he economy jolted into reverse during the third quarter as consumers cut back on their spending by the biggest amount in 28 years, the strongest signal yet the country has hurtled into recession.
The first chart suggests that the vacancy rate has been too high (or the jobless rate too low) all through the last cycle. Now that the jobless rate has picked up so far, they are back in a more "normal" relationship, but it may not be normal now.
I sure hope so. I know some people who purchased at 4% who were banking on raising rents and rising appreciation...they are in for a big surprise. All the fools who purchased deals on Walgreens, Home Depots and other "steals" are going to find out they are underwater and negative cash flow...
So Mr Obama in that respect [experience] is a gamble. But the same goes for Mr McCain on at least as many counts, not least the possibility of President Palin. And this cannot be another election where the choice is based merely on fear. In terms of painting a brighter future for America and the world, Mr Obama has produced the more compelling and detailed portrait. He has campaigned with more style, intelligence and discipline than his opponent. Whether he can fulfil his immense potential remains to be seen. But Mr Obama deserves the presidency.
"The one thing you never hear mentioned by anyone who advocates capitalism is that the free market requires a positive level of unemployment (natural rate of unemployment), since you need a labor market. People who hate social safety nets neglect this fact either through ignorance or just because they actually don't care about the well being of anyone but themselves."
My bet is that you can't because you had already determined that it wasn't. Changing prior forecasts is not something that most economists do. The just issue new forecasts. I do have a very dim view of the profession, in general, far worse than the view of lawyers that general population has.
Economics is all about human behavior, including that of the economists! That is THE reason behind economics being the dismal science. Economists suffer delusion more than the general population, IMO.
The building I'm in was near-empty when we moved in last year and is now nearly full, but:
1) Over half the occupancy is gov't-related, and I know they cut us one heck of a deal, including all the office furniture and cubies left behind by the former tenants (mortgage brokers)
2) Our one high-tech tenant is fleeing higher-priced space downtown. He's saving 2/3 on rent.
3) This was a two-building complex, but the owner sold off the near-empty companion office building to a photo processor who's gutted it and is using it to pump out digital photo albums. It's essentially a light-industry/warehouse site now, not office.
All that said, not much of an endorsement for a booming CRE market.
"I am already seeing CRE deals with cap rates rising...lows were near 4%, now moving up to 6%, still way overpriced"
I tried to buy numerous properties over the past four years - metro NYC area. Basically they were all < 4% cap deals. Totally insane. Every broker had the same sales pitch: "the rent role is below market, this is really a seven cap."
Total crap.
When every deal is negative cash flow something is seriously wrong.
That is THE reason behind economics being the dismal science. Economists suffer delusion more than the general population, IMO.
Jas, eCONomists that work in the finance industry are paid to lie and distort the truth. Their paychecks depend upon their lies. Just like rating agencies.
Does anyone here have a theory on what HP BB etc are trying to do here other than plug holes?
What I am asking, is there a scenario that they have in mind that is something like if we do this, then this should happen and then this will happen, and then this will happen which is our desired outcome?
There are some great minds here--someone give me a theory even if you think it is insane.
CR sagely intones with great authority: As the unemployment rate continues to rise over the next year or more, we'd expect the office vacancy rate to rise too.
In this contraction I expect the phenomena to heterodyne. The reported U-3 isn't a good measure anymore and the recent trends are for businesses to have acquired far more space than they need or needed as a hedge in the real estate bubble market.
This suggests that office vacancy rates are currently below the expected level, and vacancy rates will probably increase sharply over the next year.
Again, I suspect businesses took out longer lease terms as a hedge thus the delayed response.
Add to the above points the over retailing of the entire country. Soon every Mervyn's and most Linen'n'Things will be empty. Will the Radio Shack and T-Mobile storefronts be far behind?
Regarding Roubini I only comment on people on whom I have made enough observations, e.g., Marc Faber is a moron because he has invoked Zimbabwe so many times when he was talking about the US. The same moron also says there could be a "bout of deflation" in the US before hyper-inflation. It is like my saying that we could have hyper-inflation before deflation. I don't engage in double-talk. Dopes fall for the double-talk all the time. Marc Faber has a cult following among dopes.
Roubini would be wrong in not being pessimistic enough, that is for sure. Of course, CR would be proven to be too optimistic on CRE, RRE and everything to do with the US economy. He is a typical economist in that regard.
Computer modeling has come a long way. Does anyone here not believe there isn't a model for the US/World economy? Every time they make a change they plug it in and watch the result.
Not an expert but it is logical to assume they have a good idea of what the results will be each move they make.
I have taken into account human emotion but that too can be added. Masses of people respond in predictable fashion.
CRE will get crushed because all the highly leveraged new development costs were too high (materials, labor, and land), causing rents to carry the debt to be too high. When rents plummet and vacancy skyrockets, all the highly leveraged new developments will go BK, because they cannot cover their debt or sell the cash negative developments to cover their debt. The foreclosures will cause prices of all CRE to drop accordingly (similar to housing). It will be ugly, but will provide good buying opportunities in a few years.
Theory on what HP and BB are trying to do..."if we keep on lowering interest rates to below inflation and then time-stamp cash, our fiat system will soon be worthless. We can then declare bankruptcy as a nation, cancel our previous debts, and impose a new world-wide fiat system.
I know we are not interested in the equities markets here, but it looks to me like we could have a repeat of Tuesday here. I wish I had free capital to deploy in the event it comes to pass. Ah well, there is always tomorrow. If it happens it should start soon.
CRE will get crushed because all the highly leveraged new development costs were too high (materials, labor, and land)
The run up in some trades (steel contractors, masonry, rebar, MEP systems) over the last 5 years has been staggering. Until the last 9 months. Everything that is not material (copper / steel / sheet metal) intensive is dropping.
The commodity unwind will cause steel et. al. to drop too.
Over the last few years people have been paying a lot to build nice office buildings, A LOT!
......
CR, thanks.
Jas thanks.
Dawg PP, LOL!!! Is she going to get reelected? I hope not!
If they can't model the stock market there is no way they can model the world economy. They can play games with rules but that is just like play Chess with yourself. (and thinking you've won)
ANON writes: Not an expert but it is logical to assume they have a good idea of what the results will be each move they make.
Nope. Chaotic system. The best models are context-bound and prone to large errors when you forget to factor in an externality.
Keep in mind the entire face of global finance has changed in the last 2 months. Even if you had a decent model, it is now less reliable than a basket of hunches because it exists to predict a different world.
Now cut that out. It is totally unreasonable for you to expect us to actually understand the statistics that we are misusing.
NorkaWest
LOL! No i think Keith was just stating that there are issues with heavily relying on R^2. I wouldn't profess to know if we're also confused on CR's graph. But if I had to be I'd say no....
"Year-end payments at the nine banks that received $125 billion from the U.S. Treasury are under investigation by U.S. Representative Henry Waxman and New York Attorney General Andrew Cuomo, who are demanding details on the companies' compensation plans. Three of the firms, Goldman Sachs Group Inc., Morgan Stanley and Merrill Lynch & Co., have already set aside $20 billion to pay bonuses this year.
The payouts typically account for about two-thirds of compensation at the biggest Wall Street firms. The bonuses are accrued throughout the year in line with revenue."
Have you tried the crossplot and curve fit with U6 instead of U3?
citizen energyecon
I'm with you. I want to hear more about U6. Not just from CR but from the media. I think the media's use of the "unemployment rate" is bordering on criminal. Totally misleading.
CR are you technically in the 5.97% on your chart? Seems to me you work a few more than 40 a week!
"The stock market gyrations are great fun to watch and snidely comment on, but my interest here is much larger scale."
