Again, I think this comment from the Beige Book is critical:
Overall, energy-related products and some raw materials showed significant price increases but wage pressures dont seem to have increased, the Fed said.
I this makes consumption much more susceptible to house price declines, rising interest rates, and reduction in borrowing.
Also, if prices rise faster than wages I think this bodes ill for producers who can't pass on the higher costs, especially factoring in the effect of declining MEW on disposable income.
All the Districts that mentioned
commercial construction activity
gave positive reports.
This is lawyerspeak.
The other ones mentioned a lack of activity.
Drive around the SF bay area...you could fill a commerical warehouse with all the "Commercial Space For Lease" signs that are up....and I note more/new signs each week.
I know the Fed is in sales, but this is almost the "I have a commercial space just like this at home, and I love it".
Earlier in the year you said that you thought by midyear you'd have a better idea if you thought housing would cause a recession? Do you still feel that way? Has the coin landed yet?
Haven't been able to read much comments lately but saw this and had to share - sorry if it's already been posted:
"...Greenspan played down the prospect that Chinese authorities would sell Treasuries in earnest, forcing a sharp spike in U.S. interest rates.
Asked at a commercial real estate conference if investors should be worried about this oft-cited concern, Greenspan said: "I wouldn't be, no."
Still, Greenspan said the reason such a withdrawal was unlikely was that China would not have anyone to sell the securities to, hardly the sort of comfort jittery bond investors were seeking."
Rates have been going up across the globe - not just in the US. Thus, what we have is a global repricing of fixed-income assets, NOT something US specific. And when Greenspan said they wouldn't have anyone to sell to, he was using hyperbole. They could always find buyers, it just might take a bit of a markdown to sell a trillion dollars or so worth of bonds. Especially if they wanted to sell 'em in one phone call.
Retail shopping centers primarily, with some office and warehouse thrown in.
Retail developers in SoCal cannot find enough suitable land to satisfy leasing demand. I know it's hard to believe when you are driving around and seeing what appears to be endless reatail, but that's the way it is.
"Still, Greenspan said the reason such a withdrawal was unlikely was that China would not have anyone to sell the securities to, hardly the sort of comfort jittery bond investors were seeking."
So we are locked in an economic death embrace with China?
So you are building like mad,
meanwhile I see a phenomenal amount
of empty commercial space for lease.
These can coexist, but I'm not that's a
good thing for everyone.
I can believe it. M. David Paul's building a huge new building in Burbank on land purchased from NBC/Universal, and there are monster mall expansions planned and/or underway for Arcadia, Glendale, Sherman Oaks, etc.
Another key to avoiding a recession is for the FED to CONTINUE TO DELAY IMPLEMENTING MUCH NEEDED CREDIT TIGHTENINGS.
Don't know about the rest of you but I STILL get at least two credit card offers a week offering me 0% interest on balance transfers & purchases for the next year. Is this an indication the FED had balanced credit flows between spending & saving? In SoCal, mtgs are as easy to get as ever for all but those with terrible credit. CA has yet to agree to the bare minimum CSBS AARMR (FED Guidelines).
Corporations have oodles of cash & (unregulated) Hedge Funds have oodles of cash & credit to keep their games going. So, why would we expect a recession so soon? The recession WILL come, but not until we see our FED tell our money center Bank/Brokerages to stop the outrageous games they're playing! In the meantime it looks to me the FED is acting to support ever higher
equity prices so the Banks/Investors will have plenty of money to offset their losses from growing foreclosures. Who loses? You guessed it!!!!!!
I was being facetious. The reality is that China can't sell the damn bonds. They know it, we know it, Greespan knows it. That's why he can be so cocksure.
It goes back to the old line, when you owe your banker $1000, he owns you. When you owe your banker $1 million dollars (or in this case, a trillion) you own him.
There is nothing else the Chinese can do with all their dollars. There is no other market in the world big enough to absorb that kind of investment. Not only can they not sell their bonds, they have to keep buying more.
"Here in Sacramento the building is unabated. We have new retail space sitting empty everywhere, yet the building continues."
