Once upon a time there were 3 little pigs. They lived at home with their parents. One day their father came to them and said it was time for the little pigs to strike out on their own and make their ways in the world. The father pig had worked hard all his life, and now it was time for his children to get out of his trough and make their way in the world. And so the 3 little pigs packed up a few belongings, slung them over their backs, and headed on down the road to make their ways in the world.
And soon it became pretty clear to the 3 little pigs that they were going to need to make some money in order to begin to make their ways in the world. Dad had little in the way of savings, and the pigs didnt want to end up like him: humble, content and peaceful. Yuck! And so the 3 little pigs decided that they would start a business. And they decided, seeing as they lived in the forest, that conditions were currently favorable to start a business whose focus would involve the acquisition and sale of nuts and berries. You see, the forest was currently experiencing a real boom in enterprise, and the pigs felt confident that, despite having little in the way of real world experience, that they could make a killing in this environment. Well this was indeed exciting, and the three little pigs celebrated their incipient venture by popping a bottle of their finest rancid apple wine and imbibing healthily.
The first step, the pigs believed, would be to get some funding for their business from the forest bank. So the pigs went to the local bank which was owned and operated by the big bad wolf, and they asked the big bad wolf if it might be possible to secure a loan for $500,000 so that they could get rolling on their new venture! And the big bad wolf glanced briefly at the pigs business plan, and he didnt even look at their worth or assets or liabilities because this was a very optimistic time for lending money, and then the big bad wolf proposed a loan of 1.2 Million dollars---way more than the pigs had hoped for!! And even thought the interest rate was high, the pigs felt they could easily meet their payments once they got their business off the ground. The loan would be a 5 year note, and the 1st of 60 monthly payments would be deferred for 90 days. Perfect! Well the pigs were ecstatic! And all 3 pigs signed on the dotted line, and the monies were deposited into an account that the pigs had opened at the big bad wolfs bank---money of course that was created right out of thin air with a few computer strokes by the big bad wolf. You see, no longer was there any need for anything like rocks or twigs to be in reserve when the banks loaned out money. Now they could just create the money with the snap of a finger, because the pigs' promise to repay the money was all they needed. Wow, what a great world for the pigs!!!---and things were indeed looking bright.
The next step thought the pigs would be to find a good location for their base of operations and to build a modern, state-of-the-art complex that would stand as a beacon to the ALL of the quadrupeds of the world. It was high time, thought the pigs, that all of the pigs in this forest could stand tall and boast their new found wealth and import. It was, they believed, the era of the pig! And so the pigs found a desirable location upon which to build, and they hired the most prestigious architectural firm, Termite Hill Architects, to design their new home. And the pigs hired Beaver and Co. to provide raw materials and to construct this new edifice. And the pigs felt wonderful, and they wrote back to dad and told him all about their new business, and while dad was a tad circumspect and suspicious about his sons having taken out such a huge loan with no real equity to use as collateral---other then the business itself and the hopes for profitable times---he was nonetheless excited for his children.
And the pigs decided that they could employ hundreds of workers recruited from the Migratory Birds Employment Agency, and that these new employees would fan out across the forests of the land to find the most affordable and delicious and delightful nuts and berries that they could find, and that they would load all of these nuts and berries on big ships in order to cross the rivers and lakes of the forests, and that the pigs would be the envy of the pig world! And the pigs just knew that they could make a great profit on these nuts and berries. These pigs were smart, after all.
The pigs had a couple of kinks to work out before they could really start making the big bucks. First they decided that they needed some more seed capital for their production and packaging operation. As such, the pigs went public with their incipient venture, and the market IPO, as well as a couple of well-timed corporate bond offerings, brought them in a nice cushion from which to draw upon as needed. Also, the pigs were no slouches; they realized that market conditions, while always subject to some kind of growth, could fluctuate. And so the pigs purchased some insurance for their new corporation in the form of Credit Default Swaps. In essence, the pigs believed that their business would succeed, but they hedged these beliefs by betting against their business, assuring, they assumed, a big payday for them even if the business tanked. Then they would secretly get paid Billions of dollars for all of the swaps they purchased, and no one would be the wiser. Smart pigs!
And so all I can say is, WOW! And each pig, over time and with experience, became as shrewd and callous and heartless a businesspig as youd even want to meet, and boy did they ever know how to turn a buck, Ill tell you. And just in the first few years away from home their corporation grew in value, and their stock price doubled, and the pigs built lavish estates for themselves, and each took a wife, and soon cute little piglets were scampering around the nut and berry plant, and everyday was a sunny day! And even though the pigs were leveraged up to their yummy little pink noses, no one really paid that much attention because these were great times and more debt meant more money to siphon off of the business! Happy pigs!
Soon, however, things began to change. And the change at first was subtle, but the pigs definitely knew a foul wind was beginning to blow. First of all, a series of particularly harsh winters and wet summers left the nut and berry harvest somewhat less than adequate to sustain their usual 10% annual growth. Secondly, the markets in general were trending downward a bit as many other new businesses had taken out a lot of loans from the big bad wolf and were having trouble servicing the debt on some of these loans. And some of these businesses even had to ask the Buck Stops Here Quadruped Congress to step in and provide a little financial relief in the near term so that these businesses could remain as going concerns. And more and more investors in the forest were turning to safer investments like Buck-Stops-Here Treasuries and the like, and as such the equity markets were struggling. And times were becoming a bit tight, and the pigs were getting a bit nervous. And my gosh, even the ships that used to carry the nuts and berries across the rivers and lakes weren't running anymore, because the ships couldn't make enough money to pay for their fuel and worker costs.
But these were clever pigs, and while the downturn was leaving lots of quadrupeds in the forest without food and without shelter, this little bump in the road didnt vex the pigs one bit. These were, after all, crafty little pigs.
And so one day the pigs held a behind-closed-doors board meeting and decided that drastic measures were needed, otherwise there was a possibility, albeit remote at this point, that the pigs wouldnt be able to justify to their investors or to all of the poor suffering quadrupeds of the forest, or even to the Buck-Stops-Here Congress, how they were still able to pay for their lavish estates or for their biannual family vacations to exotic forests all around the world, or continue to send the piglets to the finest private schools in the forest, or still be able to drive the most expensive cars. And the pigs hatched a plan.
The 1st step would be carried out by the little pig that was good with numbers, the pig accountant. He kept the books for the pigs business. And this little pig began changing some of the entries in the books, and altering the valuations on some of the holdings in which the pigs had invested, and creating false projections regarding the profitability of the pigs nut and berry business. And since the Buck-Stops-Here government of the forest believed that they shouldnt interfere in the business of the markets, no one really looked at these books. And the government said that it was OK for the pigs to value their assets and holdings as they saw fit, without oversight. And so the accountant pig created reality out of thin air! He was a clever pig.
And the little pig who was really good at public relations and was very influential with pigs in the pig marketplace hatched a plan whereby he would use his influence in the business world to short sell the nut and berry market to make a quick windfall profit. You see, when accountant pig created a false valuation projection for the nut and berry corporation, PR pig accidentally let slip to a few well-read writers on Pig Street that the nut and berry corporation may be in for a slowdown in overall profits, and as such lots of investors believed that the value of nut and berry stock was overvalued, and so they sold their shares, dragging the stock lower. But the pigs had made this all happen on purpose, and they had a few of their pig friends on the outside borrow millions upon millions of shares of nut and berry from other firms, and when the price dropped the investor pigs resold the shares at the lower pr
From the prior thread: Can anyone tell me what effect this has on the trust funds Suntrust administers? I know someone likely to be named as heir to a trust fund held by Suntrust. What happens to the trust funds if these jerks go tits up?
Port Washington, NY, December 9, 2008 â U.S.consumer technology* brick and mortar sales experienced the first-everdecline during the week of Black Friday. Revenue was down more than 8percent from November 23 through November 29, 2008 compared to the sametime period last year, according to NPDâs weekly tracking service**.This, however, didnât come unexpectedly. The consumer technologyretail landscape underwent some major changes, for example, withTweeter shutting its doors and Circuit City filing for bankruptcy. Discounting was generally considered to be much lower this year, asidefrom Black Friday doorbuster deals on TVs. There was also a greateremphasis on e-commerce and less exciting product selection which playedinto weaker sales.http://www.npd.com/press/releases/press_081209a.html
--
On SBET (Very important indicator ignored by CR)...
