bond market and the dollar back up.
It seemed like a controlled computer program fall just like we've had a rally since. I'm sure most people that you'd ask on the street that in no way follow the market would assume we hit the bottom the end of 2008 and wouldnt even know it happened in March

Mon, 07/20/2009 - 14:56 | 10419 WhataMess
WhataMess's picture

 

It is because they have seen this, it even mentions Zero hedge :-)

 

http://www.mybudget360.com/the-doctrine-of-preemptive-bailouts-and-the-biggest-bailout-you-havent-heard-about-the-us-treasury-plan-c-and-the-35-trillion-you-will-be-paying/

 

The Doctrine of Preemptive Bailouts and the Biggest Bailout you haven’t Heard About: The U.S. Treasury Plan C and the $3.5 Trillion You will be Paying.

Last week a story which gained very little traction hit the financial newswires.  The U.S. Treasury is working on an internal project informally called “Plan C” which seeks to deal with further problems in the economy before they occur.  The anonymous report came out stating the administration is reluctant to commit any additional money especially to the level mentioned in the report.  However this is a disturbing new development in our bailout nation since this is one of the first times that the U.S. Treasury will try to preemptively deal with a financial problem.

The issues with this Plan C is that it is setup to be a buffer on further deterioration in various loan categories but the big one is commercial real estate.  The commercial real estate market is gigantic and many of those loans are still active:

 

Mon, 07/20/2009 - 15:08 | 10431 Anonymous
Anonymous's picture

You big silly. It's called Plan C because it was concockted by the C Street boys between sexcapades. Don't you know ANYTHING!?!?!?!!?!

Mon, 07/20/2009 - 14:58 | 10421 Anonymous
Anonymous's picture

By the way, this move of states toward accepting their own IOUs is more corporatism. Here from RGE:

For quite some time now I have been of the view that there are a number of striking similarities between the goings on in Ireland and those in California, none of them good. Both locations have seen extraordinary rises in home prices turn to massive busts. As a result, both locales have seen depression-like collapses in consumer demand and the local economy. Unemployment and government deficits are surging in both California and Ireland. But, both California and Ireland have zero control over monetary policy and this is the crucial connection.

Ireland

Let’s rewind a bit to 1999 when the Euro came into being. Ireland was a founding member of Euroland. So, on January 1st of that year, the Irish fixed their currency the Punt to the Euro for good at a rate of 0.7876. From that time forward, Ireland effectively had no control of the monetary spigot. By 2002, Punts ceased to exist as money in Ireland and the Euro was ushered in.

What this change meant for Ireland is that it had the many benefits that go with being part of a large single currency market. Among the many advantages of a single currency are reduced foreign exchange costs, less currency volatility, less chance of a run on the currency, and a greater certainty in business planning that results from those benefits. And these benefits can be huge in times of crisis – just ask Iceland.

There is a problem though which I mentioned before, namely the Irish have no control over their own money. To be sure, hard money types probably see this as a good thing as it prevents countries inflating to get out of an economic pickle. But, the alternative for the Irish has been depression.

Back in February, I mentioned this problem in a post called “The European Problem.”

The Eurozone members have decided to forgo independent monetary policies. Individual member nations have free capital movement and a fixed exchange rate but zero control over monetary policy. That rests with the European Central Bank (ECB) in Frankfurt.

The problems mount in recession. Some members are getting devastated. Spain, for instance, is in depression already with unemployment at 14%. Ireland’s national budget is imploding with estimates for deficit reaching 10-12% of GDP. If you are Spain or Greece, you would like to print money– a lot of it. But that’s not happening in the Eurozone yet.

The result is a potential national bankruptcy for the likes of Ireland, one reason their credit rating is suffering. Will Ireland go bankrupt? Perhaps. It is unclear how willing other Eurozone members would be to support the country were it to run into that kind of difficulty. The Germans are furious for having abandoned the Deutsche Mark for the Euro, which they see as a ‘weak’ currency. Bailing out a Eurozone member would come with many strings attached.

Then, there is the case of Austria. They too are in the Eurozone. They have a weak banking system because of excessive lending to Eastern Europe — reaching a full 85% of Austrian GDP. (Whether the Austrians were mentally re-creating their lost Empire, stripped after World War I, is a case for the Austrian psychologist Freud). If the Eastern Europeans run into problems, Austrian banks will fail en masse, requiring help from other Eurozone members (read France and Germany).

