A pig is a jolly companion,
Boar, sow, barrow, or gilt --
A pig is a pal, who'll boost your morale,
Though mountains may topple and tilt.
When they've blackballed, bamboozled, and burned you,
When they've turned on you, Tory and Whig,
Though you may be thrown over by Tabby and Rover,
You'll never go wrong with a pig, a pig,
You'll never go wrong with a pig!
Please intervene to stabilize U.S. financial markets. As part of your stabilization, please appoint a Trustee in Bankruptcy to reside IN
The White House.
you've been calling this, CR. I spoke with a sharp young man yesterday who is opening a new eatery in my community. He has the numbers down and knows what he's in for. His per sf is $15.00 on rent, he knows his food costs, has his labor in the cross hairs and is prepared to do the discount boogie (coupons) when the new year arrives.
God help him for sure. With food costs at 25% and alcohol sales in a casual limited sku environment he could actually make it. We shall see what we shall see.
Just one comment. We need to stop refering to these loans as "pro-forma", like its bad. You create a pro-forma analysis of any commercial loan. If you are not creating a discounted cash flow analysis for each property you just aren't doing your due diligence. The problem comes when you don't put in realistic assumptions about what might occur in the future. It's the unrealistic pro-forma loans that are in trouble not all pro-forma loans... because all commerical loans are pro-forma...
Spreads on the most recent series of Markit's AAA CMBX index, which tracks credit default swaps on commercial mortgage-backed securities, on Wednesday jumped to 714 basis points, gaining about 30% from Tuesday's levels of about 550 basis points - which was already double trading levels at the start of the month.
Nov. 19 (Bloomberg) -- Ambac Financial Group Inc., the second-largest bond insurer by outstanding guarantees, agreed to pay $1 billion in cash to cancel default protection on $3.5 billion of collateralized debt obligations, less than the company's expected losses on the debt.
The settlement will result in positive adjustments to the company's mark-to-market and impairment reserves, and improve its standing in rating-firm models, according to a statement today from the New York-based company.
All I got out the last boom was a yuppie blocking my sunset with this mcmansion, a guest worker getting my job and a bill for costs of illegal immigration. Now the ivy elite calls me a "class warrior, xenophobe, protectionist". What can I do?
Nevertheless, the Westin loans were interest-only for 36 months and had underwritten debt service ratios (DSCR) at closing of less than 1.25%. This would have been considered risky even in 2006. The loan agreements on the Promenade Shops were interest-only for 60 months and had underwritten DSCR of just 1.10%. The Promenade loan also allowed additional subordinated debt provided that the combined LTV did not exceed 85% and the combined DSCR did not fall below 1.00%. This is the equivalent of allowing someone to rent an apartment that will consume 100% of their monthly take-home pay (assuming a landlord would let anyone do such a thing). More than 75% of the loans in the pool were interest-only or partial-interest only. Other large loans in the pool include the Las Vegas headquarters of Station Casinos (good luck!) and several other large retail and hospitality properties.
CR,
Chimera Real Estate loans chimera |kīˈmi(ə)rə; kə-| (also chimaera)
noun
1 ( Chimera) (in Greek mythology) a fire-breathing female monster with a lion's head, a goat's body, and a serpent's tail.
any mythical animal with parts taken from various animals.
2 a thing that is hoped or wished for but in fact is illusory or impossible to achieve : the economic sovereignty you claim to defend is a chimera.
So, in regards to realistic assumptions for your CRE Pro-Forma Loans, let's say it's 2001. I bet nobody was making accurate assumptions about what we are now seeing in 2008. The problem with assumptions is....they are just that. History is not an indicator of future performance.
After Corus applied for TARP money, they dropped 31% today, and getting close to delisting territory.
The question of when they go FDIC is just a matter of time.
There'ss going to be a Corus Clause built into new financial regulation. It is going to require any FDIC-insured bank to adhere to rules and oversight on construction loan diversification/concentration limits.
No longer will a tiny sh*thole bank be allowed to use FDIC-insured deposits to play craps with bubble market condos. To bet it all on odd.
Volker the Viking(Unrated) writes:
you've been calling this, CR. I spoke with a sharp young man yesterday who is opening a new eatery in my community. He has the numbers down and knows what he's in for. His per sf is $15.00 on rent, he knows his food costs, has his labor in the cross hairs and is prepared to do the discount boogie (coupons) when the new year arrives.
Volker the Viking | 11.19.08 - 5:38 pm | #
This is actually A GREAT TIME to start a business IF you understand your market & are the low cost offer - and also have the savvy to sense & flexibility to execute an even LOWER cost strategy should you need to.
A buddy of mine started a rural lumber yard catering to 'small inde subcontractors' during the last bust (1990ish) - he was lower cost than Menard's on selected & focused offerings - and when things got tighter he and his wife & new baby moved out of their apartment and LIVED in the lumberyard's office for two years - seriously. Hang up the 'CLOSED' sign & roll out the furniture from the back.
Eventually they moved out of the lumberyard & bought & built & resold a number of homes in classic 'move up' style - cashing all the way. Never owed anything except the AP on the lumber yard...
Later around 2004 - a little earlier than the peak but close enough - they sold out for a monstrously attractive cap gains to a larger regional 'builder supply' organization which is now - not surprisingly - on the rocks.
If you wait for the bottom to enter you'll miss the 'entry'... if you wait for the top to sell you'll miss the 'exit'.
CR, thanks.. that kept bugging me.. espcially since its what i do all day...
Morroco...
But in 2001 you had no idea Cap Rates would fall so much.. so your pro-forma is probably base on a 9% cap rate... also rents have increased significantly over the past years probably more than a conservative pro-forma from 2001... we've actually looked at alot of stuff from 5 to 10 years back and we were much more conservative than what actually happened.. thus the correction isn't as big of a deal...
c&c - How big is the stuff you're talking about? Is it owner/user? Also, if it's 20% occupied and trading at a 4% cap, that is probably a great deal. It's all about long-term cash flow less your holding/leaseup costs, and every project has its own nuances (obviously).
CHICAGO, Nov 19 (Reuters) - The Federal Reserve seems almost guaranteed to wade into unchartered waters in December and cut its benchmark lending rate below 1.0 percent.
Unrelenting bad news on the U.S. economy, reflected most recently in minutes from the Federal Open Market Committee's October policy meeting issued on Wednesday, suggest another interest rate cut is in the works, even as rates approach the so-called "zero bound."
Even lowering the target rate to 0.5 it's still near twice the ACTUAL rate at which interest is being charged.
Unless and until we have a Bank Holiday like FDR had to clean up this mess, the toxic debt will make everyone sick.
mmckinl | 11.19.08 - 6:18 pm
You best be cleaning out your safe deposit boxes before they do, folk. When they pull this stunt it is intended that all boxes will be sealed. And not unsealed without FDIC present. That could be when they enforce the Exec Order.
Forever, the owners or managers of big urban office buildings have blown off those tenants who have wanted to encourage energy efficient building practices. Their attitude is: "Hey the tenants pay the utility bills; why should we care?" Now's the time for smart tenants to demand retrofits or energy saving measures that will reduce all that climate change CO2 from the unnecessary electricity generation (43% of which in the US comes from coal). Otherwise, we'll go elsewhere (assuming there is a green elsewhere outside of burned up CA).
Well, some of us can hope anyway. The rest of us will blissfully go the way of the slowly cooking frog.
There are plenty of solvent banks now. Letting the Wall Street Banks carry all this toxic debt will even kill those that are solvent through the deterioration of real economy.
