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Thursday, December 1, 2022


Testy Tuesday Morning

Our levels are holding so far

We came right back to 1,000 on the S&P yesterday but it held like a champ and that gave us the confidence to take a bullish cover on our longer DIA protective puts, right at 3:04, ahead of the usual 50-point stick save but it was a move we initiated right at the bottom at 2:30, catching almost the dead bottom on our roll.  Of course it's total nonsense but it's total nonsense we can count on with 8 stick saves of at least 50 points in the last 90 minutes coming in the last 10 market sessions accounting for 400 points of Dow gains or ALL of our gains since July 20th when we "broke out."

As illustrated in David Fry's SPY chart, the only exceptions to the stick save were the last two Fridays and I said to members in yesterday's chat, perhaps that is somehow significant that the collective we call "Mr. Stick", does not feel confident enough to make bullish plays into the weekend anymore.  Today we should head right back to re-test 1,000 on the S&P but we are much more bearish overall, having taken profits yesterday and covered our unrealized gains in our $100KP – the plan we discussed in yesterday's morning post.

We got a re-test and a re-failure of the Russell at exactly our 574 target right at 11:15 and the the Qs never even mounted a serious threat on our 40 line so it wasn't a tough call for us in the morning.  The other levels we are watching, Dow 9,297, S&P 1,000, Nasdq 2,017, NYSE 6,438, Russell 562 and SOX 308, are looking shaky and may not stand up to another test, especially if we get any bad news on our upcoming data with Wholesale Inventory and Productivity Reports on deck this morning.  Our bearish additions were an ERY spread (3x Energy bear) and COF Sept $40 puts, which are already up 10% from our 12:17 pick.  It wasn't all negative, we liked a couple of buy/write plays and we took a very bullish spread on FRE, which should do very well this morning.  At 12:57 we had noticed FRE moving up and, in Member Chat, we were discussing the merits and my take was this:

FRE/Ifl – The float of FRE is just 650M shares and they are capable of earning $5Bn a year in a stable economy so that would be about $7.50 per share.  If we ignore the fact that they lost $50Bn (10 year’s earnings) by virtue of the fact that it’s been swept under the rug by the government.  Even if you think it would take them 10 years to pay Uncle same back you still paid $1 for a stock that will let you retire on $7.50 a year in earnings.  FRE is not going away, the common stock may end up being liquidated or whatever but, on the off chance it’s not – we were buying them in the spring at .60 on this same premise.  What the hell, you put down $1,000 bucks and maybe get $15,000 a year off it down the road – that’s worth a toss.  Less so at $1.30 but now options come into play again so a world of possibilities like buying it here and selling the Jan $1 puts and calls for .95 for net .45/.73.  You can also spread the Jan $1s with the Jan $2.50s for .34 with a $1.50 upside at $2.50 and in for the same $1.34 as it would cost to buy it now but with less downside delta.

Those $1s should be looking pretty good this morning as FRE reported earning $768M this Q ans said they do not need any more bailout money.  Of course, this ignores the fact that the Fed is buying hundreds of Billions of Dollars of the company's debt at close to face value – THAT they do need to continue or this company will vanish in a puff of smoke so be aware of that before you start chasing them uphill!  Still it should make for a fun short squeeze this morning and, like I said, what a payoff if it hits…  EOG also caught our attention and we put a bearish backspread on them but the margin requirement was too much for the $5,000 Virtual Portfolio, which could use a good sell-off to push WHR and VNO below $59.

Of course the news isn't all bad.  The Wall Street Journal is running a heart-warming story this morning about how cities like Nashville, Tampa and Ontario California are all part of a growing movement of cities who embrace the tent cities that lie on their outskirts as they clearly have no better idea of what to do with the rapidly growing population of homeless people.  According the the WSJ: "After years of enforcing a tough anticamping law to break up homeless clusters, Sacramento recently formed a task force to look into designating homeless tracts because shelters are overflowing. One refuge in the California capital, St. John's Shelter for Women and Children, is turning away about 350 people a night, compared with 25 two years ago, said executive director Michele Steeb."  See – it's a growing business!  Who says this economy doesn't have any thriving sectors?

