Ackman from Pershing Square fame has released a very bullish CRE presentation. I stand diametrically opposed to both the conclusions and the analysis in general, thus have created my own comprehensive CRE outlook for 2010 and beyond. Here you have it: A bulls vs bears debate in the CRE space - both of which are quite well documented and allow for rich reading.
CalPERS may be paying a price for its decision to help financially strapped local California governments. Moody's Investors Service slashed the triple-A rating of CalPERS by three notches to Aa3. But the real story is how CalPERS' private equity and real estate portfolios got decimated last year. Will this influence future credit ratings?
Spreads tightened notably today with HY outperforming IG and credit outperforming equity as Abu Dhabi's hail-mary provided support for the bulls systemically on a slow econ data day. Breadth was very positive with winners far outpacing wideners on the day as FINLs outperformed non-FINLs in credit-land but underperformed in equities.
As Europe continues shouldering the burden of the devaluing dollar, courtesy of a Euro that just wont quit, even as the Eurozone is constantly putting out fires in its own backyard (Greece, Hypo, Latvia, ongoing downgrades), the optimism over European prospects is now more pervasive than ever. In a report titled "Key Surprises for 2010" Morgan Stanley's ever insightful Teun Draaisma has attempted to present the intangibles: the unquantifiable risks. As he points out "if there is a lesson the markets keep telling us, it is the persistence of uncertainty. Unlike risks, which are known and measurable, uncertainty is difficult to calibrate. We can never know the exact payoff distribution for any given investment." In order to conceptualize the 4 key areas of possible systematic impact, the strategist has provided 4 main scenarios he believes may shape equity returns over the coming year in a downside case.
- Asian markets rebounded Monday after Dubai received $10B in financing from Abu Dhabi.
- China launches landmark natural gas pipeline tapping into Central Asia's vast reserves.
- Dubai gets $10B in financing from Abu Dhabi, part to be used to pay down Dubai World debt.
- Euro gains after Dubai gets $10 billion of aid from Abu Dhabi.
- France's Sarkozy to unveil details of euro35B plan to spur investment in universities.
- Germany's budget sees a record of $125B in new borrowing next year, spending rise of 10.5%.
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.
- Asian stocks rise as China industrial output, US jobs boost confidence.
- Bank of Korea raises 2010 GDP growth forecast to 4.6% - fastest pace in three yrs.
- Chain-stores are holding bigger markdowns in reserve trying to gauge how long shoppers will wait for better deals to emerge.
- China industrial output rises 19.2% - more than estimated as recovery strengthens.
- China new loans top economists' forecasts, money supply rises by record.
- EU leaders say stimulus should stay in place until the “recovery is fully secured.”
I wonder how many more years the SEC will “look at” the ratings agencies before they nail them for putting USDA Grade A stickers on rotting horse shit. Maybe the SEC should do some soul-searching and ask why they allow private for-profit companies (with tons of conflicts of interests) to act as an oversight committee for financial products. Is that not the role of a governor? It’s as laughable as renaming “bribery” the socially acceptable term “lobbying.”
Two days ago we highlighted Moody's full report on sovereign AAA ratings, in which the rater was highlighting its own impotence of knowing full well that both the US and UK are unworthy of AAA ratings, yet unable to do anything about this, as a downgrade of either would set of a chain of events that could potentially undo the last year of "house of card" building by both key governments, who have set off on creating the biggest ponzi scheme in the history of the world, and whose collapse would result in the same social unrest that was expected to happen in the UK if RBS and HBOS were to fail (which presumably was averted by literally last minute action). Today, none other than glass house inhabitant Citigroup, which would not be in existence if the true state of financial and economic affairs was disclosed in even one tenth of its magnitude, bashes Moody's as being, gasp, too optimistic. Citi analyst Mark Schoefield says "in our view the pre-budget report leaves us significantly closer to a negative ratings action by virtue of having done nothing to slow the current pace of deterioration in the fiscal position."
- Asian shares were mostly lower Thursday as continued risk aversion hurt demand.
- Australian employers add 31,200 jobs, six times estimates; currency gains.
- Australia's jobless rate unexpectedly falls to 5.7 percent in November.
- Bank of Korea keeps key interest rate at record low at 2% as economy recovers.
- China puts squeeze on property speculators with tougher sales tax penalty.
- China says US, Russia dumped electrical steel.
- Climbing yen, economy concerns sends Japan stocks lower; Nikkei loses 1.4 percent.
Reggie Middleton vs Goldman Sachs, Pt. Deux: Buy into a Collapsing Market to Fund Bonuses, PLEASE!!!Submitted by Reggie Middleton on 12/09/2009 11:26 -0500
Just a quick perusal of news (and an analytical fact or two) in the CRE space that makes one wonder why Goldman Sachs thinks that anyone would believe them. Then again, looking at the ($19 billion) bonus pool, much of which was just nearly halved by the UK government, it appears as if enough people believe them. Let's see what we can to do alleviate that...
The battle of those relegated to the compost heap of financial analytics takes on a new and exciting form, with Moody's preparing to rip apart Cramer's Dubai bulish call.
Nothing to see here. Just an oncoming sovereign default freight train. Oh, and a total collapse in the euro.
- Asian shares were down Wednesday in the wake of weak US closing, Japan GDP nos.
- Dubai companies' bonds decline as credit swaps display 33% risk of default.
- Japan's economy grew 1.3% last quarter, less than initial estimate of 4.8%.
- China plans to require all the nation’s steel mills to have at least 1M tons of capacity
- Oil rises above $73 after expected US crude supply drop suggests demand recovery.
- 3M's 2010 profit forecast meets analysts’ estimates, says recovery is occurring “slowly.”
Spreads ended the day mixed in the US today with very low intraday ranges and only marginal moves as HY just outperformed IG. Breadth was modestly negative as TMT and CONSumer names underperformed. We note that credit has outperformed equity in the last couple of days as the dollar has sprung higher and perhaps this is another of the coal-mine's canaries that risk-aversion (think steam behind the run) is hitting stocks.