Sorry, I know this isn't on topic from end of last thread
Advanta credit card company defaulting, closing 1 million accounts
The company is said to be offering to buy out some bondholders at about a 30-percent discount, while also planning not to repay notes on time that are set to mature next month.
Advanta's customers defaulted last month at a rate of 20.15 percent, compared with 17.31 percent in March, the company said Monday in a regulatory filing related to the Advanta Business Card Master Trust, which bundles Advanta's small-business loans for sale to investors.
i'm copying my post from the last thread since i got "mortgage pigged", and it's probably useful for people to understand the cmbs mechanism -
ghost has it right.
when you originate a loan for cmbs execution, you look at where the markets are currently trading as if you were to securitize the loan today, add your profit and other expenses, and lock the rate.
in the most general way, you can consider the rate to be the weighted average spread of all the cmbs classes. as an example, consider a deal with 2 tranches, AAA and BBB.
The AAA tranche is 70% of the deal, and market is currently trading AAA paper at 5% spread over swaps.
The BBB tranche is 30% of the deal, and the market is currently trading BBB paper at 30% over swaps.
Your weighted average spread would be 70% * 5% + 30% * 30% = 12.5% spread over swaps. So you would originate a new CRE loan at say 12.5% plus the 10year swap rate plus profits and fees.
Now let's say the rating agencies change their views on the CRE market, and they now think AAA's need 40% of credit support.
The new spread becomes 60% * 5% + 40% * 30% = 15%, so you are originating new CRE loans 2.5% wider because the agency changed its mind.
This is a VERY simple example, but it should get the bigger picture across. Yes, the Fed can change TALF, and that will affect the spread side of execution (5% AAA, 30% BBB), but if the agencies are moving the credit enhancement side in the opposite direction, we really are not getting any closer to solving a CRE crisis.
“A year and a half ago, this space might have leased for $150 per square foot,” Mr. Sammons said, while he has heard of recent sublets in high-end buildings in this office corridor with annual rents of as little as $40 to $50 per square foot. “This is the most remarkable turnaround in pricing that I’ve ever seen in such a short period of time.”
So I have a couple questions [anyone]...
What is the typical or median rent for similar space - say going back 20 years and bridging boom to bust? Is $50/sqft reasonable by historic measures or a 'real bargain'?
Also - what would be the fully amortized non-bubble replacement cost of some of these 'trophies'? I realize that if the landlords bought or a tenant trying to sublease locked in long term lease at the peak they are losing their ass on currents rents/subleases... but what if they bought say mid-90s... are they cash flowing at $50? Could they build new now with reduced cost inputs and lower land valuations and cashflow at 50?
dryfly,
Can't find it now, but Bloomberg as NYC mayor had a report around last November, and subsequently updated at some point, that detailed their revenue projections. There was a chart of office space lease $/sqft rate in it. Was posted on CR
TBP has a related discussion "Securitization: Advanta and the Fiction of True-Sale"...the key point being "Because securitizations are off-balance sheet, banks can provide that support without holding capital against the activity, ostensibly because they can choose to put the risk to securitized investors if they wish to do so, which no going concern business will ever actually do. Hence, the saying on Wall Street is “the only securitization without recourse is the firm’s last.”" The gist is that securitizers have been providing an implicit backup that is not legally binding...
Angry Saver writes: Who was dumb enough to over-pay by that much? Hedge funds.
Correction: Investors in hedge funds. Thanks to 2/20, hedge fund management did quite well by making the deal happen. Do I hear: "perverse incentives"?
EHP - I'm more impressed you remembered it was in Nov.... LOL!
..................
AS I just did some checking... That $100+ must have only been for the new building that was going up.... This monster right in china town.. The building changed names a few times since then... I think it was a financial mess for a few years if memory serves me correctly.... Wheres ipodus when you need him... Still rents havent gotten back to peak yet... (And they are going down there too...)
"A long tail in a bond auction with its attendant risk is one thing. If that were to occur in a shorter maturity in would be a sign that investors are in full retreat from longer dated US assets.
Maybe the final climactic event is upon us. Maybe the final bubble to burst is the US Treasury market and maybe we are on the verge of a financial Krakatoa which will realign financial markets.
Whatever the case it feels like the calm before the storm and we are about to embark on another interesting expedition."
"according to a report in the Latvian newspaper Diena, Central Bank Governor Ilmars Rimsevics visited the town of Liepaja on Friday, and told the astounded journalists assembeled there that: “The level of the expenditure shock we are receiving is so high that we can not cease to maintain this quantity of expenditure. So there is a shortage of funds, and we’re forced to look at the different kinds of projects, which can help us provide for the foreseeable future. Taking into account that the money is not budgeted, it can be emitted in vouchers”.
Rimsevics also gave an interview to the Russian-language newspaper Telegraf (published this morning) where he says more or less the same thing. Basically, the IMF are threatening to withold the next round of funding if the Latvian government does not move ahead with the agreed wave of budget cuts - which in some areas will be of up to 40%. Latvia received a 7.5 billion-euro bailout from the IMF and the European Commission last December. The agreement required Latvia to limit its budget shortfall to to 5 percent of gross domestic product. Since then, the economic outlook has turned far worse than anticipated and Prime Minister Valdis Dombrovskis’s government is seeking approval to run a 7 percent deficit.
At the same time the Latvian central bank keeps having to buy the local currency (the Lat) to support the euro peg - last week the bank bought 6.4 million lati ($12 million), and this was the eighth consecutive week they have had to make such purchases. The longer it takes to reach agreement with the IMF - who are convinced that severe budget cuts will be expansionary in the short term (due to the improved confidence they will produce, see here), the more the bank will need to spend to counter those who are betting they will be forced to devalue."
I guess the Latvian government has to go through the motions; they're going to run out of FX reserves pretty quickly though. At that point vouchers, currency, its all the same.
Ahhhh, "little" has a special meaning of which I was not familiar.
That was why I asked 'the dumb question' not knowing any better.
I'd still like to know the current replacement cost - to keep it apples to apples I'd like to know replacement cost for a 'trophy' in square feet.
BTW late mid-1990s I was pricing office space for a buddy I was working with and my recollection was $20psf got you pretty damned nice in Minneapolis and $15 got plenty good enough [I was looking at stuff as low as $4psf that had combo office & factory and was close to interstate, safe & sort of clean... clean if you consider converted factories 'clean'... we weren't going to buy - just rent & warehouse parts.
I would like to see what you get with $100-150psf... better be good.
Emanuel is one of the biggest recipients of Wall Street campaign contributions, the Center for Responsive Politics reports. He “was the top House recipient in the 2008 election cycle of contributions from hedge funds, private equity firms and the larger securities/investment industry.” Since being elected to Congress in 2002, he “has received more money from individuals and PACs in the securities and investment business than any other industry”; these are also among Obama’s top donors.
Yeah, I don't understand the market pop today. Looks like the 10-year UST hit some resistance at 3.5%, but it has risen steadily the 6 of the last 7 sessions. It is well above where it was when Ben announced QE. When JJ at Across the Curve uses language like that, I get more nervous than usual.
Note the event the story cites for the change in China's strategy:
"The collapse of Fannie Mae and Freddie Mac, the US mortgage financiers, last summer prompted Safe to adjust its strategy and start buying far more short-term US government securities, instead of longer-maturity bonds and notes."
Note: not the failure of Lehman, but Fannie/Freddie.
As I have been saying, the failure to address the Fannie/Freddie situation is a real tragedy, and will lead to the downfall of the UST market and the dollar.
Understanding the mortgage finance system in this country is a good start to understanding where this crisis is heading. My bets against the USD and for commodities and commodity-linked currencies have paid off wonderfully so far.
May 26 (Bloomberg) -- Americans may have to get used to unemployment greater than 8 percent for the first time since 1983 and an economy that won’t grow much beyond 2 percent as a consequence of the lost confidence in consumer credit that shattered financial markets.
By this time next year, “the market will realize that potential growth for the U.S. is no longer 3 percent, but is 2 percent or under,” Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., said in an interview with Bloomberg Radio.
[does NYC become a more exciting Buffalo as it loses it's meal ticket?]
Actually lower rents and some CRE defaults to wipe out debt and cost structure might be the only hope NYC has. Otherwise they can be offshored (nearshored to St Lous or Cleveland or...) just like any other industry.
