CRE

Regulatory Capture now appears to be accepted policy procedure as FASB bends over and gives up on even asking financial entities to report accurate market values, leaving only those who spend their lives in spreadsheets and arcane nomenclature capable of discerning trash from treasure. I guess it best that way. The truth has this proclivity to hurt people's feelings, not to mention certain ill gotten gains...

Steve Abrahams, Head of MBS and Securitization Research predicts home prices to drop nationally another 5-11% through 2012 (Florida of course will take much longer.) Oooo, fun!

Random thoughts

Those who think this will not, better yet... has not metastasized into a very significant problem has overdosed on the Sell Side Kool Aid once too often. The banking industry is soon to be the new tobacco industry.

Morgan Stanley's real estate division hits yet another home run in (in fees) as investment clients get (literally) taken to the bank.

After we read earlier that according to CRE experts TREPP, CMBS delinquencies have hit an all time record, we were confident that somehow Wall Street would do everything in its power to offload as much toxic crap from its books (and if inventory was missing, it would do its darnedest to create some) as possible, and start selling the most worthless piece of paper imaginable (see Howard Davidowitz). Sure enough, not much searching confirmed just that: per Bloomberg "Deutsche Bank AG, UBS AG and JPMorgan Chase & Co. are preparing the year’s first bond sales tied to commercial property loans, according to people familiar with the transactions. Deutsche Bank and UBS are teaming up to issue as much as $2.5 billion in commercial mortgage-backed securities linked to loans on office buildings, shopping malls and hotels in what would be the largest offering of its kind since the market froze in June 2008, according to a person familiar with the deal. JPMorgan plans to sell $1.5 billion in similar debt, a person familiar with that sale said." And investors, giddy with new costless capital and generous to waste 'other taxpayers' money' will line up in droves and gobble it up (many on margin), looking for a quick flip. Cue in the summer of 2007.

Don't say I didn't tell 'ya so!

In a previous article ("Something's Happening") I noted positive trends emerging. I'm still not saying we are on the road to recovery (actually we are on the road to stagflation), but things are getting warmer. "Something" is still happening. Pay attention.

One can not blame Mort Zuckerman for being bullish on housing (or at least some segments thereof): after all the outspoken Obama critic just splurged $930 million on the John Hancock building (which recently went into foreclosure at a $660 million valuation, but Mort has a story about how improvements in the parking lot and somesuch are worth the 50% hike in price). Yet what the Boston Properties chairman likes in commercial real estate (and for a contrarian and somewhat more lucid view feel free to peruse comparable thoughts by Howard Davidowitz) he loathes in residential real estate, which would be bad news for Bank of America if the bank's real name wasn't Bank of Banana Republic. In an interview with CNBC's finest, the USNews editor said that the record shadow inventory is "what’s going to put downward pressure on residential prices. And in my judgment, that’s going to continue forat’s going to continue for several years. We’ve seen home prices go down now for four months in a row, according to the Case-Shiller Index , by 1.3 percent in the last month. So it’s an accelerating downtrend in those prices. This is on top of three to four years of declines.” Oddly enough, no mention of the fact previously discussed by Davidowitz that "we have 21 square feet of selling space for every man woman and child in this country" but then again that may not be too bullish for CRE. And at the end of the day everyone has an agenda.

As of right now, there are not a lot of places to go for the skinny on things such as this Facebook investment (or BPSV, not special purpose vehicle but "Bonus Pool Support Vehicle"), at least in my not so humble opinion.

When one spits the truth, there is really nothing to do but sit back and listen. Happy New Years to one and all...

• Commodities Beat Stocks, Bonds, Dollar in 2010 (Bloomberg) - translation: anything that can't be diluted does and will do better than things that can be diluted
• How a mortgage clearinghouse became a villain in the foreclosure mess (WaPo)
• Euro Imbalances Mean 80% Risk Bloc Will See Structural Overhaul, CEBR Says (BusinessWeek)
• Estonia Prepares to Join the Euro Zone (WSJ)
• Simon Johnson: Fresh Crises Loom in Europe and the U.S. (NYT)
• That pesky CRE issue still refuses to go away: Commercial property loans pose new threat (FT)
• Krugman on The New Voodoo and hypocrites (NYT)
• Mises Institute on the Hypocrisy of Krugman (Mises)
• Venezuela to Devalue its "Strong Bolivar" Currency (WSJ)

Today's must see TV comes from the following interview of Pimm Fox on the consumer and the economy with retail expert Howard Davidowitz, who in 10 minutes provides more quality content and logical thought than we have seen from CNBC guests in probably all of 2010 (except of course for that one time when Erin Burnett kicked out Mike Pento, but that's a different story). Where does one start? Probably at the end: "I am not surprised by the strength of retail sales, because i knew that 30% of consumers are responsible for retail sales, and these 30% did much better because of the performance of capital markets. I don't think it is indicative of anything going forward. I don't think the economy is going to get any better. If you look at our fiscal and monetary policy, we went two trillion in the hole last year. Two trillion... to produce this... and unemployment went up to 9.8%! We've spent two trillion we're printing money we're going bananas. Our balance sheet, we've got $2.6 trillion on there, and what;s on there government securities, and MBS." And here is the kicker for the world's biggest hedge fund, which at least one person besides Zero Hedge appears to get: "If interest rates go up a point Bernanke's bankrupt. Everything he's bought is underwater. All the MBS are underwater, the whole country is underwater." Does anyone see the issue now with why rising interest rates, aside from predicting a "recovery", may also, courtesy of its now $2 billion DV01, "predict" the insolvency of the Federal Reserve?

Banks, especially the ones which lend to most US businesses were devastated by the credit bomb. Their recovery is crucial for economic recovery. Are they thawing or freezing? What is the current status of credit in America?

In my article "Something Is Happening" I noted a glimmer of positive economic data. I was cautious to not call it a "recovery" yet because there isn't a clear trend. I still feel that way. The Fed and the federal government may yet blow up a recovery. But ... I can't ignore positive signs. I read the same data as other free market oriented blogs out there, I am just about the only one seeing this. "Believe what your eyes see, not what you want to believe."