Actually, the homeless may be the fastest-growing segment of our economy with almost 25% of all US mortgage holders currently owing more money than their home is worth, a figure that is projected to rise to 30% by mid 2010.  Wow, what's the name of the company that makes Gortex?  “The negative-equity rate will rise and spin off more foreclosures,” Stan Humphries, Zillow’s chief economist,  “I see a substantial downside risk to prices and don’t think we’ll see a bottom until the middle of next year.”   A glut of unsold homes is also pushing down prices. The 3.8 million homes for sale in June would take 9.4 months to sell at the current pace of transactions, according to the National Association of Realtors. The inventory turnover rate averaged 4.5 months in the six years from 2000 to 2005.  More than 18.7 million homes, including foreclosures, residences for sale and vacation homes, stood vacant in the U.S. during the second quarter.  

So, let's do the math:  There are 3.8M homes for sale and that is a glut of homes that is more than double the rate we had in the "healthy" economy we had in the first half of the decade.  BUT, that does not include at least 14.9M VACANT homes that will, one assumes, either have to be sold by the banks or written completely off to the tune of (at the $186,000 national median) $2,771,400,000,000.  These are real numbers folks, no matter how much you try to sugar-coat it, these numbers eventually come back to bite the economy in the assets.  “We haven’t seen a bottom in home prices, and it could take into 2011 before we see equilibrium in the market,” said Michelle Meyer, an economist at Barclays Capital in New York.

I know – Ouch, ouch and ouch!  You may say: Phil, how can you point to these things and not be reporting from a fallout shelter in the backwoods of Canada?  Well, for one thing, I have faith that all this can be fixed over time – we simply lack the political will so far.  I solved this housing crisis 2 years ago and some of my proposed measures have actually been implemented but not my biggie, where I last posted in February "How to Solve the housing crisis TOMORROW."  Fortunately, I'm not the only problem solver in this country.  Our friends at GM, just 3 years after gasoline first hit $2.50 per gallon, is ready to go to production with a car that gets 230 miles per gallon (city)!  Automobiles use 40% of the world's fuel or 33M barrels of oil a day and most of that is city driving.  Make no mistake about it, OPEC is terrified of this and they have now lowered their forecast for 2009 by 480,000 barrels a day, not based on the GM Volt, but on the already rapid trend of permanent demand destruction as global consumers just say no to conspicuous consumption in a jobless (and homeless) economy.

Another reason you have to love this country is we sure can pull it together when we have to.  Productivity is up 6.4% in Q2 as a frightened worker turns out to be a highly motivated worker.  This was up considerably from the 5.3% gain expected but, unfortunately, Q1 productivity was revised down by 81% from 1.6% to 0.3% so it kind of calls into question yet another set of vital government statistics.  Hours worked dropped an average of 7.6%, something we discussed on the weekend as I had pointed out that the 150M people who do have jobs in this country are making 5-10% less for doing them and that is just like having another 15M people out of work.  Oops, sorry – this was supposed to be the bullish counterpoint…

Well, sorry but, while we're on the subject – I must share.  This was my favorite news item of yesterday as VLO is being sued for cutting their costs by cheating their workers out of millions of dollars in overtime wages and it is just the perfect microcosm of what's going on nationally in the Q2 profit picture.  The class-action lawyer is a vertitable quote machine so I'll let him have the last word on this subject:

"To keep its gas pumps flowing, Valero virtually pumps the lifeblood out of its workers who are expected to be on call 24-7, but are only paid for a fraction of the time they spend working.  This class action aims to turn off this oil Goliath’s unfair pay practices…  When it comes to its employees," adds Mr. Wittels, "the only thing Valero has refined is how best to fleece its employees out of their wages."

So now I've gone on too long and run out of time but Asia was up half a point and nothing interesting happened there.  The BOJ held rates at 0.1% but they won't give us home loans at that rate so what do we care?  Europe is down half a point at 9am with Latvia's GDP falling 19.6%, keeping our premise alive that the Baltics may still sink the EU.  The IMF was forced to lower Romaina's budget limits as well in order to keep that country running on life support and, of course, on a day when oil was testing $70 and OPEC lowered their forecast, it was inevitable that Rent-A-Rebel would come to the rescue and attack a pipeline in Nigeria.  This time it was Shell's turn to knock off a day's production in order for NYMEX traders to have something to hang their hats on as they desperately attempt to talk up the price of oil before it falls off a cliff. 

We're just waiting for the Fed tomorrow and then it's July Retail Sales on Thursday so nothing that happens today matters all that much but the Nasdaq already blew it's levels and we have some serious tests coming up on the rest.  We're already bearish so it's the bull plays we'll be eyeing today, especially the ones we reviewed over the weekend but, as I said last week – watch the newsflow in the MSM.  If it starts to get negative, look out below!