I've got to agree with Max on this. Here in Sacto there is an endless supply of empty strip malls and office space, many of which have been vacant for a year or more, and yet every day there are even more being built(!?) I can't imagine who will be leasing any of these.
The same can basically be said of residential (high vacancies but building continues), just not as many armies of illegals anymore.
Q2 GDP? It's always hard to say. At this point in Q1, most were still forecasting 1.5-2% and look where we ended up. Trade and inventories are always such wildcards that forecasts can still be revised widely before the end of the quarter. I saw that Morgan Stanley is now forecasting 4.1%, which isn't completely out of the question but seems high to me. But I would be surprised if Q2 came in under 2.0%.
I asked a friend yesterday why the CRE here in GA is still booming considering all the for sale/lease signs. He being a CRE appraiser said that the "good ole boys" don't want to get hit with the 1031 tax consequences and would rather put it into CRE than pay the taxes. I guess they feel it will all get filled or sold eventually. In my opinion, eventually will be a long time coming.
CFOs are turning bearish and yet companies are investing in more CRE?
I don't think so. CRE lags Residential by anywhere from 6-12 months historically....and with the Res mkt topping out in Q4 2005 - Q1 2006, the CRE market is living on borrowed time.
Factor in rising interest rates and slowing growth (nominal GDP falling), and you've got a CRE market that has topped or is topping as we read/type/read....
If you're waiting for the Fed Cheerleading Squad to tell you the truth, the plain truth, and nothing but the truth, you will be waiting a long time...
Steve, the coin hasn't landed yet. I think I've got housing about right for the year, but I'm a little surprised CRE hasn't turned down yet (the typical pattern). Of course, I've also argued why CRE might not turn down (the good side of the coin) - and maybe that will come true.
This comment on CRE from the Fed is far more interesting than the retail report (IMO).
Some days I think the coin will fall one way - some days the other. The only thing I'm sure of, in addition to housing, was that the consensus for GDP was too high for 2007.
I can't speak for other metro areas but here in denver there are several commercial real estate projects that were planned several years ago but only got underway in the last 12 months owing to a lack of available building supplies, i.e. concrete. Ironically, one of the buildings that was delayed was the new re/max headquarters. The president of remax at the time mused that as a result of the delay the building would probably be too small for them by the time construction was complete. That was about 12 months ago, I wonder if that statement is still true today.
Same here in San Diego. With in a 10 mile radius I can name no less that 2.5MM Sf of new office space. Some is leased (Intuit .5MM), some is owner developed (Sony .4MM), and from the signs in from I gather the remainder is spec. It is absolutely unbelievable. A new office building just broke ground last week a quarter mile away. I didnt include the recent Qualcom construction in that number because it was over a year ago. I think they built .6MM Sf. There is going to be a massive glut of space if there is a contraction. The real kicker is the owner of the complex I work in just put a sign out front because the space isn't fully leased. The subs are starting to slow down tho. I always ask how much they are bidding. For the time being they are slow, however interestingly enough many have large backlogs still. My guess is some of those projects will push out or not get built....
hmmm...you don't think we're in a recession already? that means that 1) you believe the Govt economic reports, 2) you believe the Govt inflation report.
Wrong on both accounts. But let's say the reported NOMINAL GDP is copascetic (which it emphatically is not), no way in hell the deflater is what the Govt says it is. If you use the more realistic CPI estimates by guys like John Williams, then we've had negative REAL GDP for quite some time. AND if you strip out military spending, we're in a near depression.
Less goods are going around on trucks and trains, yet there's increased demand for werehouses?
Again, I think this comment from the Beige Book is critical:
Overall, energy-related products and some raw materials showed significant price increases but wage pressures dont seem to have increased, the Fed said.
I this makes consumption much more susceptible to house price declines, rising interest rates, and reduction in borrowing.
Also, if prices rise faster than wages I think this bodes ill for producers who can't pass on the higher costs, especially factoring in the effect of declining MEW on disposable income.
This is lawyerspeak.
The other ones mentioned a lack of activity.
Drive around the SF bay area...you could fill a commerical warehouse with all the "Commercial Space For Lease" signs that are up....and I note more/new signs each week.
I know the Fed is in sales, but this is almost the "I have a commercial space just like this at home, and I love it".