Ken Cooper,
Is there a way to browse posts by user instead of by thread? That was the one nice thing I found about js-kit. It increases the value of writing a fat post because you can can easily recall it later.
"From 1973 to 1985, the financial sector never earned more than 16 percent of domestic corporate profits. In 1986, that figure reached 19 percent. In the 1990s, it oscillated between 21 percent and 30 percent, higher than it had ever been in the postwar period. This decade, it reached 41 percent".
The Wall St cabal is so f*cking greedy and full of themselves with their bullshit financial engineering ploys that I'd really enjoy watching the mother weaken then begin eating her own sucklings to save herself....
"The collapse of Fannie Mae and Freddie Mac, the US mortgage financiers, last summer prompted Safe to adjust its strategy and start buying far more short-term US government securities, instead of longer-maturity bonds and notes."
SAFE was insane to buy longer term USD denominated 'assets'... my totally outsider guess was that they wanted longer term securities so they didn't have to keep churning. They hold something like $2T... at 1-2 year maturities they have to turn that whole pile of paper over every year to six months... then add to that the 'new' reserves from ongoing surpluses and it becomes a herculean task. Going out just 3-5 years takes a lot of the work load off their trade desk BUT increases their interest rate risk.
My guess is from now on they'll be turning that paper like it was a compost pile.
km4
That's why NYC and London are in so much trouble. There probably isn't a bottom above 10% of earnings without government support, which can only be temporary at such a large scale. That entails cutting compensation by 50% and headcount by 50%. Time to realize the productivity gains associated with computers. It's why I chose not to follow a friend into working for a hedge fund. (the fund is still doing fine, I just don't like the odds over the long run)
daddyo [but if the agencies are moving the credit enhancement side in the opposite direction, we really are not getting any closer to solving a CRE crisis]
Thanks again for sharing. But somehow the CRE market appears to be showing signs of life. I wonder if the perception that CRE debt is in the TBTF camp since mutual funds, pension funds, insurance companies are all in real deep. Could the Fed/Treasury backstop CRE debt like they did MM funds and bank debt ? If they did all of a sudden the agencies goose the debts to AAA and another big heavy straw goes on the camel's back.
Could finally be the one that breaks the camel's back ?
Anecdotical evidence that credit crunch is not over:
Just talked to the owner of an appliance company; the firm that provided credit cards for small businesses is pulling out of that market, so his card and revolving credit was cancelled. Now they are profitable but the cash for daily operating is short. And couple of banks he called so far declined.
Which does make sense from a smart bank or too large to fail bank standpoint. If you can buy loans 40c on dollar given you survive, why would you originate something that in the best case scenario will get you 92 - 95c on dollar?
The ironic part, he run into those problems just this month when everybody proclaimed, the storm is over.
Given the pretty horrific performance of the Advanta portfolio it's not so surprising that other banks aren't anxious to take up the business. And taking a slightly wider view, I'm not sure moving business plans away from using unsecured credit card debt as a primary source of operating cash is really a sign of an historic credit crunch. It's a small step along the road back to sanity, if you ask me....
From Bloomberg:
The drop in the London interbank offered rate, the benchmark for $360 trillion of financial products, to a record low masks a growing gap between the rates that the biggest banks charge each other for credit.
The difference between the highest and lowest interest rates banks say they pay for three-month dollar-denominated loans is near the widest this year, according to data compiled by the British Bankers’ Association. The spread signals that lenders still lack confidence in each other, even though measures ranging from the so-called Libor-OIS spread to corporate bond sales show credit markets have recovered from the freeze caused by the Sept. 15 collapse of Lehman Brothers Holdings Inc.
“It’s premature to judge that the credit meltdown is fully over,” said Kazuto Uchida, chief economist in Tokyo at Bank of Tokyo Mitsubishi UFJ Ltd., a unit of Japan’s largest bank. “Banks remain wary of extending credit to each other due to strenuous concerns about counterparty risk.”....
RE: Advanta. . . I have a few domains registered, and I put a ridiculous made up company name as the owner/contact info in WHOIS. About 5 years ago Advanta sent me a pre-approved card in that businesses name. With a $5000 limit. I accepted it, but never used it. Cancelled it after 3 years, by that time it had been bumped up to about a 12k limit. I guess a lot of other folks did use their pre-approved cards. Free Money!!! Doesn't seem to have worked out so well...
The foundation of the product set is the Advanta Platinum Business Card. The Advanta Platinum Business Card features 0 percent introductory APR for 12 months on purchases and balance transfers, no annual fee and one of the largest available credit lines in the industry, up to $50,000
"I accepted it, but never used it. Cancelled it after 3 years, by that time it had been bumped up to about a 12k limit. I guess a lot of other folks did use their pre-approved cards. Free Money!!! Doesn't seem to have worked out so well..."
Our terrier can pay in dead rodents. Can she have a card?
dryfly - I take your point that the connections made in college are important, but this really moves towards separating the "education" from the "credentialing" and the "networking" aspects of the university experience
imagine the impact on universities if students can live at home and take all their core curriculum for low to no cost , even for just their first year. how about their second year too? seems like the only thing missing is labs
Besides, in many cases all the meaningful networking occurs in grad school (at least that was my experience)
I received word this weekend from an industry insider, who's very level headed, who previously always viewed this economic situation as a recession, that a dollar collapse is likely.
Is this what you mean? from a good post at eurowatch blog
Then suddenly things moved on, and day became night just as quickly as night had become day as one fund flow after another reversed course, and the money disappeared just as quickly as it had arrived. Behind this second credit crunch lay an ongoing wave of emerging-market central bank tightening (during which Banco Central do Brasil deservedly earned its spurs as the Bundesbank of Latin America) with the consequence that one emerging economy after another began to wilt under the twin strain of stringent monetary policy and sharply rising inflation. Thus the boom "peaked" in July (when oil prices were at their highest), and momentum was already disapearing when the hammer blow was finally dealt by the decision to let Lehman Brothers fall in late September. By November all those previous positive expectations were being sharply revised down, with the IMF making an initial cut in its global growth estimate for 2009 - to 2.2 percent from the 3.7 percent projected for 2008. The World Bank went even further, and by early December was projecting that world trade would fall in 2009 for the first time since 1982, with capital flows to developing countries being expected to plunge by around 50 percent. By March 2009 they were estimating that the volume of world trade, which had grown by 9.8 percent in 2006 and by 6.2 percent in 2007, was even likely to fall by 9 percent this year.
But behind the recent emerging market phenomenon what we have is not only a newly emerging growth rate differential, since alongside this there is also alarge scale and ongoing currency re-alignment taking place, a realignment driven, as it happens, by those very same growth rate differentials. The consequential rapid and dramatic rise in dollar GDP values (produced by the combination of strong growth and a declining dollar) has meant that a slow but steady convergence in global living standards - at least in the cases of those economies who have been experiencing the strongest acceleration - has been taking place, and at a much more rapid pace than anyone could possibly have dreamed of back in the 1990s, even if the long term strategic importance of this has been masked by the recent collapse in commodity prices and the downward slide in emerging stocks and currencies associated with the post-Lehman risk appetite hangover. Which is why, yet one more time, that simple issue of sentiment is all important, or using the expession popularised by Keynes "animal spirits".
I received word this weekend from an industry insider, who's very level headed, who previously always viewed this economic situation as a recession, that a dollar collapse is likely.
Interesting, If I read it right - he is saying we can not grow our way out. If India and China do the growing - they create an imbalance that will cause more problems than it solves/
His conclusion
Evidently the core problem generated during the last business cycle was associated with the size of the imbalances it threw up, and the impact on liquidity and asset prices that these imbalances had. If I am right in the analysis presented here, then we are all on the point of generating a further, and certainly much larger, set of such imbalances as we let the process rip in the uncordinated and unrestrained fashion we are doing.
Dayton OH has tons of sub $50K houses. Of course, there are no jobs and you would not want to send your kids to the public schools, but lots of cheap housing, esp if you are half way handy, not talking hsacks either, but like 3/2 solid pre war houses on 1/6 acre lots.
"he is saying we can not grow our way out. If India and China do the growing - they create an imbalance that will cause more problems than it solves/"
That's basically what i've been telling you.
the more productive that china & india get, the less consumption, but also they drive down costs for existing producers which forces them to either produce more, creating a positive feedback, or cutback, reducing consumption more and creating more positive feedback.
free marketeers just don't get it yet.
