Here are a couple of stories similar to thousands playing out across the country, and tens of thousands more to come. The second article gets to the heart of the upcoming commercial real estate bust.
A sheriff’s foreclosure auction produced just one bid — from the mall’s mortgage-holders, who bid $12.5 million.
Photo By Glen Stubbe, Star Tribune
Brookdale Center went on the auction block at a sheriff’s foreclosure sale Friday, netting just one bid of $12.5 million from the shopping mall’s lenders.
The bid from Brookdale Mall HH LLC was well below the $51.8 million owed on a $54.2 million mortgage by the property’s owners, Brooks Mall Properties of Coral Gables, Fla.
Sears is its sole remaining anchor. In the last couple of years Macy’s, Barnes & Noble and Mervyn’s have all closed their stores. The mall also has lost other key tenants, such as Steve & Barry’s. Almost 60 percent of its space is vacant, according to recent figures from NorthMarq.
Commercial Real Estate Crisis Coming
The following story headline masquerades as a local (D.C.) problem but the real story buried in the article is a few select quotes from Elizabeth Warren.
A mortgage crisis like the one that has devastated homeowners is enveloping the nation’s office and retail buildings, and few places are likely to be hit as hard as Washington.
The foreclosure wave is likely to swamp many smaller community banks across the country, and many well-known properties, including Washington’s Mayflower Hotel and the Boulevard at the Capital Centre in Largo, are at risk, industry analysts say.
"There’s been an enormous bubble in commercial real estate, and it has to come down," said Elizabeth Warren, chairman of the Congressional Oversight Panel, the watchdog created by Congress to monitor the financial bailout. "There will be significant bankruptcies among developers and significant failures among community banks."
Nearly 3,000 community banks — 40 percent of the banking system — have a high proportion of commercial real estate loans relative to their capital, said Warren, whose committee issued a report on commercial real estate last week. "Every
Over the next few years, a wave of commercial real-estate loan failures could threaten America’s financial system, and in the worst case scenario, hundreds of additional community and midsize banks could face insolvency, a congressional watchdog group said Thursday.
According to a report by the Congressional Oversight Panel, a watchdog group for a $700 billion bank-bailout package, about $1.4 trillion in commercial real-estate loans will reach the end of their terms between 2010 and 2014, of which nearly half are now under water (that is, the borrower owes more than the underlying property is currently worth).
The report added that losses from commercial loans could range as high as $200 billion to $300 billion.
As a result, it said, banks that suffer from the losses or are discouraged by the economic future could become even more reluctant to lend, which could reduce access to credit for more businesses and families, accelerating a negative economic cycle.
"The Congressional Oversight Panel is deeply concerned that commercial loan losses could jeopardize the stability of many banks, particularly the nation’s midsize and smaller banks, and that as the damage spreads beyond individual banks, that it will contribute to prolonged weakness throughout the economy," said the report, which was approved unanimously by the five-member COP.
Commercial real estate woes are everywhere you look, but Sacramento, California is ground zero of the ongoing bust. It will take years if not a decade to fill vacant businesses in greater Sacramento.
An empty shell occupies 9,500 addresses across the Sacramento region – one closed business for every six still open, according to a Bee analysis of U.S. Postal Service data. That’s more dormant businesses than in 17 entire states, including Utah, Arkansas and New Mexico.
You can see it on Madison Avenue in Fair Oaks, where Mike Castagnola is liquidating his party supply store, counting down the final days on a business with a 30-year run.
And it’s vivid along Main Street in Woodland, where Jill Caunedo happily ran a bagel and coffee shop
Elizabeth Warren, Chairwoman of the Congressional Oversight Panel, talks about the ongoing troubles that community banks are having with commercial real estate loans as detailed in the panel’s latest report on the subject released earlier today – the outlook isn’t good.
The discussion that begins at about the 3:10 mark is pretty interesting as Fox Business News host David Asman references big Wall Street banks "having their arms twisted" to take TARP money in late-2008, a view with which Warren disagrees vehemently (I’m pretty sure she disagreed vehemently there but, admittedly, it was hard to tell).
The January survey indicated that commercial banks generally ceased tightening standards on many loan types in the fourth quarter of last year but have yet to unwind the considerable tightening that has occurred over the past two years. The net percentages of banks reporting tighter loan terms continued to trend lower. Banks reported that loan demand from both businesses and households weakened further, on net, over the survey period.