"agreed to pay $1 billion in cash to cancel default protection on $3.5 billion of collateralized debt obligations"
My take they are not sure but they dont like the look of things right now. I'll bet they could have settled this for a couple hundred million 6 months ago.
My take they are not sure but they dont like the look of things right now. I'll bet they could have settled this for a couple hundred million 6 months ago.
Barley | 11.19.08 - 6:35 pm | #
THIS IS EXCELLENT NEWS . . . FOR SIVARAM VILLALUETHIPILLAI!!!!!1!
Rumors that SIXTY PERCENT of tenants are delinquent in GGP's Ala Moana Center (hawaii). This is considered one of their "platinum" properties.
-G This Web site coming soon
7 or 8 months ago when SRS was hovering around $90 I was saying I just wanted it to go to $120. I claimed I was only interested in making 20% a year, no need to get greedy. Several people (who for some reason no longer post here) told me that would never happen.
I claimed SRS was a once in 20 year no brainer investment. Of course CRE was doomed.
The last time I bought it was at $67. Sadly the highest I've sold it for is $140. Most below that.
Lesson learned about being patient, being right and being too early. These crashes take time. We saw it coming 8 months ago and it was a long wait for everyone else to catch up. Got skittish waiting and saw too many irrational rallies.
Lesson learned. Beats the lessons most people are learning these days. Time to catch the next no brainer.
Maybe we're just behind the curve out here in the sticks, but my local Safeway is doing a bang-up renovation, including a bitchin' indoor new Starbuck's kiosk. What does it mean?
"that $57.5 billion had been spent defending the rouble's value, which is measured against a basket of 0.45 euros and 0.55 dollars. Another $14 billion had been used to bail out banks and $30.1 billion had been lost in a revaluation of currencies"
No, I mean "Can i haz more detail about the kinds of problems that are going to appear please?"
The way you do it, I'm afraid I'll swallow my tongue when I click the mouse button when I make a trade. Just looking for kind of reference point or context.
Is anyone familiar with the SC coast...Charleston, Isle of Palms area?
I'm originally from Charleston, and my parents still live there.
Downtown Charleston and the beach houses will probably explode within the next year or so. Too many houses on the beach, waterways, and golf courses. Plus, the primary drivers for growth were retirees, Yankee second-homers, and tourism. Not a good mix.
As I like to say, everything about Charleston is 1-2 years behind.
so I asked this question yesterday with the SFP announcement but was never able to get a response: The SFP program still has $510B outstanding, which will mature in its entirety between 11/20 and 1/29/09 ---- How is the Treasury going to repay these short term loans?
CR has been sounding the alarm on cre for the last couple of years. Why is the market so surprised when cre portfolios implode at the banks and insurance companies? We have not yet seen the end of this implosion.
dp writes:
Are there any solvent banks left? Some small, Porterville types maybe?
I bet USAA is just fine.
I have an old friend who was in the military and is now a stock jock. He swears that USAA is the safest bank. At least on loans to active personnel, the have the greatest collection agent in the world.
this is fucking ridiculous. I can't help but look a the big picture. Bush has wrecked America and by 1/20/09 we will all be jobless and homeless. This thing is snowballing faster than even Roubini predicted.
There is a window to avert. Someone must broker a deal with China to accept 10,000 low emission cars per day from GM for just 2 years.
The deal is there to be brokered. The shipping rates could be contracted for 2 years at below cost with Piraeus bulk owner. China uses treasury USD, and buys at discount, say 10K per car. Stream it out. It saves the world economy and the USD both. Markets could relax for 2 years.
We have volunteered in soup kitchens. There's a soup kitchen about ten minutes by car from where we live. There has never been any shortage, so far as I know, of clients. It provides not only meals, but a chance to clean up, to make a phone call for a job, social work referrals. There are many volunteers from local churches, but also from schools.
In monetary economics, a liquidity trap occurs when the nominal interest rate is close or equal to zero, and the monetary authority is unable to stimulate the economy with traditional monetary policy tools. In this kind of situation, people do not expect high returns on physical or financial investments, so they keep assets in short-term cash bank accounts or hoards rather than making long-term investments. This makes a recession even more severe, and can contribute to deflation.
Coming soon to a soup line near you.
mp | 11.19.08 - 6:50 pm | #
mp - how many years ago did we make that call?
I've been expecting 'fiscal' would be the 'end game since at least 2005-2006... there was no way 'monetarism' would dig us out of the eventual hole the bubble will leave.
My question is how do they do it? Any idea on the likely vehicle?
mykillk writes:
"so I asked this question yesterday with the SFP announcement but was never able to get a response: The SFP program still has $510B outstanding, which will mature in its entirety between 11/20 and 1/29/09 ---- How is the Treasury going to repay these short term loans?"
If I have my program acronyms right, the SFP was just money borrowed and deposited by the Fed. The Fed doesn't need the cash now, so they pull the money out to pay off the maturing T-Bills.
"All of the mortgage loans in that issue were originated between June 27, 2007 and April 30, 2008, and the securitization closed on May 8, 2008, well after the Bear Stearns collapse and Ralph Cioffi was led away in handcuffs."
I believe that is analogous to a 3:59 PM EST DJIA jam job...
"Under no situation can Uncle Sam raise the trillions it needs to meet all [his] obligations. No tax rate is high enough, no discretionary spending cuts draconian enough. And there is no creditor of last resort for the U.S. Treasury. If default implies an Argentina-like scenario, that would leave us with only two options. The first is to print money; (which would lead to hyperinflation on the order of 1920s Germany.) and the other option is to eliminate Medicare and Social Security."
bond guy: Treasury sold securities in the SFP and deposited the money at the Fed. Yes, that's right. So you're saying the Treasury will simply withdraw that money right back? I don't understand what the point of the SFP program was then...
Biggest drop of CPI in 60 years with FF rate at 1% and Treasury/Fed buying up or supporting every credit under the sun.
What's left to do but to outright print like mad, destroying the dollah ?
Printing sensibly, causing mild inflation and in no sense "destroying" the dollar. Bernanke has been very conservative about actually adding money and he's very unlikely to take the extreme extra steps needed to destroy the dollar.
I was up in a foundry in Quebec this week - probably do contract 'marketing' work for them here in the states - half of what they do is infrastructure related. Might prove to have been a timely trip.
Efficient low cost operation too - the ownership all run jobs in the shop besides just 'profit' from the equity - haven't seen that in a while.
That's 52 billion in GM cars, pre-sold to China, over 2 years - at 10K each automobile. In current dollars. It saves both systems the wreckage of a base currency.
The first is to print money; (which would lead to hyperinflation on the order of 1920s Germany.) and the other option is to eliminate Medicare and Social Security."
Then there is only one option - the latter because the former won't be cut until we experience the latter. Bank on it.
I think the reason Japan had trouble with inflating was its really low interest rates meant there was little incentive to spend cash so people could just sit on it. If interest rates were normal that would be far less likely to happen.
I've said on several occasions that we've lost a lot of capital and in order to replace it, we need a high price for capital, meaning high interest rates. That's going to cause some significant deflation, which needs to be addressed by fiscal stimulus and printing. The current policy of addressing things with monetary policy is misguided. Money is a representation of the economy. Monetary policy is useful if the representation is wrong. But our current problem is that the real economy has problems in misallocation of resources (to housing, and car factories, and financial manipulations, inter alia). That needs fiscal policy changes to address it. The money representation of the real economy is still too optimistic and so monetary policy should be tight, not loose.
Ben is trying to prevent asset price deflation, which is about the only trick he's got left up his sleeve.