So, Ireland, having no other choice, must cut spending…drastically. Ambrose Evans-Pritchard reports.

Events have already forced Premier Brian Cowen to carry out the harshest assault yet seen on the public services of a modern Western state. He has passed two emergency budgets to stop the deficit soaring to 15pc of GDP. They have not been enough. The expert An Bord Snip report said last week that Dublin must cut deeper, or risk a disastrous debt compound trap.

A further 17,000 state jobs must go (equal to 1.25m in the US), though unemployment is already 12pc and heading for 16pc next year.

Education must be cut 8pc. Scores of rural schools must close, and 6,900 teachers must go. “The attacks outlined in this report would represent an education disaster and light a short fuse on a social timebomb”, said the Teachers Union of Ireland.

Nobody is spared. Social welfare payments must be cut 5pc, child benefit by 20pc. The Garda (police), already smarting from a 7pc pay cut, may have to buy their own uniforms. Hospital visits could cost £107 a day, etc, etc.

California

I hope this sounds familiar to American readers because this is exactly the scenario faced by California. The state does not have the option of going out to the California Federal Reserve Board’s backyard to pick a few ten billion dollar notes off the money tree. This is a privilege reserved for the U.S. Federal Government, one I would add that has the Chinese worried. Effectively, California is to Ireland as the United States is to the Eurozone. And that spells depression for California. Here are a few headlines:

California prepares to shut 220 state parks to make up budget shortfall
California’s Crisis Hits Its Prized Universities
California closes state offices to save cash
Welcome to Reykjavik on the Pacific. Don’t think this train wreck happened overnight. It has been building for months. I first asked in October of 2008 is the State of California bankrupt. Technically, they are not. But, when a state refuses to honor its bills by handing out IOUs, that’s bankruptcy to me.

It is going to get worse for California. That is for sure. The problem here again is the depressionary bust that is likely to take hold as California starts firing workers and cutting spending. Remember, people with no jobs have little income. And having little income means foreclosure, which also means a surge in housing inventory and falling prices. That’s a recipe for still more foreclosures, continued house prices declines and a deflationary spiral. I imagine Wells Fargo and Bank of America would be rendered insolvent by such a scenario. So why is Obama balking at lending a helping hand?

I anticipated a bust in California and a helping hand from the Obama Administration, because I figured they wanted to mitigate worst-case outcomes. As far back as January 2nd, I was already saying this was the likely scenario. I asked “Will federal largesse be countered by state and local cutbacks?”

There has been a general outcry for economic stimulus on the part of the North American, U.K. and Eurozone federal governments to counteract the fall in private sector consumption. In the U.S. and the U.K. in particular, this message is being heard and largesse will be delivered in spades.

But, in the United States, there is a bit of a problem: state and local governments. They will not, and often cannot, spend. In fact some will be cutting. Will local government budget cuts undercut federal fiscal stimulus?

Yes. Yes. Yes. Doesn’t the Obama administration see this? I would argue they did not understand this in January or the stimulus bill would have been larger and more front-loaded. But, perhaps they do now, but have chosen not to act because every state and municipality in America would be looking for a handout if they did try to act in California. So, we’re in bit of a pickle here.

Conclusion

The foregoing analysis can’t leave you feeling like recovery is imminent in Europe or in America. Certainly, it is not in Ireland or California. The problem is the Impossible Trinity of a fixed exchange rate, independent monetary policy and free movement of capital. You cannot have all three. And California and Ireland both lack the monetary escape hatch. Depression will set in.

I see only three choices to solve this problem.

