Real estate

Art Cashin, who lately looks like he is coping with the market's lunacy in a very liquid fashion, pulled a Rosie and basically went medieval on Ben Bernanke and the chairman's now infamous explanation that interest rates are up because they are really down courtesy of Richard Feynman and quantum chromodynamics, in some parallel universe in which QE2 is actually working. In a nutshell, the most famous face on the NYSE has offered to sell the Princetonian a piece of very valuable East River real estate in exchange for agreeing with the BS that the FOMC's committee is dishing out now on an almost daily basis.

Perhaps one or more of Goldman 500+ brand new partners will be interested in spending some of that middle class "wealth effect" and acquiring the latest ultra hot European property that has just come to market. Better bid fast: this one won't be around too long.

But not yet as bad as the great 1349 crash in Florence.

Prices aren’t going down forever. The good news is that the next bull market in housing starts in 20 years. That’s when 85 million millennials, those born from 1988 to yesterday, start competing to buy homes from only 65 million gen Xer’s. By then, house prices will be a lot cheaper than they are today. The next interest rate spike that QEII guarantees will knock another 25% off prices. Think 1982 again. Fannie Mae and Freddie Mac will be long gone, meaning that the 30 year conventional mortgage will cease to exist. Just remember to sell by 2060, because that’s when the next intergenerational residential real estate collapse is expected to ensue.

I don’t think commercial real estate is the big Achilles heel for these institutions right now because of the manipulations the federal government has undertaken. I think the real Achilles heel for all these banks, and for bond markets, is going to be the residential markets. Not to be overly dramatic, but this is a huge ticking time bomb. Things are getting worse, not better. - Andy Miller

With all the hoopla around fraudclosure, it appears that pundits seem to be forgetting one important thing: namely, the fact that in addition to the $6.8 trillion in loans and leases in bank credit (per latest H.8) which is kept on the ponzi books (those afforded the mark-to-unicorn treatment by the FASB), there is also this little thing known as off-balance sheet securitization. And while the Fed was good enough to force the reclassification of around $400 billion in securitized consumer loans to bank books in March, the question of why a far greater number of securitized real estate loans continue to be carried off the bank books is (or should be) suddenly rather timely. Especially since the number is rather large: some $1,387,796,500,000 as of October 6 (seasonally adjusted) which also represent the bulk of off balance sheet holdings. Perhaps some of those very vocal advocates of how this whole mortgage crisis is nothing but a storm in a teacup can provide for a definite accounting method of how these nearly $1.4 trillion in securitizations will not be impaired. As otherwise the investing public may get some very nasty ideas that not all is well in off-balance sheet world and that this whole overture is nothing but a way to streamline the implementation of TARP 2...

There are still huge headwinds facing the residential real estate market. Shadow Inventory is not getting better, and now we have the robo-signing scandal which will only further delay recovery. Since all real estate is "local", some markets are clearly starting to find a floor. But a "recovery" whereby prices stabilize is a couple years away.

The recovery of the economy depends on several important factors, but the recovery of the real estate market is near the top of the list, especially commercial real estate (CRE) because most of America's banks are loaded down with CRE debt. Here is a current assessment of the state of the CRE market.

There is a Part 2 to the story of Consumer Deleveraging that will play out over the next decade. Consumers will deleverage because they must. They have no choice. Boomers have come to the shocking realization that you can’t get wealthy or retire by borrowing and spending. As consumers buy $500 billion less stuff per year, retailers across the land will suffer. To give some perspective on our consumer society, here are a few facts...

We received something troubling in the tip box.

A very well made 45 minute documentary on Goldman Sachs, derivatives, US real estate and the root causes of the Pan-European Sovereign Debt Crisis

The hands on, from the trenches view from Oracle of Omaha Warren Buffet’s personal agent. The number of existing homes on the market is climbing from the current 4 million units to 5 million, versus a ten year annual trailing average sales of 2.5 million units. Record foreclosures are forcing reasonable sellers to compete against distressed sellers, driving prices down. The hurricane force headwinds of the retirement of 80 million baby boomers, the parsimonious attitude of banks, and the harsh reality of continued falling standards of living in the US aren’t helping. Do bank stock investors know this?

Reality is the great antidote of hope. Whenever my colleagues and friends ask me for my global economic outlook, by the time I’m done, they always provide a cheeky response about the depressing nature of my outlook. However, the outlook doesn't have to be depressing at all for those willing to face reality and take a proactive stance.

As part of the Fed's latest QE iteration, it has already been made clear that despite initial disclosures that the Fed would stay in the 2-10 Year bound of Treasurys, Ben Bernanke is now also gobbling up the very long end of the curve. For all those who are, therefore, still confused why bonds continue to surge to record levels, don't be: when there is a guaranteed bidder just below you in the face of the Fed, and who you can turn around and sell to at will, there is no pricing risk. The problem, from a bigger stand point, is what happens when the Fed is actively buying up 30 Year bonds with impunity and the much desired (by the Fed) inflation still does not appear? Well, the Fed then, in Michael Pento's opinion, will begin to purchase stocks and real estate. And as all those who enjoy comparing the US to Japan can attest, outright purchases of securities by the Japanese government is a long-honored tradition in the ongoing fight with deflation in Japan. However, and as the recent BOJ (lack of) intervention demonstrated, Japan never could do anything with the required resolve, and bidding up one stock and there piecemeal would never achieve anything. Which is why in this interview with Eric King, Michael Pento makes the case that as opposed to the occasional market intervention via the President's Working Group, Bernanke will soon make stock purchases an outright policy of the Federal Reserve as its last ditch attempt to engender inflation before the hundreds of billions of Commercial Real Estate and other debt starts maturing in 2011/2012. Bernanke is running out of time and he knows it. And once the Fed become the bidder of last resort in stocks, all bets are off, as the Central Bank will become the defacto only market in virtually every risky category. And the only safe vehicle, once the market then begins to price in asset-price hyperinflation, will be gold.

CRE porn (about as sexy as the industry gets): Mrs. High End Condotel cum Condo Market is reintroduced to Mr. Gravity and their swinging partners, Mr. Supply and Mrs. Demand!

Note for you imaginative guys: A Latin or English linking word, which can be either the preposition with or a conjunction meaning when, because, or although.