They'd better hope it works. It's never been tried before.
mp | 11.19.08 - 7:22 pm | #
USG is going to end up being a 'silent' partner in a lot of TBTF operations before this is over - that is the only way they prevent deflation - assets will deflate anyway - inevitable. Its the falling incomes, profits & dollar velocity that scares the pants off them and it should.
canucklehead, I think China would be foolish to take that trade.
MP -
I have been screaming for a WPA program focused on clean energy/transit/communications infrastructure for over a year now, and under President Obama we will get one.
We don't need a WAR to end a depression . . . we need gov't infrastructure spending on the scale of a war footing.
It is the only way forward.
Lastly, I nominate mp and conjure bag for CR Hall of Fame. Consistently great posts.
canucklehead - China doesn't want cars, even free cars, they want jobs for their masses. That trade does nothing for them unless they build the cars we would then give to them.
Or maybe they crush them, turn the scrap into cars and ship back at a lower price than we can make them for.
The other problem is China can ill afford to adopt the car culture that we did here.
China is investing big in mass transit. That is their future. Sure there will be a growing car market there . . . but it would be self-defeating for them to encourage a mass adoption of autos.
...my grandfather (and his father & grandfather) were profs at Harvard. Maxine Bocher (my great GF) was head of mathematics there. He despised The Federal Reserve and thought the New Deal would lead us to bankruptcy. Seems he was close to right even a hundred years ago.
Gary writes:
The other problem is China can ill afford to adopt the car culture that we did here.
China will adapt to a global cultural model that is based on trade with the US. The alternative is a destabilization of world currency. Its a currency war first, then a real war. This will buy time.
canucklehead(Unrated) writes:
dryfly- China can 'want' whatever its told to want. Right now it wants Wal-Mart to keep buying.
canucklehead | 11.19.08 - 7:35 pm | #
LOL - telling China they take our cars and like it. Think not. More likely they would make our problem of low treasury rates to go away before that. Then we'll see who likes what...
He despised The Federal Reserve and thought the New Deal would lead us to bankruptcy.
W/out the ND your grandfather would have probably ended up in an American Gulag or smoke up a chimney. My father remembered seeing both 'the bund' and the 'wobblies' in the street circa early 1930s. ND pretty much took the oxygen away from both extremes.
-There is a large gap in demand that needs to be filled.
-We must use an enormous fiscal stimulus to fill it.
-We currently are in a liquidity trap.
-If interest rates are near zero, money printed now just gets hoarded.
-A virtue like saving has become vice.
-To get out of the trap, a country must persuade its citizens to forget about the future, and convince the private sector that the government and central bank arent as austere as they seem.
-Private sector balance = the difference between private sector saving and private sector investment.
-GS forecasts a rise in the private sector balance to +10% in the fourth quarter of 2009.
Whats the answer?
1. Huge fiscal stimulus.
2. More aggressive GSE lending.
3. A promise by the Fed to keep rates low for an extended period.
I'm still trying to get over the first bullet, not being Keynsian and all. Scary thing is, I think this is what Obama has in mind.
Ok guys, you both have a better handle on sino-American trade. I'm pitching a big idea which is borderline science fiction, i know that. However, there is a version of the deal that could float a solution for a trade deficit. As well as put out a lot of fires temporarily threatening USD currency weakness; the world needs to restore trust in USD. If you don't like my fictional deal, adjust it. The core idea is a global systemic crash prevention solution. It hinges on a Sino-US trade deal. Tell me I'm wrong.
mp(Excellent) writes:
Pulling forward from last thread - I sincerely hope so. We can worry about sovereign risk later.
I respectfully disagree, mp.
First I think the creditors lowered the boom at G-20. Maybe they will let Obama have a free hand, maybe not. Regardless, enforced austerity is a real possibility.
Second, I don't see any faster route to state failure than massive expenditures to try to replicate the new deal. Our state is hermetically sealed against amateur participants due to technocratic bias primarily brought into place since the New Deal.
Until the technocratic bias is removed, there's not going to be a stimulus that achieves meaningful effect because it won't be widespread enough in its direct effect. They will diddle the needles quite successfully, but the control console is not the plane.
It is probably the more humane answer but the Bushites have made the budgetary circumstances impossible and the milieu that brought sucha regime to power isn't capable of making good policy choices.
Again, respectfully, I see this as a route straight into policy paralysis due to inability to fund ongoing operations.
IMO -- the US state needs to dramatically curtail outlays and dramatically increase revenues. The effects on the populace will be quite horrifying but the state is not going to be able to "grow past this".
Black Star Ranch, you might want to check your domain renewal. Thought your bio was interesting enough to check your homepage, but I'm not looking for a dating service. Sorry
Can someone help me understand whether Krugman wants to erode/destroy all existing ( wealth as we know it? Is this a zero sum solution (the benefits to one class cancel the benefits to another)? When big guns argue "deficits don't matter" I get nauseous. No doubt I'm too simplistic in my understanding, so please make me feel better.
I am struggling with the links that mp gave in the other thread because there are so many terms that I don't know. Does anyone have a reference source for definitions of economic terms?
I could find one myself, but I want to make sure that I get a good one.
Can someone help me understand whether Krugman wants to erode/destroy all existing ( wealth as we know it?
In an inflationary situation, which is what Krugman is advocating, "stuff" will still have utility, and once the currency re-stablizes, value. Cash, stocks, bonds - not so much. Conversely, debt will be less burdensome.
All this is a Good Thing if you think deflation is worse. Clearly Krugman does.
With high inflation it may be best to buy consumer goods. If you save $1000, it may rapidly disappear. If you buy a $1000 tv, it may be worth $1000 when the same model you bought sells for $2000 in the future.
Subject: *SOMALI PIRATES APPLY TO BECOME BANK TO ACCESS TARP
*SOMALI PIRATES APPLY TO BECOME BANK TO ACCESS TARP
*PAULSON: TARP PIRATE EQUITY IS AN INVESTMENT, WILL PAY OFF
*KASHKARI SAYSSOMALI PIRATES ARE FUNDAMENTALLY SOUND
*Moodys upgrade Somali Pirates to AAA
*HUD SAYS SOMALI DHOW FORECLOSURE PROGRAM HAD VERY LOW
PARTIC PATION
*SOMALI PIRATES IN DISCUSSION TO ACQUIRE CITIBANK
*FED OFFICIALS: AGGRESSIVE EASING WOULD CUT SOMALI PIRATE RISK
*FED
AGREED OCT. 29 TO TAKEWHATEVER STEPS NEEDED FOR SOMALI
PIRATES
When there was so much construction all over, there must have been a time when it slows down. But the slowing down in the construction due to the slowdown all over, and people have less money now is a sad coincidence. When the boom was at pick before 5 years, many analysts did mention the slowdown is in the offing. no new office buildings on the horizon for 2010 - These should be something very strange either there is no new business till that time or all the new business are occupying the old businesses which are closed down recently.
hah!
A pig is a jolly companion.
And the rest?
A pig is a jolly companion,
Boar, sow, barrow, or gilt --
A pig is a pal, who'll boost your morale,
Though mountains may topple and tilt.
When they've blackballed, bamboozled, and burned you,
When they've turned on you, Tory and Whig,
Though you may be thrown over by Tabby and Rover,
You'll never go wrong with a pig, a pig,
You'll never go wrong with a pig!
Pig!
Dear China:
Please intervene to stabilize U.S. financial markets. As part of your stabilization, please appoint a Trustee in Bankruptcy to reside IN
The White House.
Cordially,
Kilgore Trout, patRIOT
you've been calling this, CR. I spoke with a sharp young man yesterday who is opening a new eatery in my community. He has the numbers down and knows what he's in for. His per sf is $15.00 on rent, he knows his food costs, has his labor in the cross hairs and is prepared to do the discount boogie (coupons) when the new year arrives.