Here in Detroit, casino-related construction is big. Sad...
As a commercial general contractor in CA, I am fully booked and see no let up with the developers I work with.
As a commercial general contractor in CA, I am fully booked and see no let up with the developers I work with.
Here in Sacramento the building is unabated. We have new retail space sitting empty everywhere, yet the building continues.
Dr. Who,
For what kind of CRE development are you primarily engaged?
CR,
Earlier in the year you said that you thought by midyear you'd have a better idea if you thought housing would cause a recession? Do you still feel that way? Has the coin landed yet?
Winter (Economic and Market) Watch » Clues: FCBs Spill the Tin Cup
looks a lot like cr's graph on mew..
Haven't been able to read much comments lately but saw this and had to share - sorry if it's already been posted:
"...Greenspan played down the prospect that Chinese authorities would sell Treasuries in earnest, forcing a sharp spike in U.S. interest rates.
Asked at a commercial real estate conference if investors should be worried about this oft-cited concern, Greenspan said: "I wouldn't be, no."
Still, Greenspan said the reason such a withdrawal was unlikely was that China would not have anyone to sell the securities to, hardly the sort of comfort jittery bond investors were seeking."
Greenspan not worried Chinese will dump Treasuries
| Reuters
LOL....he's not worried because even if they want to dump their junk, they have no one to unload them off to!
Rates have been going up across the globe - not just in the US. Thus, what we have is a global repricing of fixed-income assets, NOT something US specific. And when Greenspan said they wouldn't have anyone to sell to, he was using hyperbole. They could always find buyers, it just might take a bit of a markdown to sell a trillion dollars or so worth of bonds. Especially if they wanted to sell 'em in one phone call.
TJ,
Retail shopping centers primarily, with some office and warehouse thrown in.
Retail developers in SoCal cannot find enough suitable land to satisfy leasing demand. I know it's hard to believe when you are driving around and seeing what appears to be endless reatail, but that's the way it is.
I just build 'em.
it just might take a bit of a markdown
No doubt. When you're one of the last buyers, you're not likely to get anything close to what you paid.
"Still, Greenspan said the reason such a withdrawal was unlikely was that China would not have anyone to sell the securities to, hardly the sort of comfort jittery bond investors were seeking."
So we are locked in an economic death embrace with China?
ok, Dr. Who.
So you are building like mad,
meanwhile I see a phenomenal amount
of empty commercial space for lease.
These can coexist, but I'm not that's a
good thing for everyone.
I'm happy for you, though.
Dr. Who,
I can believe it. M. David Paul's building a huge new building in Burbank on land purchased from NBC/Universal, and there are monster mall expansions planned and/or underway for Arcadia, Glendale, Sherman Oaks, etc.
Another key to avoiding a recession is for the FED to CONTINUE TO DELAY IMPLEMENTING MUCH NEEDED CREDIT TIGHTENINGS.
Don't know about the rest of you but I STILL get at least two credit card offers a week offering me 0% interest on balance transfers & purchases for the next year. Is this an indication the FED had balanced credit flows between spending & saving? In SoCal, mtgs are as easy to get as ever for all but those with terrible credit. CA has yet to agree to the bare minimum CSBS AARMR (FED Guidelines).
Corporations have oodles of cash & (unregulated) Hedge Funds have oodles of cash & credit to keep their games going. So, why would we expect a recession so soon? The recession WILL come, but not until we see our FED tell our money center Bank/Brokerages to stop the outrageous games they're playing! In the meantime it looks to me the FED is acting to support ever higher
equity prices so the Banks/Investors will have plenty of money to offset their losses from growing foreclosures. Who loses? You guessed it!!!!!!
"...it just might take a bit of a markdown..."
I was being facetious. The reality is that China can't sell the damn bonds. They know it, we know it, Greespan knows it. That's why he can be so cocksure.
It goes back to the old line, when you owe your banker $1000, he owns you. When you owe your banker $1 million dollars (or in this case, a trillion) you own him.
There is nothing else the Chinese can do with all their dollars. There is no other market in the world big enough to absorb that kind of investment. Not only can they not sell their bonds, they have to keep buying more.
