CRE

After a nice Thanksgiving spectacle of turkey, pumpkin pie, relatives, cool days of bright California sunshine, and college football, it's time to turn back to the serious business of the economy. Here is a review of the latest data. This is stuff you should know.

The biggest idiots in the world come out swinging:

• U.S. regional bank Regions Financial Corp.'s financial performance in recent quarters has lagged our expectations. Furthermore, we think the company's financial flexibility has been somewhat reduced.
• We lowered our counterparty credit ratings on Regions and its primary bank subsidiary, Regions Bank. The outlooks on their long-term ratings remain negative.
• We expect net losses to persist at Regions in the near term, largely due to unfavorable loan and geographic concentrations. We think net losses could continue to modestly pressure capital ratios in the near term.

Bernanke is like the Sorcerer's Apprentice: Given the magic hat - he commands his broom army to fetch buckets of dollars to inflate the economy the easy way but his lazy solution quickly turns into disaster as the waters start rising and he finds he has no way to stem the rising tide

Something is happening. I am not saying it is a trend, but the data are suggesting some improvement in the economy. This is the first time I have said this in two years. It may just be a temporary phenomenon since there are so many headwinds against a recovery. Perhaps it is just that things aren't getting worse. But the data are important and should not be ignored.

Though fraud and complicity are presented in the mainstream media as isolated conspiracies outside the status quo, the truth is that the status quo is now entirely dependent on fraud and complicity for its very survival. Every level of the status quo would immediately implode were fraud and complicity suddenly withdrawn from the system. How is this true? let me count the ways.

Three and one half years ago in March of 2007, we penned a discussion entitled, "It's Delightful, It's Delovely, It's Deleverage". Of course the upshot of that missive was that we suggested that the whole idea of balance sheet deleveraging was to be a huge investment theme to come. Little did we know, huh? You already know this was well in advance of the ultimate systemic credit cycle debacle that was to come and a year and a half in front of Lehman as a singular event. Deleveraging subsequently became a popular and virtually consensus theme in late 2008 and early 2009. Associated with this headline theme were tangential anecdotes such as "new normal", etc. It's time to quickly revisit the subject of deleveraging now as per the recently released 2Q Fed Flow of Funds statement.

Morgan Stanley is also extending its abysmal track record in CRE with the 97% in Revel. The bank took an effective loss for the common shareholders, even when backing out the DVA effect (which is a non-cash charge) as long as you normalize one time items. There is plenty more pain in RE to come, and Morgan's track record is horrendous at the same time expenses are rising with talent fleeing.

BoomBsutBlog and the independent analysts vs Wall Street: I(we) say insolvent, or damn close, they say buy. Hmmm!!! Judging by affiliation and track record, who do you think is right?

It is peculiar that the firms that don't underwrite securities or sell information services are the most bearish on the banks, isn't it? Even the constant "just shut up and buy 'em" banks missed the ball on Google!

A note to those banks that have blocked the access to popular blogs. Wall Street has been BLINDED by the “revenue at all costs” mentality! These deals, products, services and structures are a lot more than potential bonus checks and wide girth swinging dick bragging rights! They are life lines for the mentally disabled, widows retirement funds, potentially life saving programs for AIDS victims, domestic abuse victims, orphans, etc. Hey, I’m all for making money (a lot of money even), and I know that in order for you to make money someone else has to lose it, but there must be boundaries drawn. Attempting to block employees access to my blog (in vain) does little to improve things...

Based on the data, it appears that banks, especially the regional and local banks, are starting to solve their nonperforming loan problems. This is a very significant bit of data and is relevant to the credit crunch we are having. Will it translate into increased loan activity and a recovery?

Junk economics and the Taylor Rule guide the Fed's QE2 monetary policy. Junk or not, the important thing is that they believe it. So does Goldman Sachs. How many dollars will the Fed print? $1Trn, $2Trn, $4Trn? You should know that they are all just guessing and have no idea how this will come out. Remember this word: stagflation.

Luckily the banks don't care about that $3 trillion footnote on their balance sheets known as CRE. Because if they did, they would all be insolvent: the Moody's REAL/Commercial Property Price Index index dropped by 3.3% in August, and is now 45.1% lower compared to the October 2007 peak. The attached chart says it all, or almost all - it actually says nothing about why banks are still trading at positive equity values.

I am what many here (most especially myself) and elsewhere love to make fun of. I am a true blue Digital Dickweed. A Digital Dickweed has been defined by others as someone that is genuinely unemployed, in my case a government pensioner, errr, freeloader (100% disabled veteran), non high school graduate who lives in the basement of their parents home (or the spare bedroom of a family member’s home in my case) blogging. In essence, the old war veteran that sits on his front porch and watches the world go by, aka JAFO (Just Another Fucking Observer). So, let’s take a look see at the talk from off South Main Street. - Miles Kendig

Less than an hour after my CNBC Squawk on the Street segment on JP Morgan I read JP Morgan's analysts predict that forced repurchases of soured U.S. mortgages may be the “biggest issue facing banks”. I'm simply flabbergasted. Didn't I say the same thing on the 12th, as well as the 18th (OF JANUARY!!!). Worse yet, it appears as if Jamie Dimon didn't get the memo or read BoomBustBlog before the conference call. Somebody buy him a subscription!!! Yeah, I know I'm not making too many new friends on the Street, but I try to call 'em as I see 'em...

The critical issues in America stem from minimally a blatantly ineffective public policy, but overridingly a failed and destructive Economic Policy. These policy errors are directly responsible for the opening salvos of the Currency War clouds now looming overhead. Don’t be fooled for a minute. The issue of Yuan devaluation is a political distraction from the real issue – a failure of US policy leadership. In my opinion the US Fiscal and Monetary policies are misguided. They are wrong! Now after the charade of Extend & Pretend has run out of momentum and more money printing is again required through Quantitative Easing (we predicted QE II was inevitable in March), the responsible US politicos have cleverly ignited the markets with QE II money printing euphoria in the run-up to the mid-term elections. Craftily they are taking political camouflage behind an “undervalued Yuan” as the culprit for US problems. Remember, patriotism is the last bastion of scoundrels. - Gordon T. Long