For many major loan categories covered by the survey, the net percentages of respondents that tightened standards in the fourth quarter of 2009 were close to zero. However, banks continued to tighten a number of terms on loans to both businesses and households, although the net fractions of banks that reported doing so in the January survey generally stepped down again. Banks’ policies on CRE lending were an exception, as large net fractions of respondents further tightened their credit standards during the final quarter of last year. In addition, banks reported that they had tightened terms on CRE loans substantially over the past year.
Demand from both businesses and households for all major categories of loans weakened further, on net, over the past three months. The net fractions of banks that reported weaker demand for business loans continued to decline, while changes in the comparable readings on demand for loans to households were mixed.
Other than Commercial Real Estate, which is plagued by vacancies and falling rents, there was no change in lending standards. With that fact in mind, let’s once again investigate the charge "banks aren’t lending".
Here is the survey question on page 23: "4. Apart from normal seasonal variation, how has demand for C&I loans changed over the past three months?" followed by the table of responses.
Demand for C&I loans fromlarge and middle-market firms
click on chart for sharper image
Demand for C&I loans fromsmall firms (annual sales of less than $50 million)
click on chart for sharper image
Please look at that last chart carefully. It represents demand for
Residential Real Estate in the US is in serious trouble, and a drag on the real economy. And yet it is holding up a bit because the Fed is buying over $1 Trillion in mortgage debt, presumably at artficially high prices to support it, and of course the too big to fail Wall Street Banks who were wallowing in the residential real estate bubble.
Commercial Real Estate is much worse, a bloodbath in progress. Down 42% and dropping with store, office and apartment vacancies soaring. And much of that paper is held by regional banks and REITs like Boston Properties (BXP), Vornado Realty Trust (VNO), Brookfield Properties (BPO), and a host of private firms and trusts.
Like the residential market, the pain in commercial real estate is not distributed evenly across geographic regions. So far the public equities have recovered reasonably after a breathtaking plunge, as compared to the SP 500′s decline from the top. I am watching them for an indication or at least a confirmation of a double dip, a potential next leg down in the real economy and the financial markets.
I hope Ben is wearing a truss if he tries to put a floor under this one.
At least the rental market will be more economical for the foreclosed homeowners, but its hard to see who will be opening new retail stores and commercial businesses in the near future.
Some of you are probably not aware that the commercial real estate market has crossed a dreaded line in the sand. Commercial real estate (CRE) that includes apartments, industrial, office, and retail space is now performing worse than residential real estate. Not just by a little but by a good amount. While the CRE bust took about a year longer than the residential housing bust, once problems started hitting in this market prices have been steadily collapsing. At the peak, it was estimated that CRE values hit $6.5 trillion in the country. With $3.5 trillion in CRE debt outstanding, this seemed to provide a nice equity buffer. That buffer is now erased.
First we, need to examine the actual decline in CRE values by looking at data gathered by MIT:
The latest sentiment reading by Investors Intelligence shows a disturbing trend. Only 15.6% of financial newsletters are currently bearish on equities.
Last time the bearish indicator was this low was April 1987. A few months later (Black Monday) the DJIA dropped 21% in a single day:
In other words – when everything seems peachy — watch out. Turns out that peaks and troughs in investor sentiment are pretty good contra-indicators. Bullish sentiment tends to peak as bubbles are near their top, and vice versa.
From the revamped and newly Bloombergesque Business Week:
Pessimism about U.S. stocks among newsletter writers fell to the lowest level since April 1987, six months before the equity market crash known as Black Monday, following the biggest rally in the Standard & Poor’s 500 Index in seven decades.
The proportion of bearish publications among about 140 tracked by Investors Intelligence fell to 15.6 percent yesterday from 16.7 percent a week earlier. Sentiment has improved since October 2008, when the financial crisis drove the figure to a 14-year high of 54.4 percent. After plunging 38 percent in 2008, the S&P 500 has risen 25 percent this year.
This is not to say markets wont’ run again in 2010. Irrational bull markets can last much longer than you’d think. The momentum they build up is impossible to fight. Gotta wait for that to break before getting seriously short. Example – After the bearish-sentiment index bottomed in 1987, the market rallied another 14% before crashing.