Agreed in principle but current volatility is so large that it dominates the news and policy. Comrade W cited one day loss of market cap in support of his bailout proposal. These threads tend to get more philosophical after market close...
Regarding wall street bonuses. Bankers fully realize we have bogus fiat system. They could care less about sustainable profits or real growth. It's all about the bonus.
When the fed, treasury and CONgress used the "too big to fail" rationale it was a green light for bonuses.
What a sham.
Common and preferred of GS, MS, C, BSC, et al should be at ZERO.
Capitalism without regulation is a license to steal. Doing away with capital market regulations is like doing away with the police. Pity that we went that way. Human nature did what it could be expected to do. Greed, like speed, kills.
"The bonuses are accrued throughout the year in line with revenue."
There you have it. No mention of profit (forget about social value). In the New Economic Order (imposed by long run market forces), you can manage risk, but if the bottom line goes down you get ZERO. Take it or leave it.
Empty offices are the tip of the global iceberg. This is global fascism, with wal-marts that depend on slavery and governments that depend on synthetic derivatives and the false promises of TARP bailouts. The stock market is a casino that is symbolic of chaos and we have a few vacant office buildings? Get real!
When (if we ever see it) we get the bill from the propping of just those names alone it will be staggering. I heard a trader on bloomy use the "i" word, as in insolvent and it got cut off so quickly he hadn't finished the sentence.
I'll add JPM to that list...they are in worse shape then Bear was at it's collapse.
How anyone could buy stock in them (unless strictly for a short-term trade) is just priceless......
Here in central va there is a Walgreen's being offered at 6.55%. It has a nice location next to two large shopping centers. But there is no way I would touch that one. Both Rite Aid and CVS have nice locations nearby and I can't imagine another business able to generate anywhere near the rent.
Oh, and those two shopping center? I mentionned them a while back when a broker told me they were rewriting the leases for the smaller spaces from the low to mid 20's down to middle teens in an effort to keep businesses from closing down (still plenty of vacant space never leased). And these are nice shopping centers with the stone facade. No way are they anywhere near covering the nut at rents in the teens.
This capitalist system just doesn't work anymore. It's not that it was wrong at one point, but the world is too complex to function in old ways
Anonymous | 10.30.08 - 1:54 pm | #
"In traditional thermodynamics, entropy is a measure of the amount of energy in a closed system that is no longer available to effect changes in that system. A system is closed when no energy is being added to or removed from it, and energy becomes unavailable not by leaving the system, but by becoming irretrievably disordered, as a consequence of the laws of statistical mechanics. But even though the total amount of energy that is irretrievably disordered will increase, this does not mean order cannot increase somewhere else in that same system. This is where confusion arises. Of course, entropy can be measured in an open system, too, but this introduces additional variables, and of course the Second Law then no longer applies. But even when the Second Law applies, it is still possible for a closed system to produce order, even highly elaborate order, so long as there is a greater increase in disorder somewhere else in the system."
Welcome to the real world Jas, everyone is a whore including you. Even if your filthy rich, you still belong to The Whore Club and it doesn't matter if you work in a garment factory in Jordan, China or Florida, and it doesn't matter if you own the slave labor, because we all depend on this broken system.
The cognitive dissonance manifested in the MSM is nothing short of astounding, one example - two headlines currently on Yahoo, "Stocks Rise After Better Than Expected Report on Economy" and "Oil Prices Fall Below $66 on Recession Fears" - going by this, Jas has a gift for understatement.
Rep. Cummings just got corrected by Bloomberg reporter, that "the Wall Street Bailout was a bailout for everyone". First time I've heard her dispute an interviewee.
Entropy is a great example of why capitalism is failing, because as it expands and fails more and more, there will become a point where Humpty Dumpty will be totally fucking clueless as to how to put the pieces of this mess back into some logical sequence.
It does seem as if there needs to be a new way to do things and to use people power to do something constructive versus using global energy for destruction...
Money Whores among professionals have invaded America! Economists have a lot ot do with the Credir Crisis and the coming Greater Depression.
Jas,
Very true. People are dopes the world over. They fall for the same CONfidence scam century after century.
What is it that ALL CONfidence scams have in common - the promise of free money.
Just look how the BSC, AIG and TARP bailouts were sold to the American people. Bernanke and Paulson simply dangled the prospect of the government making a profit. Even Buffett was in on the CON. HAHAHAH! Nobody pays. Win Win. As if. What a sham.
Don't forget Sears Holdings. I think that the Sears-Kmart deal could wind up as one of the biggest non-financial implosions of this era. Crappy product, crappy stores, crappy marketing, and a boatload of CRE that is some of the worst out there.
Shell Profit Rises 22%, Delays Oil Sands Decision (Update2)
By Fred Pals
Oct. 30 (Bloomberg) -- Royal Dutch Shell Plc, Europe's biggest oil company, reported a 22 percent increase in third- quarter profit and said it will delay an investment decision on its Athabasca oil-sands project in Alberta because of costs.
Exxon Mobil Corp., the world's largest publicly traded oil company, reported income Thursday that shattered its own record for the biggest profit from operations by a U.S. corporation, earning $14.83 billion in the third quarter.
HIG also took a hit of $483 million on net realized losses on investments for those assigned specifically to individual variable annuity contracts.
HIG is the largest writer of variable tax-deferred annuities. These are separate account assets of insurance companies, held in trust. The assets and liabilities are supposed to match, so there is no reason an insurance company should lose this much money on variable annuities.
However, these annuities have various guaranteed payout streams embedded in riders. HIG was a leader in creating and pumping these riders, all of which guarantee death benefits, income or withdrawal streams if the stock market tanks. HIG and other insurers are supposed to HEDGE the risk of these stock-tank guarantees. They always said they were hedging by shorting the market.
Now that the tide is going out, we learn the truth...
It's probably not one-off. HIG was the leader and others followed.
Exxon Mobil's results got a boost of $1.62 billion in the most-recent quarter from the sale of a natural gas transportation business in Germany. It also took a special, after-tax charge of $170 million for a punitive damages award related to the 1989 Exxon Valdez oil spill.
Re: Alaskans call oil-spill payment 'tragic'
A US Supreme Court ruling Wednesday trimmed punitive damages for the 1989 catastrophe by at least 80 percent. So, instead of the $2.5 billion that some 32,000 plaintiffs had been awarded, the court decided the damages should equal no more than the $507.5 million already paid in compensation to private plaintiffs. Reaction in Alaska was fast and furious.
This was always banking problem, not a capitalism problem.
!0:! fractional reserve banks could never survive in a market without Fed backing. But backed by a fiat currency and fed liquidity support, they are free to blow bubbles without real savings. Especially when a dumb fed chairman decides not to regulate the government enabled 10:1 geared system.
"Don't forget Sears Holdings. I think that the Sears-Kmart deal could wind up as one of the biggest non-financial implosions of this era. Crappy product, crappy stores, crappy marketing, and a boatload of CRE that is some of the worst out there."
Around here they managed to unload a dead K-Mart to (drumroll): HOME DEPOT! Who probably now regrets the decision.
OK looking for help to parse the highlighted quote in the text below...doesn't 'refinance' mean they are not taking back their paper?!
U.S. Commercial Paper Soars Most on Record as Fed Becomes Buyer
By Bryan Keogh
Oct. 30 (Bloomberg) -- Corporate borrowing in the U.S. commercial paper market soared the most on record after the Federal Reserve began buying the debt directly from issuers as part of its effort to lure back money-market investors.