It's not a function of producing ever greater sums of stuff.
TPBT can either a) put up tariffs b) reduce workweek with attendant debt destruction or c) watch the thing continue on a downward spiral.
I suppose we've chosen C) because the various free marketeers / capitalists can't bring themselves to give up their mythical piles of stuff. So now they'll get wiped out a different way.
ShadowInventory (profile) wrote on Tue, 5/26/2009 - 8:29 pm
So if the dollar is going to collapse, what do I buy today? More commodities, gold?
If it were my money, I'd stuff them into Bunds. I think they'll default too, but they are going to give the smallest haircut and the certitude of German survival means that you will get a payment stream in a major post-Euro European currency.
I guess to get out of dollars:
Commodities: Benefit, every country needs them (oil, food); proven store of value (gold, silver); otherwise useful... risks: ???
Stocks: Benefits, people will still need to buy some stuff (even if they use an electronic "bank" card or wheelbarrows), risks: American stocks might not be good due to government climate (sucking up taxes), boomers will be net sellers of stocks at some point...
Savings Deposits: Benefits, guaranteed returns, risks: Don't get one denominated in a currency that will be massively inflated.
Bonds: Benefits, guaranteed returns? Risks: You'll get paid in inflated currency (?).
Real Estate: Benefits, mortgage will be paid back in dollars. Risks, get a 30-year mortgage, in 5 years you'll be out of a job! American land owner = target of government tax increase...
Problem with the dollar collapse scenario is that forex are all relative prices. Collapse vs. the Yen, from the land of the setting sun, vs. the pound when the UK is sort of a bigger version of Iceland with cooler old buildings and no volcanos, the Euro? Cant even be sure it will still be aroud in 10 years, or if the different directions of economies in Greece vs. Germany will tear it apart. The swiss franc, far to small and an alpine Iceland. Somehow I just can't see the Real or the Rupee becomeing the world's reserve currency any time soon.
"Our terrier can pay in dead rodents. Can she have a card?
Well, up until this week, the answer would have been yes! Smile"
It's a theme that invites a few morbid reflections. How many of the goods purchased over the past decades have more intrinsic worth than a dead squirrel? I have a few dead computers lying around the house, and you can't even make a Brunswick stew out of them. The same can be said for all the radios, autos, etc. I've purchased over the years. There's a vast irrationality about the way we've arranged our productive system. Any rational advanced system will have produced an expandable-on-need climax technology which is at the same time thrifty and without excessive waste. We have a lot to learn, and maybe not all that much time to learn it in. We are a primitive race.
Every time I look at one of our infamous traffic jams around here - the world's longest parking lot is one Nova will be familiar with - I think to myself: This is insane. When I was a kid I had a desert tortoise for a pet, and I would watch it come up against the leg of a chair. Instead of going around the leg, it would keep on shoving its shell against the leg. Like that.
Dirk van Dijk (profile) wrote on Tue, 5/26/2009 - 8:39 pm
Problem with the dollar collapse scenario is that forex are all relative prices. Collapse vs. the Yen, from the land of the setting sun, vs. the pound when the UK is sort of a bigger version of Iceland with cooler old buildings and no volcanos, the Euro? Cant even be sure it will still be aroud in 10 years, or if the different directions of economies in Greece vs. Germany will tear it apart. The swiss franc, far to small and an alpine Iceland. Somehow I just can't see the Real or the Rupee becomeing the world's reserve currency any time soon.
That's certainly why it has been deferred so far. But eventually, gravity will catch up with Wile E. Coyote.
1 currency now -yogi (profile) wrote on Tue, 5/26/2009 - 8:42 pm
How are they fixed for nukes?
They have a whole shitpile of them in France and if you're shooting your way through Germany, I guarantee you the French will share the fireworks. The only reason the Germans don't have them is 'cause of how they tried to conquer the world for the glory of Hitler and all. They will lay hands on some real fast if they need some. They were in a real fix a minute ago with Putin on their windpipe, but he blew it and that's no longer the case.
In the Byzantine mind there is so much certitude.
There is much in this world to be uncertain about. Some things are not those kinds of things. The fact that Germany, France and the Low Countries are going to stick together 'cause they have a "live shape" in the corner of Europe? That is not a thing I am uncertain about. They may even keep the Euro as a regional currency, but it'll be the post-Euro Euro ad not the Euro of today.
I have the same questions to this information as you. But that was my final push into the cold naked realization that not only is the current situation as real and scary as the numbers on calculated risk suggest. That the worst is yet to come.
I'm not worried about my savings, though I certainly care. I'm worried about the safety of my family in the next several years.
I just try each day to be a good person to others and pray others will do the same when tough times arrive, and stay.
imagine the impact on universities if students can live at home and take all their core curriculum for low to no cost , even for just their first year. how about their second year too? seems like the only thing missing is labs
Besides, in many cases all the meaningful networking occurs in grad school (at least that was my experience)
:: ::
Well if you compare the networking opportunities 'at home' as opposed to a 'state university' - like the one I went to - I'd agree. Not much difference. Compared to an MIT, Stanford, Harvard, U Chicago, Penn - now, that is a whole other thing.
And to get into the really good graduate programs it really helps where you went to school first, who you knew [prof LOR's etc.] almost as much as scores. For Executive MBA programs it helps to have had good jobs at better corporations - and how do you get them? Who you know & who you blow at your preppy Ivy League frat.
There is NO way around it. Geeks & nerds blogging in their parents basement would like to think the stay-at-home let-my-scores-speak-for-themselves will get them ahead and that e-learning will be the big 'equilizer' someday... isn't going to happen. The connections are always going to be made where they always were made - fraternities, private clubs & parties of the elites.
I remember going to exactly ONE of these parties in my youth [hosted at the home of the daughter of a prominent US congressman] - let me tell ya - it was an eye opener. I went back into my cubicle where I belonged.
Counterpointer (profile) wrote (in reply to...) on Tue, 5/26/2009 - 8:42 pm
Byz - so if JJ saw that, and the CR board did, then ... someone else is engineering a significant LT tsy rally.
Let me know where this analysis goes awry.
Ben can do it any time he wants and it's been three days now. I begin to suspect he is constrained and I bet I am not the only curious predator. We shall see soon. Hence, if we do not see a serious rally in 2-3 days, the scavengers will really start swarming.
That's certainly why it has been deferred so far. But eventually, gravity will catch up with Wile E. Coyote.
:: ::
I think a number of the 'merchantilists' are closer to throwing in the towel on dollar levitation than any of us could know. I think Japan is there already [evidenced by a relatively strong yen in spite of exports collapsing some almost 40%]. When China thinks twice about the value of dominating shelf space at WalMart and Target - watch out - that is when Wile E gets hit with the anvil.
So the French will forgive and forget, ah oui. But how will Greater FrancoGermany prevent the evil unions from ruining the state? They're much more entrenched there than here.
dryfly - speaking only about engineering and science here as that's my only expertise - I agree that the elite universities will always have a special cache and a special value associated with their credential and network. If you are a genius and you have access to the bucks, you should go spend 9 years at MIT or Caltech.
BUT for the vast majority of engineering and science undergrads, spending your first year or two self-educating on MIT curriculum while living at home (and saving say $20k per year) compared to sitting in giant impersonal lecture halls at State U with profs who don't want to be there teaching undergrads anyway will put you way ahead of the curve.
There are no meaningful connections to be made in the first 2 years of engineering or science curriculum at State U that you can't make if you spend the next 2 years on campus.
Not saying it's am "all or nothing thing", but think of the marginal impact this could have at State U if it catches on. Say 20% of the freshman class decides to "self-school" their first year.
Just suggesting that it changes the value proposition that State U has to present to justify their costs.
WW-I was precipitated over some obscure Archduke. Don't expect WW-III to be some grand clash of political theories. Byz is right "the Low Countries" share a common destiny and they know it. They also know any threat is going to come from the east.
Thanks again for sharing. But somehow the CRE market appears to be showing signs of life. I wonder if the perception that CRE debt is in the TBTF camp since mutual funds, pension funds, insurance companies are all in real deep.
I'm not sure what life you are talking about...but I sure don't see any from my vantage point. Until the gov't decided to offer non-recourse leverage to every AAA CMBS bondholder, the CMBS market was a complete disaster. The non-AAA bonds are still a disaster, with the "A" and below trading in the same dollar price ranges as subprime.
