FRom Sub prime this is now a real estate crisis (still many places keep calling it the "sub prime" problem) but I wonder if this is true:
"The wider Derivaves market continues to escape proper scruitiny. Sadly the the full answer may only become apparent when the cash runs out. Derivatives have provoked excess liquidity allowing assets to be bid up without the need generate growth. The unwinding of ecess credit will likely be very severe."
Sadly the the full answer may only become apparent when the cash runs out.
Yal - its always about cash... whether residential or commercial. If the lender can make the monthly nut, they make it... might not like it but make the payment & live to fight another day.
Its when they can't and no one will lend them more to dig themselves deeper that it moves from potential problem to crisis. If these commercial guys were IO too (and I am astonished to read many were)... then its no surprise that some are starting to find themselves in a cash crunch.
many of the CRE articles i've read indicate that most of the irresponsible lending occurred ONLY within the last year. if so, i would expect the CRE damage to be fairly limited. whats your take on this?
I'm glad to see that all the laws of economy are still perfectly working
It will be an orderly recession, well described in all textbooks and properly charted. All the textbook's theory on sector rotation, stock/bond ratio, commodity pricing will work as before.
many of the CRE articles i've read indicate that most of the irresponsible lending occurred ONLY within the last year. if so, i would expect the CRE damage to be fairly limited. whats your take on this?
I wonder how many of these earlier 'sound' loans even if not crazy IO were predicated on unrealistic rent growth (predicted on unrealistic sales and margin estimates from the tenants)... Similar to unrealistic job and wage growth supporting the residential side... at least for a while.
Just wonderin' as I don't have inside info. Love to hear form those who do.
Just for the record - I think CRE failures in fly over will be far worse than the residential side... We just didn't have the residential build up they did on the coast but we sure have seen the CRE build up and we don't have the numbers or incomes to support it.
Still looking for info on the Chinese "lending freeze". Anybody seen anything yet?? I've been talking to a Chinese investment guy over there the last few minutes... he's digging for info. Here's the link:
The China Banking Regulatory Commission said it's giving ``guidance'' to banks to cool lending that's already topped its goal of 15 percent growth this year and threatens to overheat the world's fastest-growing major economy.
The regulator denied a Wall Street Journal report today that it had ordered banks to freeze this year's lending at Oct. 31 levels. A 15 percent ceiling on loan growth is ``informal guidance, not a hard target,'' said Lai Xiaomin, the commission's Beijing-based spokesman.
CRE failures in fly over will be far worse than the residential side
That's a good point, but is there a possible upside here? Seems to me that unless the overall economy tanks completely, there has to be an opportunity for some location-independent businesses.
(Maybe someone might even consider bringing back an offshored function where the ofshoring didn't work out as well as expected.)
I'm seeing that already even without cheaper CRE - just the dollar alone is making people take pause when considering domestic vs offshore. Include falling rents and it has to get real attractive for the right businesses to 'in-shore'.
But it isn't a solution for every business - they don't call it 'fly over' for nothing.
Sorry to nag, but this just posted at the site I was monitoring, by the source of the info:
"Whether the CBRC decided to act on this or not. I can not comment. What I can comment on is that on Friday the loan officer in a US bank in Pudong has stopped the withdrawal of a facility with a guarantee from the US parent bank and stated:
the PBOC and CBRC have halted all bank lending
This decree is Neibu or internal and there is no formal written documentation for it.
I have been in China for almost 12 years and last time a similar decree came down was during the 97 Asian Contagion.
Almost overnight you could not send money out of China for about a month. Later it was modified to allow payments for trade only.
If you can imagine trying to explain to your head office. I know we are legally allowed to repatriate profits but the bank wont let me. There is a policy. No they wont show it to me it is Nei Bu (internal) No I dont know when they will let us send money again.
So in the past 3-4 months we came to the realization that credit risk was mis-priced for CDOs now hopefully people will realize the Shanghai Composite index is also mis-priced.
Jay Boyle"
Dryfly... this mean anything to you? (no sarcasm - I'm sincere).
I know... I'm wildly off-topic. I'll shut up for good, now.
Watch China Daily, I left you a link over on the other thread. CD rarely says anything controversial but you usually get pretty good confirmation of what you read other places.
So if China was going to drop the hammer, there would be a ho-hum article in CD of why it was necessary and good for everyone (including Pandas and Tigers). There was nothing on this in CD earlier - mum, nadda. But they did have an article a couple days ago similar to the Bloomie piece TJ cited.