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Good morning from the beach all!
Phil, where does your number of 14.9 million vacant homes come from?  That’s a tremendous number…

I have a UYG buy-write with $4 Aug calls/puts (like in the $100K portfolio) with a $2.11 basis. UYG is currently $5.47. What do you think of DD and rolling to Sept $6 calls and $5 puts for $4.19/$4.59?

Beach.  okay, matt.  thx for the reminder its August in DC, man.   I’m gonna roll to the beach for a week or so this weekend.  So lets make some vacation bread, PD.  what beach, matt?  (Maybe in between throwing money into the trading pits today we can compare best beaches – yeah!)

with FRE now at 1.74 that’s what you would call chasing them up hill? I must a been worrying over something else at 12:57. Probably lunch with my wife. Got to tell her no more of that nonsense! 🙂

Phil-  Is the current outlook on SRS the same as your earliers post (could go to 14-15 in the next two weeks)? 
Also, I’ve got 10 $90 and 10 $91 DIA puts that are currently worth about a third of what I paid for them.  Kept holding them expecting the correction last week and then today.  Thoughts on what to do with them?  If I get lucky tomorrow, they could go up 50% from where they are now….just as they did today….before the stick came in.  Would you suggest selling them at that type of opportunity or holding on in anticipation of a 2-5% correction this week?

dstillwe, I’m at Nags Head and not DC, thank g.  I hear it’s hot 😎

"Good morning from the beach all!" Oh no, matt!  You’re living in a tent-city too? 🙂

SRS in 5KP
Phil, did I miss something or do we still have those SRS Aug 13’s in 5KP (I saw some discussion but didn’t think it was about that particular trade)? If so, shouldn’t we roll them soon?

Question on the mechanics of the E-Mini futures – during trading hours, shouldn’t one match the other? Eg. Right now /ES is down 8+ but the S&P is down less than 5.  Should they match?


I woke up to WFR dropping – I had bot 4 Jan $14’s for $4.90 so I sold 4 Jan 17.5’s for $2.35 – was this OK IYO

re DIA, those of us without triggers should have gotten out of the Aug 93’s by now?

 QQQQ approaching minor support at 39.25 where it bounced on Aug 7th.

I own BAC at net 13.25, fully covered by Aug 13 calls – deeply buried now, any suggestion on how to roll? I can increase position here, but should I at this point? Thanks

matt, where in Nag’s Head are you?  I’m jealous, I went there for about 10 years in a row staying everywhere from Duck to Kills Devil Hills.   I can’t think of a better place to be than here in hot NYC.

 Nice lil run on SRS during last two days fron less than 11….   to now over 12 and still rising

Uh oh, S&P has failed its levels and looks to be dropping fast! 

$ is still going up, except against the yen and oil testing $69.  Gold also selling off.

Is anyone getting any options fills on Pharma’s ONTY choice?

Bit more volume on this sell-off, but I’d say it’s still not convincing.  Keep up this rate and we’ll stick right back to open starting at 2:30PM.

Good morning
Phil I have 2 questions. First, why is it that when a call option goes up, they all don’t go up around the same percentage. For example, xyz is selling its stock for $5.00. There are 2 options both in the money to choose from. One is $1.00 at the strike price of $4.50 which would require the stock to go up at least .50 to break even. The other is $2.00 at the strike price of $3.50 which would require the stock to go up the same .50 to break even. Now the stock price jumps to $6.00 and only one of those options go up in value. What gives? Secondly, I once asked you how I could tell if the calls or puts on a stock were bought or sold. You said it had to do with the open interest. Could you elaborate on that. I can’t seem to understand the correllation and formula. Thanks!

Phil: could not get SDS and TWM this am and they are up 1$,
DIA puts went from 5.9$ to 6.75$ and putters from 1.22 to 1.62 $,
tough to make any decisions right now, market could drop more,
what’s your take  now ?
PAAS does not look good at all.

SRS – all out!

Dear David,
I don’t get to make all the trades discussed but so far I made 2 trades with you. The prxl from yesterday (which is getting killed), and I think your first one. Not doing good but do you think I should sell the prxl or wait and see if it goes back up? Thanks

Beaches. (Trade bitches later)  Oh, alright, PD, go all Euro on us – you big show off.  Fine – Sorrento on down the Amalfi coast – rent a pad in Sorrento or lodge down the highway (hah!) somewhere – wayyyy goooood.   Since I think ur a Jersey guy (otherwise I can’t imagine why you’d voluntarily fly out of Newark), I’d suggest Fire Island is an escape TO civilization for you, no?  My picks – and next weeks trip – coming up.  [They wait breathlessly…]