February 12, 2008
Small Business Economic Trend (SBET) Index Solidly In Already-In-Recession Territory
Facts:
The index fell to 91.8 from 94.6 in prior month and is now at 17-year+ low. The last time that the index was at or below this level was during the Sever Recessions of 1974 and 1980. During 2001 recession the index never fell below 95 and during the 1990 recession it stayed at and slightly above the current level thru most of the recession.
After the economy has been in an official recovery for three years (it can take up to three years into an official recover for the economy to fully recover in terms of employment and credit) whenever the index falls below 97 the economy is either already in recession or soon to enter recession within months. Last time the index fell below 97 was in April 2007. Now, that, ladies and gentlemen, is a pretty good leading indicator. It certainly is the best coincident indicator.
When the index falls below 90 the Severe Recession will be confirmed.
My comments:
IF it falls below 80, the depression will be confirmed.
SBET never lies because we dont have any econ-meister who interprets the index, i.e., index speak for itself.
The current ECRI econ-meisters lie about their record of being able to predict recessions ahead of time. (Late Geoffrey Moore was a scientist and the current econ-meisters, Achuthan and Banerji, are propagandists/charlatans based on their constantly shifting language and recent contradictory statements).
Jas, what do you think? We just saw the largest residential bust in history.
See the third graph: Residential has declined by close to what non-residential construction spending was at the peak. No one can say - with a straight face - that the CRE bust will be larger than the residential bust. I hope your question wasn't serious.
aClem: Assets of Trust Funds should be held in accounts with assets separate and segregated from the bank.
Complications may arise if the bank is trustee as well as custodian. You might have to replace one set of bank trustees with another set of bank trustees.
If this could be a problem for you, save hardcopies of all your trust statements and see a lawyer specializing in this area ASAP.
Note: There is another problem with CRE too (not discussed here) - many existing properties were recently purchased at prices that were based on overly optimistic pro forma income projections.
If it weren't all creepy and net stalky I'd kiss you. In a brotherly welcome back into the fold kinda way.
Regards the ABI: I think we are missing a technology type hedonist factor. It is far easier to do the Architectural part because of IT and Engineering advances. Architects can slap together increasingly standardized layouts quicker and engineering technology forces them to charge less lest they be cut from the process.
OT but if anyone's interested, C-span is now running the live hearings on Fannie/Freddie's role in mortgage fiasco. The guy who just testified, (i think he was a former Fannie CEO)& just reamed them up & down-----
Homeowners may have to make tough decisions before walking on an underwater loan; a typical commercial property developer will walk in a New York minute.
CRE lags the economy and RRE leads (by some two years as per Rosenberg). CRE Vacancy Rate will exceed RRE some time during 2009Q3-2010Q2.
It may be very instructive for you to research Silly.con Valley during 2001-03. Despite 20% drop in employment CRE did far worse than RRE in terms of the vacancy rates.
Cool, that is the CHGDEL series from the Fed, I plotted up the second derivative (the rate of change of the rate of change...goosebumps!).
Anyways, it looks like the rate of acceleration slowed down the least bit in the last quarter - I suspect it will be a hiccup - we will see re-acceleration in the next couple of quarters.
Millions (billions?) of Chinese pissed at the US for their change in econ status is not good. Throw some gasoline into the mix with nationalist talk and things can get ugly in a hurry.....
with an enticing sales pitch like that you could have packaged tons of crap mortgages and sold them as AAA paper. i'm sold, get me some HIG puts, stat!
Out in So. SF looks like the boom is finishing off. Good sized tower on west of freeway against mt. got the sheathing up and maybe completed in 2009. Several projects on n. side of point, one apparently for Kaiser Health so has occupant, we'll see for the others. On other side of road sign up for 50,000 sq ft avail in fairly new structure. Big parking structures for finished projects that seem occupied, but don't seem to have many cars in the parking. (The parking structures that Genetech builds have "full" signs on them). On the south side facing the airport 2 mid size structures that appear finished, but no sign of occupant. Some older buildings that were prior lab space have been empty for several years.
Treasury Sells $30 Billion of Four-Week Bills at Zero Percent
Email | Print | A A A
By Cordell Eddings and Daniel Kruger
Dec. 9 (Bloomberg) -- The Treasury sold $30 billion of four-week bills at zero percent for the first time since it began selling the securities in 2001 amid persistent demand for the safety of U.S. debt during the worst financial crisis since the Great Depression.
The bills were sold at a high discount rate of zero percent, the Treasury Department said today in Washington. The government received bids for the bills totaling more than four times the amount sold...
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People get really thrown off the tracks by the various lags in the economy. The lag could be three years between the leading and the laggiest. In a depression it could be longer.
from rep henry waxmans committee hearing this morning:
""All four of you seem to be in complete denial that Freddie and Fannie are in any way responsible for this," said Rep. Darrell Issa, R-Calif. "Your whole excuse for going to risky and unreasonable loans that are defaulting at an incredibly high rate is that everyone is doing it."
Repeated attempts to impose tighter regulation on the two companies were thwarted by the companies' powerful lobbyists.
Internal Freddie Mac budget records obtained by The Associated Press show $11.7 million was paid to 52 outside lobbyists and consultants in 2006. Power brokers such as former House Speaker Newt Gingrich and former Sen. Alfonse D'Amato of New York were recruited with six-figure contracts."
Does the fact that treasuries have a negative yield present a business opportunity?
Instead of treasuries, invest it in the Gavshire corporation. I'll go to the bank, pull out an equivalent amount of cash, and I'll sit on it. If anybody tries to take it, I'll blast them with my shotgun.
aClem writes:
From the prior thread: Can anyone tell me what effect this has on the trust funds Suntrust administers? I know someone likely to be named as heir to a trust fund held by Suntrust. What happens to the trust funds if these jerks go tits up?
aClem | 12.09.08 - 2:38 pm | #----------------------------------------------
I don't know the answer, but here's the place I would start my search: the Federal Deposit Insurance Corporation. Call the FDIC at 1-877-275-3342
Instead of treasuries, invest it in the Gavshire corporation. I'll go to the bank, pull out an equivalent amount of cash, and I'll sit on it. If anybody tries to take it, I'll blast them with my shotgun.
(warnings from 2004 answered with a firing of the messenger!!!) my comment
"Rep. Carolyn Maloney, D.-N.Y., grilled Freddie Mac's Syron about the company's decision to fire David Andrukonis, Freddie Mac's former chief risk officer.
Andrukonis sounded warnings as far back as 2004 about the risks posed by loans in which borrowers didn't provide proof of their incomes or detail their assets, according to e-mails released by the committee.
"Do you regret firing him?" Maloney said. "Do you regret buying these risky loans? Do you regret the way you led - and I would say mismanaged - this company?"
In defense, Syron said Andrukonis "was fired for a variety of reasons. It was not primarily for his having a view on credit."
U.S. Retail Sales Rise as Discounts Lure Shoppers (Update2)
By Allison Abell Schwartz
Dec. 9 (Bloomberg) -- Sales at U.S. retailers rose last week after chains used discounts on clothing and consumer electronics to lure customers and avoid what might be the worst holiday-shopping season in four decades.
Sales at stores open at least a year increased 0.4 percent in the seven days through Dec. 6 from a year earlier, the International Council of Shopping Centers and Goldman Sachs Group Inc. said today in a joint statement.
[snip]
Purchases at existing locations may rise as much as 1 percent in December, as shoppers wait until the last minute to buy holiday gifts, the New York-based ICSC said. Sales during the final two months of the year may decline as much as 1 percent, the largest drop since 1969, when the ICSC starting tracking data, said Michael Niemira, the groups chief economist. U.S. Retail Sales Rise as Discounts Lure Shoppers (Update3) - Bloomberg.com
trail - I was joking. It is a bubble fueled by fear. Just as the RRE bubble was fueled by greed. As of last Fri I was completely out of Ts. My money wants yield so chasing corp. paper makes some good sense. (pun intended)
Break-even occupancy of 55% was a convention of 1970s and 80s hotel loans.
I'm assuming the lending criteria of the past decade permitted a higher figure, perhaps much higher. If so, the industry is already in deep trouble, and loans already in the conduit may be frozen - or should be.