BTW - I actually cut & pasted the original WSJ article. Figured it would be 'interesting' to go back to some day. One of their sources was jerking their chain - no doubt ROTFLAO over it. Not a surprise.
No. But I have friends who do business everyday with China. They just started a plant in China and they'd know if capital flows were shut off about as fast as we'd know if somebody cut off blood to our brain. I have to talk to them tomorrow anyway and will ask some stupid questions. I am good at that.
However if this is even 1% for real, we'll wake up and know about it. If we wake up and the news is about football or local traffic - then Kudlow is right. G'night.
Barrons article regarding ACA. I thought it was interesting the note at the end how Wall St firms were using ACA to shift mark to market losses off their balance sheets.
"Nov. 19 (Bloomberg) -- Shareholders in the securities industry are having their worst year since 2002, losing $74 billion of their equity. That won't prevent Wall Street from paying record bonuses, totaling almost $38 billion.
That money, split among about 186,000 workers at Goldman Sachs Group Inc., Morgan Stanley, Merrill Lynch & Co., Lehman Brothers Holdings Inc. and Bear Stearns Cos., equates to an average of $201,500 per person, according to data compiled by Bloomberg. The five biggest U.S. securities firms paid $36 billion to employees last year. "
WTF?! Biggest credit crisis in the history but bonuses just keep going up!
No wonder US manufacturing base has been decimated because there is no need to produce anything. Just print more money and everybody will be happy!
While the record low dollar and the fastest inflation in 14 months give policy makers reasons to keep the target rate for overnight loans between banks at 4.5 percent, traders expect 3.75 percent early in 2008. Interest-rate futures on the Chicago Board of Trade show the Fed will cut borrowing costs in December and again in the first quarter, as the worst housing slump since 1991 deepens and retailers including J.C. Penney Co. and Macy's Inc. forecast slumping sales.
[snip]
Joseph Stiglitz, the Columbia University professor and Nobel-prize winning economist, said there is a 50 percent chance of a recession in the U.S. as a worldwide increase in credit costs following the collapse of the subprime mortgage market chokes off financing. ``I'm very pessimistic,'' Stiglitz said in an interview in London Nov. 16.
[snip]
For the first time since 2001, yields on Treasuries maturing from three months to 10 years are below the federal funds rate. Five of the past six times that has happened, the economy entered a recession, data compiled by Bloomberg show.
The most vulnerable segment of CRE now is retail. After the holidays, you will see vast amounts of space come available. Big chains will go under and others will have to cut back. Strip malls will go bust and maybe some regional malls, too.
For too long, retail chains have been opening new stores without regard to sustainable demand or recession risk. Now, they have to pay.
Not that there won't be comical moments - no time to chase down links - but I thought I saw Goldman Sacks downgraded Citi to a sell this morning (ticker crawl on Bloomberg) and read a news blurb that this morning a Citi analyst upgraded the entire US banking sector!
Re: commercial re lending (used to be in it). Typical top of cycle is over lending on existing, and starting new projects that don't have a market. My feeling is that it wasn't off the charts this time - some of the hot money equity is in ahead of the commercial stuff, and people in the commercial business were less likely to throw their calculators out the window than the resi people were. The problem is what dryfly pointed out: if the leasing market falters, then the lenders who stretched will get hurt. Some of the io stuff (e.g. the Macklowe deal) didn't seem that crazy. If you have $30 rents in a $60 markety, you are going to get a bump up when they turn over. But I think a lot of the commercial may be vulnerable, and hotels always get hit in a downturn. Some of the big commercial may have values underpinned by the low dollar. If you can buy 5th Ave office for __ pounds, euro or gulf dollar per sq. foot, you might bite.
Blame it on the weather, AGAIN. From our friends @ LOW:
"Many external factors contributed to the weak sales environment, including a continuing housing correction, drought conditions in several U.S. markets, and slower than expected sales in Gulf Coast markets,"
from FT....Swiss Re, the worlds biggest reinsurer, on Monday became the latest casualty of the subprime crisis as it announced a SFr1.2bn ($.1.01bn, 733m) writedown....
we all know US banks' writedowns..housing hyperinflation (besides sundry other asset classes) is worldwide.. we will soon hear banks' abroad taking losses..
chindia/ireland/spain/UK/canada/OZ /dubai etc etc
"WTF?! Biggest credit crisis in the history but bonuses just keep going up!"