U.S. commercial paper outstanding rose by $100.5 billion, or 6.9 percent, to a seasonally adjusted $1.55 trillion for the week ended Oct. 29, the Fed said today in Washington. It was the first gain in seven weeks, reversing a 20 percent decline during the previous six weeks. Financial paper led this week's gain, rising $69.4 billion, or 12.4 percent, to $628.8 billion.
Confidence is coming back,'' said Peter Crane, president of Crane Data LLC, a money-market research firm based in Westborough, Massachusetts.Knowing the Fed will buy the longer term means companies will be able to refinance and take back their short-term paper if need be.''
(Just in today) Exxon Mobil Corp., the world's largest publicly traded oil company, reported income Thursday that shattered its own record for the biggest profit from operations by a U.S. corporation, earning $14.83 billion in the third quarter.
That is $14 Billion for 1 qtr!!!
(a few months ago) The company (exxon) says that after spending $3.4 billion on cleanup, settlements with the Alaskan and US governments and other groups, fines, and various types of compensation, it needed no more punishment. Legitimate claims for compensation were handled swiftly and fairly, Mr. Cudmore said. "Most people who sought compensation were compensated within a year of the spill, and the court recognized that."
The court's majority found that Exxon had acted without "intentional or malicious conduct," and a 1-to-1 ratio of punitive to compensatory damages "is a fair upper limit in such maritime cases," according to the decision penned by Justice David Souter.
--
"This was always banking problem, not a capitalism problem."
Steven,
It was a bad lending problem, first and foremst, but also a BAD PEOPLE, at the top and the bottom, problem. Bad system encourages bad people and punishes good people. Therefore, we get more and more BAD PEOPLE. The process is NOT self-correcting. Just the opposite.
What capitalism are you talking about with hired hands with no real stake in the game in-charge?
Companies listed as accessing the "fund"...I love that there is no further information available on MS, UBS and PRU:
Company: American Express Corp. (AXP)
Participation: Borrowed from program Oct. 29, declined to comment on amount
Notes: n/a
Company: Chrysler LLC
Participation: Chrysler Financial was approved to participate in the
commercial paper program
Notes: n/a
Company: Ford Motor Co. (F)
Participation: Ford Motor Credit registered for commercial paper program;
"It is available for us to use if we choose to do so," the company wrote in
an e-mail
Notes: n/a
Company: General Electric Co. (GE)
Participation: Borrowed from program Oct. 27; Financial Times reported
amount to be less than $5 billion
Notes: All units of GE and its finance arm, General Electric Capital Corp.,
have registered. A company spokesman said GE will continue to access the
facility "when appropriate" based upon "our needs and the needs of our
customers."
Company: GMAC Financial Services
Participation: Applied for and was approved to participate
Notes: GMAC is part-owned by General Motors Corp. (GM) and Cerberus Capital
Management LP.
Company: Harley-Davidson Inc. (HOG)
Participation: Financial services unit accessed the facility Oct. 27,
didn't provide details on amount used
Notes: The company said traditional commercial paper sources remain
available to the financing unit. "It's an additional source of
diversification," a spokesman said in a phone interview. The company
expects to continue using the facility.
Company: International Business Machines Corp. (IBM)
Participation: "Would consider registering if we thought it might be
useful"
Notes: Financial Chief Mark Loughridge said the week before that the
company expected to obtain access to the Fed's program.
Company: Morgan Stanley (MS)
Participation: Registered for commercial paper program
Notes: n/a
Company: Prudential Financial Services (PRU)
Participation: Approved to participate in commercial paper program
Notes: n/a
Company: UBS AG (UBS)
Participation: U.S. unit registered for commercial paper program
Notes: n/a
No joke I have a friend of friend who was in the need of a car and was forced to pay 20k for a used KIA. The car was stickers for about 8k max. 30 yo with a previous repossession but still he has stable employment.
That is a roll over to me, extending the duration of the note, no?
'Take back their short term paper' suggests that the debt will be retired...hence my request. That is how I took it as well, but that is not really 'taking back' in my book.
And how can confidence be returning if the only way to fund the paper is to nationalize longer term CP lending?
I have been early in almost all my warnings. Is that better than being late? Once in a lifetime event can't be forecast with precision unless you forecst after the fact.
Dopes are easy to manipulate; they prefer theose who foreacst bad outcomes late ot underplay them.
Several Moscow city centre restaurants are now refusing to accept cards in a move not seen since Russia's last financial crisis almost a decade ago.
Some automated teller machines at Sberbank, the country's biggest state-owned bank, have also stopped accepting cards from other banks.
Several electronics and mobile phone stores said they no longer accepted credit card purchases.
Over the weekend, Aeroflot, the biggest Russian airline, announced it had stopped taking credit cards payments for flights except from a handful of banks.
It was a bad lending problem, first and foremst, but also a BAD PEOPLE, at the top and the bottom, problem. Bad system encourages bad people and punishes good people. Therefore, we get more and more BAD PEOPLE. The process is NOT self-correcting. Just the opposite.
Smart lil' Jas when you aren't calling everyone a dope.
Alas, anon is engaged in the tragic romance of anticapitalism. In a little minute they get past "all power to the people" and start trying to plan centrally for a large and complex society, and thus study bureaucracy. If they have any insight, shortly thereafter they will figure out that the planning bureaucracy entailed in their mission closely emulates the modern capitalist system in terms of complexity, inefficiency and embedded injustice.
You can't really help people along this trajectory, in my experience.
DaddieMac writes:
No joke I have a friend of friend who was in the need of a car and was forced to pay 20k for a used KIA. The car was stickers for about 8k max. 30 yo with a previous repossession but still he has stable employment.
I wish these kids would speak English: Tom Gallagher - Credit Suisse
Liz, just to beat a dead horse and go back to the variable annuity related pressure on capital and overall just the capital margin as you said. When you pre-announced results and announced the capital raise, at that point you had a $3.5 billion capital margin. If we stopped the clock today based on where equity market levels are, I can appreciate that you dont want to give an update to that because things are fluid but how much of that margin gets eaten away by the variable annuity statutory capital requirements, whether its [C3Phase2] or [carvum]? Thats question number one. http://seekingalpha.com/article/102936-hartford-financial-services-group-inc-q3-2008-earnings-call-transcript?page=4
Eric Berg - Barclays Capital
I suspect like others Im still confused in the following sense. It looks like notwithstanding the favorable activity in the market yesterday that the S&P is down very significantly in the month of October, whether its 20% or 22%. How could it be that weve had a 20% decline in equities and if I understood your last answer correctly, this is not having a material impact on your regulatory capital given the increased reserving requirements for variable annuities with guarantees? Hows that possible?
Lizabeth H. Zlatkus
Its clearly having an impact. As you go down into these market levels, the impact from VA in terms of both the reserving requirements as well as the additional capital you have to hold under [C3Phase2] does rise dramatically. There is an offset of course with our hedged assets and our reinsurance program so that certainly helps protect the books because vol levels have screeched up dramatically. Our hedged asset has also gone up by several billions of dollars. So Im not at all suggesting that these markets arent having an impact on our capital.
What Im trying to get at is we certainly still have at the 900 market level, we have additional capital measuring how much above a certain rating agency is difficult so as I said if we looked at a 30% decline from 9/30 levels and if I just look at an RBC ratio because thats something thats a little bit more factual than trying to determine different rating agency models, wed be at a 300% RBC range.
Ramani Ayer
And the 30% off of 9/30 puts you -
Lizabeth H. Zlatkus
At about an 815 S&P level. But again Im giving you a little bit of a range there because it depends a bit on what interest rates are and what currencies are, etc. But I think that 300% range is something I feel comfortable with. Again, definitely impacting us. We have some offsets with our hedged assets, with our reinsurance program and obviously we got $2.5 billion from Allianz so all those things allow us to be able to make that statement.