You are not seeing a lot of defaults yet because
1) the large wave of refinancings are 2-3 years out and
2) a large number of properties trying to refinance now are getting extensions.
unlike in the RMBS world, the servicers in CMBS land always held the bottom most tranches of the deals they serviced, so they had skin in the game. They know if they don't extend these delinquencies, they are going to take the losses themselves.
As for the whole loans on insurance co / bank / pension fund balance sheets, I can tell you that those guys are holding all of the capital they can muster up to refinance their own books. Between the lack of a securitized markets and the whole loan guys holding back on new loans, there really is no refinance capability. ZERO.
Unlike the story of people and their homes, I just don't see the political will to save a bunch of real estate developers. Things are really as bad as everyone in the CRE world is saying. And as for the agencies coming to the rescue, I can tell you this, the multifamily segment of CMBS has higher delinquencies than any other right now, including hotel and retail, and that's the only segment with any kind of financing available (fannie and freddie).
Where I work more than a few have Harvard hanging framed on the wall. They grew up with parents who each have a different passport, speak 3 languages, and have major connections. Thats how they got into the office. Sometimes I see them running their filter and evaluator programs on people. I really like jamming them sometimes.
Yes, in some worlds it is family, money, how old is the money, blah blah
this whole "consumer sentiment is up" is such a crock
Last month when asked if their income might be higher in the future than it is today only 6% said yes. This month it was 8%.
That's a 33% increase!
What we need now is a 3-month forced holiday for all workers this summer, without pay and without unemployment benefits. Then everyone (at least everyone that surviives) will be able to imagine a higher (i.e., nonzero) future income and consumer confidence will be at an all-time high.
Sorry yogi, you are going on ignore. 1 currency now -yogi (profile) wrote on Tue, 5/26/2009 - 9:03 pm
So the French will forgive and forget, ah oui.
Rather than suffer direct rule by a Russian kommissar? Sure as shit nobody else is making designs on Germany that has a chance of even a remote approach to the nuclear threshold before they are shot to pieces. I guess if Turkey falls to Islamo-Palins, but again, would they prefer to get rid of Germany and accept shari'a law? Seems unlikely.
But how will Greater FrancoGermany prevent the evil unions from ruining the state? They're much more entrenched there than here.
Both states are only about 60 years old. Neither is likely to see their centennial as currently constituted.
You've mentioned a few times recently that you could see the Fed capping LT Treasury rates. I don't understand how that would work. I thought LT rates were established by the market as new supply came to auction.
Are you suggesting a hard cap, i.e. "The US Treasury will pay no more than 5% for our 30 year Treasury Bonds", or an effective cap based on more printing and buying of our own debt?
If you're talking about a hard cap, is there any precedent? I certainly hadn't factored that possibility into my strategy for navigating this mess. Thx.
Just suggesting that it changes the value proposition that State U has to present to justify their costs.
But those are exactly the kinds of schools that produce the cogs - [like me] - and many of us didn't have the ambition to take the home study classes anyway. We wouldn't have done the work UNLESS there was a deadline - due date. The pricks in tweed made us do all that.
One other thing those disinterested state u prof's did - they flunked us in droves sink or swim, chump. I went to the University of Minnesota and studied Chem Engineering - it was one of the better programs at an otherwise pretty much middle of the pack large state university. We entered our junior year with 220 students and ended the year with about 90. It was part of the plan - they only had 90 seats for the labs starting that spring - they needed to weed out the rest & they did with pleasure. THAT was the best education any of us got ANYWHERE.
I don't see 'home learning' being especially useful except for the most antisocial engineers... the rest will benefit from the 'forced' human interaction called big state university.
the rest will benefit from the 'forced' human interaction called big state university.
Our backgrounds are similar (I also did engineering undergrad at a Big 10 university), and I agree with your points about the benefits of competition and deadlines and socializing, but the question remains........how much is it worth ? Can State U provide adequate value for the bucks, esp for those first couple of years of 200-seat lectures with indifferent profs and teaching assistants who (often) barely speak English. If can download the whole MIT Mechanical engineering curriculum for free, is the State U experience still worth $20k a year?
I stand by my prediction that, looking years down the road, things like the MIT open source lectures and its descendants are going to revolutionize the business of undergrad education in engineering and science.
Sorry, I know this isn't on topic
from end of last thread
Advanta credit card company defaulting, closing 1 million accounts
The company is said to be offering to buy out some bondholders at about a 30-percent discount, while also planning not to repay notes on time that are set to mature next month.
Losses Catching Up With Credit Card Companies | CreditFYI.com
Advanta's customers defaulted last month at a rate of 20.15 percent, compared with 17.31 percent in March, the company said Monday in a regulatory filing related to the Advanta Business Card Master Trust, which bundles Advanta's small-business loans for sale to investors.
philly.com: Philadelphia local news, sports, jobs, cars, homes
i'm copying my post from the last thread since i got "mortgage pigged", and it's probably useful for people to understand the cmbs mechanism -
ghost has it right.
when you originate a loan for cmbs execution, you look at where the markets are currently trading as if you were to securitize the loan today, add your profit and other expenses, and lock the rate.
in the most general way, you can consider the rate to be the weighted average spread of all the cmbs classes. as an example, consider a deal with 2 tranches, AAA and BBB.
The AAA tranche is 70% of the deal, and market is currently trading AAA paper at 5% spread over swaps.
The BBB tranche is 30% of the deal, and the market is currently trading BBB paper at 30% over swaps.
Your weighted average spread would be 70% * 5% + 30% * 30% = 12.5% spread over swaps. So you would originate a new CRE loan at say 12.5% plus the 10year swap rate plus profits and fees.
Now let's say the rating agencies change their views on the CRE market, and they now think AAA's need 40% of credit support.
The new spread becomes 60% * 5% + 40% * 30% = 15%, so you are originating new CRE loans 2.5% wider because the agency changed its mind.
This is a VERY simple example, but it should get the bigger picture across. Yes, the Fed can change TALF, and that will affect the spread side of execution (5% AAA, 30% BBB), but if the agencies are moving the credit enhancement side in the opposite direction, we really are not getting any closer to solving a CRE crisis.
Yeah, but the tripled the parking fees, so it's a wash.
I like the term "mortgage pigged" for your post losing relevance and impressions due to a new post.
It might be more convenient to shorten it to just "pigged".
"The company is said to be offering to buy out some bondholders at about a 30-percent discount"
A better deal than Ecuador's bondholders get.
From CR's link...
“A year and a half ago, this space might have leased for $150 per square foot,” Mr. Sammons said, while he has heard of recent sublets in high-end buildings in this office corridor with annual rents of as little as $40 to $50 per square foot. “This is the most remarkable turnaround in pricing that I’ve ever seen in such a short period of time.”
So I have a couple questions [anyone]...
What is the typical or median rent for similar space - say going back 20 years and bridging boom to bust? Is $50/sqft reasonable by historic measures or a 'real bargain'?
Also - what would be the fully amortized non-bubble replacement cost of some of these 'trophies'? I realize that if the landlords bought or a tenant trying to sublease locked in long term lease at the peak they are losing their ass on currents rents/subleases... but what if they bought say mid-90s... are they cash flowing at $50? Could they build new now with reduced cost inputs and lower land valuations and cashflow at 50?
Anyone know - 'cause I sure don't.
daddyo, thanks for the substantial post(s )
The $150 number is indeed high, but it is also accurate. That said, the total amount of spaced leased at ~ $150 was small.
Who was dumb enough to over-pay by that much? Hedge funds. No joke. Stupidity was out-bidding stupidity.
Your 2 & 20 at work! Only the best and the brightest can loose so much so fast!
Enjoy the view - while it lasts.
Boston CBD space was going for $100-$110 / SF durring the dotcom boom... Still hasnt recovered....
dryfly,
Can't find it now, but Bloomberg as NYC mayor had a report around last November, and subsequently updated at some point, that detailed their revenue projections. There was a chart of office space lease $/sqft rate in it. Was posted on CR
TBP has a related discussion "Securitization: Advanta and the Fiction of True-Sale"...the key point being "Because securitizations are off-balance sheet, banks can provide that support without holding capital against the activity, ostensibly because they can choose to put the risk to securitized investors if they wish to do so, which no going concern business will ever actually do. Hence, the saying on Wall Street is “the only securitization without recourse is the firm’s last.”" The gist is that securitizers have been providing an implicit backup that is not legally binding...