Dec. 9 (Bloomberg) -- Sales at U.S. retailers rose last week after chains used discounts on clothing and consumer electronics to lure customers and avoid what might be the worst holiday-shopping season in four decades. citizen energyecon | Homepage | 12.09.08 - 3:14 pm | #
Just wait till they release the REVENUE numbers. If sales are projected to be off 1% revune will be off further.
I was referring to CR's point, "many existing properties were recently purchased at prices that were based on overly optimistic pro forma income projections."
I imagine the initial construction of recent years' projects used similarly unrealistic estimates.
As hostile as Jas can be, he has been amazingly prescient with his investment predictions.
But less so than many on this blog. And he's such a twat that he's been banned at other financial sites. Hell, even his home page FSU indicates that he can't get write a coherent set of words anymore.
Congressman Issa is now indicating he wants any and all mortgage mods done by Gov. agencies to be made as full recourse loans, so taxpayers have some protection from speculators, etc.
zuzu's petals writes:
Congressman Issa is now indicating he wants any and all mortgage mods done by Gov. agencies to be made as full recourse loans, so taxpayers have some protection from speculators, etc.
Hell, even his home page FSU indicates that he can't get write a coherent set of words anymore.
Strike the "get". The sentence as originally written was: Hell, even his home page FSU indicates that he can't get his shit together to write a coherent set of words anymore. Obviously I failed to remove the entire phrase.
Asked about a new car deal on an inexpensive model. Was told I could have $5000 special discounts if I financed. I would have to finance with a Bank of their choice and they didn't want me to pay off too quickly.
Asked what kind of discount I could have if I paid cash. Answer was, No Discount. I would have to pay full price. WTF?
" zuzu's petals writes:
OT but if anyone's interested, C-span is now running the live hearings on Fannie/Freddie's role in mortgage fiasco. The guy who just testified, (i think he was a former Fannie CEO)& just reamed them up & down-----
zuzu's petals | 12.09.08 - 2:50 pm | # "
Must've been the guy from Fannie. The guy from Freddie has been reaming Barney Frank for years.
I'm not claiming to be an expert on financing hotels but I will say that reading this piece on what was happening in 05 and 06 regarding loans probably doesn't bode well for the industry in the next year or two.
Here are a few points:
In the last two years, lenders have moved away from strictly basing their underwriting on trailing twelve month financials and historical performance to taking into account next years projections. Owners are now taking advantage of fiercely competitive lending markets and refinancing assets that are still ramping up or are in the midst of repositioning.
While the lending market is still hot and aggressive, Jones Lang LaSalle is beginning to see signs of lender caution. The proliferation of capital flowing into the hospitality industry, continually driving down cap rates, and generating high volumes of high leverage refinancings with equity cash outs, and acquisition and redevelopment financings with low in-place cash flow relative to asset values, has created exposure risks for many of the most active lenders.
There were some bright spots for the industry. Notebook PC unit growth increased almost 19 percent and revenue was up 8 percent. LCD TVs above 30 grew 18 percent in units and 9 percent in dollars. There were several other categories which saw unit growth, such as GPS, plasma TVs, and digital picture frames, but saw declines in revenue due to aggressive declines in average selling prices versus last year which did not generate sufficient unit demand.
President-elect Barack Obama said on Tuesday he was saddened by a corruption case involving Illinois Gov. Rod Blagojevich and that he was not aware of Blagojevich's alleged efforts to sell the Senate seat Obama had vacated.
"We make the rules - the news, war, peace, famine, upheaval, the cost of a paper clip... you're not naive enough to think we're living in a democracy are you?
Gordon Gekko
Okay - Im not calling a bottom. But very close as we reach irrational despondancy...pure despartion..and here it is:
Dec. 9 (Bloomberg) -- Chancellor of the Exchequer Alistair Darling is considering whether to extend credit guarantees to households and companies as a way to spur bank lending in the U.K., a person familiar with the plan said.
Congressman Issa is now indicating he wants any and all mortgage mods done by Gov. agencies to be made as full recourse loans, so taxpayers have some protection from speculators, etc.
Barley writes:
Okay - Im not calling a bottom. But very close as we reach irrational despondancy...pure despartion..and here it is:
I write: There will be no bottom to markets possible until the number of houses for sale or potentially for sale is back down to less than 6 months of inventory or SPX dividends hits zero. Possibly both need to happen together.
Scandinavia and Italy barely seem effected, Spain is down but it see limited to outskirts of cities and UK heavy areas, UK is a cold, rainy version of AZ or FLA: everything is on the market and none of it is moving, yet in London/SE the cranes are still at work. The country is imploding yet folks are carrying on like nothing is happening yet they all acknowledge it happening. I guess that's how people behaved on the titanic.
more than 100 economists can't be wrong...they are recommending a 1 Trillion Stimulus package
BTW at least this gives Obama and the congress an out if they implement the thing and it backfires - the can blame the economists for misadvising them.
I think it makes such a stimulus package all the more likey.
--
""would the demand for RRE fall more than for CRE?" As demand relates to spending, almost certainly not."
Allen C,
My forecast is that the drop in the demand for CRE would be far greater than the fall in the demand for RRE to the point that CRE was far more overbuilt than the RRE based on the demand in the coming years (things are built based on current and anticipated demand). CR was the victim of two things: (1) lags w.r.t. RRE and CRE and (2) the nature, or extant, of the decline in the GDP and its duration.
Congressman Issa is now indicating he wants any and all mortgage mods done by Gov. agencies to be made as full recourse loans, so taxpayers have some protection from speculators, etc.
That will be a deal breaker. Walking away is clearly the best answer for many.
We should rescind the bailouts to speed up the default process too.
"zuzu's petals writes:
blush ummm... formerly clean-minded Girl Scout here, xxxx--accidental coupling of fannie & reaming never even occurred to me!"
Yes, that was funny, but the real point was that Freddie's CEO was a former "room mate" of Barney Frank, a point which the MSM has allowed to go essentially unreported. Talk about conflict of interest! And if I'm not mistaken, he got the job after rooming with BF.
Real life story - Tampa area. Sunday talking to a guy who owns a few small commercial properties. Tennants are past due and people calling about his open slots are telling him other have similar or newer for 40% less. Fixed costs - insurance, taxes, interest on his property loans are killing him. He kept saying he wasn't going to match the lowball lease offers othere had quoted him but cash flow is king.
Barley(Unrated) writes:
Okay - Im not calling a bottom. But very close as we reach irrational despondancy...pure despartion..and here it is:
The emotional scale might be closing in on 'bottom' but the fundamentals aren't there yet - they got more to fall - that's how you get a big wide flat bottomed bottom.
Seriously - we probably have way more job loss yet to come. Considering how they seasonally adjust - I'd guess December will be especially grizzly (stores didn't hire a lot of seasonal help which will be adjusted as additional job loss).
January will have grizzly 'nominal' losses but might not look as bad from an 'adjusted' POV.
Then it's into spring - and not much construction ramp up (again grizzly from a 'adjusted' perspective).
Until we get some job loss stabilization - even if it isn't job growth just less job loss - I can't safely suggest we are at a bottom... can you?
Show me a couple months of near zero job loss & I'd say then we are close.
"UK is a cold, rainy version of AZ or FLA: everything is on the market and none of it is moving, yet in London/SE the cranes are still at work. The country is imploding yet folks are carrying on like nothing is happening yet they all acknowledge it happening. I guess that's how people behaved on the titanic.
Comrade Alexei Mikhailovich | 12.09.08 - 3:40 pm | # "
Stiff upper lip, see each foreclosure like a buzz bomb.
General consensus of FM/FMAC panel is over the next 4-5 years is for 8 million additional foreclosures on top of the current 3 mill. RRE downside has a long way to go.
My brother will lose his job due to the Sony cuts.
Seriously - we probably have way more job loss yet to come. Considering how they seasonally adjust - I'd guess December will be especially grizzly (stores didn't hire a lot of seasonal help which will be adjusted as additional job loss).
I agree... but the BLS will assume they hired anyway. Expect the revisions of November and December's data to be brutal. The 1st numbers? Might not look that bad.
Foreclosures shooting for 100,000 in 08 for Miami-Dade County. Something like 20 judges not family, not probate== 5000k foreclsures per judge. Not counting the other stuff they do.
It simply can't be done. They will pile up and pile up.
"I have way too much dry powder and not enough yield."