[Tesha Jackson - Columbia Management]
I was thinking maybe we could skin this cat a different way. If we looked at the net present value at this point of what youre guarantees are, do you have a sense for where that is, like what the net present value is? Unless thats the number you gave us. If it was in a present value form.
Ramani Ayer
While Liz is trying to think about that answer, one thing I wanted to really assert here is these capital calls are not capital like you would see in the property and casualty business if you were to have a hurricane.
Lizabeth H. Zlatkus
Yes. I would just say if you want to think about a present value, you can really look at the liability under FAS 157. That is, in fact some people would say its an onerous calculation, but its looking at risk mutual scenarios. Its really discounting the future stream of payments out under the current market conditions which are extremely onerous right now. At the end of the third quarter that liability number was about $2.4 billion. Thats what happens every quarter. You mark your liability to market value which is essentially a present value number again under risk mutual scenarios and then you mark your asset which is your hedged assets to market and its the difference between the liability valuation and the asset valuation that gets into those gains and losses. What ultimately will actually get paid out in terms of real claims is -
[Tesha Jackson - Columbia Management]
Anybodys guess.
Lizabeth H. Zlatkus
Yes. And certainly we believe that this is a pretty onerous condition to assume that if you took a point in time at 9/30 or even today that that liability valuation is the ultimate claims cost. We dont see it that way at all. So we think as markets rebound that liabilitys going to come down and as importantly separately as the statutory calculation is calculated and Ramani alluded to that, that is in a present value calculation.
It is looking at the worst 10% under extreme market conditions because youre taking a current market level and youre shocking it down another 30% and youre also shocking policyholder behavior down, youre assuming people lapse less and they optimize their benefits. So its a very extreme test and you have to put the capital up. But once again as markets recover that capital gets released. So it is not a cash call in any sense of the word.
[Tesha Jackson - Columbia Management]
I think what everyone on the call is struggling with though is it may not be a cash call per se but I guess two points. After the Allianz announcement, it sounded like youd have $3.5 billion-ish of excess capital assuming 1,165 market levels.
Lizabeth H. Zlatkus
Correct.
Over the last 12 months cap rates in down town DC have risen from approx.5.25% to 6.5% and many expect this trend to con tinue. This increase,given the same net income results in a 19% drop in value.
I love beating dead horses and this is a great CC!!
[Tesha Jackson - Columbia Management]
But if you look at your stock right now, basically the market is saying you need to raise capital or thats what the fear is is that you need to raise more capital and that its going to be extremely dilutive to existing shareholders. So I think what were all struggling with is how comfortable can we be that youre not going to come back to the trough basically?
Ramani Ayer
This is a tough question. We have no idea how to answer that question other than to say we will do what we believe at all times to be right from a shareholder perspective. I think what Liz is saying is even at 815 or so our RBC is around 300%. To tell you the truth, thats shocking it quite a bit. I mean 1,165 to 815 is shocking quite a bit. I think to have RBC of 300% feels to me like the system is able to withstand a fair amount of market retrenchment. But I honestly cant categorically sit here and say we will or we wont. You would not want me to say something like that.
[Tesha Jackson - Columbia Management]
I know. I mean I just think thats what were all struggling with here.
Using employment in the office related industry sectors (professional and business services and financial services at least) might be a better data set to use than the unemployment rate. Unemployment claims only measure those persons claiming unemployment and represents all persons, not just those in the office related sectors. Employment data can be broken down into the office related sectors and shows the actual number people employed. Some people might be unemployed, but not be claiming unemployment.
Look for HIG office space to come onto the market?
he economy jolted into reverse during the third quarter as consumers cut back on their spending by the biggest amount in 28 years, the strongest signal yet the country has hurtled into recession.
why did I think the mkt would go up?
I assume we could pass the 20% level in NYC and Conneticut...
Re: "put significant pressure on office rents and prices."
CR, or anyone out there, is there a past example of pressure?
I am already seeing CRE deals with cap rates rising...lows were near 4%, now moving up to 6%, still way overpriced
motorola laying off 3,000
Fedex 7,000
The consumer product/service providers are finally cutting back.
Hang onto the handlebar
The first chart suggests that the vacancy rate has been too high (or the jobless rate too low) all through the last cycle. Now that the jobless rate has picked up so far, they are back in a more "normal" relationship, but it may not be normal now.
Crispy,
"I am already seeing CRE deals with cap rates rising...lows were near 4%, now moving up to 6%, still way overpriced"
Think it will get to 12%?
I sure hope so. I know some people who purchased at 4% who were banking on raising rents and rising appreciation...they are in for a big surprise. All the fools who purchased deals on Walgreens, Home Depots and other "steals" are going to find out they are underwater and negative cash flow...
I work in Parsippany, NJ. My little office will close in February. The building where I work will be 90% vacant when I leave...
The funny thing is that the owner is advertising to build an additional 300,000 sq/ft office complex across the street.
It seems a lot of builder-types are thinking that by the time a new project is built the downturn will be over.
HIG now down 51% to 9.76...wow!
CR with the gubbermint of the fibberpersuasion I think yur R2's in a bit of trouble. Da boys will do what ever it takes.
At least that's my take.
It's the bottom!
C&C
6% percent cap rate? Ha! I wouldnt rent the goverment space for 6%....
Some day people will learn! (Prolly when they have to use their own money!)
....
OT: The Economist endorses Obama. By comparison they endorsed Bush in 2000 and Kerry in 2004 saying Bush's performance did not deserve a second term.
Premium content | Economist.com
So Mr Obama in that respect [experience] is a gamble. But the same goes for Mr McCain on at least as many counts, not least the possibility of President Palin. And this cannot be another election where the choice is based merely on fear. In terms of painting a brighter future for America and the world, Mr Obama has produced the more compelling and detailed portrait. He has campaigned with more style, intelligence and discipline than his opponent. Whether he can fulfil his immense potential remains to be seen. But Mr Obama deserves the presidency.
Jim
An enlightened comment on a post from: MarketWarnings
"The one thing you never hear mentioned by anyone who advocates capitalism is that the free market requires a positive level of unemployment (natural rate of unemployment), since you need a labor market. People who hate social safety nets neglect this fact either through ignorance or just because they actually don't care about the well being of anyone but themselves."
MarketWarnings: employment worries, job cuts by the thousands, wallstreet leads main street. It is wrong
I listen to this guys pod casts so I thought I'd pass along the R^2 one.
Enjoy!
R-Squared Issues
....
Anon, get that marketwarnings claptrap out of here.
--
CR,
Can you say: CRE was more overbuilt than RRE?
My bet is that you can't because you had already determined that it wasn't. Changing prior forecasts is not something that most economists do. The just issue new forecasts. I do have a very dim view of the profession, in general, far worse than the view of lawyers that general population has.
Economics is all about human behavior, including that of the economists! That is THE reason behind economics being the dismal science. Economists suffer delusion more than the general population, IMO.
Jas
The building I'm in was near-empty when we moved in last year and is now nearly full, but:
1) Over half the occupancy is gov't-related, and I know they cut us one heck of a deal, including all the office furniture and cubies left behind by the former tenants (mortgage brokers)
2) Our one high-tech tenant is fleeing higher-priced space downtown. He's saving 2/3 on rent.
3) This was a two-building complex, but the owner sold off the near-empty companion office building to a photo processor who's gutted it and is using it to pump out digital photo albums. It's essentially a light-industry/warehouse site now, not office.
All that said, not much of an endorsement for a booming CRE market.
Perhaps the relatively lower office vacancy rate (vs. unemployment) is related to lower supply growth this cycle?