I saw a larger story about this. If I recall correctly, over $20B of the $38B went to Goldman Sachs alone.
Also, the report said it was a tale of 2 bonuses... if you worked in Fixed Income, you get nothing except maybe a pink slip. All other fields did well and are looking at huge bonuses.
For the record: I was wrong about the ASN merger not being completed. glad I did not shorted ASN. Merger closed on Oct 5th and they delisted from NYSE on Oct 22.
Nov. 19 (Bloomberg) -- Citigroup Inc., the largest U.S. bank by assets, was lowered to ``sell'' by Goldman Sachs Group Inc. as rising mortgage delinquencies cut into earnings.
Given the dislocations in the credit markets, we have become more pessimistic,'' New York-based analyst William F Tanona wrote to investors today, downgrading New York-based Citigroup fromneutral.'' ``Citigroup will likely face an increasingly challenging operating environment which is likely to pressure results in many of their businesses.''
[snip]
By contrast, Citigroup recommended that investors buy U.S. bank stocks. New York-based analyst Tobias Levkovich raised his rating on the companies to overweight'' frommarket weight'' because of ``compelling valuation, depressed earnings revision data and awful investor sentiment.''
It will be an orderly recession, well described in all textbooks and properly charted. All the textbook's theory on sector rotation, stock/bond ratio, commodity pricing will work as before.
What if a giant comet hits the Earth during the middle of it?
The headline in the financial futures market these days says Federal Reserve Chairman Ben S. Bernanke is withholding some vital information: The economy is so bad the central bank will have to lower interest rates at least three-quarters of a percentage point to avoid a recession.
The economy is "so bad" because we keep lowering interest rates, not be cause we need lower interest rates.
If runaway speculation and $150/bbl oil helps the economy, go right ahead. Cut away.
"For too long, retail chains have been opening new stores without regard to sustainable demand or recession risk. Now, they have to pay."
Yeah; it was all, "grow first, establish dominance, then book profits." So you end up with a giant Borders books down the street from a humongous Barnes and Noble next to an established local firm. That's not going to last.
Boss, I'm from India and in India situation is exactly opposite to US. But, But India would become another case study for " Housing crisis in a decade". Here brokers are doing the damage by making prices out of reach for common people. There is no regulation and nothing. If regulated market like US is suffering this much of damage means, I'm afraid to think about the situation that is going to happen in India. Last but not least, this is brilliant blog for novice like me.
The multi-billion-pound London offices market is set for further price falls as evidence emerges that big banks have put their requirements for large new lettings on hold for up to a year and are opting for short-term flexible leases.
....
Banks and financial services companies have taken up to 80 per cent more flexible lease contracts between July and October than the third quarter a year ago, when the occupier market was healthy. Previously it has been more usual for banks to sign up to ten to twenty-year leases. The average term for the short flexi-leases has doubled to about 18 months.
...
Btw, Citi's current investment strategist, New York-based analyst Tobias Levkovich, for a long-time was a very solid machinery company analyst.
Kind of doubt Levkovich understands banks very well at all -- in fact, reminds me of the now-famous quip about Silas Cathcart when he was named CEO of Kidder Peabody by GE . . . . . "just what the company needed - a good tool & die man".
Swiss RE losing 1.2 bil on credit default swap (underlying asset not disclosed).....imagine a weaker seller of CDSs not being able to perform on its obligations.....the cascading effect and the potential systemic risk!
energyecon,
Questions if you have a minute.
1. Do you think gas prices are going to kill holiday sales this year? (I do)
2. Do you recommend any websites for energy information? The only guru I follow at all is Charlie Maxwell, what do you think of his expertise?
We will shortly invest in deeply discounted mortgage tranches or possibly commercial mortgages and have assembled a team of experts to guide us in this contrarian opportunity of the decade!
I spent some time this weekend digging into the LA/Long Beach container volume data that Stagflationary Mark has some great plots of in his blog 'Illusion of Prosperity'- CA is in recession already by those numbers IMNSHO - increasing gas prices on top of that is going to slaughter the holiday shopping spirit there. Regionally, it is a more complex picture but overall I buy the 'Grinchmas' thesis this year, particularly with not just motor gasoline but also heating oil price increaes hitting East Coast consumers.
