Commercial Real Estate
Why Commercial Real Estate Is Next: 'Challenging Technicals' Are About To Become 'Weak Fundamentals'Submitted by Tyler Durden on 02/14/2016 10:26 -0500
There is a growing sense of tighter financial conditions, particularly to the commercial real estate sector. Late last year the regulators issued a joint statement on Prudent Risk Management for Commercial Real Estate Lending and the latest Senior Loan Officer Opinion Survey (SLOOS) shows that banks tightened their lending standards to commercial real estate meaningfully in 4Q15.... The growing sense of gathering clouds in terms of tightening financial conditions to commercial real estate translates into a more challenging road ahead for US commercial real estate.
- Theme 1: US economy appears insulated from global weakness
- Theme 2: Strong domestic consumer demand persists
- Theme 3: Managements remain devoted to share repurchases
- Theme 4: Outlook for China is positive despite recent turmoil
Why Yellen's Testimony Was Not Dovish Enough: Bank CEOs Told Her The 'Economy Is Stronger Than Markets Imply'Submitted by Tyler Durden on 02/12/2016 13:15 -0500
"The Council believes the economy is stronger than the recent negative market sentiment would imply."
Broad equity indexes have declined significantly since July 2015, and forward price-to-earnings ratios have fallen to a level closer to their averages of the past three decades.
Leverage [among speculative-grade and unrated firms] firms has risen to historical highs, especially among those in the oil industry, a development that points to somewhat elevated risks of distress for some business borrowers.
S&P Downgrades Banks With Highest Energy Exposure; Expects "Sharp Increase" In Non-Performing AssetsSubmitted by Tyler Durden on 02/09/2016 17:35 -0500
Moments ago S&P continued its downgrade cycle, this time taking the axe to the regional banks with the highest energy exposure due to "expectations for higher loan losses." Specifically, its lowered its long-term issuer credit ratings on four U.S. regional banks by one notch: BOK Financial Corp., Comerica Inc., Cullen/Frost Bankers Inc., and Texas Capital Bancshares. The outlooks on these banks are negative.
While there may not be another 'energy' sector this cycle, our proverbial list of candidates includes lower quality high yield (ex-commodities) and commercial real estate (CRE). More broadly, the OCC's own examiners would also likely add asset-backed and auto loans to the list.
"The severely adverse scenario is characterized by a severe global recession, accompanied by a period of heightened corporate financial stress and negative yields for short-term U.S. Treasury securities.... As a result of the severe decline in real activity and subdued inflation, short-term Treasury rates fall to negative ½ percent by mid-2016 and remain at that level through the end of the scenario."
"With January looking like a loser, there is a 70% chance that February will decline also. The high degree of risk of further declines in February would likely result in a confirmation of the bear market. This is not a market to be trifled with. Caution is advised."
On Tuesday we got the latest revision from Statcan on Canada's labor market and for Alberta, 2015 was the worst year for job losses since 1982. Net job losses for the province were 19,600 for the year, far more than Alberta lost during the Great Recession.
As we put it on Friday, "the Texas recession is only in its early innings," because we are just now beginning to witness the bankruptcies and shut-ins that will soon become endemic and sweep across the entire US oil patch as revolvers are reigned in and Wall Street suddenly refuses to finance uneconomic producers' funding gaps. So how bad can things get in Texas, you ask? Goldman has ventured a guess.
Unfortunately, what we are facing now is a predicament, rather than a problem. There is quite likely no good solution. This is a worry. During the last 18 months we have read incessantly that low oil prices, for example, $30 per barrel oil, will stimulate the economy, and the economy will soon bounce back. What is wrong with this story? A lot of things, as we see it...
"It’s no secret that Alberta’s economy is closely linked to the peaks and craters of oil prices—nominal GDP (not adjusted for inflation) swings in tandem with crude prices. It’s why Fort McMurray is like a wounded beast these days. MacKay’s neighbour got laid off this fall. “I watched the bank come and take his truck,” he recalls—it was that or not feed the kids."
Important pillars of the bull case evaporated throughout 2015. Global price pressures weakened, the global Credit backdrop deteriorated and the global economy decelerated. The huge bets on central bank policies left markets at high risk for abrupt reversals and trade unwinds – 2015 The Year of the Erratic Crowded Trade. Indeed, a global bear market commenced yet most remain bullish. Serious and objective analysts would view this ominously.
Despite such endless financial engineering, sales for the S&P 500 have been declining for the last three quarters. And profits have declined for the first time since the 2009 expansion. Simply put: The recovery is a mirage... It isn’t real... And it isn’t sustainable.
It's grim up north... and getting grimmer. Amid soaring suicide rates, Canada's once-booming oil patch is rapidly accelerating its downward trajectory. "Canadians should be concerned in times like these," warned Tim McMillan, president and chief executive of the Canadian Association of Petroleum Producers, noting that the oil and gas sector will see 100,000 job losses by the end of this year. Apart from the protracted price declines, Alberta’s oil and gas sector has also had to contend with a 20 per cent hike in corporate taxes, increased provincial royalties, a carbon tax and new regulatory policies to limit rein in carbon emissions... and now a new competitot from US exports.