REITs

Surely this must be worth a strong buy upgrade of the REIT sector by someone (too bad most banks already have these in the "conviction buy to the grave" category). Bloomberg TV reports that the office vacancy rate in downtown NY has dropped to September 11th levels, and is about to pass 14%. In other words short reality, long hopium and office REITs, and presto - 100% P&L overnight. Who needs such boring things as cash flows when you have record vacancies and guaranteed, undipsuted bailouts.

A suitable follow up to our earlier post on domestic equity fund flows (which have been negative year to date), and our conclusion that Primary Dealers are merely taking advantage of the ZIRP carry trade, is Rosie's observation that the only entities doing any relevant trading are the prop desks of the Big Five TBTFs. If that is indeed the case, the market, which Rosenberg concludes optimistically is 25% overvalued will certainly face a Black Monday-type correction as soon as the elusive "unpredictable" occurs and the Prop desks as always scurry for cover, with no volume consolidation to the upside. It would be such a wonderful time to truly implement the Volcker Rule as the bank's prop desks, if David is correct, are about to cause some major damage to the market... Of course, it is these very prop desks that are the staunchest opposition to the Volcker Rule and its negative implication on prop trading.

Excess marginal dollar liquidity is gone and the USD is spiking in value. Commodities (particularly oil & the energy sector in equity) are rolling over and are ready to sell off big. Equities may follow soon. In the FX arena, long USD is best, especially against EUR (PIIGS), GBP (just another pig), NOK (CEE exposure), HUF (see NOK), AUD, and JPY.

As the PIIG crises went into full swing again, it was a "Risk Off" day today. Except when in fear of a market correction, it is time to buy mortgage insurers, homebuilders and REITs.

It is irrefutable. The Bernanke Fed will go down in history as the most wildly successful ever. Nobody in financial history has been able to re-sky stocks in one year after the two largest banks in the country were within a hairsbreadth of imploding. No doubt, he will be trumpeted and hailed as a national hero, for orchestrating the fastest run in retail stocks in world history.

Even as the Lehman scapegoating campaign is on in full force, there is little doubt that the man who somehow was in the middle of virtually everything, was not Dick Fuld, or any of the bevy of rotating Lehman CFOs, but Lehman's very much under the radar Global Product Controller, Gerard Reilly. Reilly was the point man on Repo 105, the point person for E&Y's "investigation" into the Matthew Lee whistleblower campaign, Lehman's Level 2 and Level 3 asset valuation, the brain behind the idea to spin off Lehman's commercial real estate business, Lehman's Archstone investment, and likely so much more. Reilly stayed on at Lehman, solid as a rock, even as the CFO's above him rotated one after another. Tragically, on December 29, 2008, a 44-year old Gerald [sic] Reilly died while skiing alone on New York's Whiteface mountain, while on a trip with his wife, 4 small children, and two other families.

Theflyonthewall.com, which is a news aggregator service (much like most of the blogosphere these days, but without the snarky commentary), and is hosted on Zero Hedge, has just seen a major driver of its business model cut off, after several banks just won an injunction that blocks Fly from notifying its clients when a bank may have issued a research event such as an Upgrade or, on those extremely rare occasions nowadays, Downgrade. The banks who feel violated by everyone getting access to information about their sellside detritus contemporaneously, not just wealthy accounts and wire services, are Barclays, Bank of America Corp.’s Merrill Lynch, and Morgan Stanley. As Bloomberg reports, "U.S. District Judge Denise Cote in New York today granted a request for an injunction sought by the three banks. They argued at a March trial that Theflyonthewall.com, a Summit, New Jersey- based firm with about 30 employees, wrongfully obtains and sells reports on changes to the banks’ stock evaluations." This is merely a case of picking on the weakest: the next ones to lose their First Amendment right will be, in order of importance, StreetAccount, Thomson Street Events, Briefing, and, ultimately Bloomberg. The reason: keep the market as two-tiered as possible so that clients of the above three banks (which list will likely expand promptly as more banks join in) have an upper hand over all the slower retail and algo operations. With this forced lag in information (which is a joke because anyone who cares, knows the second a research report goes public anyway), and with the ever increasing transaction times courtesy of nanosecond collocation facilities, soon the self-cannibalizing market will only rely on stealing money from those accounts who are still willing to participate in a market that is now split into two distinct groups: those who make money, and are clients of MS, ML and Lehman (and the rest of Wall Street), and everyone else. This is a huge hit for not just traditional media, but for the blogosphere as well, which revels in the freedom of not just ridiculing banks' (Merrill Lynch) upgrades of horrendously shitty companies (REITs), but enjoys doing so in real time. We expect that the next step is that any blog or medium that has any negative things to say about Merrill, MS or Barclays (pretty much most independent media), will be served with a summons as soon as any criticism is made public.

Another day, another meltup. Regional banks on a meltup, junker community banks getting squeezed, REITs and retail stocks up like 20 days in a row, fueled by the Perpetual Motion "Wash, Rinse, Repeat" machine.

Things are really starting to get wild. CNBC should just eliminate the NYSE trading floor shots and replace them with battle scenes from "Hamburger Hill" or some of the medieval battles in "Lord of the Rings". Basically, everyone is out for blood today as panicked put and call holders are getting barbecued with Goldman's flamethrowers or getting bludgeoned to death by spiked clubs.

As of January 1, 2010, Icahn Capital LP had $5.8 billion under management. Icahn Partners LP and Icahn
Fund Ltd. (collectively, “the Funds”) continue to be focused on a handful of core activist positions. As of
December 31, 2009, the Funds’ five largest long positions (equity or debt) represented an exposure of
approximately 68% of the Funds’ NAV, and the ten largest long positions (equity or debt) represented an
exposure of approximately 94% of the Funds’ NAV. The Funds had 17 long equity positions and 14 long
credit positions at quarter end.

It appears as if SPG offered a reasonable acquisition premium over what we feel is reasonable for GGP. Ackman's (publicy disseminated) valuations were apparently in the stratosphere (and our analysis clearly demonstrated this point) while Hovde was a little pessimistic. I'll leave it up to the readers to determine who was the most accurate regarding GGP both on the short side going down (I think I was the only one declaring a position publicly) and on the long side going up (I did not have a position).

The January Moody's CMBS delinquency rate hit a record at 5.42%, after posting the largest one month increase (50 bps) in history. While the deplorable state of CMBS is not a secret to anyone following RealPoint's monthly delinquency data, getting confirmation from a procyclical firm such as Moody's should be enough to wake up some of the optimists that even thought "everyone is talking about the commercial real estate" collapse, nothing is being done to actually fix the underlying causes. Anyone recall "contained" Dubai and its freshly record CDS spreads?

Taubman's Q4 results were as to be expected, despite the rather upbeat spin that was attached to the announcement. This is essentially a barometer for the CRE industry...

As usual, once the market is oversold, some Chop House is enlisted to get out the air horns and start blaring an upgrade on a sector that has been crushed. Today it was the semiconductors that were shoved out of rehab with some spectacular squeezes.

The last thing that the fixed income market needs now, with ever greater uncertainty out of European bond land, is weakness where it hurts the most: the US balance sheet. Yet last Thursday's H.4.1 report indicated something which could be more troubling than even Greece's credit crisis morphing into a liquidity one, namely, that foreign central banks' UST holdings at the Fed declined for the first time in over two years. And while the indirect take down for auction after ever larger auction seems to not miss beat, we are very interested in how Mr. Geithner will explain this trend, especially should it persist into February, and maybe longer.