Nades,
Thanks for the info on Beantown.
FWIW, I understand Holland has had deflation in tulip bulbs for many years - 400 or so if memory serves.
implicit backup that is not legally binding..."
Heads we win, tails you lose.
Nice.
EHP | dryfly....
Calculated Risk: SL Green: Manhattan Office Vacancy Rate to Hit 12%
http://www.nyc.gov/html/omb/pdf/sumss11_08.pdf
Angry Saver writes: Who was dumb enough to over-pay by that much? Hedge funds.
Correction: Investors in hedge funds. Thanks to 2/20, hedge fund management did quite well by making the deal happen. Do I hear: "perverse incentives"?
dryfly,
did find this @ here (not the detailed one I'm thinking of, had green bar charts)
Wall*Street was the core of the Big Apple, so does NYC become a more exciting Buffalo as it loses it's meal ticket?
nades,
That's exactly the one I had in memory
EHP - I'm more impressed you remembered it was in Nov.... LOL!
..................
AS I just did some checking... That $100+ must have only been for the new building that was going up.... This monster right in china town.. The building changed names a few times since then... I think it was a financial mess for a few years if memory serves me correctly.... Wheres ipodus when you need him... Still rents havent gotten back to peak yet... (And they are going down there too...)
Ken I cant edit when someone has replied to my comment.... Pretty slick... I like it.... Also noticed the expandable text box... Again pretty slick...
That being said. That bloomberg link i posted... the second one... The PDF is missing.... Wonder if it was an innocent mistake....
We visited nyc over the weekend. While sitting in Times Square, we noticed two of the huge ad spaces empty.
So according to nades' link $50-60 is pretty reasonable as recently as a half decade ago... while $40 might be a skosh low.
So what are they whining about [answering my own quesstion: unless they overpaid for the asset & had rent expansion 'priced in']? Suckers.
From the Bond market close at Across the Curve:
"A long tail in a bond auction with its attendant risk is one thing. If that were to occur in a shorter maturity in would be a sign that investors are in full retreat from longer dated US assets.
Maybe the final climactic event is upon us. Maybe the final bubble to burst is the US Treasury market and maybe we are on the verge of a financial Krakatoa which will realign financial markets.
Whatever the case it feels like the calm before the storm and we are about to embark on another interesting expedition."
annual rents of as little as $40 to $50 per square foot.
Ahhhh, "little" has a special meaning of which I was not familiar.
U.S. National Debt Clock : Real Time
the j6p of America today is an indentured servant but too bad they don't know it
The elites are laughing
C C - he is usually pretty level headed and not in to chaos theory... scary stuff....
The Whiplash scenario continues unabated ...
The Fed and UST with their allies at GS and the other
Wall Street Banksters are roiling the markets ...
Each time scraping more profit from real investors ...
Krakatoa, east of Jersey
Comrade Coinz
Looks like another stock market pump and dump to me ...
Excellent berths are still available before the USTitanic sets sale.
Sovereign default alert: Payment By “Voucher” In Latvia?
"according to a report in the Latvian newspaper Diena, Central Bank Governor Ilmars Rimsevics visited the town of Liepaja on Friday, and told the astounded journalists assembeled there that: “The level of the expenditure shock we are receiving is so high that we can not cease to maintain this quantity of expenditure. So there is a shortage of funds, and we’re forced to look at the different kinds of projects, which can help us provide for the foreseeable future. Taking into account that the money is not budgeted, it can be emitted in vouchers”.
Rimsevics also gave an interview to the Russian-language newspaper Telegraf (published this morning) where he says more or less the same thing. Basically, the IMF are threatening to withold the next round of funding if the Latvian government does not move ahead with the agreed wave of budget cuts - which in some areas will be of up to 40%. Latvia received a 7.5 billion-euro bailout from the IMF and the European Commission last December. The agreement required Latvia to limit its budget shortfall to to 5 percent of gross domestic product. Since then, the economic outlook has turned far worse than anticipated and Prime Minister Valdis Dombrovskis’s government is seeking approval to run a 7 percent deficit.
At the same time the Latvian central bank keeps having to buy the local currency (the Lat) to support the euro peg - last week the bank bought 6.4 million lati ($12 million), and this was the eighth consecutive week they have had to make such purchases. The longer it takes to reach agreement with the IMF - who are convinced that severe budget cuts will be expansionary in the short term (due to the improved confidence they will produce, see here), the more the bank will need to spend to counter those who are betting they will be forced to devalue."
I guess the Latvian government has to go through the motions; they're going to run out of FX reserves pretty quickly though. At that point vouchers, currency, its all the same.
Ahhhh, "little" has a special meaning of which I was not familiar.
That was why I asked 'the dumb question' not knowing any better.
I'd still like to know the current replacement cost - to keep it apples to apples I'd like to know replacement cost for a 'trophy' in square feet.
BTW late mid-1990s I was pricing office space for a buddy I was working with and my recollection was $20psf got you pretty damned nice in Minneapolis and $15 got plenty good enough [I was looking at stuff as low as $4psf that had combo office & factory and was close to interstate, safe & sort of clean... clean if you consider converted factories 'clean'... we weren't going to buy - just rent & warehouse parts.
I would like to see what you get with $100-150psf... better be good.
I hope nobody was depending on Canada to pull the world out of recession (ahem IMF ahem)
household debt to GDP now 81%
Owe, Canada.
Obama and his Chief of Staff Rahm Emanuel sucking Wall St teat Teat - Wikipedia, the free encyclopedia
Emanuel is one of the biggest recipients of Wall Street campaign contributions, the Center for Responsive Politics reports. He “was the top House recipient in the 2008 election cycle of contributions from hedge funds, private equity firms and the larger securities/investment industry.” Since being elected to Congress in 2002, he “has received more money from individuals and PACs in the securities and investment business than any other industry”; these are also among Obama’s top donors.
Some teats may become swollen and tender after a large amount of suckling.
@mmckinl,
Yeah, I don't understand the market pop today. Looks like the 10-year UST hit some resistance at 3.5%, but it has risen steadily the 6 of the last 7 sessions. It is well above where it was when Ben announced QE. When JJ at Across the Curve uses language like that, I get more nervous than usual.
When the righty-tightys have to explain what a teat is, it means they had really no idea what was happening for 8 long years, do they?
FT.com / China - China stuck in ‘dollar trap’
Note the event the story cites for the change in China's strategy:
"The collapse of Fannie Mae and Freddie Mac, the US mortgage financiers, last summer prompted Safe to adjust its strategy and start buying far more short-term US government securities, instead of longer-maturity bonds and notes."
Note: not the failure of Lehman, but Fannie/Freddie.
As I have been saying, the failure to address the Fannie/Freddie situation is a real tragedy, and will lead to the downfall of the UST market and the dollar.
Understanding the mortgage finance system in this country is a good start to understanding where this crisis is heading. My bets against the USD and for commodities and commodity-linked currencies have paid off wonderfully so far.
Nice to see the worlds greatest bond managers are at least 3 months behind the CR commetariat
New Normal of 2% GDP Growth Coincides With Biggs (Update2) - Bloomberg.com
May 26 (Bloomberg) -- Americans may have to get used to unemployment greater than 8 percent for the first time since 1983 and an economy that won’t grow much beyond 2 percent as a consequence of the lost confidence in consumer credit that shattered financial markets.
By this time next year, “the market will realize that potential growth for the U.S. is no longer 3 percent, but is 2 percent or under,” Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., said in an interview with Bloomberg Radio.
[does NYC become a more exciting Buffalo as it loses it's meal ticket?]
Actually lower rents and some CRE defaults to wipe out debt and cost structure might be the only hope NYC has. Otherwise they can be offshored (nearshored to St Lous or Cleveland or...) just like any other industry.
ghostfaceinvestah
Sometime this fall I'm looking for another market crash ...
could be sooner depending on events ...
Like I said ... whipsaw ...
alybaba
I think El-Erian seems pretty well grounded whenever I seem to read or hear him. What went on at Harvard is another matter
km4 (profile) wrote on Tue, 5/26/2009 - 4:16 pm Some teats may become swollen and tender after a large amount of suckling.
as the mother weakens, she begin's eating her own sucklings to save herself
Ken Cooper,
Is there a way to browse posts by user instead of by thread? That was the one nice thing I found about js-kit. It increases the value of writing a fat post because you can can easily recall it later.