Smart investors like Bill Fleckenstein have been highlighting the credit bubble since the mid-1990’s. And today markets are more irrational than ever. Government intervention is preventing market cycles from proceeding like never before.
Industries like housing, banking, and commercial real estate have become completely dependent on government support. Their future (and that of our currency) depend on whether our leaders will extend or end this support. It’s a ludicrous, manipulated market.
So far America’s leaders have repeatedly demonstrated that they have zero tolerance for economic pain. Their support for the financial markets seems unlimited, no matter the long-term cost. I don’t see that changing without something drastic hapenning – another huge round of bailouts, a shift in the political landscape, or something…
Vietnam has ordered all gold trading floors to close by the end of March, putting an end to a business which turns over $1bn a day but which the government feared was spinning out of control.
“Both the owners of the gold-trading floors and traders are doing their transactions on a fragile foundation that lacks legal, economic and technical frameworks and knowledge,” the government said in a statement.
The order also bans using overseas accounts, but does not affect jewelery or retail gold sales.
The government said it was particularly concerned that some investors had been drawn into overleveraging their positions by low interest rates and the ever-increasing price of gold , which has risen from $660/oz when the first trading floor was started in 2007 to almost $1,100/oz today.
The government said that in some cases, investors had only been required to put up 7 per cent of the value of their portfolio.
The regulation will affect around 20 gold trading floors, but it is unclear if the government is intending to re-write the regulations and allow the floors to re-open or if the move is long-term.
The trade has become a lucrative source of income for many of the banks and trading houses which have opened the exchanges, and the ban could hit profits. But analysts say it could free up liquidity that might flow back into the stock markets, lifting the index.
November 26 2009
Vietnam devalued its currency by 5.4 per cent against the dollar yesterday and raised interest rates by a full percentage point in an effort to cut inflation and underpin the beleaguered dong.
The dong has come under pressure recently as inflation started climbing and domestic demand, driven by the country’s $8bn stimulus programme, drove the current account deficit to close to $2bn a month.
"The decision poses further challenges to the central bank’s credibility," said Tai Hui, Standard Chartered Bank economist. "The risk is that local investors will pay little attention to official comments going forward, which may exacerbate devaluation pressure on the currency."
My friend George Ure, publisher of Urban Survival (and a related blog of the same name), as well as the Peoplenomics subscription newsletter, has posted an eye-opening commentary, "Coping: With What No One Wants To Say" (excerpted below), detailing industry insiders’ perspectives on what is really happening in the real estate market.
While the news that things aren’t getting any better in CRE and RRE won’t be much of a surprise to those who’ve actually been paying attention, it would seem to represent further evidence that the "experts" and powers that be in Washington and on Wall Street (along with their enablers in the mainstream media) are either liars, fools, or crack addicts — or some combination of all three:
Every so often, a group of major real estate developers get together for a conference where folks try to look ahead. In order to protect my source, I won’t tell you which real estate/developer conference it was, but I’ve been given permission by my source to post this high-level view of what the people who put up real dough to develop properties are seeing. This is the info that I talked about with Jeff Rense on his radio program last night — Read it and weep:
"This week I attended the [serious players] fall conference. [serious players] is the top real estate industry group in the world. All the most senior people in the industry.
1. Not one expert was willing to predict what things will look like in 3 years other than they think it will be better.
2. One top economist said if you are a developer find another career for the next 3 years-there is nothing to do and it may be 5 years.
3. Recovery will be slow. Unemployment will not drop back to more normal levels until 2014. First they will bring back people on 4 day weeks to 5 days, then they will increase hours form the
This is the season when pundits feel compelled to make annual forecasts. I will make mine, as I traditionally do, in the first letter of January. But already we have seen a wide range of forecasted outcomes. Are we going to grow at 5-6% or at 1-2% or dip back into recession? Why such disparity? I think part of the reason is a basic disagreement on the nature of the just-lapsed recession. Today we explore that issue. Then I point you to a way to help those who are desperately in need and only wish they had our problems. For those interested, I enclose a picture of my new granddaughter.
And finally, I start the process of getting ready, after ten years, to actually buy some stocks. Yes, it is true. Am I throwing in the towel and becoming a bull, or do I just see an opportunity? Stay tuned.