Pundits criticize lack of savings, but the government in its political zeal to save everyone else destroys value of savings. When will it become a government priority to reward savings, instead of pushing people in search of minimal yeilds into ever higher risk?
In all this cacophony, who speaks for savers?
I am interested in topic R Dawg opened up in last thread about dollar devaluation. In fiat system with no PM standard, how does this occur? Does it have to be an outright exchange? And seriously, what is the possibility of this happening, and what are the precursors? What are the social implications (how are current wages/prices affected?)
Any credible research or explanations on this? Is anyone in government daring to even raise this?
ac - [Mortgages as recourse loans?
There's an interesting idea...]
Well, as I understand it the reason the loans are presently non-recourse is so the lender is inclined to be more cautious (didn't work when the lender got disconected from the borrower).
The government isn't cautious so the need for insurance.
The Overlords have everyone just about where they want 'em. The masses have fled into treasuries, cash, and pure paper money ... and the printing presses can now roll for maximum effect. The true masters will once again retain ownership of the means of production, and halt the deflation by fiat...
As for "100 economists can't be wrong" - history tends to suggest that whenever 100 economists can actually agree, they must be wrong.
"... but the real point was that Freddie's CEO was a former "room mate" of Barney Frank, a point which the MSM has allowed to go essentially unreported. Talk about conflict of interest! And if I'm not mistaken, he got the job after rooming with BF."
Is that for real, or just some internet gossip? Link?
"When you conclude that it is a good time to burn dollar bills!"
Lighting up a stogie containing a blend of the finest products of Cuba and British Columbia with a burning Benjamin - that's bringing North America together in style.
Group foreclosures--sure you guys are being funny, but they aren't allowed.
I suppose if John X Smith borrowed 10 loans from Stupid Ole Lender they could file just one file in the same County, but each would have to be proved up separately.
Also here we go again. Recourse schmeecourse. Banks DON'T SUE for deficiency judgments, even if they can. Waste of time.
They can't finish the foreclosures they have and they can't/won't sell for a price that someone will take mostly, after foreclosure.
Deficientcy judgts, you have to prove on EACH ONE just how much you are deficient. Are you kidding? Never happen.
Largest retail REIT about to default:
Published: December 9, 2008 - 3:34 pm
(AP) Fitch Ratings downgraded General Growth Properties Inc.'s credit ratings Tuesday, saying default may be imminent for the shopping mall owner.
...
Fitch also said conditions in real estate debt capital markets are hurting General Growth's ability to raise money to repay about $600 million in 2009 maturing unsecured debt.
...
Fitch downgraded the issuer default rating to "C," it's lowest junk rating
"My forecast is that the drop in the demand for CRE would be far greater"
Nothing would shock me at this point. I'm in the depression camp already. I'm now left to ponder the depth and the extent of govi mismanagement of the collapse.
"Is that for real, or just some internet gossip? Link?
Comrade V | Homepage | 12.09.08 - 3:58 pm | # "
Mr. V,
I'm going to have to apologize; I was told this by my Dad, and took it at face value. After your question, I googled for an answer, and couldn't find any verification. I'll ask my Dad where he heard it (it's been many months) and get back to you if I find any "facts" on the web or elsewhere.
Sorry again....
stefan writes:
What's the deal with hotel occupancy 1969-71? I know there's a recession there, but it isn't a big one.
stefan | Homepage | 12.09.08 - 4:36 pm | #
If 23.7 million sq ft were equivalent to 13.6% of the leased space, that would put leased space at only 174 million sq ft.
Also, even if we ballpark space per office worker at only 100 sq ft, a million sq ft would hold only 10k workers, so 174 million would be enough only for 1.74 million workers.
Architectural billings doesn't correlate well with a looming bust in CRE. If anything, it means that there won't be a lot more space coming on line in the next 3 years. We aren't hearing about distress from many CRE owners right now. So long as the debt service is covered with operating income, no cause for panic.
On the Barney Frank/Freddie CEO "roomie" rumor-- I googled that also the other day, & pulled up stuff abouthow back in the 80's, I believe, Barney did in fact have a long-term serious partnership with some guy at Freddie-- not a CEO however, but a mid-to upper management guy in charge of developing loan programs for rural communities. This guy left his slot at Freddie some years later to become... wait for it... a potter.
One who makes pots.
(I'd insert a few bars here of "I like a man with a slowwwww hand..." but it's too early in the morning to be cracking wise.
Last?
Black friday sales down 8% compared to 2007... ouch
We are all CRE now?
The Little Pigs: A Fable
Once upon a time there were 3 little pigs. They lived at home with their parents. One day their father came to them and said it was time for the little pigs to strike out on their own and make their ways in the world. The father pig had worked hard all his life, and now it was time for his children to get out of his trough and make their way in the world. And so the 3 little pigs packed up a few belongings, slung them over their backs, and headed on down the road to make their ways in the world.
And soon it became pretty clear to the 3 little pigs that they were going to need to make some money in order to begin to make their ways in the world. Dad had little in the way of savings, and the pigs didnt want to end up like him: humble, content and peaceful. Yuck! And so the 3 little pigs decided that they would start a business. And they decided, seeing as they lived in the forest, that conditions were currently favorable to start a business whose focus would involve the acquisition and sale of nuts and berries. You see, the forest was currently experiencing a real boom in enterprise, and the pigs felt confident that, despite having little in the way of real world experience, that they could make a killing in this environment. Well this was indeed exciting, and the three little pigs celebrated their incipient venture by popping a bottle of their finest rancid apple wine and imbibing healthily.
The first step, the pigs believed, would be to get some funding for their business from the forest bank. So the pigs went to the local bank which was owned and operated by the big bad wolf, and they asked the big bad wolf if it might be possible to secure a loan for $500,000 so that they could get rolling on their new venture! And the big bad wolf glanced briefly at the pigs business plan, and he didnt even look at their worth or assets or liabilities because this was a very optimistic time for lending money, and then the big bad wolf proposed a loan of 1.2 Million dollars---way more than the pigs had hoped for!! And even thought the interest rate was high, the pigs felt they could easily meet their payments once they got their business off the ground. The loan would be a 5 year note, and the 1st of 60 monthly payments would be deferred for 90 days. Perfect! Well the pigs were ecstatic! And all 3 pigs signed on the dotted line, and the monies were deposited into an account that the pigs had opened at the big bad wolfs bank---money of course that was created right out of thin air with a few computer strokes by the big bad wolf. You see, no longer was there any need for anything like rocks or twigs to be in reserve when the banks loaned out money. Now they could just create the money with the snap of a finger, because the pigs' promise to repay the money was all they needed. Wow, what a great world for the pigs!!!---and things were indeed looking bright.
The next step thought the pigs would be to find a good location for their base of operations and to build a modern, state-of-the-art complex that would stand as a beacon to the ALL of the quadrupeds of the world. It was high time, thought the pigs, that all of the pigs in this forest could stand tall and boast their new found wealth and import. It was, they believed, the era of the pig! And so the pigs found a desirable location upon which to build, and they hired the most prestigious architectural firm, Termite Hill Architects, to design their new home. And the pigs hired Beaver and Co. to provide raw materials and to construct this new edifice. And the pigs felt wonderful, and they wrote back to dad and told him all about their new business, and while dad was a tad circumspect and suspicious about his sons having taken out such a huge loan with no real equity to use as collateral---other then the business itself and the hopes for profitable times---he was nonetheless excited for his children.
And the pigs decided that they could employ hundreds of workers recruited from the Migratory Birds Employment Agency, and that these new employees would fan out across the forests of the land to find the most affordable and delicious and delightful nuts and berries that they could find, and that they would load all of these nuts and berries on big ships in order to cross the rivers and lakes of the forests, and that the pigs would be the envy of the pig world! And the pigs just knew that they could make a great profit on these nuts and berries. These pigs were smart, after all.
The pigs had a couple of kinks to work out before they could really start making the big bucks. First they decided that they needed some more seed capital for their production and packaging operation. As such, the pigs went public with their incipient venture, and the market IPO, as well as a couple of well-timed corporate bond offerings, brought them in a nice cushion from which to draw upon as needed. Also, the pigs were no slouches; they realized that market conditions, while always subject to some kind of growth, could fluctuate. And so the pigs purchased some insurance for their new corporation in the form of Credit Default Swaps. In essence, the pigs believed that their business would succeed, but they hedged these beliefs by betting against their business, assuring, they assumed, a big payday for them even if the business tanked. Then they would secretly get paid Billions of dollars for all of the swaps they purchased, and no one would be the wiser. Smart pigs!