I see Gates and Buffet had a secret meeting with other high proflie
oligarchs in New York ...
The current scuttlebut :
The choice is a devastating crash or a long term slide ...
By the end of summer we will know the answer ...
@ Take a name asswipe - 4:26 pm
I keep on coming back to this blurb by Simon Johnson and his excellent piece The Quiet Coup The Atlantic Online | May 2009 | The Quiet Coup | Simon Johnson
"From 1973 to 1985, the financial sector never earned more than 16 percent of domestic corporate profits. In 1986, that figure reached 19 percent. In the 1990s, it oscillated between 21 percent and 30 percent, higher than it had ever been in the postwar period. This decade, it reached 41 percent".
The Wall St cabal is so f*cking greedy and full of themselves with their bullshit financial engineering ploys that I'd really enjoy watching the mother weaken then begin eating her own sucklings to save herself....
"The collapse of Fannie Mae and Freddie Mac, the US mortgage financiers, last summer prompted Safe to adjust its strategy and start buying far more short-term US government securities, instead of longer-maturity bonds and notes."
SAFE was insane to buy longer term USD denominated 'assets'... my totally outsider guess was that they wanted longer term securities so they didn't have to keep churning. They hold something like $2T... at 1-2 year maturities they have to turn that whole pile of paper over every year to six months... then add to that the 'new' reserves from ongoing surpluses and it becomes a herculean task. Going out just 3-5 years takes a lot of the work load off their trade desk BUT increases their interest rate risk.
My guess is from now on they'll be turning that paper like it was a compost pile.
km4
That's why NYC and London are in so much trouble. There probably isn't a bottom above 10% of earnings without government support, which can only be temporary at such a large scale. That entails cutting compensation by 50% and headcount by 50%. Time to realize the productivity gains associated with computers. It's why I chose not to follow a friend into working for a hedge fund. (the fund is still doing fine, I just don't like the odds over the long run)
@ EvilHenryPaulson...I hear you and agree...BTW nice move on not following your friend into the cauldron
I'd really enjoy watching the mother weaken then begin eating her own sucklings to save herself....
get the popcorn ready
daddyo [but if the agencies are moving the credit enhancement side in the opposite direction, we really are not getting any closer to solving a CRE crisis]
Thanks again for sharing. But somehow the CRE market appears to be showing signs of life. I wonder if the perception that CRE debt is in the TBTF camp since mutual funds, pension funds, insurance companies are all in real deep. Could the Fed/Treasury backstop CRE debt like they did MM funds and bank debt ? If they did all of a sudden the agencies goose the debts to AAA and another big heavy straw goes on the camel's back.
Could finally be the one that breaks the camel's back ?
"But somehow the CRE market appears to be showing signs of life."
~~~
New bag holders to replace bankrupt bag holders ... green shoots!
Anecdotical evidence that credit crunch is not over:
Just talked to the owner of an appliance company; the firm that provided credit cards for small businesses is pulling out of that market, so his card and revolving credit was cancelled. Now they are profitable but the cash for daily operating is short. And couple of banks he called so far declined.
Which does make sense from a smart bank or too large to fail bank standpoint. If you can buy loans 40c on dollar given you survive, why would you originate something that in the best case scenario will get you 92 - 95c on dollar?
The ironic part, he run into those problems just this month when everybody proclaimed, the storm is over.
Given the pretty horrific performance of the Advanta portfolio it's not so surprising that other banks aren't anxious to take up the business. And taking a slightly wider view, I'm not sure moving business plans away from using unsecured credit card debt as a primary source of operating cash is really a sign of an historic credit crunch. It's a small step along the road back to sanity, if you ask me....
Per Marketwatch ticker, Japan's exports fell 39.1% in April vs. a year ago. Ouch. Probably better than expected though
.
OT: Almost the whole MIT curriculum is available online for free:
Free Online Course Materials | MIT OpenCourseWare
I predict this will revolutionize the business model of higher education. ala "open source"
From Bloomberg:
The drop in the London interbank offered rate, the benchmark for $360 trillion of financial products, to a record low masks a growing gap between the rates that the biggest banks charge each other for credit.
The difference between the highest and lowest interest rates banks say they pay for three-month dollar-denominated loans is near the widest this year, according to data compiled by the British Bankers’ Association. The spread signals that lenders still lack confidence in each other, even though measures ranging from the so-called Libor-OIS spread to corporate bond sales show credit markets have recovered from the freeze caused by the Sept. 15 collapse of Lehman Brothers Holdings Inc.
“It’s premature to judge that the credit meltdown is fully over,” said Kazuto Uchida, chief economist in Tokyo at Bank of Tokyo Mitsubishi UFJ Ltd., a unit of Japan’s largest bank. “Banks remain wary of extending credit to each other due to strenuous concerns about counterparty risk.”....
RE: Advanta. . . I have a few domains registered, and I put a ridiculous made up company name as the owner/contact info in WHOIS. About 5 years ago Advanta sent me a pre-approved card in that businesses name. With a $5000 limit. I accepted it, but never used it. Cancelled it after 3 years, by that time it had been bumped up to about a 12k limit. I guess a lot of other folks did use their pre-approved cards. Free Money!!! Doesn't seem to have worked out so well...
I predict this will revolutionize the business model of higher education. ala "open source"
No. It isn't what you know it is who you know [or better yet 'who you blow']...
Comrade Coinz - for some reason Jansen using extravagant language gives me chills.
C
From Advanta in June 2005
The foundation of the product set is the Advanta Platinum Business Card. The Advanta Platinum Business Card features 0 percent introductory APR for 12 months on purchases and balance transfers, no annual fee and one of the largest available credit lines in the industry, up to $50,000
"I accepted it, but never used it. Cancelled it after 3 years, by that time it had been bumped up to about a 12k limit. I guess a lot of other folks did use their pre-approved cards. Free Money!!! Doesn't seem to have worked out so well..."
Our terrier can pay in dead rodents. Can she have a card?
", up to $50,000"
That's still not enough to buy a house, cash.
Our terrier can pay in dead rodents. Can she have a card?
Well, up until this week, the answer would have been yes!
Broward,
You need to get more than one. Wells Fargo still offers a 50k biz card. Now you are at a 100k and living in Las Vegas.
No. It isn't what you know it is who you know
dryfly - I take your point that the connections made in college are important, but this really moves towards separating the "education" from the "credentialing" and the "networking" aspects of the university experience
imagine the impact on universities if students can live at home and take all their core curriculum for low to no cost , even for just their first year. how about their second year too? seems like the only thing missing is labs
Besides, in many cases all the meaningful networking occurs in grad school (at least that was my experience)
Counterpointer (profile) wrote (in reply to...) on Tue, 5/26/2009 - 8:12 pm
Comrade Coinz - for some reason Jansen using extravagant language gives me chills.
I think unless we see a significant long-term treasury rally in the next 2-3 days, we are going to see something quite the opposite.
[or better yet 'who you blow']...
is that the secret to your success?
/snark
There was an episode of the Simpsons on this topic - Bart gets a credit card in the name of the family dog and buys all sorts of stuff
I received word this weekend from an industry insider, who's very level headed, who previously always viewed this economic situation as a recession, that a dollar collapse is likely.
Gave me chills.
EHP,
Is this what you mean? from a good post at eurowatch blog
Then suddenly things moved on, and day became night just as quickly as night had become day as one fund flow after another reversed course, and the money disappeared just as quickly as it had arrived. Behind this second credit crunch lay an ongoing wave of emerging-market central bank tightening (during which Banco Central do Brasil deservedly earned its spurs as the Bundesbank of Latin America) with the consequence that one emerging economy after another began to wilt under the twin strain of stringent monetary policy and sharply rising inflation. Thus the boom "peaked" in July (when oil prices were at their highest), and momentum was already disapearing when the hammer blow was finally dealt by the decision to let Lehman Brothers fall in late September. By November all those previous positive expectations were being sharply revised down, with the IMF making an initial cut in its global growth estimate for 2009 - to 2.2 percent from the 3.7 percent projected for 2008. The World Bank went even further, and by early December was projecting that world trade would fall in 2009 for the first time since 1982, with capital flows to developing countries being expected to plunge by around 50 percent. By March 2009 they were estimating that the volume of world trade, which had grown by 9.8 percent in 2006 and by 6.2 percent in 2007, was even likely to fall by 9 percent this year.