Cap rates have risen a ton. Look at the effect that's had on PLD, AMB and FR. Unbelievable.
"I am already seeing CRE deals with cap rates rising...lows were near 4%, now moving up to 6%, still way overpriced"
I tried to buy numerous properties over the past four years - metro NYC area. Basically they were all < 4% cap deals. Totally insane. Every broker had the same sales pitch: "the rent role is below market, this is really a seven cap."
Total crap.
When every deal is negative cash flow something is seriously wrong.
Jas,
Whats your take on Roubini? He's been pretty accurate and has not been cheerleading.
....
From the last thread:
bearly writes:
Anyone notice the nice move in the TNX provided by the generous Dr Bernanke ?
Yep. The march to 4% and beyond continues.
That is THE reason behind economics being the dismal science. Economists suffer delusion more than the general population, IMO.
Jas, eCONomists that work in the finance industry are paid to lie and distort the truth. Their paychecks depend upon their lies. Just like rating agencies.
The system is sham.
Jas Jain,
I am curious why you have a large investment in US TrIPS if you expect deflation. Wouldn't they perform badly?
The old quote about "as goes GM goes America" needs replaced. Try this.
"As goes our oil companies goes America."
Looks like they are moving towards obsolescence.
Chevron Project Offers Glimpse Of Future: More Work, Less Oil - WSJ.com
golden cross...
this is gonna get fugly.
golden cross...
That gave me the giggles.... one of our traders used to talk about that indicator so much we referred to it as "the golden swirlie".
Flash News: PM Harper says that Canada must play a leading role in solving the Global Economic Crisis.
There you have it folks. It's solved & I can sleep at night. He's an economist, don't you know.
of course, I was refering to the chart of vacancy and unemployment.. but hey..glad I could give you a chuckles.
CR
I noticed that your equation goes thru both ends of the data set. Is that random or is the computer using those as starting and ending points?
Thanks...
Does anyone here have a theory on what HP BB etc are trying to do here other than plug holes?
What I am asking, is there a scenario that they have in mind that is something like if we do this, then this should happen and then this will happen, and then this will happen which is our desired outcome?
There are some great minds here--someone give me a theory even if you think it is insane.
CR sagely intones with great authority:
As the unemployment rate continues to rise over the next year or more, we'd expect the office vacancy rate to rise too.
In this contraction I expect the phenomena to heterodyne. The reported U-3 isn't a good measure anymore and the recent trends are for businesses to have acquired far more space than they need or needed as a hedge in the real estate bubble market.
This suggests that office vacancy rates are currently below the expected level, and vacancy rates will probably increase sharply over the next year.
Again, I suspect businesses took out longer lease terms as a hedge thus the delayed response.
Add to the above points the over retailing of the entire country. Soon every Mervyn's and most Linen'n'Things will be empty. Will the Radio Shack and T-Mobile storefronts be far behind?
[if you expect deflation. Wouldn't they perform badly]
THERE WILL BE NO GENERAL DEFLATION ! Some assets for a brief period maybe but there is no way in hell Ben will allow deflation to take hold.
who shops a Radio Shack anyways?
ades, That is just random. The computer doesn't try to fit the ends ... it just looks that way on this graph.
Best to all.
nades writes:
who shops a Radio Shack anyways?
Ding! Ding! Ding!
The new Hoovervilles: office highrises, big box malls, highrise condos, and strip malls.
Also time for a new name: Bushvilles
--
nades,
Regarding Roubini I only comment on people on whom I have made enough observations, e.g., Marc Faber is a moron because he has invoked Zimbabwe so many times when he was talking about the US. The same moron also says there could be a "bout of deflation" in the US before hyper-inflation. It is like my saying that we could have hyper-inflation before deflation. I don't engage in double-talk. Dopes fall for the double-talk all the time. Marc Faber has a cult following among dopes.
Roubini would be wrong in not being pessimistic enough, that is for sure. Of course, CR would be proven to be too optimistic on CRE, RRE and everything to do with the US economy. He is a typical economist in that regard.
Jas
Computer modeling has come a long way. Does anyone here not believe there isn't a model for the US/World economy? Every time they make a change they plug it in and watch the result.
Not an expert but it is logical to assume they have a good idea of what the results will be each move they make.
I have taken into account human emotion but that too can be added. Masses of people respond in predictable fashion.
CRE will get crushed because all the highly leveraged new development costs were too high (materials, labor, and land), causing rents to carry the debt to be too high. When rents plummet and vacancy skyrockets, all the highly leveraged new developments will go BK, because they cannot cover their debt or sell the cash negative developments to cover their debt. The foreclosures will cause prices of all CRE to drop accordingly (similar to housing). It will be ugly, but will provide good buying opportunities in a few years.
Theory on what HP and BB are trying to do..."if we keep on lowering interest rates to below inflation and then time-stamp cash, our fiat system will soon be worthless. We can then declare bankruptcy as a nation, cancel our previous debts, and impose a new world-wide fiat system.
Also time for a new name: Bushvilles
JimPortlandOR
Pelosi Phalluses?
[Also time for a new name: Bushvilles]
No. Everything is still fine. Too early. In the spring we'll get ObamaVillas.
--
Confused,
I DO NOT own any TIPS, only UST STRIPS with no link with the Inflation Rate.
Jas
I know we are not interested in the equities markets here, but it looks to me like we could have a repeat of Tuesday here. I wish I had free capital to deploy in the event it comes to pass. Ah well, there is always tomorrow. If it happens it should start soon.
nades writes:
I listen to this guys pod casts so I thought I'd pass along the R^2 one.
Now cut that out. It is totally unreasonable for you to expect us to actually understand the statistics that we are misusing.
Time to change the name of the blog.
Calculated Risk of Default and Collapse.
HIG update.... 8.31 down 58%
CRE will get crushed because all the highly leveraged new development costs were too high (materials, labor, and land)
The run up in some trades (steel contractors, masonry, rebar, MEP systems) over the last 5 years has been staggering. Until the last 9 months. Everything that is not material (copper / steel / sheet metal) intensive is dropping.
The commodity unwind will cause steel et. al. to drop too.
Over the last few years people have been paying a lot to build nice office buildings, A LOT!
......
CR, thanks.
Jas thanks.
Dawg PP, LOL!!! Is she going to get reelected? I hope not!
If they can't model the stock market there is no way they can model the world economy. They can play games with rules but that is just like play Chess with yourself. (and thinking you've won)
[HIG update.... 8.31 down 58%]
Hank, put 'em on the NO SHORT LIST STAT!
ANON writes:
Not an expert but it is logical to assume they have a good idea of what the results will be each move they make.
Nope. Chaotic system. The best models are context-bound and prone to large errors when you forget to factor in an externality.
Keep in mind the entire face of global finance has changed in the last 2 months. Even if you had a decent model, it is now less reliable than a basket of hunches because it exists to predict a different world.
CR,
Have you tried the crossplot and curve fit with U6 instead of U3?
Now cut that out. It is totally unreasonable for you to expect us to actually understand the statistics that we are misusing.
NorkaWest
LOL! No i think Keith was just stating that there are issues with heavily relying on R^2. I wouldn't profess to know if we're also confused on CR's graph. But if I had to be I'd say no....
Robert Prechter also predicted a short period of deflation caused by heavy debt loads followed soon by hyperinflation. (Conquer the Crash 2002)
"Year-end payments at the nine banks that received $125 billion from the U.S. Treasury are under investigation by U.S. Representative Henry Waxman and New York Attorney General Andrew Cuomo, who are demanding details on the companies' compensation plans. Three of the firms, Goldman Sachs Group Inc., Morgan Stanley and Merrill Lynch & Co., have already set aside $20 billion to pay bonuses this year.