And so all I can say is, WOW! And each pig, over time and with experience, became as shrewd and callous and heartless a businesspig as youd even want to meet, and boy did they ever know how to turn a buck, Ill tell you. And just in the first few years away from home their corporation grew in value, and their stock price doubled, and the pigs built lavish estates for themselves, and each took a wife, and soon cute little piglets were scampering around the nut and berry plant, and everyday was a sunny day! And even though the pigs were leveraged up to their yummy little pink noses, no one really paid that much attention because these were great times and more debt meant more money to siphon off of the business! Happy pigs!
Soon, however, things began to change. And the change at first was subtle, but the pigs definitely knew a foul wind was beginning to blow. First of all, a series of particularly harsh winters and wet summers left the nut and berry harvest somewhat less than adequate to sustain their usual 10% annual growth. Secondly, the markets in general were trending downward a bit as many other new businesses had taken out a lot of loans from the big bad wolf and were having trouble servicing the debt on some of these loans. And some of these businesses even had to ask the Buck Stops Here Quadruped Congress to step in and provide a little financial relief in the near term so that these businesses could remain as going concerns. And more and more investors in the forest were turning to safer investments like Buck-Stops-Here Treasuries and the like, and as such the equity markets were struggling. And times were becoming a bit tight, and the pigs were getting a bit nervous. And my gosh, even the ships that used to carry the nuts and berries across the rivers and lakes weren't running anymore, because the ships couldn't make enough money to pay for their fuel and worker costs.
But these were clever pigs, and while the downturn was leaving lots of quadrupeds in the forest without food and without shelter, this little bump in the road didnt vex the pigs one bit. These were, after all, crafty little pigs.
And so one day the pigs held a behind-closed-doors board meeting and decided that drastic measures were needed, otherwise there was a possibility, albeit remote at this point, that the pigs wouldnt be able to justify to their investors or to all of the poor suffering quadrupeds of the forest, or even to the Buck-Stops-Here Congress, how they were still able to pay for their lavish estates or for their biannual family vacations to exotic forests all around the world, or continue to send the piglets to the finest private schools in the forest, or still be able to drive the most expensive cars. And the pigs hatched a plan.
From the prior thread: Can anyone tell me what effect this has on the trust funds Suntrust administers? I know someone likely to be named as heir to a trust fund held by Suntrust. What happens to the trust funds if these jerks go tits up?
Black friday sales down 8% compared to 2007... ouch
Brontide | 12.09.08 - 2:36 pm | #
Link?
cd
Jas Jain writes:
If only CR can learn to think simply and clearly like Elvis here. But that is very hard for an economist to do.
Jaswant has no credibility.
--
Was "CRE not as overbuilt as RRE," CR, or was it?
Just curious,
Jas
emo
25 min until market opens...
cd
Port Washington, NY, December 9, 2008 â U.S.consumer technology* brick and mortar sales experienced the first-everdecline during the week of Black Friday. Revenue was down more than 8percent from November 23 through November 29, 2008 compared to the sametime period last year, according to NPDâs weekly tracking service**.This, however, didnât come unexpectedly. The consumer technologyretail landscape underwent some major changes, for example, withTweeter shutting its doors and Circuit City filing for bankruptcy. Discounting was generally considered to be much lower this year, asidefrom Black Friday doorbuster deals on TVs. There was also a greateremphasis on e-commerce and less exciting product selection which playedinto weaker sales.http://www.npd.com/press/releases/press_081209a.html
--
On SBET (Very important indicator ignored by CR)...
February 12, 2008
Small Business Economic Trend (SBET) Index Solidly In Already-In-Recession Territory
Facts:
My comments:
Jas
Nice graphs, CR. Looks like the CRE debacle is starting to hit, like you predicted. Was debating whether to short SPG or buy SRS. SRS it is, for now.
Nibbling on my shorts again..
Hmm. wait a minute.. that came out wrong.
--
OK Jas. What do you plan to do when treasury rates go under 2%? Are you still going to hold on to dollars?
REBear,
Dollar yes and long Treasuries no. T-Bills? YES. Gold? Yes. Swiss franc? Maybe. Short the Scam Market? Yes, yes and yes.
Jas
Black friday sales down 8% compared to 2007... ouch
Brontide | 12.09.08 - 2:36 pm | #
OK...that's "Consumer technology" black friday sales off 8%. Thanks for the link.
cd
Actually, I tried to short a bunch of HBs (KBH, LEN, MTH) and ameritrade wouldn't let me. Out of shares to borrow, I guess. Lame lame.
Jas, what do you think? We just saw the largest residential bust in history.
See the third graph: Residential has declined by close to what non-residential construction spending was at the peak. No one can say - with a straight face - that the CRE bust will be larger than the residential bust. I hope your question wasn't serious.
But thanks for the laugh.
Best to all.
A most convincing case, CR.
Come join the Greater Depression/make money by shorting the market and going long gold and gold-mining stocks crowd, CR! The water is fine!
aClem: Assets of Trust Funds should be held in accounts with assets separate and segregated from the bank.
Complications may arise if the bank is trustee as well as custodian. You might have to replace one set of bank trustees with another set of bank trustees.
If this could be a problem for you, save hardcopies of all your trust statements and see a lawyer specializing in this area ASAP.
****smack down****
Note: There is another problem with CRE too (not discussed here) - many existing properties were recently purchased at prices that were based on overly optimistic pro forma income projections.
If it weren't all creepy and net stalky I'd kiss you. In a brotherly welcome back into the fold kinda way.
Regards the ABI: I think we are missing a technology type hedonist factor. It is far easier to do the Architectural part because of IT and Engineering advances. Architects can slap together increasingly standardized layouts quicker and engineering technology forces them to charge less lest they be cut from the process.
Residential has declined by close to what non-residential construction spending was at the peak.
Jas is SUCH an indian-born dope. No wonder he keeps getting banned.
OT but if anyone's interested, C-span is now running the live hearings on Fannie/Freddie's role in mortgage fiasco. The guy who just testified, (i think he was a former Fannie CEO)& just reamed them up & down-----
Coming to a town near you, credit union busts.....
U.S. to announce rescue for corporate credit unions: Journal - MarketWatch
Homeowners may have to make tough decisions before walking on an underwater loan; a typical commercial property developer will walk in a New York minute.
--
Thanks, CR.
CRE lags the economy and RRE leads (by some two years as per Rosenberg). CRE Vacancy Rate will exceed RRE some time during 2009Q3-2010Q2.
It may be very instructive for you to research Silly.con Valley during 2001-03. Despite 20% drop in employment CRE did far worse than RRE in terms of the vacancy rates.
Jas
Thanks Jas.
Thank you FUBAR et al.
It's a good thing Obama is going to build 8-lane super highways to all these empty stores.
CR,
Cool, that is the CHGDEL series from the Fed, I plotted up the second derivative (the rate of change of the rate of change...goosebumps!).
Anyways, it looks like the rate of acceleration slowed down the least bit in the last quarter - I suspect it will be a hiccup - we will see re-acceleration in the next couple of quarters.
CHGDEL rate of acceleration plot at:
energyecon
Great post, CR, thanks.
Did CR just say SRS is a good buy?
--
Q: Isn't the Internet deflationary, in general, and highly deflationary for CRE?
Jas
Millions (billions?) of Chinese pissed at the US for their change in econ status is not good. Throw some gasoline into the mix with nationalist talk and things can get ugly in a hurry.....
China Boomtown Withers as Buyers Push Worker Rights (Update1) - Bloomberg.com
If anyone would like some spending money for next year, there is currently a sale on puts for the insurers.
MET, PRU, HIG. Come get yours while they're hot. Orders are limited. Supplies will not last.
Recommend those with potential payments in April...
That is all.
GH
Wow.... Erin Burnett arguing with Jim Cramer.
I think I lost abewt twinty IQ pnts listin 2 that.
--
Q: "How much worse will the recession get?"
Answer by Martin Feldstein: "Much much worse."
I think that severe recession is a foregone conclusion.
Jas
Lehman Brothers has asked a judge to approve the sale of a French investment-banking unit to Banque Nomura France for 1 euro.
