Shopping at Amazon?
Wait! If you click on the Amazon banner link at the top of the page first, HCN will get a percentage of anything you purchase for 24 hours!
Open predictions
Our local book authors
User login
Who's online
There are currently 29 members and 152 guests online.
Currently online
- picosec
- TJ and The Bear
- RATM
- albrt
- Rajesh
- poic
- DCRogers
- blinkered
- emergency hotdog
- Speed
- 1 currency now -yogi
- Tom Stone
- shill
- CitizenPither
- Plains Paris
- tg
- robj
- kratovil1
- fried
- wafdof
- Substace Over Form
- Bob Dobbs
- Basel Too
- RainyDay
- sporkfed
- Tom in AZ
- steelhead
- Mike in Long Island
- Tim waiting for 2012
Why is it still going up when every building I see has a "For Lease" sign attached to it?
Wooohooo, another strong report this morning!!
Pass the salt, I've used up all of mine this morning.
That seems to be the theme of the global economy - borrow and build, borrow and build, borrow and build, borrow and build...
There's no need to measure the potential profitablity of the project because of the giant global safety net created by central banks.
Again, I think the policy of cutting rates into slowdowns will go down as one of the worst economic policy mistakes in history.
What's happening in US housing looks primed to happen across all sectors of the global economy - it's clearly spread to domestic commercial real estate (though hopefully that's now ended), global residential real estate, and industrial/commodity production.
Central banks were intended to be lenders of last resort - i.e. when deep economic and financial crises begin spiraling out of control.
But due to political pressure they keep jumping the gun and end up blowing epic bubbles and grossly distorting economic structure.
We're going to end up with a whole lot of stuff we really don't need.
Because once you (developer) have taken out a construction loan on a commercial real estate project, you are screwed if you don't finish and lease it up.
For a modest-size office or commercial project, it can take two years from loan to lease-up.
Normally, developers can see a recession coming and back off before they are in too deep. This time, they didn't.
The lagging relationship is obvious from CR's graph...and "long (3-8q) and lagging" even more obvious.
So izit that policy decisions (government legislation cultivating private projects/enterprises) or circumstances (the house building may be on the wain but not the military building) that have kept construction spending up (like the wylie coyote) and can those circumstances sustain this construction spending indefinitely?
Real PCE tracking at 3-3.5% for Q3 (pdf)
Why is it still going up when every building I see has a "For Lease" sign attached to it?
A lot of this is probably being driven by hedge funds and the ponzi structure that's overtaken large parts of the global economy.
The nature of the beast is to keep up this accelerating cycle of borrowing and spending. As long as the cycle keeps going faster, the interest payments can be made. Once this slows not only does the source of expansion stop, but the entire financing structure destabilizes and collapses.
This has happened time and time again throughout history. It is a well-known and well-documented phenomenon. The outcomes are typically grisly. Now it's happening on a scale that we haven't seen before.
Just understand that the borrowing and spending HAS to continue, or a crash occurs. The finance guys at the top know this so they fight for their lives to keep the scheme going.
The longer it goes on the more damage is done in the end.
calmo,
I think as soon as projects in the pipeline are finished, commercial construction spending will come crashing down. I think these are vastly overbuilt in most metros:
Private office space
Government office space
Hotel/motel
Retail, including restaurant/bars
Yahoo home page headline
Consumer spending higher than expected while inflation eases
Expired
Yes indeed keep catapulting the propaganda for Joe and Jane 'Dumbass' Americans ( which there are plenty of ) so they can keep on spending their way to serfdom.
Real PCE tracking at 3-3.5% for Q3 (pdf)
It looks like this might get blasted in September due to the huge surge in oil prices created, ironically, by the Fed rate cut. Also chain store sales, so far, look very weak this month.
A big surge in export activity wouldn't suprise me though, but I don't think it will offset the drag from rapidly rising prices on oil imports.
My general impressions are that the global economy is very strong and very fragile.
ac,
Second that with a 'rapidly rising prices' on all imports!
DX index to all time lows as the dollar cracked 78 going south...
U.S $ INDEX (NYBOT:DX)
s miok Says:
September 25th, 2007 at 11:49 pm
Be careful.
Scottrade does not allow any Money Market accounts -AND- does CD at 10K +.
So much for taking care of the small investor.
Please correct this set of statmenets, if I am wrong. Thanks.
Raymond Says:
September 26th, 2007 at 12:34 am
Youre correct about both. Scottrade offers no money market fund option and their CD min is $10,000. The rate they offer on their interest bearing cash account is also pretty low. If you stockpile your cash, Id suggest moving it elsewhere. Scottrade must be profiting quite well from their cash accounts. Too bad most people dont know better.