The payouts typically account for about two-thirds of compensation at the biggest Wall Street firms. The bonuses are accrued throughout the year in line with revenue."
"in line with revenue." What revenue?
Wall Street Won't Surrender on Bonuses, Veterans Say (Update1) - Bloomberg.com
BR, Excellent point. Thanks.
"Three of the firms, Goldman Sachs Group Inc., Morgan Stanley and Merrill Lynch & Co., have already set aside $20 billion to pay bonuses this year."
Satanson is evil. All his motives are evil. I am going to throw a party when this agent of evil finally leaves office next year.
Have you tried the crossplot and curve fit with U6 instead of U3?
citizen energyecon
I'm with you. I want to hear more about U6. Not just from CR but from the media. I think the media's use of the "unemployment rate" is bordering on criminal. Totally misleading.
CR are you technically in the 5.97% on your chart? Seems to me you work a few more than 40 a week!
This capitalist system just doesn't work anymore. It's not that it was wrong at one point, but the world is too complex to function in old ways
"The stock market gyrations are great fun to watch and snidely comment on, but my interest here is much larger scale."
Agreed in principle but current volatility is so large that it dominates the news and policy. Comrade W cited one day loss of market cap in support of his bailout proposal. These threads tend to get more philosophical after market close...
c&c scared the s*** out of me...at first I read HIG to be HIO..
Regarding wall street bonuses. Bankers fully realize we have bogus fiat system. They could care less about sustainable profits or real growth. It's all about the bonus.
When the fed, treasury and CONgress used the "too big to fail" rationale it was a green light for bonuses.
What a sham.
Common and preferred of GS, MS, C, BSC, et al should be at ZERO.
We have a system that rewards failure. WTF!
Capitalism without regulation is a license to steal. Doing away with capital market regulations is like doing away with the police. Pity that we went that way. Human nature did what it could be expected to do. Greed, like speed, kills.
Bankers,bonuses and taxpayer money.
Can anyone point out a single consequence that has been faced by the 9? Anyone of these guys paid a price?
The banks own our government, our government owns us. We soon will own nothing but debt and high monthly payments.
A breaking point has to be reached. What then?
"These threads tend to get more philosophical after market close..."
I think, therefore I am. Or is it I am, therefore I think?
"The bonuses are accrued throughout the year in line with revenue."
There you have it. No mention of profit (forget about social value). In the New Economic Order (imposed by long run market forces), you can manage risk, but if the bottom line goes down you get ZERO. Take it or leave it.
--
Angry Saver,
There are more Money Whores among economists than any other profession!
Use car salesmen are salesmen stockbrokers are brokers. Doctors and economists are supposed to have higher standards, but they don't.
Money Whores among professionals have invaded America! Economists have a lot ot do with the Credir Crisis and the coming Greater Depression.
Jas
Empty offices are the tip of the global iceberg. This is global fascism, with wal-marts that depend on slavery and governments that depend on synthetic derivatives and the false promises of TARP bailouts. The stock market is a casino that is symbolic of chaos and we have a few vacant office buildings? Get real!
angry-
When (if we ever see it) we get the bill from the propping of just those names alone it will be staggering. I heard a trader on bloomy use the "i" word, as in insolvent and it got cut off so quickly he hadn't finished the sentence.
I'll add JPM to that list...they are in worse shape then Bear was at it's collapse.
How anyone could buy stock in them (unless strictly for a short-term trade) is just priceless......
Ciao
MS
Here in central va there is a Walgreen's being offered at 6.55%. It has a nice location next to two large shopping centers. But there is no way I would touch that one. Both Rite Aid and CVS have nice locations nearby and I can't imagine another business able to generate anywhere near the rent.
Oh, and those two shopping center? I mentionned them a while back when a broker told me they were rewriting the leases for the smaller spaces from the low to mid 20's down to middle teens in an effort to keep businesses from closing down (still plenty of vacant space never leased). And these are nice shopping centers with the stone facade. No way are they anywhere near covering the nut at rents in the teens.
This capitalist system just doesn't work anymore. It's not that it was wrong at one point, but the world is too complex to function in old ways
Anonymous | 10.30.08 - 1:54 pm | #
"In traditional thermodynamics, entropy is a measure of the amount of energy in a closed system that is no longer available to effect changes in that system. A system is closed when no energy is being added to or removed from it, and energy becomes unavailable not by leaving the system, but by becoming irretrievably disordered, as a consequence of the laws of statistical mechanics. But even though the total amount of energy that is irretrievably disordered will increase, this does not mean order cannot increase somewhere else in that same system. This is where confusion arises. Of course, entropy can be measured in an open system, too, but this introduces additional variables, and of course the Second Law then no longer applies. But even when the Second Law applies, it is still possible for a closed system to produce order, even highly elaborate order, so long as there is a greater increase in disorder somewhere else in the system."
Entropy Explained
Welcome to the real world Jas, everyone is a whore including you. Even if your filthy rich, you still belong to The Whore Club and it doesn't matter if you work in a garment factory in Jordan, China or Florida, and it doesn't matter if you own the slave labor, because we all depend on this broken system.
The cognitive dissonance manifested in the MSM is nothing short of astounding, one example - two headlines currently on Yahoo, "Stocks Rise After Better Than Expected Report on Economy" and "Oil Prices Fall Below $66 on Recession Fears" - going by this, Jas has a gift for understatement.
We are all whores, most of us just don't realize it.
Rep. Cummings just got corrected by Bloomberg reporter, that "the Wall Street Bailout was a bailout for everyone". First time I've heard her dispute an interviewee.
7000 average Joes has just been thrown out from American Express buildings. Reasons? Stated reasons or real-reasons?
read it below.
MarketWarnings: Layoffs at AMEX - Is AMX Stock Real Reason
--
citizen energyecon,
Despite what many may conclude (dopes conclude wrong more often than not!), I am a very modost man.
Jas
ANON,
Entropy is a great example of why capitalism is failing, because as it expands and fails more and more, there will become a point where Humpty Dumpty will be totally fucking clueless as to how to put the pieces of this mess back into some logical sequence.
It does seem as if there needs to be a new way to do things and to use people power to do something constructive versus using global energy for destruction...
Money Whores among professionals have invaded America! Economists have a lot ot do with the Credir Crisis and the coming Greater Depression.
Jas,
Very true. People are dopes the world over. They fall for the same CONfidence scam century after century.
What is it that ALL CONfidence scams have in common - the promise of free money.
Just look how the BSC, AIG and TARP bailouts were sold to the American people. Bernanke and Paulson simply dangled the prospect of the government making a profit. Even Buffett was in on the CON. HAHAHAH! Nobody pays. Win Win. As if. What a sham.
The promise of free money works every time.
mutual fund tax loss selling.10/31
tuf to call.
window dressing vs abandonement
Don't forget Sears Holdings. I think that the Sears-Kmart deal could wind up as one of the biggest non-financial implosions of this era. Crappy product, crappy stores, crappy marketing, and a boatload of CRE that is some of the worst out there.
Oh ho...
Shell Profit Rises 22%, Delays Oil Sands Decision (Update2)
By Fred Pals
Oct. 30 (Bloomberg) -- Royal Dutch Shell Plc, Europe's biggest oil company, reported a 22 percent increase in third- quarter profit and said it will delay an investment decision on its Athabasca oil-sands project in Alberta because of costs.
Shell Profit Rises 22%, Delays Oil Sands Decision (Update2) - Bloomberg.com
Example of chaos:
Exxon Mobil Corp., the world's largest publicly traded oil company, reported income Thursday that shattered its own record for the biggest profit from operations by a U.S. corporation, earning $14.83 billion in the third quarter.