It’s All About Deleveraging
I did a very interesting one-hour show this week with Tom Ashbrook on his National Public Radio syndicated radio show called On Point. About 20 minutes into the show, Professor Jeremy Siegel of Wharton came on, and we had a pleasant debate and lively Q and A with listeners. Jeremy of course was the bull, expecting that next year the US will grow by 5-6%. I was the "bear," expecting growth in the 1-2% range. You can listen in at http://www.onpointradio.org/2009/12/an-economic-warning. It’s also available as a podcast on iTunes ("On Point with Tom Ashbrook") for a few more days.
I have liked Jeremy the times we have been on the same platform, and we have traded emails over the past few years. He is a consummate gentleman. He is also the author of Stocks for the Long Run. His thesis is buy and hold. Long-time readers know that I find such thinking to be wrong, if not dangerous. I believe that stocks go in long cycles (an average of 17 years) based on valuations, and that we are still in a long-term secular bear phase. I want to see valuations come way down before I suggest that the index-investing waters are
Mr. Solomon (name changed) is a CRE veteran with 40 years of experience developing commercial real estate in 15 states and has kindly agreed to be interviewed about the current conditions in the CRE market.
Ilene: Thanks for doing this interview with me. Like global warming, rumors of continuous heating up in the CRE market, didn’t exactly pan out. What are you seeing in the CRE market now?
Mr. Solomon: CRE is undergoing deleveraging with the rest of the economy, debts are being reduced or going into default. Large numbers of projects are not cash flowing and will have to be liquidated, or ownership will have to be transferred. Concurrently, there’s an oversupply caused by the same ill advised financing that led to the overbuilding.
Ilene: Did you see this happening?
Mr. Solomon: Yes we knew, and so did everyone else. Most people make a decision based on what they can get out of it in the short term. It’s the collective crowd behavior problem. Why do the lemmings jump over the cliff? It seems like a good idea till they get to the cliff – they keep being rewarded, till they’re not. Like the stock market, people invest because it keeps going up, without knowing when to get out, when the market’s going to crash. It’s a justifiable course of action as long as the market goes up and there are no losses. You can argue that the players didn’t really lose because the government bailed out a lot of the participants. Taxpayers lost the most.
Ilene: How far into the decline are we now?
Mr. Solomon: So far about 25%. A lot has been recognized. And it’s no longer a surprise. Some properties have already been foreclosed out. There are a lot of vacancies. I think a further substantial group of commercial properties will get foreclosed. I don’t see it leveling off for another few years because of the problems of contraction, debt, and oversupply. Oversupply in real estate doesn’t get worked off, the buildings have to be used. Less consumption and less business mean less demand. Creative financing, excessive easy money caused the oversupply, caused hyped up prices. Now there’s less demand, less employment, less consumption, and on…
The S&P 500 got off to weak start and, after retracing a modest morning rally, spent most of the day in the shallow red with an intraday low of 0.63%. But in the last seven minutes of trading, the index recovered enough to a make a small gain of 0.14%. This is the fourth advance, the first was Monday's 1.60 surge, but the last three have ranged from 0.05% to 0.17% with today's close near the high of the miserly three-day series.
The index is now up 5.02% for 2012, which is 6.93% off the interim closing high.
From an intermediate perspective, the S&P 500 is 95.2% above the March 2009 closing low and 15.6% below the nominal all-time high of October 2007.
Below are two charts of the index, with and without the 50 and 200-day moving averages.
Bill Moyers continues to make astonishing television with his truly great new PBS series, Moyers and Company. It’s unmissable, the most intelligent hour of programming on American TV today, bar none.
In the latest episode, Rage Against The Machine’s Tom Morello—a man I have a lot of admiration for—joined Bill Moyers for a particularly moving and inspiring conversation. From the show’s website
Songs of social protest—music and the quest for justice—have long been intertwined, and the troubadours of troubling times—Guthrie, Seeger, Baez, Dylan, and Springsteen among them—have become famous for their dedication to both. Now we can add a name to the ranks of those who l...
And it was shaping up to be such a good year. According to the latest just released HSBC hedge fund performance update, increasingly more funds are starting to lose it, certainly for the month, but increasingly more for the year. How many LPs will be eager to keep on paying 2% management fees (forget performance) to funds who at best are long AAPL (at least 226 of them), and at worst have underperformed the S&P, for the second year in a row, by anywhere from 5 to 15%?