Bailouts: Of course, we are going to see requests for transfer payments here. Will Obama bite? Will the Germans block this, afraid that the Austrians and Spanish would be next? Obviously, transfer payments are part and parcel of a monetary union in order to achieve economic harmonization. In the U.S., California gets less in federal largesse than it pays in taxes. This is a fact. However, it is looking ever less likely that this fact will help Schwarzenegger receive the help he wants.
Backdoor currency: Marshall Auerback has argued that the IOUs in California are a backdoor currency system. No, they are not legal tender. But, in a note to me, he said “California can turn its warrants into sovereign currency by agreeing to accept them in payments to the state. Note that I AM NOT arguing that California should make them “legal tender, payable for all debts public and private”—this is something it cannot do. But you could basically reduce the cost of CA’s borrowing substantially via this device and essentially reduce the need for muni bond issuance. In fact, the implication that flows from my analysis is that you’d want to buy every single muni bond in sight as the IOU, by giving it an intrinsic value to pay state tax, effectively eliminates the need for muni bond issuance.” Could Ireland do the same?
Immigration: People are just going to have to move. As jobs disappear in Ireland and California, the Irish and Californians will need to emigrate elsewhere. They have a huge market to chose from in both cases.
None of these are great options. I wish I had something more uplifting to say here. But, that is the situation we face.

MY RESPONSE

Then there is no problem at the state level. Let every state accept its on IOUs in payments to the state.

But note what that really does: it eliminates the notion of legal tender. Didn't notice that, did you?

On the other hand, it is pure corporatism. Check out Mussolini's shenanigans, or Hitler's Mefo bills.

ANYTHING to keep unemployment down among those who have a Bachelors degree or higher. That is the ruling class these days, not the underclass, which just curls up and dies when things get bad.

Mon, 07/20/2009 - 16:50 | 10512 Anonymous
Anonymous's picture

there is no need in california for anyone to emigrate if the
state reformed its grossly anti-business environment....and
if the people elected representatives who had their
economic interests in mind rather than their greed.....
as margaret thatcher said, the problem with socialism is
that you eventually run out of other people's money to spend.....the next logical step is to seize property from the millionaires and billionaires of california to make up the budget gap....those wealthy people are so vacuously and stridently socialistic that they should be lined up outside the capital building to forfeit their wealth to continue their eco-nazism, indulgence of illegals, free this and free that....california's only problem is its reluctance to confiscate property from those with bachelor's degrees and higher and those with material wealth....they have spent money like drunken sailors for years - i say keep the party going with wealth seizures.....follow the folly to its natural conclusion.

Mon, 07/20/2009 - 15:06 | 10428 Anonymous
Anonymous's picture

Well it is 3 o clock with no volume and SRS down a dollar. S+P sitting at 947. How much longer will this foolishness go on. Who is buying these stocks? This is just getting more entertaining hour by hour. Remember when they are 88 deep at the crap table the next sound you will here is 7 OUT LINE AWAY! I am buying more SDS with a little SRS and some FXP.

Mon, 07/20/2009 - 15:23 | 10443 troublesum
troublesum's picture

Correction.. SRS down $1.40... un f-ing believable. At this point i think goldman owns every share on the NYSE...I mean who else is buying this sh!t?... No one in there right mind should be buying shares of anything at these prices.

Mon, 07/20/2009 - 15:35 | 10452 Anonymous
Anonymous's picture

YAP; and those numbers might not include all of the about to be finished inventory (communist state S.CA was ridiculous when it came to delaying building permits, etc) & all of the condo buildings about to be reshuffled into residential, etc.

Tue, 07/21/2009 - 15:31 | 10484 braintrust
braintrust's picture

hopefully with the economy as screwed up as iti s, we'll get a nice sellfof and No rebound. GS fall 100 points. 

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man! What more can you ask for?

Mon, 07/20/2009 - 15:59 | 10469 nedwardkelly
nedwardkelly's picture

Same people buying stocks today as have been the last few weeks... Not sure who exactly, but they must be reading different news to me.

If it keeps creeping up though you're going to have more people worried about being left out, than those worrying they're in. We could end up with a kind of reverse capitulation. That'll be fun.

By the way, do you keep stats on how times people get the captcha wrong? If not you should... I just succesfuly screwed it up.

Mon, 07/20/2009 - 16:42 | 10502 Anonymous
Anonymous's picture

its one thing to make a decision and another to be right

Mon, 07/20/2009 - 16:45 | 10506 Anonymous
Anonymous's picture

that was me - just joined...not a trader - maybe a commentator

Mon, 07/20/2009 - 16:48 | 10510 Anonymous
Anonymous's picture

Who has this feeling too ? The more GS is bashed, the higher the markets go.

I think the math question is unfair to Dennis Kneale.

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