I am not familiar with Charlie Maxwell, I will look into his writing (any links appreciated). Since I am 'long' oil already by working for a major I have been focused on the credit implosion underway (thinking this is the start of first inning, derivatives exposures will be the big ball game). I have developed a taste for 'The Oil Drum' blog, which is a Peak Oil site that often has excellent technical analysis (of oil & gas, not markets).
Thanks energy and ajm. I've held the opinion for a while that energy prices might be the last straw for our current economic cycle.
We've only had since the embargo of 1973 to do anything about our national energy policy. So here we are in 2007 driving our Ford Exploitations back to our 3,500 sq. ft. starter homes bitching about the price of gas.
I've only heard Charlie Maxwell on the radio. His position is that all the pricing until 2011 or so will be driven off speculation and weather events. After that, we'll be running against Peak Oil exhaustion in many areas (i.e.: watch out!).
The problems in CRE will be much smaller than in residential. The crazy loans were mostly done over a 12-18 months period and the craziest loans have 10 year maturities (and 10 years of IO). So the owners will have little cash flow and little reason to put money into the properties, but they won't sell. They'll hold on for the better day, but unlike residential where the ARM adjustments force the borrower to give up because they can't make the payments, in CRE the borrowers will be able to stay current (and some will default in 9 years when they need to renew). Also, this time, with some exceptions, the markets are not overbuilt and rents were just starting to firm, but they hadn't moved much, so the underwriting on theses loans and the acquisitions were not based on rents that are about to drop. In fact, the surprising thing about this cycle is that since 2002, cap rates kept dropping, but rents stayed steady. Usually rents would have risen by now. And, construction costs kept rising dramatically and have not started dropping. I see a flat CRE market for a couple years. This will definitely not be 1991 all over again. BTW, I say this all in light of the fact that I expect us to have a recession.
Lama,
i would second the recomendation of "The Oil Drum", it is to Energy what CR is to housing and mortgage finance. Very knowledgable people with a bit of a gloomy slant (although in the case of energy it is bullish for the energy stocks).
I would agree that this is a good thing for buyers. Other than those people who have to sell their commercial properties in the next couple years, it is good for commercial investors who are tired of paying millions of dollars for ridiculously low returns.
FRom Sub prime this is now a real estate crisis (still many places keep calling it the "sub prime" problem) but I wonder if this is true:
"The wider Derivaves market continues to escape proper scruitiny. Sadly the the full answer may only become apparent when the cash runs out. Derivatives have provoked excess liquidity allowing assets to be bid up without the need generate growth. The unwinding of ecess credit will likely be very severe."
comment in: Rumsfeld logic serves as guide to direction of US economy - Times Online
Congrats to CR on calling this
Why all the sour faces? This is how things were meant to happen. Rejoice! Rejoice! It's time to make some money!!!
buy SRS
Sadly the the full answer may only become apparent when the cash runs out.
Yal - its always about cash... whether residential or commercial. If the lender can make the monthly nut, they make it... might not like it but make the payment & live to fight another day.
Its when they can't and no one will lend them more to dig themselves deeper that it moves from potential problem to crisis. If these commercial guys were IO too (and I am astonished to read many were)... then its no surprise that some are starting to find themselves in a cash crunch.
If the lender can make the monthly nut, they make it.
Make that BORROWER makes the monthly nut.... grrr, by brain has been backwards this whole weekend.
CR
many of the CRE articles i've read indicate that most of the irresponsible lending occurred ONLY within the last year. if so, i would expect the CRE damage to be fairly limited. whats your take on this?
I'm glad to see that all the laws of economy are still perfectly working
It will be an orderly recession, well described in all textbooks and properly charted. All the textbook's theory on sector rotation, stock/bond ratio, commodity pricing will work as before.
Riding the trend both ways, up and down
many of the CRE articles i've read indicate that most of the irresponsible lending occurred ONLY within the last year. if so, i would expect the CRE damage to be fairly limited. whats your take on this?
I wonder how many of these earlier 'sound' loans even if not crazy IO were predicated on unrealistic rent growth (predicted on unrealistic sales and margin estimates from the tenants)... Similar to unrealistic job and wage growth supporting the residential side... at least for a while.
Just wonderin' as I don't have inside info. Love to hear form those who do.
Just for the record - I think CRE failures in fly over will be far worse than the residential side... We just didn't have the residential build up they did on the coast but we sure have seen the CRE build up and we don't have the numbers or incomes to support it.
Ahjmadinejad calls the dollar "a worthless piece of paper." Pretty near the truth, too near for comfort.