Cap rates on many deals are still at 4 and 5%...downright foolish if you buy at those levels
I spoke with a sharp young man yesterday who is opening a new eatery in my community.
Even so, god help him.
We need a "CR Uptick Rule." Our genial host cannot post -more- bad news until he posts at least one bit of good news on the uptick.
Investment advice; go long CR and short the MSM.
God help him for sure. With food costs at 25% and alcohol sales in a casual limited sku environment he could actually make it. We shall see what we shall see.
How will remodels be affected?
Just one comment. We need to stop refering to these loans as "pro-forma", like its bad. You create a pro-forma analysis of any commercial loan. If you are not creating a discounted cash flow analysis for each property you just aren't doing your due diligence. The problem comes when you don't put in realistic assumptions about what might occur in the future. It's the unrealistic pro-forma loans that are in trouble not all pro-forma loans... because all commerical loans are pro-forma...
How will remodels be affected?
Depression-frilly lampshades will be back in style.
Idearc at $0.10 AH. Does that mean the new phone books won't be here?
+1 for The Jerk ref.
I like this lamp shade. The wife's not too keen on it, though?
Leg Lamp as Featured in the 20th Anniversary DVD A Christmas Story A Unique Christmas Gift, theleglamp.com
Just put it all on Mrs Nussbaum's credit card.
I spoke with a sharp young man yesterday who is opening a new eatery in my community.
Got Spam
Did someone post this already?
"Show Of Hands" - The Market Ticker
Spreads on the most recent series of Markit's AAA CMBX index, which tracks credit default swaps on commercial mortgage-backed securities, on Wednesday jumped to 714 basis points, gaining about 30% from Tuesday's levels of about 550 basis points - which was already double trading levels at the start of the month.
Commercial mortgage securities latest to show distress - MarketWatch
Here's a link to a post I wrote onToday's Market Action and What To Anticipate Tomorrow
CR, let me know if you'll add me to your blogroll.
Anybody got the guts to buy SRS and try to run it up to $300??
Not me. But I might be a buyer on a dip to $200.
Nov. 19 (Bloomberg) -- Ambac Financial Group Inc., the second-largest bond insurer by outstanding guarantees, agreed to pay $1 billion in cash to cancel default protection on $3.5 billion of collateralized debt obligations, less than the company's expected losses on the debt.
The settlement will result in positive adjustments to the company's mark-to-market and impairment reserves, and improve its standing in rating-firm models, according to a statement today from the New York-based company.
Ambac Pays $1 Billion to Settle $3.5 Billion of CDOs (Update2) - Bloomberg.com
Link fixed
Today's Market Action and What To Anticipate Tomorrow
I'm serious about putting in a bid to buy Ford at 99 cents a share.
I don't even care if it goes to zero.
I still have shares of @Home stock sitting in my brokerage account, seven years after it went to zero.
Old stocks never die.
All I got out the last boom was a yuppie blocking my sunset with this mcmansion, a guest worker getting my job and a bill for costs of illegal immigration. Now the ivy elite calls me a "class warrior, xenophobe, protectionist". What can I do?
Now the ivy elite calls me a "class warrior, xenophobe, protectionist". What can I do?
Burn the McMansion?
So I was at the dentist from 3:30 on.
Did I miss anything?
rich(Unrated) writes:
I'm serious about putting in a bid to buy Ford at 99 cents a share.
I don't even care if it goes to zero.
I still have shares of @Home stock sitting in my brokerage account, seven years after it went to zero.
Old stocks never die.
You could always get your stock certificates and sell them as souvenirs if F goes to 0.
Nevertheless, the Westin loans were interest-only for 36 months and had underwritten debt service ratios (DSCR) at closing of less than 1.25%. This would have been considered risky even in 2006. The loan agreements on the Promenade Shops were interest-only for 60 months and had underwritten DSCR of just 1.10%. The Promenade loan also allowed additional subordinated debt provided that the combined LTV did not exceed 85% and the combined DSCR did not fall below 1.00%. This is the equivalent of allowing someone to rent an apartment that will consume 100% of their monthly take-home pay (assuming a landlord would let anyone do such a thing). More than 75% of the loans in the pool were interest-only or partial-interest only. Other large loans in the pool include the Las Vegas headquarters of Station Casinos (good luck!) and several other large retail and hospitality properties.
Big CMBS Loans Near Default; CMBX Soars, REITs Tank -- Seeking Alpha
maxwell, agreed. I started by calling them "wishful pro forma loans" but I've shortened it ... I'm open to suggestions.
Best Wishes
rich writes:
Anybody got the guts to buy SRS and try to run it up to $300??
Not me. But I might be a buyer on a dip to $200.
rich | 11.19.08 - 5:52 pm | #
I bought it today at the open at about 188 and sold it at $205.00 because I got scared. I might need to get braver.
crispy&cole - where are you seeing 4 or 5 cap transactions? We're seeing them in the 7-8% range with a few outliers in the 6s.
Loopnet. All over California...especially in the Walgreen, Home Depot, Carls Jr, etc... deals
If CRE is falling as well, then could someone explain to me why Ackman thinks spinning off Target's land is a good idea?
Ackman Pushes Latest Plan for a REIT at Target - DealBook Blog - NYTimes.com
CR,
Chimera Real Estate loans
chimera |kīˈmi(ə)rə; kə-| (also chimaera)
noun
1 ( Chimera) (in Greek mythology) a fire-breathing female monster with a lion's head, a goat's body, and a serpent's tail.
any mythical animal with parts taken from various animals.
2 a thing that is hoped or wished for but in fact is illusory or impossible to achieve : the economic sovereignty you claim to defend is a chimera.
The worst thing is when you have a half empty building with some wishful rent and they base the cap rate/price on that
So, in regards to realistic assumptions for your CRE Pro-Forma Loans, let's say it's 2001. I bet nobody was making accurate assumptions about what we are now seeing in 2008. The problem with assumptions is....they are just that. History is not an indicator of future performance.
After Corus applied for TARP money, they dropped 31% today, and getting close to delisting territory.
The question of when they go FDIC is just a matter of time.
There'ss going to be a Corus Clause built into new financial regulation. It is going to require any FDIC-insured bank to adhere to rules and oversight on construction loan diversification/concentration limits.
No longer will a tiny sh*thole bank be allowed to use FDIC-insured deposits to play craps with bubble market condos. To bet it all on odd.
pro absurda loans
Volker the Viking(Unrated) writes:
you've been calling this, CR. I spoke with a sharp young man yesterday who is opening a new eatery in my community. He has the numbers down and knows what he's in for. His per sf is $15.00 on rent, he knows his food costs, has his labor in the cross hairs and is prepared to do the discount boogie (coupons) when the new year arrives.
Volker the Viking | 11.19.08 - 5:38 pm | #
This is actually A GREAT TIME to start a business IF you understand your market & are the low cost offer - and also have the savvy to sense & flexibility to execute an even LOWER cost strategy should you need to.
A buddy of mine started a rural lumber yard catering to 'small inde subcontractors' during the last bust (1990ish) - he was lower cost than Menard's on selected & focused offerings - and when things got tighter he and his wife & new baby moved out of their apartment and LIVED in the lumberyard's office for two years - seriously. Hang up the 'CLOSED' sign & roll out the furniture from the back.
Eventually they moved out of the lumberyard & bought & built & resold a number of homes in classic 'move up' style - cashing all the way. Never owed anything except the AP on the lumber yard...