But behind the recent emerging market phenomenon what we have is not only a newly emerging growth rate differential, since alongside this there is also alarge scale and ongoing currency re-alignment taking place, a realignment driven, as it happens, by those very same growth rate differentials. The consequential rapid and dramatic rise in dollar GDP values (produced by the combination of strong growth and a declining dollar) has meant that a slow but steady convergence in global living standards - at least in the cases of those economies who have been experiencing the strongest acceleration - has been taking place, and at a much more rapid pace than anyone could possibly have dreamed of back in the 1990s, even if the long term strategic importance of this has been masked by the recent collapse in commodity prices and the downward slide in emerging stocks and currencies associated with the post-Lehman risk appetite hangover. Which is why, yet one more time, that simple issue of sentiment is all important, or using the expession popularised by Keynes "animal spirits".
M (profile) wrote on Tue, 5/26/2009 - 8:22 pm
I received word this weekend from an industry insider, who's very level headed, who previously always viewed this economic situation as a recession, that a dollar collapse is likely.
Hoocoodanode!
"That's still not enough to buy a house, cash."
Well Detroit has some sub 50K houses. Give it a year or so, and ROUSA will too.
Interesting, If I read it right - he is saying we can not grow our way out. If India and China do the growing - they create an imbalance that will cause more problems than it solves/
His conclusion
Evidently the core problem generated during the last business cycle was associated with the size of the imbalances it threw up, and the impact on liquidity and asset prices that these imbalances had. If I am right in the analysis presented here, then we are all on the point of generating a further, and certainly much larger, set of such imbalances as we let the process rip in the uncordinated and unrestrained fashion we are doing.
So if the dollar is going to collapse, what do I buy today? More commodities, gold?
" a dollar collapse is likely."
It's been likely for some time.
Dayton OH has tons of sub $50K houses. Of course, there are no jobs and you would not want to send your kids to the public schools, but lots of cheap housing, esp if you are half way handy, not talking hsacks either, but like 3/2 solid pre war houses on 1/6 acre lots.
"he is saying we can not grow our way out. If India and China do the growing - they create an imbalance that will cause more problems than it solves/"
That's basically what i've been telling you.
the more productive that china & india get, the less consumption, but also they drive down costs for existing producers which forces them to either produce more, creating a positive feedback, or cutback, reducing consumption more and creating more positive feedback.
free marketeers just don't get it yet.
It's not a function of producing ever greater sums of stuff.
TPBT can either a) put up tariffs b) reduce workweek with attendant debt destruction or c) watch the thing continue on a downward spiral.
I suppose we've chosen C) because the various free marketeers / capitalists can't bring themselves to give up their mythical piles of stuff. So now they'll get wiped out a different way.
Oh, well.
ShadowInventory (profile) wrote on Tue, 5/26/2009 - 8:29 pm
So if the dollar is going to collapse, what do I buy today? More commodities, gold?
If it were my money, I'd stuff them into Bunds. I think they'll default too, but they are going to give the smallest haircut and the certitude of German survival means that you will get a payment stream in a major post-Euro European currency.
hsacks
========
took me a moment to realize this clever term was probably just a typo of "shacks"
Dollar collapse... is this the next hoocoodanode?
I guess to get out of dollars:
Commodities: Benefit, every country needs them (oil, food); proven store of value (gold, silver); otherwise useful... risks: ???
Stocks: Benefits, people will still need to buy some stuff (even if they use an electronic "bank" card or wheelbarrows), risks: American stocks might not be good due to government climate (sucking up taxes), boomers will be net sellers of stocks at some point...
Savings Deposits: Benefits, guaranteed returns, risks: Don't get one denominated in a currency that will be massively inflated.
Bonds: Benefits, guaranteed returns? Risks: You'll get paid in inflated currency (?).
Real Estate: Benefits, mortgage will be paid back in dollars. Risks, get a 30-year mortgage, in 5 years you'll be out of a job! American land owner = target of government tax increase...
Problem with the dollar collapse scenario is that forex are all relative prices. Collapse vs. the Yen, from the land of the setting sun, vs. the pound when the UK is sort of a bigger version of Iceland with cooler old buildings and no volcanos, the Euro? Cant even be sure it will still be aroud in 10 years, or if the different directions of economies in Greece vs. Germany will tear it apart. The swiss franc, far to small and an alpine Iceland. Somehow I just can't see the Real or the Rupee becomeing the world's reserve currency any time soon.
"So if the dollar is going to collapse, what do I buy today? More commodities, gold?"
UDN has been doing ok lately.
"Our terrier can pay in dead rodents. Can she have a card?
Well, up until this week, the answer would have been yes! Smile"
It's a theme that invites a few morbid reflections. How many of the goods purchased over the past decades have more intrinsic worth than a dead squirrel? I have a few dead computers lying around the house, and you can't even make a Brunswick stew out of them. The same can be said for all the radios, autos, etc. I've purchased over the years. There's a vast irrationality about the way we've arranged our productive system. Any rational advanced system will have produced an expandable-on-need climax technology which is at the same time thrifty and without excessive waste. We have a lot to learn, and maybe not all that much time to learn it in. We are a primitive race.
Every time I look at one of our infamous traffic jams around here - the world's longest parking lot is one Nova will be familiar with - I think to myself: This is insane. When I was a kid I had a desert tortoise for a pet, and I would watch it come up against the leg of a chair. Instead of going around the leg, it would keep on shoving its shell against the leg. Like that.
broward,
because if they do not find a way to make plan c work then they are no longer on the favorable end of the food chain as they see it.
Dirk van Dijk (profile) wrote on Tue, 5/26/2009 - 8:39 pm
Problem with the dollar collapse scenario is that forex are all relative prices. Collapse vs. the Yen, from the land of the setting sun, vs. the pound when the UK is sort of a bigger version of Iceland with cooler old buildings and no volcanos, the Euro? Cant even be sure it will still be aroud in 10 years, or if the different directions of economies in Greece vs. Germany will tear it apart. The swiss franc, far to small and an alpine Iceland. Somehow I just can't see the Real or the Rupee becomeing the world's reserve currency any time soon.
That's certainly why it has been deferred so far. But eventually, gravity will catch up with Wile E. Coyote.
"the certitude of German survival"
How are they fixed for nukes? In the Byzantine mind there is so much certitude.
Byz - so if JJ saw that, and the CR board did, then ... someone else is engineering a significant LT tsy rally.
Let me know where this analysis goes awry.
C
1 currency now -yogi (profile) wrote on Tue, 5/26/2009 - 8:42 pm
How are they fixed for nukes?
They have a whole shitpile of them in France and if you're shooting your way through Germany, I guarantee you the French will share the fireworks. The only reason the Germans don't have them is 'cause of how they tried to conquer the world for the glory of Hitler and all. They will lay hands on some real fast if they need some. They were in a real fix a minute ago with Putin on their windpipe, but he blew it and that's no longer the case.
In the Byzantine mind there is so much certitude.
There is much in this world to be uncertain about. Some things are not those kinds of things. The fact that Germany, France and the Low Countries are going to stick together 'cause they have a "live shape" in the corner of Europe? That is not a thing I am uncertain about. They may even keep the Euro as a regional currency, but it'll be the post-Euro Euro ad not the Euro of today.
Guys,
I have the same questions to this information as you. But that was my final push into the cold naked realization that not only is the current situation as real and scary as the numbers on calculated risk suggest. That the worst is yet to come.
I'm not worried about my savings, though I certainly care. I'm worried about the safety of my family in the next several years.
I just try each day to be a good person to others and pray others will do the same when tough times arrive, and stay.
imagine the impact on universities if students can live at home and take all their core curriculum for low to no cost , even for just their first year. how about their second year too? seems like the only thing missing is labs
Besides, in many cases all the meaningful networking occurs in grad school (at least that was my experience)
:: ::
Well if you compare the networking opportunities 'at home' as opposed to a 'state university' - like the one I went to - I'd agree. Not much difference. Compared to an MIT, Stanford, Harvard, U Chicago, Penn - now, that is a whole other thing.
And to get into the really good graduate programs it really helps where you went to school first, who you knew [prof LOR's etc.] almost as much as scores. For Executive MBA programs it helps to have had good jobs at better corporations - and how do you get them? Who you know & who you blow at your preppy Ivy League frat.
