O.C. Register on CRE: Turn out the lights ...
Submitted by
CalculatedRisk on Tue, 12/04/2007 - 10:00pm (17 comments)
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OK, so a necessary slowdown in residential and commercial investment. An inevitable retreat by stock investors as earnings go south.
Then where will all this newly-minted money from the Fed get invested?
ot:
Then where will all this newly-minted money from the Fed get invested?
Somebody will have to have good enough assets to borrow against first - ALL the way along the chain - I'd also claim that people will first have to WANT to borrow that money too ALL the way down the chain.
But anyway actually as yet the Fed is NOT minting money. It not only didn't replace/refund/didn't re-REPO expiring (and thus withdrew) $6B worth of repos
The Slosh Report
today in its temporary operations but in a very odd manouver, IMO anyway, it's announced that it will pull out another $6B on Thursday
Statement Regarding Open Market Operations - Operating Policy - Federal Reserve Bank of New York
I gotta admit I have no idea what's going on here. The easiest way for me to think of this is that people are refusing to borrow at 4.50 and there is pressure in the market( the real market not these squawkers on TeeVee) for lower rates and to maintain its 4.50 target the Fed may even have to do a reverse repo and its doing these machinations to avoid that.
That's deflation by any stretch of my imagination.
For wordy descriptions ( no relation ) of some aspects of this:
Hussman Funds - Weekly Market Comment: An Irrelevant Fed - Thimbles of Water in a Forest Fire - December 4, 2007
-k
CAP rates lulled many into paying max dollars for CRE . . or paying max dollars for the residual land values, just like us previously stupid residential guys.
Risk has been ignored just like the guys on Wall Streed crafting the CDO and SIV models.
Streed? is that a blend of Street and greed? Ha!
Those PHeD guys'll fix it!
BTW, I'm especially enjoying the congressional discussions about credit card rates. . . "we raise the rates when their credit rating drops" (we wait until they break a leg, then we kick 'em in the groin).
Sippin: they said that [quoted in ABC or NBC nightly news I think] when they raise rates, the customer pays off their balance faster so it's a good thing!
A new UCLA Anderson Forecast is coming out:
"No recession in 2008, study predicts"
"Among the silver linings:
Los Angeles Times -- Business, Technology, Real Estate, Hollywood, Economics, News - latimes.com
LA Times - The chill spreads to commercial real estate
The chill spreads to commercial - Los Angeles Times
excerpt - "Most observers expect to see calm return and commercial real estate prices to rise again some time in 2008."
"Notwithstanding how bad it looks now, commercial real estate will improve in the first to second quarter of next year, real estate attorney Michael Hamilton of DLA Piper believes."
More can't happen here delusion.
Something that might be emulated around here, from the USAF ([ahem] irregular, of course):
The Death Wears Bunny Slippers patch
BTW, I'm especially enjoying the congressional discussions about credit card rates. . . "we raise the rates when their credit rating drops" (we wait until they break a leg, then we kick 'em in the groin).
You must think lending money is a charitable enterprise. Where did you get that idea?
Okay, totally OT but please humour me.
Am I missing something here? Is this irresponsible writing or is this guy just clueless. The gist of his article is "don't invest in bear funds when the market is going down" and to offer proof that they are rubbish he points out that they have done poorly over the last 3-5 years. Well, duh! I think he is trying to make the point that bear funds shouldn't be used to time markets, but that is true of bull funds too, no?
Once a bear market begins, it's too late for 'bear' funds to help Chuck Jaffe - MarketWatch
Sorta kinda OT:
Fed May Couple Rate Cut With New Measures to Increase Credit
oops-- not sure why the bloomberg url takes you to haloscan!
Fed May Couple Cut With Measures to Increase Credit (Update2) - Bloomberg.com
" The easiest way for me to think of this is that people are refusing to borrow at 4.50"
Oh no, that could happen in Japan, but NEVER here!
"Due to the deep slump for CRE during the business led recession in 2001, CRE is nowhere near as overbuilt as residential"
CR: Are you sure about this. On the surface, I think I too would agree with this.
However, I'm not sure that we necessarily purged all the excesses of the late 1990's during the 2001-2003 downturn.
And worse, I wonder how much of this CRE was built forecasting future residential development.
We may have a mismatch of CRE if you will...
for instance, in my metro area, there are huge office complexes and stripmalls and big box retailers WAY OUT in the middle of nowhere, because it was anticipated that those would be the next "high growth" areas.
now with those areas stalling out I wonder how long (if ever) those areas will fill.
Hey CR, I read the story at Lansner's blog ... you left out the most interesting quote. Jerry Anderson says, "The boom was based on a false economy""
Then where will all this newly-minted money from the Fed get invested?
It doesn't have to get invested... it just has to get spent - over and over.
I'd also claim that people will first have to WANT to borrow that money too ALL the way down the chain.
As long as people want, people will want to spend and if the terms are 'easy' they will have no qualms about borrowing. The fed will make the terms easy.
I really don't understand whats so difficult to grasp about this... spenders spend like drinkers drink... if its there. If the fed sets them up they'll drink.
James - no, I don't but I do think they shouldn't issue credit cards to teenagers and their like.
CC companys are in a race to collect the 3-4% purchase fee from use, then when the line is full, they're looking for milk.
If WE continue to allow the general population to get milked like this and through MEW, we all be paying their retirements.