Still a few hours to the end of September to restore liquidity per Bankers predictions...
(quote)
Sept. 28 (Bloomberg) -- The cost of borrowing pounds, dollars, and euros overnight rose as banks sought funding over the quarter-end amid a credit squeeze, and as U.K. lender Northern Rock Plc borrowed more money from the Bank of England.
The London interbank offered rate that banks charge each other for overnight loans in pounds rose 20 basis points to 6 percent today, the highest in 10 days, British Bankers' Association figures showed. The corresponding rate for dollars rose 21 basis points to 5.30 percent, and the euro rate climbed 6 basis points to 4.23 percent.
Interbank market rates have soared as concern that losses on securities linked to U.S. subprime mortgages will spread keeps lenders from providing money to all but the safest borrowers.....
(end quote)
Rich - the change at banks regarding commercial lending followed the big shift on consumer spec building quite quickly. In some cases, banks seem to be trying to figure out whether to pull the plug on advances for ongoing projects and just take the smaller loss earlier. A lot of the smaller retail projects seem unviable. Funding for early projects is getting yanked more and more.
The early Census numbers are really extrapolations, so I'm not paying any attention to them until 3 months down the line when they start to get reliable. Somewhere in here the sharp break will occur.
Ministry, AC,
What I see really is a bit frightening. Lots of new non-res construction in southern Santa Clara county, yet acres & acres of empty office space, strip mall space, mfg. space...you name it. If/when it does end, there will be quite an empty infrastructure to fill for years it seems.
On the flip side, SFBA traffic is pretty bad compared to this time last year...not sure what the jobs are, though.
Why is it still going up when every building I see has a "For Lease" sign attached to it?
Exactly. It used to be only 2nd rate buildings were going empty. And yes, for a while everything leased. But now, when I drive around the South Bay, I cannot help but be struck by the number of buildings for lease. I have to admit it amuses me seeing the big "For Lease" sign while a REIC logo decorates the building.
Christmas... will be interesting...
Got popcorn?
Neil
DX index to all time lows as the dollar cracked 78 going south...
Don't cry for me Argentina
The truth is I never left you
All through my wild days
My mad existence
I kept my promise
Don't keep your distance
I have'nt seen one 'for lease' sign in front of a Wal Mart
Profit in the U.S. may grow at the slowest rate in more than five years this quarter as the housing slump hurts results at companies from IndyMac Bancorp Inc. to Target Corp.
Earnings of Standard & Poor's 500 Index members may rise an average of 2.7 percent from a year earlier, breaking a 20- quarter streak of gains exceeding 10 percent, according to data compiled by Bloomberg.
Profit Growth in U.S. May Hit 5-Year Low on Housing (Update1) - Bloomberg.com
Kevin,
Is it just me or is that DX curve accelerating downward today?
(atm the moment dollar down 0.55% on the day - so far)
MaxedOutMama, Thanks for the information. Learn something new here every day.
If a local bank lends a little developer $3-4 million to build a strip mall, isn't this usually an interim construction loan? The bank is hoping to get taken out by permanent financing near completion and lease-up?
So the bank is evaluating: 1) likelihood of completion; 2) lease-up potential; and 3) availability of permanent financing. Is that right?
Also, what would be a going rate for that type of construction loan in your area right now?
Is it just me or is that DX curve accelerating downward today?
There was no floor under 78.19 we are headed to a new low now we find out where the new floor is going to be and 78.19 will become resistance. Ugly if your holding dollars.
Moody's sued. I can see this happening again and again. Fat times for class-action lawyers.
CNNMoney.com: 404 Page Not Found
The 3-day chart
of the dollar slaughter is also worth a look.
I think "Helicopter Ben's" moniker could actually prevent him from inflating the money supply even if he really wanted to - people would run screaming from the dollar before he even got the ink in the presses.
I'm wondering how much of private nonresidential construction spending is due to quality and ammenities and level of finish. I just don't see the generic 2 story shell tilt up with smoked glass and 400sf of reception area/office in front any more. They all seem carpeted, wired for phones and data and insulated with big HVAC installed. Some of this may make sense but may also be skewing the spending trends.
By the by, did the personal savings rate get switched from negative to positive and I missed it...or am I reading the wrong releases?