BBC NEWS | Americas | Iran leader dismisses US currency
This will definitely hurt many banks just as it did during the 1980s S&L/Bank crisis.
and there's this, a drop in CRE values reported from MIT http://
web.mit.edu/newsoffice/2007/commercial-1114.html
OT, but the Nikkei dove -112 late, the Yen is climbing again, and the index futures have turned slightly red.
Still looking for info on the Chinese "lending freeze". Anybody seen anything yet?? I've been talking to a Chinese investment guy over there the last few minutes... he's digging for info. Here's the link:
All Roads Lead To China
"Derivatives have provoked excess liquidity allowing assets to be bid up without the need generate growth.
In a nutshell.
Close quote after "growth."
Bloomberg:
The China Banking Regulatory Commission said it's giving ``guidance'' to banks to cool lending that's already topped its goal of 15 percent growth this year and threatens to overheat the world's fastest-growing major economy.
The regulator denied a Wall Street Journal report today that it had ordered banks to freeze this year's lending at Oct. 31 levels. A 15 percent ceiling on loan growth is ``informal guidance, not a hard target,'' said Lai Xiaomin, the commission's Beijing-based spokesman.
TJ,
Thanks... just read that one myself. Dry's remarks in previous thread are very interesting, though.
I'll chill out.
Thanks, guys.
dryfly,
CRE failures in fly over will be far worse than the residential side
That's a good point, but is there a possible upside here? Seems to me that unless the overall economy tanks completely, there has to be an opportunity for some location-independent businesses.
Cheap Commercial rents/prices,
+ better residential affordability for staff
= relocation/startup opportunity???
(Maybe someone might even consider bringing back an offshored function where the ofshoring didn't work out as well as expected.)
SO... who had thebiggest CRE exposure in California? Cause they're gonna get trounced.
Cheap Commercial rents/prices,
+ better residential affordability for staff
= relocation/startup opportunity???
(Maybe someone might even consider bringing back an offshored function where the ofshoring didn't work out as well as expected.)
I'm seeing that already even without cheaper CRE - just the dollar alone is making people take pause when considering domestic vs offshore. Include falling rents and it has to get real attractive for the right businesses to 'in-shore'.
But it isn't a solution for every business - they don't call it 'fly over' for nothing.
Sorry to nag, but this just posted at the site I was monitoring, by the source of the info:
"Whether the CBRC decided to act on this or not. I can not comment. What I can comment on is that on Friday the loan officer in a US bank in Pudong has stopped the withdrawal of a facility with a guarantee from the US parent bank and stated:
the PBOC and CBRC have halted all bank lending
This decree is Neibu or internal and there is no formal written documentation for it.
I have been in China for almost 12 years and last time a similar decree came down was during the 97 Asian Contagion.
Almost overnight you could not send money out of China for about a month. Later it was modified to allow payments for trade only.
If you can imagine trying to explain to your head office. I know we are legally allowed to repatriate profits but the bank wont let me. There is a policy. No they wont show it to me it is Nei Bu (internal) No I dont know when they will let us send money again.
So in the past 3-4 months we came to the realization that credit risk was mis-priced for CDOs now hopefully people will realize the Shanghai Composite index is also mis-priced.
Jay Boyle"
Dryfly... this mean anything to you? (no sarcasm - I'm sincere).
I know... I'm wildly off-topic. I'll shut up for good, now.
Thanks
"SO... who had the biggest CRE exposure in California? Cause they're gonna get trounced."
GE?
Arden Realty Inc.
I'll chill out. - Dave S
Watch China Daily, I left you a link over on the other thread. CD rarely says anything controversial but you usually get pretty good confirmation of what you read other places.
So if China was going to drop the hammer, there would be a ho-hum article in CD of why it was necessary and good for everyone (including Pandas and Tigers). There was nothing on this in CD earlier - mum, nadda. But they did have an article a couple days ago similar to the Bloomie piece TJ cited.
BTW - I actually cut & pasted the original WSJ article. Figured it would be 'interesting' to go back to some day. One of their sources was jerking their chain - no doubt ROTFLAO over it. Not a surprise.
Dryfly... this mean anything to you?
No. But I have friends who do business everyday with China. They just started a plant in China and they'd know if capital flows were shut off about as fast as we'd know if somebody cut off blood to our brain. I have to talk to them tomorrow anyway and will ask some stupid questions. I am good at that.