Gavshire:
with an enticing sales pitch like that you could have packaged tons of crap mortgages and sold them as AAA paper. i'm sold, get me some HIG puts, stat!
It's that straight line thing agai
REbear-
I know I was earlier...
cd writes:
OT-srs above 50 sma...getting it for 76 in Jan..will be looked at in awe....
cd | 12.09.08 - 1:53 pm | #
Driving around in Calif. big city industrial parks over 30 days led to my average joe analyst opinion!
--
3-Month T-Bills at NEGATIVE rate (I got quite a bit of 6-Month Bills bought 2-4 months ago), first since 1941. Not as bad as Japan in 1990s?
Greater Depression here we come.
Jas
"CRE did far worse than RRE"
The .com bust was the result of a high-tech capital investment bust. One would expect a large decline in Silicon Valley CRE.
This time around it is a consumer bust with RRE leading the way.
Jas, when would you think it is time short T-bills?
Treasury yields negative -- WOW. I'll gladly loan you $100 today, if you promise to return $99 tomorrow...
--
"This time around it is a consumer bust with RRE leading the way."
Allen C,
In "a consumer bust" would the demand for RRE fall more than for CRE?
Jas
Out in So. SF looks like the boom is finishing off. Good sized tower on west of freeway against mt. got the sheathing up and maybe completed in 2009. Several projects on n. side of point, one apparently for Kaiser Health so has occupant, we'll see for the others. On other side of road sign up for 50,000 sq ft avail in fairly new structure. Big parking structures for finished projects that seem occupied, but don't seem to have many cars in the parking. (The parking structures that Genetech builds have "full" signs on them). On the south side facing the airport 2 mid size structures that appear finished, but no sign of occupant. Some older buildings that were prior lab space have been empty for several years.
Gavshire Hathaway writes:
Treasury yields negative -- WOW
Market says dont save your money!
I think the market is pricing a nasty, deflationary 2009.
allen c-in SV yesterday, lot's of space available and coming on line..
bayarea is darn right beautiful today...enjoy the last hour of the
"which side do we feed today" with your host ben and henry....
Treasury Sells $30 Billion of Four-Week Bills at Zero Percent - Bloomberg.com
Treasury Sells $30 Billion of Four-Week Bills at Zero Percent
Email | Print | A A A
By Cordell Eddings and Daniel Kruger
Dec. 9 (Bloomberg) -- The Treasury sold $30 billion of four-week bills at zero percent for the first time since it began selling the securities in 2001 amid persistent demand for the safety of U.S. debt during the worst financial crisis since the Great Depression.
The bills were sold at a high discount rate of zero percent, the Treasury Department said today in Washington. The government received bids for the bills totaling more than four times the amount sold...
Market says dont save your money!
Quite the opposite! It saying that money is the best store of value, cuz everything else is going to hell in a handbasket.
--
People get really thrown off the tracks by the various lags in the economy. The lag could be three years between the leading and the laggiest. In a depression it could be longer.
BEWARE OF LAGS IN THE ECONOMY.
Jas
CBS news / AP story
from rep henry waxmans committee hearing this morning:
""All four of you seem to be in complete denial that Freddie and Fannie are in any way responsible for this," said Rep. Darrell Issa, R-Calif. "Your whole excuse for going to risky and unreasonable loans that are defaulting at an incredibly high rate is that everyone is doing it."
Repeated attempts to impose tighter regulation on the two companies were thwarted by the companies' powerful lobbyists.
Internal Freddie Mac budget records obtained by The Associated Press show $11.7 million was paid to 52 outside lobbyists and consultants in 2006. Power brokers such as former House Speaker Newt Gingrich and former Sen. Alfonse D'Amato of New York were recruited with six-figure contracts."
our government has been whored out to the pigme
Does the fact that treasuries have a negative yield present a business opportunity?
Instead of treasuries, invest it in the Gavshire corporation. I'll go to the bank, pull out an equivalent amount of cash, and I'll sit on it. If anybody tries to take it, I'll blast them with my shotgun.
For this service, I'll charge .1%
Any takers?
Barley - Market says do save your money. Market says $99 tomorrow is worth $100 today. $100 tomorrow is worth more than $100 today...
aClem writes:
From the prior thread: Can anyone tell me what effect this has on the trust funds Suntrust administers? I know someone likely to be named as heir to a trust fund held by Suntrust. What happens to the trust funds if these jerks go tits up?
aClem | 12.09.08 - 2:38 pm | #----------------------------------------------
I don't know the answer, but here's the place I would start my search: the Federal Deposit Insurance Corporation. Call the FDIC at 1-877-275-3342
Jas, you just had your butt handed to you by the blog host.
Maybe you should try thinking more and posting less.
Instead of treasuries, invest it in the Gavshire corporation. I'll go to the bank, pull out an equivalent amount of cash, and I'll sit on it. If anybody tries to take it, I'll blast them with my shotgun.
Not such a bad idea ...
from the same cbs ap story
(warnings from 2004 answered with a firing of the messenger!!!) my comment
"Rep. Carolyn Maloney, D.-N.Y., grilled Freddie Mac's Syron about the company's decision to fire David Andrukonis, Freddie Mac's former chief risk officer.
Andrukonis sounded warnings as far back as 2004 about the risks posed by loans in which borrowers didn't provide proof of their incomes or detail their assets, according to e-mails released by the committee.
"Do you regret firing him?" Maloney said. "Do you regret buying these risky loans? Do you regret the way you led - and I would say mismanaged - this company?"
In defense, Syron said Andrukonis "was fired for a variety of reasons. It was not primarily for his having a view on credit."
U.S. Retail Sales Rise as Discounts Lure Shoppers (Update2)
By Allison Abell Schwartz
Dec. 9 (Bloomberg) -- Sales at U.S. retailers rose last week after chains used discounts on clothing and consumer electronics to lure customers and avoid what might be the worst holiday-shopping season in four decades.
Sales at stores open at least a year increased 0.4 percent in the seven days through Dec. 6 from a year earlier, the International Council of Shopping Centers and Goldman Sachs Group Inc. said today in a joint statement.
[snip]
Purchases at existing locations may rise as much as 1 percent in December, as shoppers wait until the last minute to buy holiday gifts, the New York-based ICSC said. Sales during the final two months of the year may decline as much as 1 percent, the largest drop since 1969, when the ICSC starting tracking data, said Michael Niemira, the groups chief economist.
U.S. Retail Sales Rise as Discounts Lure Shoppers (Update3) - Bloomberg.com
trail - I was joking. It is a bubble fueled by fear. Just as the RRE bubble was fueled by greed. As of last Fri I was completely out of Ts. My money wants yield so chasing corp. paper makes some good sense. (pun intended)
Break-even occupancy of 55% was a convention of 1970s and 80s hotel loans.
I'm assuming the lending criteria of the past decade permitted a higher figure, perhaps much higher. If so, the industry is already in deep trouble, and loans already in the conduit may be frozen - or should be.
Dec. 9 (Bloomberg) -- Sales at U.S. retailers rose last week after chains used discounts on clothing and consumer electronics to lure customers and avoid what might be the worst holiday-shopping season in four decades.
citizen energyecon | Homepage | 12.09.08 - 3:14 pm | #
Just wait till they release the REVENUE numbers. If sales are projected to be off 1% revune will be off further.
I expect those rent/revenue projections to be as valid as the rose-colored MBS ratings and stress tests.
Barley - Sorry, should have figured. It's still a wonder to me how many people around don't get that concept...
As hostile as Jas can be, he has been amazingly prescient with his investment predictions.
Back when oil was at $80+ he was saying it would drop to $30.
Not there yet, but have to give some credit.
And I'm sure he's made a hefty sum of cashola with his puts this year. The guy is a pretty solid investor. Up there with Rich and MS.
hmmm...
Rich has been persistent on this..
Iran's nuclear issue: Another sinuous year of grueling standoff
Iran's nuclear issue: Another sinuous year of grueling standoff_English_Xinhua
First?
I was referring to CR's point, "many existing properties were recently purchased at prices that were based on overly optimistic pro forma income projections."
I imagine the initial construction of recent years' projects used similarly unrealistic estimates.
Advantage Car Rental goes BK
As hostile as Jas can be, he has been amazingly prescient with his investment predictions.
