Real estate

The Ontario Municipal Employees Retirement System (OMERS) announced a 10.6% rate of return for the year ending December 31, 2009, and won an award for Canadian pension fund of the year. Did it really merit this award?

The bond deal that was so very much rumored was going to get done in mid (and at most late) February, never really took off. The reason: with each passing day, investors (what little is left of them) are demanding a greater and greater premium, as the country now has less than 3 weeks of cash left at the current cash burn rate. And this is before even counting for €16 billion in maturities coming up through May. According to BusinessWeek the most recent expected benchmark pricing is in the 7%+ range: anything below that likely will not price.

The Economic Cycle Research Institute's Weekly Leading Index stood at 128.4 for the week ended Feb. 19, the lowest reading since November 13, 2009, suggesting growth will slow by mid-year. What does this imply for pensions that are very exposed to private markets?

If the engineered bear market rally is running off of the FASB generated lies, then we certainly do have another crash coming, don't we? It truly is a damn shame how the financial integrity of this country has been sold to the highest bidder through the most influential lobbyist. Don't they realize they are destroying the essence of what makes the American markets the global leader - the perception of transparency, honest accounting and reliable financial reporting?

Quebec pension-fund manager La Caisse de Dépôt et Placement du Québec generated a return from its investments of 10% in 2009, a sub-par number when compared to other Canadian pension funds but a dramatic turnaround from its catastrophic loss of $40 billion in 2008.

Add a real unemployment rate of 17% to the 25% who have negative home equity, and who is left to buy houses? Only those who are bribed. Graduating from the negative equity city the negative equity state. Net baby boomer demand for housing is shrinking by tens of millions of square feet per year.

In his testimony on Wednesday, Fed Chairman Ben Bernanke did not rule out the possibility that deflation risks could revive. Is he worried about what's going on in Japan right now? Or maybe he's worried about what Bob Prechter is calling the biggest bubble in history...

We have previously discussed the maturity cliff in Treasuries, Commercial Real Estate, Financials and High Yield. Focusing on the latter, a recent report from Moody's, indicated that there is roughly $800 billion in high yield bonds maturing by 2014. Today, Bank of America jumped on the HY maturity warning bandwagon, discussing the "maturity wall" which while alarming, is estimated by BofA to be $600 billion, or materially less than Moody's estimates. So while not in any way novel, Bank of America does provide a rather convincing view of therelative maturity schedule in HY currently versus the historical average in both loans and bonds. The results should be troubling to all CFOs and PE-owners of highly indebted organizations: absent raising equity rapidly, the ability to roll these loans in a rising interest rate environment will be next to impossible. Because with 89% of loans maturing in under 5 years (compared to 36% on average), and 50% of bonds (37% average), the maturity cliff,whether defined by Moody's or by Bank of America, is fast approaching.

The bank stocks, especially the regionals choking on massive loads of commercial real estate loans are vastly outperforming most sectors right now. Why is that? Who knows, maybe the lack of lending assures that in 3 years, the banks will have no losses because they have no loans. Then all those free DDA deposits can be parked in risk free trades for a clean spread with zero risk?

The Case Shiller housing report, the Conference Board's Consumer Confidence Index, and the FDIC Q4 bank report came out Tuesday with mostly negative results. Things like the biggest loan contraction since 1942 ought to grab your attention. These are significant numbers.

Some of the top secret AIG bailout info is out. One Goldman Sachs Guess who's at
the heart of it, making money by creating straight trash, selling it to
its clients then buying insurance to benefit from its inevitable
crash? I quote "divulging the names of the [trash] CDOs could erode their value: “We will be hurt because traders in the market will know what we’re holding.”.

David Roche, former Head Of Morgan Stanley Research And Global Strategy, and currently president of Independent Strategy shares perspectives that should be read closely by any bull who believes that there is anything else to this market rally than pure liquidity driven euphoria riding on the coattails of the Fed's Quantitative Easing program. Deconstructing one by one all the myths that make up the arsenal of every pundit who appears on CNBC to talk up their book, Roche concludes "Of course, the insider game between financial institutions and the central banks can go further. But we do not want to be a part of it because it is unsustainable. It is as finite as QE." And QE is ending in one month, at about the same time when Greece will have to bailed out as its money will finally run out. About 30 days and counting.

The 4th Quarter FDIC Bank Data has been updated at www.wlmlab.com. Each quarter I eagerly anticipate the numbers and keep thinking "it can't possibly be worse than last quarter, can it?" Well, never fear, it can. First off, the total amount of loans outstanding at U.S. Regulated Depository Banks has fallen to $7.296 Trillion from $7.425 at the end of Q3 2008.

We ran an interview with our friend Yves Smith of Naked Capitalism today. She has done an excellent job of describing how the intellectual ghetto that was once financial economics has helped to destroy the world of investing and involuntarily turn us all into day traders. The full text follows below. -- Chris