Later around 2004 - a little earlier than the peak but close enough - they sold out for a monstrously attractive cap gains to a larger regional 'builder supply' organization which is now - not surprisingly - on the rocks.
If you wait for the bottom to enter you'll miss the 'entry'... if you wait for the top to sell you'll miss the 'exit'.
Mebbe a viable economic model for the shopping centers is for the Fed to open little shops in the malls and centers, perhaps next to Subway.
Big front desk, some nice posters of smiling families carrying their LnT bags and brochures touting the American Way.
Oh, and don't forget the neon "Open" sign.
Meanwhile in Miami, the supply of condos is between 3.4 and 8.6 years, depending on price.
Miami & Miami Beach Condo Trends – October 2008 » Miami Condos, real estate, Miami Condos Blog,Foreclosures, South Beach
Some condo on Brickell Key are now going for $125/sf. That's a quite a bit below construction costs.
CR:
How about Financial Fiction?
CR, thanks.. that kept bugging me.. espcially since its what i do all day...
Morroco...
But in 2001 you had no idea Cap Rates would fall so much.. so your pro-forma is probably base on a 9% cap rate... also rents have increased significantly over the past years probably more than a conservative pro-forma from 2001... we've actually looked at alot of stuff from 5 to 10 years back and we were much more conservative than what actually happened.. thus the correction isn't as big of a deal...
c&c - How big is the stuff you're talking about? Is it owner/user? Also, if it's 20% occupied and trading at a 4% cap, that is probably a great deal. It's all about long-term cash flow less your holding/leaseup costs, and every project has its own nuances (obviously).
c&c - just saw your post. Yeah, 4-5% caps on stabilized retail is crazy...
Unless and until we have a Bank Holiday like FDR had to clean up this mess, the toxic debt will make everyone sick.
FED FOCUS-Fed likely to cut funds rate to the bone
| Reuters
CHICAGO, Nov 19 (Reuters) - The Federal Reserve seems almost guaranteed to wade into unchartered waters in December and cut its benchmark lending rate below 1.0 percent.
Unrelenting bad news on the U.S. economy, reflected most recently in minutes from the Federal Open Market Committee's October policy meeting issued on Wednesday, suggest another interest rate cut is in the works, even as rates approach the so-called "zero bound."
Even lowering the target rate to 0.5 it's still near twice the ACTUAL rate at which interest is being charged.
The Fed is pushing on a string ...
We need to take out bad banks ... and that probably means Citi, Bof A, JP Morgan, Goldman, Morgan Stanley and probably Wells Fargo.
Money ? We do what Lincoln did to finance the Civil War ... print it , not borrow it ...
How does Ambac even have any cash left?
Shouldn't they be contributing everything they can to the bailout?
Reformed Dope Brontide writes:
Even lowering the target rate to 0.5 it's still near twice the ACTUAL rate at which interest is being charged.
It's been climbing and is now up to 0.38. A 50bp cut in December should bring the target and effective rate together
Rich, speaking of stocks going to 0, how do you feel about the juniors?
USD-JPY 95.934 .. Time for the BoJ to announce something, quick!
Unless and until we have a Bank Holiday like FDR had to clean up this mess, the toxic debt will make everyone sick.
mmckinl | 11.19.08 - 6:18 pm
You best be cleaning out your safe deposit boxes before they do, folk. When they pull this stunt it is intended that all boxes will be sealed. And not unsealed without FDIC present. That could be when they enforce the Exec Order.
There is no role left for the Fed except to be Nationalized and run for prudence not for member profit.
There is no role left for the Fed except to be Nationalized and run for prudence not for member profit.
mmckinl | 11.19.08 - 6:26 pm
Broward would nominate this as the most asinine comment of the day.
Forever, the owners or managers of big urban office buildings have blown off those tenants who have wanted to encourage energy efficient building practices. Their attitude is: "Hey the tenants pay the utility bills; why should we care?" Now's the time for smart tenants to demand retrofits or energy saving measures that will reduce all that climate change CO2 from the unnecessary electricity generation (43% of which in the US comes from coal). Otherwise, we'll go elsewhere (assuming there is a green elsewhere outside of burned up CA).
Well, some of us can hope anyway. The rest of us will blissfully go the way of the slowly cooking frog.
Is it still overtime? Can I sell my house?
You best be cleaning out your safe deposit boxes before they do, folk.
~~~~
Crazy talk ... many banks have already been seized and nothing of the kind ever happened.
Is this another shoe falling?
Volker: What exec. order are you referring to?
EHP wrote:
Chimera Real Estate loans
How about
Kimura Real Estate Loans
.......
Volker the Viking
The Fed has done all it can ...
Sheila Bair needs to clean the shit houses known as Wall Street Banks ...
Are there any solvent banks left? Some small, Porterville types maybe?
Are there any solvent banks left?
There are plenty of solvent banks now. Letting the Wall Street Banks carry all this toxic debt will even kill those that are solvent through the deterioration of real economy.
Is anyone familiar with the SC coast...Charleston, Isle of Palms area? Wondering what is going on with prices on beach houses/condos.
Not 100%, but I think that executive order is in the Patriot Act.
Japanese baseball is going to import their brand of the game and put MLB out of business. There goes more high paying jobs
"agreed to pay $1 billion in cash to cancel default protection on $3.5 billion of collateralized debt obligations"
My take they are not sure but they dont like the look of things right now. I'll bet they could have settled this for a couple hundred million 6 months ago.
"Depression-frilly lampshades will be back in style."
Some people here are so funny.
Actually, Art Deco was a very fine and interesting style, but not frilly.
I am a firm believer that children under the age of 12 should not be allowed to invest long.
Only short.
We are on the cusp of a catastrophe.
We are on the cusp of a catastrophe.
Yep, and unless Obama takes this BS by the horns it will only get worse.
My take they are not sure but they dont like the look of things right now. I'll bet they could have settled this for a couple hundred million 6 months ago.
Barley | 11.19.08 - 6:35 pm | #
THIS IS EXCELLENT NEWS . . . FOR SIVARAM VILLALUETHIPILLAI!!!!!1!
mp writes:
We are on the cusp of a catastrophe.
mp | 11.19.08 - 6:39 pm
Stop doing that!
Your comments ring eerily true, and yet you seem to float through here like the ghost haunting MacBeth...
Rumors that SIXTY PERCENT of tenants are delinquent in GGP's Ala Moana Center (hawaii). This is considered one of their "platinum" properties.
-G
This Web site coming soon
mykillk(Good) writes:
Volker: What exec. order are you referring to?
mykillk | 11.19.08 - 6:29 pm
FDR did it with Gold in the early 1930s. I'd imagine that it would be done in a similar manner now if TPTB thought it would help...
...them?
7 or 8 months ago when SRS was hovering around $90 I was saying I just wanted it to go to $120. I claimed I was only interested in making 20% a year, no need to get greedy. Several people (who for some reason no longer post here) told me that would never happen.
I claimed SRS was a once in 20 year no brainer investment. Of course CRE was doomed.
The last time I bought it was at $67. Sadly the highest I've sold it for is $140. Most below that.
Lesson learned about being patient, being right and being too early. These crashes take time. We saw it coming 8 months ago and it was a long wait for everyone else to catch up. Got skittish waiting and saw too many irrational rallies.
Lesson learned. Beats the lessons most people are learning these days. Time to catch the next no brainer.
"Stop doing that!"
Sorry.
How about "now's a good time to buy or sell stocks?"
Better?
Maybe we're just behind the curve out here in the sticks, but my local Safeway is doing a bang-up renovation, including a bitchin' indoor new Starbuck's kiosk. What does it mean?