There is NO way around it. Geeks & nerds blogging in their parents basement would like to think the stay-at-home let-my-scores-speak-for-themselves will get them ahead and that e-learning will be the big 'equilizer' someday... isn't going to happen. The connections are always going to be made where they always were made - fraternities, private clubs & parties of the elites.
I remember going to exactly ONE of these parties in my youth [hosted at the home of the daughter of a prominent US congressman] - let me tell ya - it was an eye opener. I went back into my cubicle where I belonged.
this whole "consumer sentiment is up" is such a crock
show me the money!!
Counterpointer (profile) wrote (in reply to...) on Tue, 5/26/2009 - 8:42 pm
Byz - so if JJ saw that, and the CR board did, then ... someone else is engineering a significant LT tsy rally.
Let me know where this analysis goes awry.
Ben can do it any time he wants and it's been three days now. I begin to suspect he is constrained and I bet I am not the only curious predator. We shall see soon. Hence, if we do not see a serious rally in 2-3 days, the scavengers will really start swarming.
Yeah!
We've done it!
Pure capitalism!
6 billion people furiously creating stuff that nobody can afford to buy!
I just try each day to be a good person to others and pray others will do the same when tough times arrive, and stay.
You might want to think a little more about it. As in concrete steps...
That's certainly why it has been deferred so far. But eventually, gravity will catch up with Wile E. Coyote.
:: ::
I think a number of the 'merchantilists' are closer to throwing in the towel on dollar levitation than any of us could know. I think Japan is there already [evidenced by a relatively strong yen in spite of exports collapsing some almost 40%]. When China thinks twice about the value of dominating shelf space at WalMart and Target - watch out - that is when Wile E gets hit with the anvil.
So the French will forgive and forget, ah oui. But how will Greater FrancoGermany prevent the evil unions from ruining the state? They're much more entrenched there than here.
it was an eye opener. I went back into my cubicle where I belonged.
ugh. I hate tales from the dark side.
When China thinks twice about the value of dominating shelf space at WalMart and Target - watch out - that is when Wile E gets hit with the anvil.
Since they destroyed retail in a lot of small towns the absence of a WalMart is a big deal.
deleted - dupe
"6 billion people furiously creating stuff that nobody can afford to buy! "
Better a glut than a famine. Just keep the bankers away from the bulldozers.
dryfly - speaking only about engineering and science here as that's my only expertise - I agree that the elite universities will always have a special cache and a special value associated with their credential and network. If you are a genius and you have access to the bucks, you should go spend 9 years at MIT or Caltech.
BUT for the vast majority of engineering and science undergrads, spending your first year or two self-educating on MIT curriculum while living at home (and saving say $20k per year) compared to sitting in giant impersonal lecture halls at State U with profs who don't want to be there teaching undergrads anyway will put you way ahead of the curve.
There are no meaningful connections to be made in the first 2 years of engineering or science curriculum at State U that you can't make if you spend the next 2 years on campus.
Not saying it's am "all or nothing thing", but think of the marginal impact this could have at State U if it catches on. Say 20% of the freshman class decides to "self-school" their first year.
Just suggesting that it changes the value proposition that State U has to present to justify their costs.
WW-I was precipitated over some obscure Archduke. Don't expect WW-III to be some grand clash of political theories. Byz is right "the Low Countries" share a common destiny and they know it. They also know any threat is going to come from the east.
Thanks again for sharing. But somehow the CRE market appears to be showing signs of life. I wonder if the perception that CRE debt is in the TBTF camp since mutual funds, pension funds, insurance companies are all in real deep.
I'm not sure what life you are talking about...but I sure don't see any from my vantage point. Until the gov't decided to offer non-recourse leverage to every AAA CMBS bondholder, the CMBS market was a complete disaster. The non-AAA bonds are still a disaster, with the "A" and below trading in the same dollar price ranges as subprime.
You are not seeing a lot of defaults yet because
1) the large wave of refinancings are 2-3 years out and
2) a large number of properties trying to refinance now are getting extensions.
unlike in the RMBS world, the servicers in CMBS land always held the bottom most tranches of the deals they serviced, so they had skin in the game. They know if they don't extend these delinquencies, they are going to take the losses themselves.
As for the whole loans on insurance co / bank / pension fund balance sheets, I can tell you that those guys are holding all of the capital they can muster up to refinance their own books. Between the lack of a securitized markets and the whole loan guys holding back on new loans, there really is no refinance capability. ZERO.
Unlike the story of people and their homes, I just don't see the political will to save a bunch of real estate developers. Things are really as bad as everyone in the CRE world is saying. And as for the agencies coming to the rescue, I can tell you this, the multifamily segment of CMBS has higher delinquencies than any other right now, including hotel and retail, and that's the only segment with any kind of financing available (fannie and freddie).
Where I work more than a few have Harvard hanging framed on the wall. They grew up with parents who each have a different passport, speak 3 languages, and have major connections. Thats how they got into the office. Sometimes I see them running their filter and evaluator programs on people. I really like jamming them sometimes.
Yes, in some worlds it is family, money, how old is the money, blah blah
this whole "consumer sentiment is up" is such a crock
Last month when asked if their income might be higher in the future than it is today only 6% said yes. This month it was 8%.
That's a 33% increase!
What we need now is a 3-month forced holiday for all workers this summer, without pay and without unemployment benefits. Then everyone (at least everyone that surviives) will be able to imagine a higher (i.e., nonzero) future income and consumer confidence will be at an all-time high.
Sorry yogi, you are going on ignore. 1 currency now -yogi (profile) wrote on Tue, 5/26/2009 - 9:03 pm
So the French will forgive and forget, ah oui.
Rather than suffer direct rule by a Russian kommissar? Sure as shit nobody else is making designs on Germany that has a chance of even a remote approach to the nuclear threshold before they are shot to pieces. I guess if Turkey falls to Islamo-Palins, but again, would they prefer to get rid of Germany and accept shari'a law? Seems unlikely.
But how will Greater FrancoGermany prevent the evil unions from ruining the state? They're much more entrenched there than here.
Both states are only about 60 years old. Neither is likely to see their centennial as currently constituted.
Wall Street Journal is running an article on how Americans are now eating weeds - some because its organic, and some because of frugality.
It's Salad Days for Weeds - WSJ.com
Green shoots, baby!
the Cinderella Story economy is about to strike midnight, as a too big too fail financial firm's bankers turn back into lizards...
EHP,
You've mentioned a few times recently that you could see the Fed capping LT Treasury rates. I don't understand how that would work. I thought LT rates were established by the market as new supply came to auction.
Are you suggesting a hard cap, i.e. "The US Treasury will pay no more than 5% for our 30 year Treasury Bonds", or an effective cap based on more printing and buying of our own debt?
If you're talking about a hard cap, is there any precedent? I certainly hadn't factored that possibility into my strategy for navigating this mess. Thx.
Just suggesting that it changes the value proposition that State U has to present to justify their costs.
But those are exactly the kinds of schools that produce the cogs - [like me] - and many of us didn't have the ambition to take the home study classes anyway. We wouldn't have done the work UNLESS there was a deadline - due date. The pricks in tweed made us do all that.
One other thing those disinterested state u prof's did - they flunked us in droves sink or swim, chump. I went to the University of Minnesota and studied Chem Engineering - it was one of the better programs at an otherwise pretty much middle of the pack large state university. We entered our junior year with 220 students and ended the year with about 90. It was part of the plan - they only had 90 seats for the labs starting that spring - they needed to weed out the rest & they did with pleasure. THAT was the best education any of us got ANYWHERE.
I don't see 'home learning' being especially useful except for the most antisocial engineers... the rest will benefit from the 'forced' human interaction called big state university.
the rest will benefit from the 'forced' human interaction called big state university.
Our backgrounds are similar (I also did engineering undergrad at a Big 10 university), and I agree with your points about the benefits of competition and deadlines and socializing, but the question remains........how much is it worth ? Can State U provide adequate value for the bucks, esp for those first couple of years of 200-seat lectures with indifferent profs and teaching assistants who (often) barely speak English. If can download the whole MIT Mechanical engineering curriculum for free, is the State U experience still worth $20k a year?
I stand by my prediction that, looking years down the road, things like the MIT open source lectures and its descendants are going to revolutionize the business of undergrad education in engineering and science.