"Here in Sacramento the building is unabated. We have new retail space sitting empty everywhere, yet the building continues."
I've got to agree with Max on this. Here in Sacto there is an endless supply of empty strip malls and office space, many of which have been vacant for a year or more, and yet every day there are even more being built(!?) I can't imagine who will be leasing any of these.
The same can basically be said of residential (high vacancies but building continues), just not as many armies of illegals anymore.
Q2 GDP? It's always hard to say. At this point in Q1, most were still forecasting 1.5-2% and look where we ended up. Trade and inventories are always such wildcards that forecasts can still be revised widely before the end of the quarter. I saw that Morgan Stanley is now forecasting 4.1%, which isn't completely out of the question but seems high to me. But I would be surprised if Q2 came in under 2.0%.
THW - posting to a site that sets "the pace of stupidity and ignorance" makes you what?
To quote John Lovitz:
"you don't have to yell"
oh no some of the creepy posters from my blog are loose. I'll see if I can get them back. We haven't finished our plans for world domination yet.
I asked a friend yesterday why the CRE here in GA is still booming considering all the for sale/lease signs. He being a CRE appraiser said that the "good ole boys" don't want to get hit with the 1031 tax consequences and would rather put it into CRE than pay the taxes. I guess they feel it will all get filled or sold eventually. In my opinion, eventually will be a long time coming.
CFOs are turning bearish and yet companies are investing in more CRE?
I don't think so. CRE lags Residential by anywhere from 6-12 months historically....and with the Res mkt topping out in Q4 2005 - Q1 2006, the CRE market is living on borrowed time.
Factor in rising interest rates and slowing growth (nominal GDP falling), and you've got a CRE market that has topped or is topping as we read/type/read....
If you're waiting for the Fed Cheerleading Squad to tell you the truth, the plain truth, and nothing but the truth, you will be waiting a long time...
Good luck to all.
Here in Detroit, casino-related construction is big. Sad...
That reminds me of the last time I went home to Chicago. In N.W. Indiana I found casinos had sprung up where factories once were.
This is not a new trend -- it's been going on for at least a decade. Pottervilles spring up all over America.
Steve, the coin hasn't landed yet. I think I've got housing about right for the year, but I'm a little surprised CRE hasn't turned down yet (the typical pattern). Of course, I've also argued why CRE might not turn down (the good side of the coin) - and maybe that will come true.
This comment on CRE from the Fed is far more interesting than the retail report (IMO).
Some days I think the coin will fall one way - some days the other. The only thing I'm sure of, in addition to housing, was that the consensus for GDP was too high for 2007.
Best Wishes.
I can't speak for other metro areas but here in denver there are several commercial real estate projects that were planned several years ago but only got underway in the last 12 months owing to a lack of available building supplies, i.e. concrete. Ironically, one of the buildings that was delayed was the new re/max headquarters. The president of remax at the time mused that as a result of the delay the building would probably be too small for them by the time construction was complete. That was about 12 months ago, I wonder if that statement is still true today.
Dr. Who,
Same here in San Diego. With in a 10 mile radius I can name no less that 2.5MM Sf of new office space. Some is leased (Intuit .5MM), some is owner developed (Sony .4MM), and from the signs in from I gather the remainder is spec. It is absolutely unbelievable. A new office building just broke ground last week a quarter mile away. I didnt include the recent Qualcom construction in that number because it was over a year ago. I think they built .6MM Sf. There is going to be a massive glut of space if there is a contraction. The real kicker is the owner of the complex I work in just put a sign out front because the space isn't fully leased. The subs are starting to slow down tho. I always ask how much they are bidding. For the time being they are slow, however interestingly enough many have large backlogs still. My guess is some of those projects will push out or not get built....
We'll see....
Something has to give in San Diego....
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hmmm...you don't think we're in a recession already? that means that 1) you believe the Govt economic reports, 2) you believe the Govt inflation report.
Wrong on both accounts. But let's say the reported NOMINAL GDP is copascetic (which it emphatically is not), no way in hell the deflater is what the Govt says it is. If you use the more realistic CPI estimates by guys like John Williams, then we've had negative REAL GDP for quite some time. AND if you strip out military spending, we're in a near depression.