This deflationary spiral can only be stopped one way ...
Print, not borrow money ... how Lincoln paid for the Civil War ...
I dont think this is sustainable:
"that $57.5 billion had been spent defending the rouble's value, which is measured against a basket of 0.45 euros and 0.55 dollars. Another $14 billion had been used to bail out banks and $30.1 billion had been lost in a revaluation of currencies"
Russia spent $58bn supporting the rouble - Times Online
SoulCast - Mall Owner on the verge of bankruptcy
Are there any solvent banks left? Some small, Porterville types maybe?
I bet USAA is just fine.
mp writes:
Better?
mp | 11.19.08 - 6:42 pm
No, I mean "Can i haz more detail about the kinds of problems that are going to appear please?"
The way you do it, I'm afraid I'll swallow my tongue when I click the mouse button when I make a trade. Just looking for kind of reference point or context.
Better?
mp | 11.19.08 - 6:42 pm | #
"There's never been a better time to buy or sell stocks."
Best!
that was for GH
I got a few ideas:
"pro
flamma : flame, fire.
flatus : blowing, blast, breathing, arrogance, haughtiness.
fleo : to weep, cry, shed tears, sob.
fodio : to prick, sting, jab.
fors fortis : chance, luck, fortune.
forsit forsan forsitan : perhaps, probably.
fortasse : perhaps.
forte : by chance, by luck, accidentally.
fortuna : fortune, luck, fate, chance.
frango (fracta) : to break in pieces, shatter.
frustra esse : to be deceived, to be mistaken.
frustra : in vain, mistakenly, wantonly, without reason.
fugio : to flee, escape, run away / avoid, shun.
furs : thief.
loans
........
Take your pic!
I dont think this is sustainable:
~~~
As long as the dollar is deflating the world economy is shrinking ...
Globalismus macht frei? I thought free trade was supposed to increase the growth rate.
"Better?
mp | 11.19.08 - 6:42 pm | #
"There's never been a better time to buy or sell stocks."
Best!"
Are you sure you're not a realtor (who sells investment advice on the side)?
Oh, fortuna. My valve!
@yagij
The US economy is now in a liquidity trap.
Repeating, the US economy is now in a liquidity trap.
With all the baggage that brings.
Monetary policy? Forget it.
We're going fiscal now, baby. Big time.
Nonsense, Donovan. Free Trade is code for Concentrate Wealth.
"...that $57.5 billion had been spent defending the rouble's value, which is measured against a basket of 0.45 euros and 0.55 dollars"
The situation is potentially volatile.
Is anyone familiar with the SC coast...Charleston, Isle of Palms area?
I'm originally from Charleston, and my parents still live there.
Downtown Charleston and the beach houses will probably explode within the next year or so. Too many houses on the beach, waterways, and golf courses. Plus, the primary drivers for growth were retirees, Yankee second-homers, and tourism. Not a good mix.
As I like to say, everything about Charleston is 1-2 years behind.
unless Obama takes this BS by the horns it will only get worse.
Things are going to evolve as they will, regardless of the President's talents.
Though economic insecurity is a good time to ram through meaningful, full-on health care services restructuring on the Canadian model let's say.
But other than that we could be looking at a lost decade or worse. The 2002-2006 prosperity was on borrowed money after all.
so I asked this question yesterday with the SFP announcement but was never able to get a response: The SFP program still has $510B outstanding, which will mature in its entirety between 11/20 and 1/29/09 ---- How is the Treasury going to repay these short term loans?
Isn't there another quarter left? I'm tired.
12th Percentile,
Great post.
Next steps:
IYR puts
REW
"We're going fiscal now..."
Meaning, specifically?
We're going fiscal now, baby. Big time.
~~~~
Unless we want to see 20-30 bankrupt states ...
mp writes:
@yagij
We're going fiscal now, baby. Big time.
mp | 11.19.08 - 6:46 pm
Oooooooooooooh...
Guess it is time to get out of USDs and into Silver, Ammo, and Rice. What a bad time for Xmas to come...
CR has been sounding the alarm on cre for the last couple of years. Why is the market so surprised when cre portfolios implode at the banks and insurance companies? We have not yet seen the end of this implosion.
Donavan, welcome back, my friend, to the game that never ends.
@Pavel
Meaning, New Deal II.
Coming soon to a soup line near you.
I'm glad I live in a no-growth area. Things are just a little grayer than usual here, that's all.
Watching all this is like watching the end of a special-effects-laden disaster movie. All that "prosperity" was never real to us anyway.
dp writes:
Are there any solvent banks left? Some small, Porterville types maybe?
I bet USAA is just fine.
I have an old friend who was in the military and is now a stock jock. He swears that USAA is the safest bank. At least on loans to active personnel, the have the greatest collection agent in the world.
this is fucking ridiculous. I can't help but look a the big picture. Bush has wrecked America and by 1/20/09 we will all be jobless and homeless. This thing is snowballing faster than even Roubini predicted.
All that "prosperity" was never real to us anyway.
~~~
But the oncoming meltdown will be ...
As so many Dow components approach low single digits, won't it become more erratic and less telling than the S&P500?
mp,
Catastrophe?
You folks evidently didn't hear about the paper Jan Hatzius put out the other day.
Savings=Investment?
Not this time around. Not enough transmission.
Baby, we're going fiscal. Big time.
LawyerLiz is about to get the first of the limit down days Conjure promised her.
I don't see how we can go fiscal without Obama, which means between now and Jan, we're in Limbo - or Purgatory, depending.
mp good call on breaking 8K today. Classic!
Biggest drop of CPI in 60 years with FF rate at 1% and Treasury/Fed buying up or supporting every credit under the sun.
What's left to do but to outright print like mad, destroying the dollah ?
Anonymous(Unrated) writes:
Catastrophe?
Anonymous | 11.19.08 - 6:52 pm
mp and his pal are predicting New Deal II coming shortly. By his tone, we are talking as if "it won't make it to Obama's First 50 days" shortly.
Major debt, major projects...
On top of our 350+% GDP debt...
mp i didnt see Jan's paper. Do you have a link. He has been very accurate IMO....
As so many Dow components approach low single digits, won't it become more erratic and less telling than the S&P500?
~~~~
No, lower prices mean bigger moves for smaller $ volume.
..."This thing is snowballing faster than even Roubini predicted."....
Nah,...the downslope is just a lot longer than we realize....
"mp good call on breaking 8K today. Classic!"
Conjure saw it coming at 08:30 Eastern.
mp - s&p bottom call??
@nades
Goldman customers only. Krugman talked about it Monday on his blog.
mp writes:
We are on the cusp of a catastrophe.
There is a window to avert. Someone must broker a deal with China to accept 10,000 low emission cars per day from GM for just 2 years.
The deal is there to be brokered. The shipping rates could be contracted for 2 years at below cost with Piraeus bulk owner. China uses treasury USD, and buys at discount, say 10K per car. Stream it out. It saves the world economy and the USD both. Markets could relax for 2 years.
ten-4 (thanks)
"Bottom call?"
We're going into The Great Void.
The Great Unknown.
Bottom call?
I don't think so.
"Coming soon to a soup line near you."
We have volunteered in soup kitchens. There's a soup kitchen about ten minutes by car from where we live. There has never been any shortage, so far as I know, of clients. It provides not only meals, but a chance to clean up, to make a phone call for a job, social work referrals. There are many volunteers from local churches, but also from schools.
It will do whatever it can, as resources allow.
I am seriously considering playing the bounce with BGU and/or TNA tomorrow morning.
Will anyone join me??
But the oncoming meltdown will be ...