But less so than many on this blog. And he's such a twat that he's been banned at other financial sites. Hell, even his home page FSU indicates that he can't get write a coherent set of words anymore.
Congressman Issa is now indicating he wants any and all mortgage mods done by Gov. agencies to be made as full recourse loans, so taxpayers have some protection from speculators, etc.
zuzu's petals writes:
Congressman Issa is now indicating he wants any and all mortgage mods done by Gov. agencies to be made as full recourse loans, so taxpayers have some protection from speculators, etc.
YES PLEASE!!!
Hell, even his home page FSU indicates that he can't get write a coherent set of words anymore.
Strike the "get". The sentence as originally written was: Hell, even his home page FSU indicates that he can't get his shit together to write a coherent set of words anymore.
Obviously I failed to remove the entire phrase.
Asked about a new car deal on an inexpensive model. Was told I could have $5000 special discounts if I financed. I would have to finance with a Bank of their choice and they didn't want me to pay off too quickly.
Asked what kind of discount I could have if I paid cash. Answer was, No Discount. I would have to pay full price. WTF?
Walked out. I guess they weren't selling cars.
In Soviet Amerika, CRE bust YOU !
Cordially,
\t
Килгор Траут
Anon, Tallahassee can have that effect on anyone.
Seriously.
" zuzu's petals writes:
OT but if anyone's interested, C-span is now running the live hearings on Fannie/Freddie's role in mortgage fiasco. The guy who just testified, (i think he was a former Fannie CEO)& just reamed them up & down-----
zuzu's petals | 12.09.08 - 2:50 pm | # "
Must've been the guy from Fannie. The guy from Freddie has been reaming Barney Frank for years.
I'm not claiming to be an expert on financing hotels but I will say that reading this piece on what was happening in 05 and 06 regarding loans probably doesn't bode well for the industry in the next year or two.
Here are a few points:
In the last two years, lenders have moved away from strictly basing their underwriting on trailing twelve month financials and historical performance to taking into account next years projections. Owners are now taking advantage of fiercely competitive lending markets and refinancing assets that are still ramping up or are in the midst of repositioning.
While the lending market is still hot and aggressive, Jones Lang LaSalle is beginning to see signs of lender caution. The proliferation of capital flowing into the hospitality industry, continually driving down cap rates, and generating high volumes of high leverage refinancings with equity cash outs, and acquisition and redevelopment financings with low in-place cash flow relative to asset values, has created exposure risks for many of the most active lenders.
Asked what kind of discount I could have if I paid cash. Answer was, No Discount. I would have to pay full price. WTF?
Walked out. I guess they weren't selling cars.
Anonymous
That's where they make their money.
"would the demand for RRE fall more than for CRE?"
As demand relates to spending, almost certainly not.
From further down in Brontine's link:
There were some bright spots for the industry. Notebook PC unit growth increased almost 19 percent and revenue was up 8 percent. LCD TVs above 30 grew 18 percent in units and 9 percent in dollars. There were several other categories which saw unit growth, such as GPS, plasma TVs, and digital picture frames, but saw declines in revenue due to aggressive declines in average selling prices versus last year which did not generate sufficient unit demand.
Death by Discount - it's ugly for the retailers.
Market says dont save your money!
Actually, markets are saying "save your money" as prices will fall.
Even if you don't see falling prices, falling investments are not an attractive alternative.
CR, thanks for the graphs as always. They bring home the reality for the more visual of us -- which is probably 80 percent of everybody.
Even if you don't see falling prices, falling investments are not an attractive alternative.
Angry Saver | 12.09.08 - 3:32 pm | #
Soon to be "Happy Saver" ?
I have way too much dry powder and not enough yield.
President-elect Barack Obama said on Tuesday he was saddened by a corruption case involving Illinois Gov. Rod Blagojevich and that he was not aware of Blagojevich's alleged efforts to sell the Senate seat Obama had vacated.
Obama says saddened by Blagojevich corruption case
| Reuters
"We make the rules - the news, war, peace, famine, upheaval, the cost of a paper clip... you're not naive enough to think we're living in a democracy are you?
Gordon Gekko
Okay - Im not calling a bottom. But very close as we reach irrational despondancy...pure despartion..and here it is:
Dec. 9 (Bloomberg) -- Chancellor of the Exchequer Alistair Darling is considering whether to extend credit guarantees to households and companies as a way to spur bank lending in the U.K., a person familiar with the plan said.
blush ummm... formerly clean-minded Girl Scout here, xxxx--accidental coupling of fannie & reaming never even occurred to me!
more than 100 economists can't be wrong...they are recommending a 1 Trillion Stimulus package
the PrestidigitizerPerpetualVelocityofMoney Machine will be installed in every household (to pay the taxes)
12th Percentile:
Thanks. That doesn't sound good for commercial lenders or for CMBS.
The bottom is unlikely near the peak of stupidity.
Congressman Issa is now indicating he wants any and all mortgage mods done by Gov. agencies to be made as full recourse loans, so taxpayers have some protection from speculators, etc.
Mortgages as recourse loans?
There's an interesting idea...
Waxman hearing required watching. Thanks to earlier poster for mentioning this.
C-SPAN Live Stream - C-SPAN
Barley writes:
Okay - Im not calling a bottom. But very close as we reach irrational despondancy...pure despartion..and here it is:
I write: There will be no bottom to markets possible until the number of houses for sale or potentially for sale is back down to less than 6 months of inventory or SPX dividends hits zero. Possibly both need to happen together.
more than 100 economists can't be wrong...they are recommending a 1 Trillion Stimulus package
Just wait a month.
It will be 2 trillion dollars.
Semi-related
Halfway through euro excursion;
Scandinavia and Italy barely seem effected, Spain is down but it see limited to outskirts of cities and UK heavy areas, UK is a cold, rainy version of AZ or FLA: everything is on the market and none of it is moving, yet in London/SE the cranes are still at work. The country is imploding yet folks are carrying on like nothing is happening yet they all acknowledge it happening. I guess that's how people behaved on the titanic.
CR, is there a source for residential/commercial valuation, as opposed to spending?
Would it look different? I ask as we're looking at deflationary metrics w/r/t losses in home values. What about the commercial side?
Some of my favorite CR names:
Zuzu's Petals
Deflationary Jane
Circling the Drain
Ministry of Truth
Comrade Misean
Margin Call of Cthulu
Haloscan, pray tell what I hath done to offend thee?
more than 100 economists can't be wrong...they are recommending a 1 Trillion Stimulus package
BTW at least this gives Obama and the congress an out if they implement the thing and it backfires - the can blame the economists for misadvising them.
I think it makes such a stimulus package all the more likey.
100 of anyone can be wrong. Quite often it turns out.
--
""would the demand for RRE fall more than for CRE?" As demand relates to spending, almost certainly not."
Allen C,
My forecast is that the drop in the demand for CRE would be far greater than the fall in the demand for RRE to the point that CRE was far more overbuilt than the RRE based on the demand in the coming years (things are built based on current and anticipated demand). CR was the victim of two things: (1) lags w.r.t. RRE and CRE and (2) the nature, or extant, of the decline in the GDP and its duration.
Jas
Congressman Issa is now indicating he wants any and all mortgage mods done by Gov. agencies to be made as full recourse loans, so taxpayers have some protection from speculators, etc.
That will be a deal breaker. Walking away is clearly the best answer for many.
We should rescind the bailouts to speed up the default process too.
"zuzu's petals writes:
blush ummm... formerly clean-minded Girl Scout here, xxxx--accidental coupling of fannie & reaming never even occurred to me!"
Yes, that was funny, but the real point was that Freddie's CEO was a former "room mate" of Barney Frank, a point which the MSM has allowed to go essentially unreported. Talk about conflict of interest! And if I'm not mistaken, he got the job after rooming with BF.
Real life story - Tampa area. Sunday talking to a guy who owns a few small commercial properties. Tennants are past due and people calling about his open slots are telling him other have similar or newer for 40% less. Fixed costs - insurance, taxes, interest on his property loans are killing him. He kept saying he wasn't going to match the lowball lease offers othere had quoted him but cash flow is king.
Barley(Unrated) writes:
Okay - Im not calling a bottom. But very close as we reach irrational despondancy...pure despartion..and here it is:
The emotional scale might be closing in on 'bottom' but the fundamentals aren't there yet - they got more to fall - that's how you get a big wide flat bottomed bottom.