However if this is even 1% for real, we'll wake up and know about it. If we wake up and the news is about football or local traffic - then Kudlow is right. G'night.
How sticky is CRE?
"How sticky is CRE?"
Sticky as a handful of beach sand?
Barrons article regarding ACA. I thought it was interesting the note at the end how Wall St firms were using ACA to shift mark to market losses off their balance sheets.
CDO Dumping Ground Still Sinking - Barrons.com
"Nov. 19 (Bloomberg) -- Shareholders in the securities industry are having their worst year since 2002, losing $74 billion of their equity. That won't prevent Wall Street from paying record bonuses, totaling almost $38 billion.
That money, split among about 186,000 workers at Goldman Sachs Group Inc., Morgan Stanley, Merrill Lynch & Co., Lehman Brothers Holdings Inc. and Bear Stearns Cos., equates to an average of $201,500 per person, according to data compiled by Bloomberg. The five biggest U.S. securities firms paid $36 billion to employees last year. "
WTF?! Biggest credit crisis in the history but bonuses just keep going up!
No wonder US manufacturing base has been decimated because there is no need to produce anything. Just print more money and everybody will be happy!
1.2% PER MONTH? Even for 1 month that is a big drop. Is CRE less sticky than RRE? How much less so?
Headline article on Bloomberg this morning, pretty dismal stuff for MSM just before the holidays...
Bond Market to Fed: Recession Threat Means More Cuts (Update1)
[snip]
While the record low dollar and the fastest inflation in 14 months give policy makers reasons to keep the target rate for overnight loans between banks at 4.5 percent, traders expect 3.75 percent early in 2008. Interest-rate futures on the Chicago Board of Trade show the Fed will cut borrowing costs in December and again in the first quarter, as the worst housing slump since 1991 deepens and retailers including J.C. Penney Co. and Macy's Inc. forecast slumping sales.
[snip]
Joseph Stiglitz, the Columbia University professor and Nobel-prize winning economist, said there is a 50 percent chance of a recession in the U.S. as a worldwide increase in credit costs following the collapse of the subprime mortgage market chokes off financing. ``I'm very pessimistic,'' Stiglitz said in an interview in London Nov. 16.
[snip]
For the first time since 2001, yields on Treasuries maturing from three months to 10 years are below the federal funds rate. Five of the past six times that has happened, the economy entered a recession, data compiled by Bloomberg show.
[snip]
The most vulnerable segment of CRE now is retail. After the holidays, you will see vast amounts of space come available. Big chains will go under and others will have to cut back. Strip malls will go bust and maybe some regional malls, too.
For too long, retail chains have been opening new stores without regard to sustainable demand or recession risk. Now, they have to pay.
Here are some China charts. I think we're about ready to test the decoupling theory.
Not that there won't be comical moments - no time to chase down links - but I thought I saw Goldman Sacks downgraded Citi to a sell this morning (ticker crawl on Bloomberg) and read a news blurb that this morning a Citi analyst upgraded the entire US banking sector!
Re: commercial re lending (used to be in it). Typical top of cycle is over lending on existing, and starting new projects that don't have a market. My feeling is that it wasn't off the charts this time - some of the hot money equity is in ahead of the commercial stuff, and people in the commercial business were less likely to throw their calculators out the window than the resi people were. The problem is what dryfly pointed out: if the leasing market falters, then the lenders who stretched will get hurt. Some of the io stuff (e.g. the Macklowe deal) didn't seem that crazy. If you have $30 rents in a $60 markety, you are going to get a bump up when they turn over. But I think a lot of the commercial may be vulnerable, and hotels always get hit in a downturn. Some of the big commercial may have values underpinned by the low dollar. If you can buy 5th Ave office for __ pounds, euro or gulf dollar per sq. foot, you might bite.
idoc says buy SRS...
why not short vornado or simon reits...
CR, did n't you say that lag was 6 months..or is it 18 months now.
Blame it on the weather, AGAIN. From our friends @ LOW:
"Many external factors contributed to the weak sales environment, including a continuing housing correction, drought conditions in several U.S. markets, and slower than expected sales in Gulf Coast markets,"
from FT....Swiss Re, the worlds biggest reinsurer, on Monday became the latest casualty of the subprime crisis as it announced a SFr1.2bn ($.1.01bn, 733m) writedown....
we all know US banks' writedowns..housing hyperinflation (besides sundry other asset classes) is worldwide.. we will soon hear banks' abroad taking losses..
chindia/ireland/spain/UK/canada/OZ /dubai etc etc
3-month Libor fixes this a.m.:
Sterling 6.4475% (Fri 6.39875%)
Euro 4.61875% (4.59%)
Dollar 4.98188% (4.94875%)
Seventh consecutive daily increase for sterling rate.