Maybe, but nobody here will be panicking and rioting. 30 years of factory shutdowns have a way of creating that sort of equanimity.
Bush and Paulson basically told the American economy to go to Hell.
"Hey, unless you let us reward our friends we'll tank the ship."
Liquidity Trap, people.
Internalize that.
That's where we are now.
Rich:
On prior thread I thanked you for pointer to EEV which I exited today. Curious what you use to trade in the opposite market direction?
mmckinl writes:
Bush and Paulson basically told the American economy to go to Hell.
Along with this Congressman
Congressman Says Taxpayer Money Isn't Really Theirs
Krugman article mp mentioned, regarding fiscal stimulus.
In monetary economics, a liquidity trap occurs when the nominal interest rate is close or equal to zero, and the monetary authority is unable to stimulate the economy with traditional monetary policy tools. In this kind of situation, people do not expect high returns on physical or financial investments, so they keep assets in short-term cash bank accounts or hoards rather than making long-term investments. This makes a recession even more severe, and can contribute to deflation.
Liquidity trap - Wikipedia, the free encyclopedia
................
Sounds about right to me
....
Speed -thanks....
Thanks nades and mp...I guess S&P 610 ($50 x 12) is too optomistic!
It's not just a liquidity trap ...
It's the toxic debt that no one wants to show to the light of day.
mp(Unrated) writes:
@Pavel
Meaning, New Deal II.
Coming soon to a soup line near you.
mp | 11.19.08 - 6:50 pm | #
mp - how many years ago did we make that call?
I've been expecting 'fiscal' would be the 'end game since at least 2005-2006... there was no way 'monetarism' would dig us out of the eventual hole the bubble will leave.
My question is how do they do it? Any idea on the likely vehicle?
mykillk writes:
"so I asked this question yesterday with the SFP announcement but was never able to get a response: The SFP program still has $510B outstanding, which will mature in its entirety between 11/20 and 1/29/09 ---- How is the Treasury going to repay these short term loans?"
If I have my program acronyms right, the SFP was just money borrowed and deposited by the Fed. The Fed doesn't need the cash now, so they pull the money out to pay off the maturing T-Bills.
RE link to Westin, etc CMBS...
"All of the mortgage loans in that issue were originated between June 27, 2007 and April 30, 2008, and the securitization closed on May 8, 2008, well after the Bear Stearns collapse and Ralph Cioffi was led away in handcuffs."
I believe that is analogous to a 3:59 PM EST DJIA jam job...
Savings=Investment?
NOT THIS TIME AROUND!
READ THIS
Paul Krugman Blog - NYTimes.com
@DRYFLY
MASSIVE INFRASTRUCTURE INVESTMENT
Ma and Pa stimulus checks? They won't work, didn't work last time around because we have a LIQUIDITY TRAP
"Under no situation can Uncle Sam raise the trillions it needs to meet all [his] obligations. No tax rate is high enough, no discretionary spending cuts draconian enough. And there is no creditor of last resort for the U.S. Treasury. If default implies an Argentina-like scenario, that would leave us with only two options. The first is to print money; (which would lead to hyperinflation on the order of 1920s Germany.) and the other option is to eliminate Medicare and Social Security."
And Jan Hatzius interview on Bloomberg.
bond guy: Treasury sold securities in the SFP and deposited the money at the Fed. Yes, that's right. So you're saying the Treasury will simply withdraw that money right back? I don't understand what the point of the SFP program was then...
Basel Too,
Thank you very much for your insight on Charleston. I love that area and would love to get a little place there, but the prices have been outrageous.
I just hope some of the wonderful restaurants survive the downturn.
Oh, politically speaking, I supposed you've got to send out some stimulus checks to keep the masses happy.
But, they're not going to work.
They'll pay bills and the rest will go into the mattress, not consumption.
Biggest drop of CPI in 60 years with FF rate at 1% and Treasury/Fed buying up or supporting every credit under the sun.
What's left to do but to outright print like mad, destroying the dollah ?
Printing sensibly, causing mild inflation and in no sense "destroying" the dollar. Bernanke has been very conservative about actually adding money and he's very unlikely to take the extreme extra steps needed to destroy the dollar.
MASSIVE INFRASTRUCTURE INVESTMENT
I was up in a foundry in Quebec this week - probably do contract 'marketing' work for them here in the states - half of what they do is infrastructure related. Might prove to have been a timely trip.
Efficient low cost operation too - the ownership all run jobs in the shop besides just 'profit' from the equity - haven't seen that in a while.
That's 52 billion in GM cars, pre-sold to China, over 2 years - at 10K each automobile. In current dollars. It saves both systems the wreckage of a base currency.
Its a trade deal - who's time has come.
The first is to print money; (which would lead to hyperinflation on the order of 1920s Germany.) and the other option is to eliminate Medicare and Social Security."
Then there is only one option - the latter because the former won't be cut until we experience the latter. Bank on it.
mp, you think Paulson knows this and that is why he stopped the other 350 million? Just throwing good money after bad?
Canada will finance 30 Billion of the paper. Underwrite it.
@PSGirl
Yes, and that's why they're now targeting assets.
Ben is trying to prevent asset price deflation, which is about the only trick he's got left up his sleeve.
They'd better hope it works. It's never been tried before.
Macro policy in a liquidity trap (wonkish) - Paul Krugman Blog - NYTimes.com
is the Krugman's article re liq. trap and Jan's paper. (link tested in preview.)
I think the reason Japan had trouble with inflating was its really low interest rates meant there was little incentive to spend cash so people could just sit on it. If interest rates were normal that would be far less likely to happen.
I've said on several occasions that we've lost a lot of capital and in order to replace it, we need a high price for capital, meaning high interest rates. That's going to cause some significant deflation, which needs to be addressed by fiscal stimulus and printing. The current policy of addressing things with monetary policy is misguided. Money is a representation of the economy. Monetary policy is useful if the representation is wrong. But our current problem is that the real economy has problems in misallocation of resources (to housing, and car factories, and financial manipulations, inter alia). That needs fiscal policy changes to address it. The money representation of the real economy is still too optimistic and so monetary policy should be tight, not loose.
5.2 million Volts - Sold. Think about it. USD does not need to deflate. Thats into the bargain.
'Think big - you're thinking anyway.
Ben is trying to prevent asset price deflation, which is about the only trick he's got left up his sleeve.
They'd better hope it works. It's never been tried before.
mp | 11.19.08 - 7:22 pm | #
USG is going to end up being a 'silent' partner in a lot of TBTF operations before this is over - that is the only way they prevent deflation - assets will deflate anyway - inevitable. Its the falling incomes, profits & dollar velocity that scares the pants off them and it should.
canucklehead, I think China would be foolish to take that trade.
MP -
I have been screaming for a WPA program focused on clean energy/transit/communications infrastructure for over a year now, and under President Obama we will get one.
We don't need a WAR to end a depression . . . we need gov't infrastructure spending on the scale of a war footing.
It is the only way forward.
Lastly, I nominate mp and conjure bag for CR Hall of Fame. Consistently great posts.
I'm going to put up some links about this.
Gary writes:
canucklehead, I think China would be foolish to take that trade.
Good. We have the start of a negotiation. Its about time. Better the deal then.
canucklehead - China doesn't want cars, even free cars, they want jobs for their masses. That trade does nothing for them unless they build the cars we would then give to them.
Or maybe they crush them, turn the scrap into cars and ship back at a lower price than we can make them for.
See the problem?
You are sitting on the cusp of a world disaster, the likes of which the world has never seen. You have to stop moving deck chairs, and start dealing.
I am the capt of my own ship so - i know when its time to deal. The time is NOW.... for the USD to start dealing.