Good to know they can get through the lean times...
MS
JPM Morgan worse off than Bear? Bear was levered 30:1...
Not disagreeing with you specifically what do you mean?
HIG is the largest writer of variable tax-deferred annuities. These are separate account assets of insurance companies, held in trust. The assets and liabilities are supposed to match, so there is no reason an insurance company should lose this much money on variable annuities.
However, these annuities have various guaranteed payout streams embedded in riders. HIG was a leader in creating and pumping these riders, all of which guarantee death benefits, income or withdrawal streams if the stock market tanks. HIG and other insurers are supposed to HEDGE the risk of these stock-tank guarantees. They always said they were hedging by shorting the market.
Now that the tide is going out, we learn the truth...
It's probably not one-off. HIG was the leader and others followed.
Anon,
Entropy is a measure of the unavailability of a system's energy to do work.
I'd say that pretty much sums up our current eCONomy.
My personal favorite is the ZEROTH law of thermo dynamics.
If you can't be Nemo, be Zeroth.
"Of course, CR would be proven to be too optimistic on CRE, RRE and everything to do with the US economy. He is a typical economist in that regard."
Said Jas (we'll have a depression in 2006) Jain!
Exxon Mobil's results got a boost of $1.62 billion in the most-recent quarter from the sale of a natural gas transportation business in Germany. It also took a special, after-tax charge of $170 million for a punitive damages award related to the 1989 Exxon Valdez oil spill.
Re: Alaskans call oil-spill payment 'tragic'
A US Supreme Court ruling Wednesday trimmed punitive damages for the 1989 catastrophe by at least 80 percent. So, instead of the $2.5 billion that some 32,000 plaintiffs had been awarded, the court decided the damages should equal no more than the $507.5 million already paid in compensation to private plaintiffs. Reaction in Alaska was fast and furious.
This was always banking problem, not a capitalism problem.
!0:! fractional reserve banks could never survive in a market without Fed backing. But backed by a fiat currency and fed liquidity support, they are free to blow bubbles without real savings. Especially when a dumb fed chairman decides not to regulate the government enabled 10:1 geared system.
In JPM's case it's not the leverage that is causing it's problems. They were a very large counter to LEH and are still to GS.
Ciao
MS
"Don't forget Sears Holdings. I think that the Sears-Kmart deal could wind up as one of the biggest non-financial implosions of this era. Crappy product, crappy stores, crappy marketing, and a boatload of CRE that is some of the worst out there."
Around here they managed to unload a dead K-Mart to (drumroll): HOME DEPOT! Who probably now regrets the decision.
OK looking for help to parse the highlighted quote in the text below...doesn't 'refinance' mean they are not taking back their paper?!
U.S. Commercial Paper Soars Most on Record as Fed Becomes Buyer
By Bryan Keogh
Oct. 30 (Bloomberg) -- Corporate borrowing in the U.S. commercial paper market soared the most on record after the Federal Reserve began buying the debt directly from issuers as part of its effort to lure back money-market investors.
U.S. commercial paper outstanding rose by $100.5 billion, or 6.9 percent, to a seasonally adjusted $1.55 trillion for the week ended Oct. 29, the Fed said today in Washington. It was the first gain in seven weeks, reversing a 20 percent decline during the previous six weeks. Financial paper led this week's gain, rising $69.4 billion, or 12.4 percent, to $628.8 billion.
Confidence is coming back,'' said Peter Crane, president of Crane Data LLC, a money-market research firm based in Westborough, Massachusetts.Knowing the Fed will buy the longer term means companies will be able to refinance and take back their short-term paper if need be.''
U.S. Commercial Paper Soars Most on Record as Fed Becomes Buyer - Bloomberg.com
Ouch. That Shell news is not good for Alberta.
Guaranteed they are not the only ones re-evaluating new oil sands capacity investments...
and to think HOG is allowed to access the commercial paper "fund" created by the FED. Let's just open it up to everyone and get it over with.
Where do I download an application?
Ciao
MS
MS That's right the CDS swaps. That's why they "saved" bear stearns. Thanks for reminding me
This says it all about capitalism and fascism:
That is $14 Billion for 1 qtr!!!
The court's majority found that Exxon had acted without "intentional or malicious conduct," and a 1-to-1 ratio of punitive to compensatory damages "is a fair upper limit in such maritime cases," according to the decision penned by Justice David Souter.
--
"This was always banking problem, not a capitalism problem."
Steven,
It was a bad lending problem, first and foremst, but also a BAD PEOPLE, at the top and the bottom, problem. Bad system encourages bad people and punishes good people. Therefore, we get more and more BAD PEOPLE. The process is NOT self-correcting. Just the opposite.
What capitalism are you talking about with hired hands with no real stake in the game in-charge?
Jas
ew thread
Companies listed as accessing the "fund"...I love that there is no further information available on MS, UBS and PRU:
Company: American Express Corp. (AXP)
Participation: Borrowed from program Oct. 29, declined to comment on amount
Notes: n/a
Company: Chrysler LLC
Participation: Chrysler Financial was approved to participate in the
commercial paper program
Notes: n/a
Company: Ford Motor Co. (F)
Participation: Ford Motor Credit registered for commercial paper program;
"It is available for us to use if we choose to do so," the company wrote in
an e-mail
Notes: n/a
Company: General Electric Co. (GE)
Participation: Borrowed from program Oct. 27; Financial Times reported
amount to be less than $5 billion
Notes: All units of GE and its finance arm, General Electric Capital Corp.,
have registered. A company spokesman said GE will continue to access the
facility "when appropriate" based upon "our needs and the needs of our
customers."
Company: GMAC Financial Services
Participation: Applied for and was approved to participate
Notes: GMAC is part-owned by General Motors Corp. (GM) and Cerberus Capital
Management LP.
Company: Harley-Davidson Inc. (HOG)
Participation: Financial services unit accessed the facility Oct. 27,
didn't provide details on amount used
Notes: The company said traditional commercial paper sources remain
available to the financing unit. "It's an additional source of
diversification," a spokesman said in a phone interview. The company
expects to continue using the facility.
Company: International Business Machines Corp. (IBM)
Participation: "Would consider registering if we thought it might be
useful"
Notes: Financial Chief Mark Loughridge said the week before that the
company expected to obtain access to the Fed's program.
Company: Morgan Stanley (MS)
Participation: Registered for commercial paper program
Notes: n/a
Company: Prudential Financial Services (PRU)
Participation: Approved to participate in commercial paper program
Notes: n/a
Company: UBS AG (UBS)
Participation: U.S. unit registered for commercial paper program
Notes: n/a
Ciao
MS
Whatev - I think their short-term focus is on a GOP victory, although everything they do seems to be working against them. But I hate to be cynical.
Knowing the Fed will buy the longer term means companies will be able to refinance and take back their short-term paper if need be.
I think this means that companies can (will) switch from overnight and 30 day to whatever term the Fed is buying.
No joke I have a friend of friend who was in the need of a car and was forced to pay 20k for a used KIA. The car was stickers for about 8k max. 30 yo with a previous repossession but still he has stable employment.
PeakVT,
That is a roll over to me, extending the duration of the note, no?
'Take back their short term paper' suggests that the debt will be retired...hence my request. That is how I took it as well, but that is not really 'taking back' in my book.
And how can confidence be returning if the only way to fund the paper is to nationalize longer term CP lending?
"Would consider registering if we thought it might be
useful"
Lets see how bad things get...
--
Closing,
I have been early in almost all my warnings. Is that better than being late? Once in a lifetime event can't be forecast with precision unless you forecst after the fact.