"WTF?! Biggest credit crisis in the history but bonuses just keep going up!"
I saw a larger story about this. If I recall correctly, over $20B of the $38B went to Goldman Sachs alone.
Also, the report said it was a tale of 2 bonuses... if you worked in Fixed Income, you get nothing except maybe a pink slip. All other fields did well and are looking at huge bonuses.
disgusting yes I know.
CR:
I also thought that I had read that CRE follows residential by 6 months, not 18...
are there different "lags". (i.e. 6 month lags in terms of numbers, 18 in terms of value or something?)
TIA
Comic relief;
Citigroup Raises U.S. Bank Stocks Ratings to `Overweight'
Citigroup Raises U.S. Bank Stocks Ratings to `Overweight' - Bloomberg.com
idoc says buy SRS...
How about an SKS , and an extra clip ?
A bit off topic, but Friedman Billings just removed FNM from their TOP picks Buy list and rated the stock Neutral.
FBR's been Fannie's wall street closet love slave for a decade or two, so this move at this time is kind of interesting . . . . .
For the record: I was wrong about the ASN merger not being completed. glad I did not shorted ASN. Merger closed on Oct 5th and they delisted from NYSE on Oct 22.
Here is the Monday funnies!
Citigroup Downgraded to `Sell' at Goldman Sachs (Update2)
By Adam Haigh and Ambereen Choudhury
Nov. 19 (Bloomberg) -- Citigroup Inc., the largest U.S. bank by assets, was lowered to ``sell'' by Goldman Sachs Group Inc. as rising mortgage delinquencies cut into earnings.
Given the dislocations in the credit markets, we have become more pessimistic,'' New York-based analyst William F Tanona wrote to investors today, downgrading New York-based Citigroup fromneutral.'' ``Citigroup will likely face an increasingly challenging operating environment which is likely to pressure results in many of their businesses.''
[snip]
By contrast, Citigroup recommended that investors buy U.S. bank stocks. New York-based analyst Tobias Levkovich raised his rating on the companies to overweight'' frommarket weight'' because of ``compelling valuation, depressed earnings revision data and awful investor sentiment.''
[snip]
It will be an orderly recession, well described in all textbooks and properly charted. All the textbook's theory on sector rotation, stock/bond ratio, commodity pricing will work as before.
What if a giant comet hits the Earth during the middle of it?
Aside on CRE lag - I recall from earlier postings a 5 to 8 quarter lag for CRE to follow RRE - anyone else remember something like that?
"SO... who had the biggest CRE exposure in California? Cause they're gonna get trounced."
GE?
http://www.ardenrealty.com/about...out/aboutArden/
Stock tickers only please.
Spare us the details -- some of us actually have work to do.
Sheesh.
The headline in the financial futures market these days says Federal Reserve Chairman Ben S. Bernanke is withholding some vital information: The economy is so bad the central bank will have to lower interest rates at least three-quarters of a percentage point to avoid a recession.
The economy is "so bad" because we keep lowering interest rates, not be cause we need lower interest rates.
If runaway speculation and $150/bbl oil helps the economy, go right ahead. Cut away.
"For too long, retail chains have been opening new stores without regard to sustainable demand or recession risk. Now, they have to pay."
Yeah; it was all, "grow first, establish dominance, then book profits." So you end up with a giant Borders books down the street from a humongous Barnes and Noble next to an established local firm. That's not going to last.
"Some of the io stuff (e.g. the Macklowe deal) didn't seem that crazy."
None of it seemed crazy at the time. And as long as nothing ever goes wrong it was a good plan.
Boss, I'm from India and in India situation is exactly opposite to US. But, But India would become another case study for " Housing crisis in a decade". Here brokers are doing the damage by making prices out of reach for common people. There is no regulation and nothing. If regulated market like US is suffering this much of damage means, I'm afraid to think about the situation that is going to happen in India. Last but not least, this is brilliant blog for novice like me.
Meanwhile in London, UK
The multi-billion-pound London offices market is set for further price falls as evidence emerges that big banks have put their requirements for large new lettings on hold for up to a year and are opting for short-term flexible leases.
....