Later there will only be time to fold.
The other problem is China can ill afford to adopt the car culture that we did here.
China is investing big in mass transit. That is their future. Sure there will be a growing car market there . . . but it would be self-defeating for them to encourage a mass adoption of autos.
Too many negative externalities.
...my grandfather (and his father & grandfather) were profs at Harvard. Maxine Bocher (my great GF) was head of mathematics there. He despised The Federal Reserve and thought the New Deal would lead us to bankruptcy. Seems he was close to right even a hundred years ago.
dryfly- China can 'want' whatever its told to want. Right now it wants Wal-Mart to keep buying.
5.2 million cars can be made disappear/absorb into China's streets easier than the factories vanish that produce Wal-Mart's stock-in-trade.
If we're nominating CR Hall of Fame'ers, I vote also for rich and dryfly. Cool, calm and collected.
Gary writes:
The other problem is China can ill afford to adopt the car culture that we did here.
China will adapt to a global cultural model that is based on trade with the US. The alternative is a destabilization of world currency. Its a currency war first, then a real war. This will buy time.
Brigham Hussein Cohen(Unrated) writes:
What can I do?
Try suicide.
You are forgetting that China still has a quasi-command economy.
Those people stamping out fake dog doo and everything else can be put to work doing other things.
canucklehead, I think your understanding of the current balance of power in sino-american relations is severely outdated.
A few years from now, we'll have a better picture of who was correct.
Till then, I wish you well.
canucklehead(Unrated) writes:
dryfly- China can 'want' whatever its told to want. Right now it wants Wal-Mart to keep buying.
canucklehead | 11.19.08 - 7:35 pm | #
LOL - telling China they take our cars and like it. Think not. More likely they would make our problem of low treasury rates to go away before that. Then we'll see who likes what...
We do
This will buy time.
They got time.
If they we don't provide their people with jobs then they make work - and walk away from our financial markets.
I think I know who blinks first. Won't be China.
He despised The Federal Reserve and thought the New Deal would lead us to bankruptcy.
W/out the ND your grandfather would have probably ended up in an American Gulag or smoke up a chimney. My father remembered seeing both 'the bund' and the 'wobblies' in the street circa early 1930s. ND pretty much took the oxygen away from both extremes.
Krugman, condensed:
-There is a large gap in demand that needs to be filled.
-We must use an enormous fiscal stimulus to fill it.
-We currently are in a liquidity trap.
-If interest rates are near zero, money printed now just gets hoarded.
-A virtue like saving has become vice.
-To get out of the trap, a country must persuade its citizens to forget about the future, and convince the private sector that the government and central bank arent as austere as they seem.
-Private sector balance = the difference between private sector saving and private sector investment.
-GS forecasts a rise in the private sector balance to +10% in the fourth quarter of 2009.
Whats the answer?
1. Huge fiscal stimulus.
2. More aggressive GSE lending.
3. A promise by the Fed to keep rates low for an extended period.
I'm still trying to get over the first bullet, not being Keynsian and all. Scary thing is, I think this is what Obama has in mind.
For those of you who want to get up to speed, read the following:
FT Alphaville » Blog Archive » The parabolic Fed: divorcing monetary policy from money
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FT Alphaville » Blog Archive » Fed capitulates: the central bank is broken
FT Alphaville » Blog Archive » Fed capitulates, redux: quantitative easing in the USA
dryfly / Gary
Ok guys, you both have a better handle on sino-American trade. I'm pitching a big idea which is borderline science fiction, i know that. However, there is a version of the deal that could float a solution for a trade deficit. As well as put out a lot of fires temporarily threatening USD currency weakness; the world needs to restore trust in USD. If you don't like my fictional deal, adjust it. The core idea is a global systemic crash prevention solution. It hinges on a Sino-US trade deal. Tell me I'm wrong.
PS: plus...the Canadian Gov will reach out and finance such a deal to the tune of 30 billion. Its there for the asking.
They need a concrete deal. This is doable.
"Scary thing is, I think this is what Obama has in mind."
I sincerely hope so. We can worry about sovereign risk later.
I have some reading to do - slogging through the first one now. Makes me think gold as a hedge - but I don't like gold. What to do with cash then?
Thanks, mp. Nice links.
(Wish I could get to the original Hatzius article, though... multiple web searches yielded zilch.)
mp(Excellent) writes:
Pulling forward from last thread -
I sincerely hope so. We can worry about sovereign risk later.
I respectfully disagree, mp.
First I think the creditors lowered the boom at G-20. Maybe they will let Obama have a free hand, maybe not. Regardless, enforced austerity is a real possibility.
Second, I don't see any faster route to state failure than massive expenditures to try to replicate the new deal. Our state is hermetically sealed against amateur participants due to technocratic bias primarily brought into place since the New Deal.
Until the technocratic bias is removed, there's not going to be a stimulus that achieves meaningful effect because it won't be widespread enough in its direct effect. They will diddle the needles quite successfully, but the control console is not the plane.
It is probably the more humane answer but the Bushites have made the budgetary circumstances impossible and the milieu that brought sucha regime to power isn't capable of making good policy choices.
Again, respectfully, I see this as a route straight into policy paralysis due to inability to fund ongoing operations.
IMO -- the US state needs to dramatically curtail outlays and dramatically increase revenues. The effects on the populace will be quite horrifying but the state is not going to be able to "grow past this".
Black Star Ranch, you might want to check your domain renewal. Thought your bio was interesting enough to check your homepage, but I'm not looking for a dating service. Sorry
@Byzantine
If we didn't disagree now and then, we wouldn't have anything to talk about.
Can someone help me understand whether Krugman wants to erode/destroy all existing (
wealth as we know it? Is this a zero sum solution (the benefits to one class cancel the benefits to another)? When big guns argue "deficits don't matter" I get nauseous. No doubt I'm too simplistic in my understanding, so please make me feel better.
"I think this is what Obama has in mind."
Obama is surrounded by the same asshats that got us in this mess. Samo samo
Why can't CR Companion be written for IE. Its lonely at the end.
Jump.
Could we just fast-forward to January 20? I don't think the present administration will be of much use til then.
I am struggling with the links that mp gave in the other thread because there are so many terms that I don't know. Does anyone have a reference source for definitions of economic terms?
I could find one myself, but I want to make sure that I get a good one.
Thanks.
Can someone help me understand whether Krugman wants to erode/destroy all existing (
wealth as we know it?
In an inflationary situation, which is what Krugman is advocating, "stuff" will still have utility, and once the currency re-stablizes, value. Cash, stocks, bonds - not so much. Conversely, debt will be less burdensome.
All this is a Good Thing if you think deflation is worse. Clearly Krugman does.
With high inflation it may be best to buy consumer goods. If you save $1000, it may rapidly disappear. If you buy a $1000 tv, it may be worth $1000 when the same model you bought sells for $2000 in the future.
PSGirl,
Try this one:
Economics A-Z: economic terms, topics and jargon | The Economist
Thanks Zephyr that helps alot. I will bookmark for future reference.
CRE will be a mess. Good comments from William at Brutal Honesty.
Brutal Honesty
Brutal Honesty
wow its bad when burger king taco bell and mcdonalds are doomed.
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RoR: Forum
When there was so much construction all over, there must have been a time when it slows down. But the slowing down in the construction due to the slowdown all over, and people have less money now is a sad coincidence. When the boom was at pick before 5 years, many analysts did mention the slowdown is in the offing. no new office buildings on the horizon for 2010 - These should be something very strange either there is no new business till that time or all the new business are occupying the old businesses which are closed down recently.
Lisa
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