News Release: Personal Income and Outlays, October 2009
Regards,
OT, and probably the equivalent of kicking a hornets' nest, but I haven't seen anyone comment on this:
<a href="http://www.thestreet.com/s/buffett-out-bear-hunt-goes-global/newsanalysis/businessinsurance/10381807.html?puc=_cnnmoney&cm_ven=CNNMONEY&cm_cat=Free&cm_pla=Feed&cm_ite=Feed&puc=cnnmoney&>Buffett buying BSC rumor bogus
(lumbering back to my bear cave)
CR and a cup of java
Fantastic blog! Read it every morning with my coffee, amazing how many posts you have a day and all top quality! Keep up the good work. Still cant believe its free, thats not a hit
That Buffet/BSC rumor should be investigated. The BSC chart on the day of the rumor was real fishy-price and volume spike in the morning, hours before the "buffet buy" BS.
Umm anyone watching the dollar,..yikes
great PDF
ttp://www.howestreet.com/articles_as_pdf/2007Sep280805bsccc092807.pdf
I have an OT question to CR and the a excellent readership on this blog: does anyone know the percentage of US inhabitants without credit card debt, who pay in the balance in full each month?
Thanks, O-Joe
A beautiful sunny day here in ATL, I'm going to take the dog out and teach her how to flatten silver dollars on the train tracks.
Market Tickers site has an update on falling dollar
http://tickervideo.org/eod-0927/eod-0927.html
Wrong clip for doom talk on the dollar, here is the right one
http://tickervideo.org/midday-0928/midday-0928.html
TC, my thoughts exactly.
The obvious place to start investigating would be the NYT reporter who published the rumor piece. However, journalists are protected somewhat from revealing their sources, absent a wide ranging Federal probe. How convenient.
Great graphs. I see the falling residential on the YoY graph...So, if it is this steep, where did all the people go as we have seen no spike in unemployment nums. Surely the uptick in non-res construction has not absorbed all these trade folks
Is there really a lag or are non-residential and residential not correlated at all?
Rich,
If a local bank lends a little developer $3-4 million to build a strip mall, isn't this usually an interim construction loan? The bank is hoping to get taken out by permanent financing near completion and lease-up?
Quite often, or they will do the permanent as a participation. In prior times, that is.
So the bank is evaluating: 1) likelihood of completion; 2) lease-up potential; and 3) availability of permanent financing. Is that right?
Normally, except if you get in, you pretty well figure you have to advance the money for completion. What are you going to do - foreclose and hire a more solvent builder? HAW!
Also, what would be a going rate for that type of construction loan in your area right now?
Unknown, because no one I know is doing spec retail now. Building/expansion loans to companies for their own purposes, yes. Government, yes. Construction for residential non-spec with a big chunk of money down, yes.
No spec. The most there might be out there are conversion loans and rework loans for commercial, but those have low LTVs and live in a totally different risk matrix. The market for these small projects is overbuilt for most intents and purposes, and any larger deals would be going to a different tier of banks.
Btw, for any loans to developers/construction whatever, the latest is to ask for a list of all contracts and projects with which the would-be borrower is involved. This is even little dinky country banks.
No one wants to get hit with correlations, and abruptly find that lending 2% to party A and 3% to party B and 4% to party C really amounted to lending 9% to one party, and everyone really wants to be able to show the examiners that they have independence. Call it the Coast Toast Cautionary Principle.
In times of economic woe, correlations tend to converge toward one.
O-Joe - wildly variant figures on credit card debt are often quoted, but it's somewhere around half. Money Central
Mind you, some of that's because people can't qualify for credit cards. Most banker estimates are that at least 20% of the American population doesn't even have a bank account. The figures that article is based are old and the 2007 Survey
will update them.
Optimistic Joe:
Check out this article.
Mother Jones
Old news, but interesting - here is the chart or the BSC pop on the morning of Buffet rumor
BSC Fund Charts - Deutsche Bk Ag Ldn Brh Fund Charts
I'll be a semi-contrarian and say the dollar is probably near a short term bottom of a few days. But 78 is resistance, unfortunately and it'll need to test the low again.
calmo,
I think as soon as projects in the pipeline are finished, commercial construction spending will come crashing down. I think these are vastly overbuilt in most metros:
Private office space
Government office space
Hotel/motel
Retail, including restaurant/bars
rich | 09.28.07 - 11:07 am | #
Hey Rich - do you have any data or analysis specific to to Hotel/motel or are is the segment just part of your broader hypothesis? I'm following it closely, but most of the data I'm getting is pretty upbeat...which obviously makes me stratch my head and ask, how can it be so "different" than the rest of CRE? I also feel like it should turn south, but looking for data.