TIF - Tiffany & Co., Inc. – A surprise earnings miss and a reduced full-year profit and sales forecast from luxury jewelry retailer, Tiffany & Co., took some of the luster out of its shares today, with the stock trading down 8.5% at $56.55 as of 11:50 a.m. in New York. Options activity on Tiffany this morning suggests mixed sentiment on the st...
RealNetworks, Inc. (NASDAQ: RNWK) today announced that it has reached an agreement with the Washington State Attorney General over discontinued e-commerce practices. In accordance with the settlement agreement, RealNetworks has committed to:
Discontinuing the use of pre-checked boxes for purchases of RealNetworks subscription products; Spelling out more clearly the material terms of RealNetworks product offerings; Offering online cancellation of subscription offerings; Enhancing RealNetworks customer support guidelines regarding cancellation. Statement from Thomas Nielsen, President & CEO of RealNetworks:
"About two years ago, the Washington State Attorney General's Office contacted us regarding concerns they had with some of our e-commerce practices.
To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...
First we'll go to the technicals. Back in mid April I had opined a 'bear flag' formation was being created. [Apr 17, 2012: Potential Bear Flag Forming] But the market being the difficult beast it is, head faked everyone and rather than a break down from said flag it first went UP and nearly touched yearly highs. This caused everyone to think the bear flag had failed…. only to lead to a horrid May in the market. Generally a bear flag will resolve relatively quickly but the longer...
Despite the fact that U.S. equities are well-positioned and well-supported to go up, once again it is the headlines out of Europe—especially Greece—that are scaring off investors. Some are saying that it is now likely (and even desirable) that Greece will default on all its sovereign debt, withdraw from the euro, and severely devalue its domestic currency (Drachma?). This will allow them to operate a balanced budget while pumping cash into growth initiatives, rather than suffer the ravages of Germany-mandated austerity.
Some say, so what? Greece makes up only about 2% of the Eurozone’s overall economy. Nevertheless, you might say that t...
Markets died and then rallied to flat again as European leaders “prepared contingencies” for a possible Grexit
Markets died hard and fast earlier today as major indexes registered as much as 1.5% of losses after news that Euro zone officials were unofficially “preparing contingencies” for a Greek exit from the Euro. Unofficial statements were not enough to keep markets down however, as major indexes rallied back to flat levels by the end of the day.
So the world continues to wait on Europe, as the SPDR S&P 500 ETF (NYSEACA:SPY) gained .05%, the SPDR Dow Jones Industrial Average ETF (NYSEARCA:...
Reminder: OpTrader is available to chat with Members, comments are found below each post.
This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).
We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options.
Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.
To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here
NEW: Ilene is available to chat with Members regarding topics presented in SWW, comments are found below each post.
Here is this week's test version of the latest newsletter. We apologize for some formatting issues that need to be worked out. Please tell us what you think.
Reminder: Pharmboy is available to chat with Members, comments are found below each post.
In this article, please revisit an article written two years ago titled, "The Calm Before the Storm." This article focused on the patent cliff that was looming in the pharmaceutical industry, that was later picked up by the New York Times and several other bloggers! Subsequent articles were written about big pharma company's revenue streams, and the pros and cons of of their later stage pipelines. Other articles have also attempted to identify smaller biotechs with the potential to reap big reward...
My last weekend update is dated from January 30 so after a long hiatus, here is an update of our virtual portfolio. Since the last update, we have closed the AA Money portfolio due to a lack of enthusiasm (and activity) and I have stopped tracking the FAS strangle as the low VIX makes it hard to get rewarded for the risk! But we have added a small $5KP virtual portfolio which does not use any margin.
FAS Money
We have had to recover from a big move up by FAS and a low VIX which keeps option prices low. But the portfolio has gaine about 10% since the last update.
Last update P&L - $5499.00
IWM Money
Not a lot of activity in this portfolio where the main focus is on the large IWM BCS. But the portfolio has grown over 20% since the last update.
Last update P&L - $1998.00
$5KP Portfolio
This is the virtual portfolio that replaced the AA Money portfolio. It does not use margin and we will keep holdings under $5K.
AAPL $50K P...
Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
(blogroll, archives,
more).
Contact Ilene to learn about our affiliate and
content sharing
programs.
Facebook
Twitter
LinkedIn 
del.icio.us
Digg
German
Spanish
French
Italian
Portuguese
Japanese
Korean
Russian
Chinese
Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
(