Banks and financial services companies have taken up to 80 per cent more flexible lease contracts between July and October than the third quarter a year ago, when the occupier market was healthy. Previously it has been more usual for banks to sign up to ten to twenty-year leases. The average term for the short flexi-leases has doubled to about 18 months.
...
London office prices fall as banks delay deals - Times Online
-K
Btw, Citi's current investment strategist, New York-based analyst Tobias Levkovich, for a long-time was a very solid machinery company analyst.
Kind of doubt Levkovich understands banks very well at all -- in fact, reminds me of the now-famous quip about Silas Cathcart when he was named CEO of Kidder Peabody by GE . . . . . "just what the company needed - a good tool & die man".
off- topic:
Swiss RE losing 1.2 bil on credit default swap (underlying asset not disclosed).....imagine a weaker seller of CDSs not being able to perform on its obligations.....the cascading effect and the potential systemic risk!
energyecon,
Questions if you have a minute.
1. Do you think gas prices are going to kill holiday sales this year? (I do)
2. Do you recommend any websites for energy information? The only guru I follow at all is Charlie Maxwell, what do you think of his expertise?
Thanks,
We will shortly invest in deeply discounted mortgage tranches or possibly commercial mortgages and have assembled a team of experts to guide us in this contrarian opportunity of the decade!
lama,
I spent some time this weekend digging into the LA/Long Beach container volume data that Stagflationary Mark has some great plots of in his blog 'Illusion of Prosperity'- CA is in recession already by those numbers IMNSHO - increasing gas prices on top of that is going to slaughter the holiday shopping spirit there. Regionally, it is a more complex picture but overall I buy the 'Grinchmas' thesis this year, particularly with not just motor gasoline but also heating oil price increaes hitting East Coast consumers.
I am not familiar with Charlie Maxwell, I will look into his writing (any links appreciated). Since I am 'long' oil already by working for a major I have been focused on the credit implosion underway (thinking this is the start of first inning, derivatives exposures will be the big ball game). I have developed a taste for 'The Oil Drum' blog, which is a Peak Oil site that often has excellent technical analysis (of oil & gas, not markets).
Researched this last week. My gut feeling says commercial real estate is going down too. But, there are others who disagree...
"Storm Brewing For U.S. Commercial Real Estate Sector?"
Boom2Bust.com » Blog Archive » Storm Brewing For U.S. Commercial Real Estate Sector?
Regarding the "The Oil Drum" if you don the proper tinfoil hat, is next to calcluated risk, the most informative website on the net.
Thanks energy and ajm. I've held the opinion for a while that energy prices might be the last straw for our current economic cycle.
We've only had since the embargo of 1973 to do anything about our national energy policy. So here we are in 2007 driving our Ford Exploitations back to our 3,500 sq. ft. starter homes bitching about the price of gas.
I've only heard Charlie Maxwell on the radio. His position is that all the pricing until 2011 or so will be driven off speculation and weather events. After that, we'll be running against Peak Oil exhaustion in many areas (i.e.: watch out!).
The problems in CRE will be much smaller than in residential. The crazy loans were mostly done over a 12-18 months period and the craziest loans have 10 year maturities (and 10 years of IO). So the owners will have little cash flow and little reason to put money into the properties, but they won't sell. They'll hold on for the better day, but unlike residential where the ARM adjustments force the borrower to give up because they can't make the payments, in CRE the borrowers will be able to stay current (and some will default in 9 years when they need to renew). Also, this time, with some exceptions, the markets are not overbuilt and rents were just starting to firm, but they hadn't moved much, so the underwriting on theses loans and the acquisitions were not based on rents that are about to drop. In fact, the surprising thing about this cycle is that since 2002, cap rates kept dropping, but rents stayed steady. Usually rents would have risen by now. And, construction costs kept rising dramatically and have not started dropping. I see a flat CRE market for a couple years. This will definitely not be 1991 all over again. BTW, I say this all in light of the fact that I expect us to have a recession.
Chicago lenders' business loans going bad
Local lenders' business loans going bad | Crain's Chicago Business
Lama,
i would second the recomendation of "The Oil Drum", it is to Energy what CR is to housing and mortgage finance. Very knowledgable people with a bit of a gloomy slant (although in the case of energy it is bullish for the energy stocks).
I would agree that this is a good thing for buyers. Other than those people who have to sell their commercial properties in the next couple years, it is good for commercial investors who are tired of paying millions of dollars for ridiculously low returns.