Dopes are easy to manipulate; they prefer theose who foreacst bad outcomes late ot underplay them.
Jas
Several Moscow city centre restaurants are now refusing to accept cards in a move not seen since Russia's last financial crisis almost a decade ago.
Some automated teller machines at Sberbank, the country's biggest state-owned bank, have also stopped accepting cards from other banks.
Several electronics and mobile phone stores said they no longer accepted credit card purchases.
Over the weekend, Aeroflot, the biggest Russian airline, announced it had stopped taking credit cards payments for flights except from a handful of banks.
Jas Jain:
It was a bad lending problem, first and foremst, but also a BAD PEOPLE, at the top and the bottom, problem. Bad system encourages bad people and punishes good people. Therefore, we get more and more BAD PEOPLE. The process is NOT self-correcting. Just the opposite.
Smart lil' Jas when you aren't calling everyone a dope.
Alas, anon is engaged in the tragic romance of anticapitalism. In a little minute they get past "all power to the people" and start trying to plan centrally for a large and complex society, and thus study bureaucracy. If they have any insight, shortly thereafter they will figure out that the planning bureaucracy entailed in their mission closely emulates the modern capitalist system in terms of complexity, inefficiency and embedded injustice.
You can't really help people along this trajectory, in my experience.
DaddieMac writes:
No joke I have a friend of friend who was in the need of a car and was forced to pay 20k for a used KIA. The car was stickers for about 8k max. 30 yo with a previous repossession but still he has stable employment.
I'd like to sell that guy everything I own.
I wish these kids would speak English: Tom Gallagher - Credit Suisse
Liz, just to beat a dead horse and go back to the variable annuity related pressure on capital and overall just the capital margin as you said. When you pre-announced results and announced the capital raise, at that point you had a $3.5 billion capital margin. If we stopped the clock today based on where equity market levels are, I can appreciate that you dont want to give an update to that because things are fluid but how much of that margin gets eaten away by the variable annuity statutory capital requirements, whether its [C3Phase2] or [carvum]? Thats question number one.
http://seekingalpha.com/article/102936-hartford-financial-services-group-inc-q3-2008-earnings-call-transcript?page=4
energycon - agreed on your points. The quote just reads "switch duration" to me.
Eric Berg - Barclays Capital
I suspect like others Im still confused in the following sense. It looks like notwithstanding the favorable activity in the market yesterday that the S&P is down very significantly in the month of October, whether its 20% or 22%. How could it be that weve had a 20% decline in equities and if I understood your last answer correctly, this is not having a material impact on your regulatory capital given the increased reserving requirements for variable annuities with guarantees? Hows that possible?
Lizabeth H. Zlatkus
Its clearly having an impact. As you go down into these market levels, the impact from VA in terms of both the reserving requirements as well as the additional capital you have to hold under [C3Phase2] does rise dramatically. There is an offset of course with our hedged assets and our reinsurance program so that certainly helps protect the books because vol levels have screeched up dramatically. Our hedged asset has also gone up by several billions of dollars. So Im not at all suggesting that these markets arent having an impact on our capital.
What Im trying to get at is we certainly still have at the 900 market level, we have additional capital measuring how much above a certain rating agency is difficult so as I said if we looked at a 30% decline from 9/30 levels and if I just look at an RBC ratio because thats something thats a little bit more factual than trying to determine different rating agency models, wed be at a 300% RBC range.
Ramani Ayer
And the 30% off of 9/30 puts you -
Lizabeth H. Zlatkus
At about an 815 S&P level. But again Im giving you a little bit of a range there because it depends a bit on what interest rates are and what currencies are, etc. But I think that 300% range is something I feel comfortable with. Again, definitely impacting us. We have some offsets with our hedged assets, with our reinsurance program and obviously we got $2.5 billion from Allianz so all those things allow us to be able to make that statement.
[Tesha Jackson - Columbia Management]
I was thinking maybe we could skin this cat a different way. If we looked at the net present value at this point of what youre guarantees are, do you have a sense for where that is, like what the net present value is? Unless thats the number you gave us. If it was in a present value form.
Ramani Ayer
While Liz is trying to think about that answer, one thing I wanted to really assert here is these capital calls are not capital like you would see in the property and casualty business if you were to have a hurricane.
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When all else fails dopes invoke: Everyone does it, or the problem is evrywhere.
Dopes can't make distinctions and many of them post anonymously.
Jas
Lizabeth H. Zlatkus
Yes. I would just say if you want to think about a present value, you can really look at the liability under FAS 157. That is, in fact some people would say its an onerous calculation, but its looking at risk mutual scenarios. Its really discounting the future stream of payments out under the current market conditions which are extremely onerous right now. At the end of the third quarter that liability number was about $2.4 billion. Thats what happens every quarter. You mark your liability to market value which is essentially a present value number again under risk mutual scenarios and then you mark your asset which is your hedged assets to market and its the difference between the liability valuation and the asset valuation that gets into those gains and losses. What ultimately will actually get paid out in terms of real claims is -
[Tesha Jackson - Columbia Management]
Anybodys guess.
Lizabeth H. Zlatkus
Yes. And certainly we believe that this is a pretty onerous condition to assume that if you took a point in time at 9/30 or even today that that liability valuation is the ultimate claims cost. We dont see it that way at all. So we think as markets rebound that liabilitys going to come down and as importantly separately as the statutory calculation is calculated and Ramani alluded to that, that is in a present value calculation.
It is looking at the worst 10% under extreme market conditions because youre taking a current market level and youre shocking it down another 30% and youre also shocking policyholder behavior down, youre assuming people lapse less and they optimize their benefits. So its a very extreme test and you have to put the capital up. But once again as markets recover that capital gets released. So it is not a cash call in any sense of the word.
[Tesha Jackson - Columbia Management]
I think what everyone on the call is struggling with though is it may not be a cash call per se but I guess two points. After the Allianz announcement, it sounded like youd have $3.5 billion-ish of excess capital assuming 1,165 market levels.
Lizabeth H. Zlatkus
Correct.
Over the last 12 months cap rates in down town DC have risen from approx.5.25% to 6.5% and many expect this trend to con tinue. This increase,given the same net income results in a 19% drop in value.
I love beating dead horses and this is a great CC!!
[Tesha Jackson - Columbia Management]
But if you look at your stock right now, basically the market is saying you need to raise capital or thats what the fear is is that you need to raise more capital and that its going to be extremely dilutive to existing shareholders. So I think what were all struggling with is how comfortable can we be that youre not going to come back to the trough basically?
Ramani Ayer
This is a tough question. We have no idea how to answer that question other than to say we will do what we believe at all times to be right from a shareholder perspective. I think what Liz is saying is even at 815 or so our RBC is around 300%. To tell you the truth, thats shocking it quite a bit. I mean 1,165 to 815 is shocking quite a bit. I think to have RBC of 300% feels to me like the system is able to withstand a fair amount of market retrenchment. But I honestly cant categorically sit here and say we will or we wont. You would not want me to say something like that.
[Tesha Jackson - Columbia Management]
I know. I mean I just think thats what were all struggling with here.
Apologies if this has already been posted:
Corporate finance chiefs prefer McCain: survey
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Makes sense to me. The ones that got us here like the way it's been and want to keep going in the same direction.
What's it going to be today kids?
Jam, or blam?
Nowhere to go but up up up... My son is never wrong!
Using employment in the office related industry sectors (professional and business services and financial services at least) might be a better data set to use than the unemployment rate. Unemployment claims only measure those persons claiming unemployment and represents all persons, not just those in the office related sectors. Employment data can be broken down into the office related sectors and shows the actual number people employed. Some people might be unemployed, but not be claiming unemployment.