Seriously - we probably have way more job loss yet to come. Considering how they seasonally adjust - I'd guess December will be especially grizzly (stores didn't hire a lot of seasonal help which will be adjusted as additional job loss).
January will have grizzly 'nominal' losses but might not look as bad from an 'adjusted' POV.
Then it's into spring - and not much construction ramp up (again grizzly from a 'adjusted' perspective).
Until we get some job loss stabilization - even if it isn't job growth just less job loss - I can't safely suggest we are at a bottom... can you?
Show me a couple months of near zero job loss & I'd say then we are close.
"UK is a cold, rainy version of AZ or FLA: everything is on the market and none of it is moving, yet in London/SE the cranes are still at work. The country is imploding yet folks are carrying on like nothing is happening yet they all acknowledge it happening. I guess that's how people behaved on the titanic.
Comrade Alexei Mikhailovich | 12.09.08 - 3:40 pm | # "
Stiff upper lip, see each foreclosure like a buzz bomb.
General consensus of FM/FMAC panel is over the next 4-5 years is for 8 million additional foreclosures on top of the current 3 mill. RRE downside has a long way to go.
rooming with BF
xxxxx
Now that a visual I can live without!!
--
"Jas, when would you think it is time short T-bills?"
Interesting Times,
When you conclude that it is a good time to burn dollar bills!
Jas
Off Topic:
My brother will lose his job due to the Sony cuts.
Seriously - we probably have way more job loss yet to come. Considering how they seasonally adjust - I'd guess December will be especially grizzly (stores didn't hire a lot of seasonal help which will be adjusted as additional job loss).
I agree... but the BLS will assume they hired anyway. Expect the revisions of November and December's data to be brutal. The 1st numbers? Might not look that bad.
Got Popcorn?
Neil
Foreclosures shooting for 100,000 in 08 for Miami-Dade County. Something like 20 judges not family, not probate== 5000k foreclsures per judge. Not counting the other stuff they do.
It simply can't be done. They will pile up and pile up.
Neil - I still that 533 num was BS. I stand by my num of -627
lawyerliz - Thee are group weddings why not group foreclosures. Make it a family thingy.
When you conclude that it is a good time to burn dollar bills!
Jas Jain | Homepage | 12.09.08 - 3:47 pm | #
Well it won't be me burning (selling) them... it will be everyone else. I'm now stuck with crappy Canadian dollars and a race to ZIRP.
What are they going to need to see to trigger that panic? I can think of a few scenerios, but we are clearly in bizzaro world now.
Interesting Times writes:
"I have way too much dry powder and not enough yield."
Pundits criticize lack of savings, but the government in its political zeal to save everyone else destroys value of savings. When will it become a government priority to reward savings, instead of pushing people in search of minimal yeilds into ever higher risk?
In all this cacophony, who speaks for savers?
I am interested in topic R Dawg opened up in last thread about dollar devaluation. In fiat system with no PM standard, how does this occur? Does it have to be an outright exchange? And seriously, what is the possibility of this happening, and what are the precursors? What are the social implications (how are current wages/prices affected?)
Any credible research or explanations on this? Is anyone in government daring to even raise this?
++ on the group foreclosures.
Builders threw up the tract houses by the hundreds, so why can't they be foreclosed by the hundreds?
ac - [Mortgages as recourse loans?
There's an interesting idea...]
Well, as I understand it the reason the loans are presently non-recourse is so the lender is inclined to be more cautious (didn't work when the lender got disconected from the borrower).
The government isn't cautious so the need for insurance.
Activating Deep-Cynic Mode:
The Overlords have everyone just about where they want 'em. The masses have fled into treasuries, cash, and pure paper money ... and the printing presses can now roll for maximum effect. The true masters will once again retain ownership of the means of production, and halt the deflation by fiat...
As for "100 economists can't be wrong" - history tends to suggest that whenever 100 economists can actually agree, they must be wrong.
" Barley writes:
lawyerliz - Thee are group weddings why not group foreclosures. Make it a family thingy.
Barley | 12.09.08 - 3:53 pm | # "
Copying the Moonies seems apt.
xxxxx writes:
"... but the real point was that Freddie's CEO was a former "room mate" of Barney Frank, a point which the MSM has allowed to go essentially unreported. Talk about conflict of interest! And if I'm not mistaken, he got the job after rooming with BF."
Is that for real, or just some internet gossip? Link?
"When you conclude that it is a good time to burn dollar bills!"
Lighting up a stogie containing a blend of the finest products of Cuba and British Columbia with a burning Benjamin - that's bringing North America together in style.
Group foreclosures--sure you guys are being funny, but they aren't allowed.
I suppose if John X Smith borrowed 10 loans from Stupid Ole Lender they could file just one file in the same County, but each would have to be proved up separately.
Also here we go again. Recourse schmeecourse. Banks DON'T SUE for deficiency judgments, even if they can. Waste of time.
They can't finish the foreclosures they have and they can't/won't sell for a price that someone will take mostly, after foreclosure.
Deficientcy judgts, you have to prove on EACH ONE just how much you are deficient. Are you kidding? Never happen.
A family affair?
7 foreclosures for 7 brothers?
4 foreclosures and a funeral
I have 2 brothers, 2 foreclosures, does that count?
2 files, same bank. One almost done, one ignored by the same foreclosure law firm.
Largest retail REIT about to default:
Published: December 9, 2008 - 3:34 pm
(AP) Fitch Ratings downgraded General Growth Properties Inc.'s credit ratings Tuesday, saying default may be imminent for the shopping mall owner.
...
Fitch also said conditions in real estate debt capital markets are hurting General Growth's ability to raise money to repay about $600 million in 2009 maturing unsecured debt.
...
Fitch downgraded the issuer default rating to "C," it's lowest junk rating
"My forecast is that the drop in the demand for CRE would be far greater"
Nothing would shock me at this point. I'm in the depression camp already. I'm now left to ponder the depth and the extent of govi mismanagement of the collapse.
"Is that for real, or just some internet gossip? Link?
Comrade V | Homepage | 12.09.08 - 3:58 pm | # "
Mr. V,
I'm going to have to apologize; I was told this by my Dad, and took it at face value. After your question, I googled for an answer, and couldn't find any verification. I'll ask my Dad where he heard it (it's been many months) and get back to you if I find any "facts" on the web or elsewhere.
Sorry again....
What's the deal with hotel occupancy 1969-71? I know there's a recession there, but it isn't a big one.
stefan writes:
What's the deal with hotel occupancy 1969-71? I know there's a recession there, but it isn't a big one.
stefan | Homepage | 12.09.08 - 4:36 pm | #
Maybe Saigon occupancies were up.
New thread
xxxxx @ 4:28
Just wandered back and saw your reply. As we say in Cali, "No Problemo"
Somehow those numbers just don't seem right. According to Census at
Commercial Office Space--Overview for Selected Market Areas statistics - USA Census numbers
total US office space in 1998 was a tad short of 3.5 billion square feet (to be precise, 3,491,274 x 1000 sq ft -- the unit used in the tables).
If 23.7 million sq ft were equivalent to 13.6% of the leased space, that would put leased space at only 174 million sq ft.
Also, even if we ballpark space per office worker at only 100 sq ft, a million sq ft would hold only 10k workers, so 174 million would be enough only for 1.74 million workers.
This does not compute.
Just because CRE investments are going down doesn't mean the prices for cre is going down. it doesn't make sense.
Architectural billings doesn't correlate well with a looming bust in CRE. If anything, it means that there won't be a lot more space coming on line in the next 3 years. We aren't hearing about distress from many CRE owners right now. So long as the debt service is covered with operating income, no cause for panic.
On the Barney Frank/Freddie CEO "roomie" rumor-- I googled that also the other day, & pulled up stuff abouthow back in the 80's, I believe, Barney did in fact have a long-term serious partnership with some guy at Freddie-- not a CEO however, but a mid-to upper management guy in charge of developing loan programs for rural communities. This guy left his slot at Freddie some years later to become... wait for it... a potter.
One who makes pots.
(I'd insert a few bars here of "I like a man with a slowwwww hand..." but it's too early in the morning to be cracking wise.
my former troop leader would be ashamed of me.
Commercial real estate has not been crushed like the residential markets. CRE will probably see a drastic decline in 2009.