Miracle, you basically cannot tell during the day whether an option was bought or sold.
If you watch the trades as they happen, then you can guess based upon price if it was a buy or sell. If an option is listed at 1×1.20 and a trade takes place at 1, it was most likely a sell. A trade at 1.20 is most likely a buy. A price in between could be either, although a price above mid is probably a buy and a price below mid probably a sell.
There is an open interest reported for options that is updated nightly. If the open interest went up, people were opening option positions. If the open interest went down people were closing positions. Even then you can’t tell if they bought or sold. You need to understand the difference between an opening/closing versus buying/selling.
If I have nothing and either buy or sell an option, the open interest of that option is increased.
There is a brief description of open interest here: http://daytrading.about.com/od/mtoo/a/OpenInterest.htm
There is no way of reliably determining open interest during the day, because the market does not know at the time the trade is placed whether it was an opening or closing transaction. This is because the market only sees your broker it does not see you. Your broker will have customers buying and selling. The market does not know which individual customer any given order was for, or whether that customer already had an open position in that option or not.
Your broker will tell the market by the end of day how many positions are left open. The market then aggregates this information across all the brokers, and distributes that information overnight.

Phil – You still waiting on the MOS puts to make hay?  I’m thinking about getting out here as they are up 25%

There were a few insider buys last night but I didn’t write them up as buys for today because there were problems with all of them.  It’s also harder to time entries when buying is reported after trading hours because there’s no edge to getting the information early.  So just for informational purposes, here they are (courtesy of Insider Expert Dave):

INFN — too small to bother with now that the market is sensible about these things.

CAB — Looks good, but this and another director have made 7-figure purchases there in the past without much reaction.  It goes up, but not by much.

KPPC — 100k share $510k President, COO ibuy at current prices.  Why didn’t you [me] mention it?  Too thin?  Unfortunately, it’s a Form 4A, which a lot of ibuy services don’t report.  But it’s a real purchase. Closed at 5.08.  I bought 900 at 5.12, hoping reality catches up with traders. – It’s at $5.09… reality not impressing other traders. 

PRXL.   See that?  You know what that is?  That’s my chewed up arse on the floor with my $14.90 buy-in.   Got close to buck back on calls already.  Maybe write a few more.  Should I buy-write some add’l shares here?   i don’t know or love this stock – just acting on Dave’s reco.  Soooooo?

Hi Phil, are we worried about our MBI buy/write pls? Thx.

Too late someone grabbed them from me at my 1.20 ask!

MDAS.  Since my PRXL post would suggest a trashing of Dave’s pick (it’s not), I must say that holding onto and adjusting MDAS calls for a bit resulted in selling 1/2 last week and 1/2 this week with close to 20% gain.  

Phil: my SEP callers have run up and show a gain of typically 35 %, there is plenty of time for further changes, so, I assume, you would continue to ride the premium decline in combination with the market dropping ?
what about the AUG caller DE aug 45 which moved from 2.14 to 1.5$, also 30 % gain ?

ERY.  Good Moooooorning, Vietnam!  (Or Nigeria or whatever) – Here comes my ERY breakeven.  With calls written, I think my average is down around $18.25.   Get out soon or whats ur thinkin’ on ERY forward? 

My SRS Sep calls sold on a limit order I forgot to cancel. At least I finally made a profit on an SRS play. 🙁 Should I pick some up again? Octs maybe?

SDS.   Not accurately counting other modest writes, I’m 1:1 (stock to Aug $47 calls) at $47.62 and 93 cents.   Any reason not to just wait thru expiration – if we pass $47 and I get called away, so?   Or should I dump the calls now and look to keep SDS up?  (hah – even as I typed that last part I remembered I hate SDS – it prob teases me at $47 anyway.)  PD-Team?  Thanks in advance. 

That’s a good point Phil re. the Fed. And if you’re right that they won’t indicate further tightening, and I think you are, then the dollar might get hit again too, with the ususal corresponding up moves in gold and oil.

Phil, any interesting bearish plays on BIDU (at 345 today)?

If you have any questions about my picks please communicate on my oxen reports. I think I have seen a couple questions come through and I want to post on here as little as possible because of the "coloring" issue and overcrowding.


Why do you think the dollar is tanking again today ahead of the FED?

Phil – Advice on GLD Bull Put vertical:  Short AUG 93 put – Long AUG 90 put? thx

oops, re GLD above – I currently hold these positions,

Phil: I believe I ask this yesterday and I do not know whether I got an answer:
assuming oilprice will decline more, would you buy ERY or something else ?

CMCSA.  Well, this will bury DTV’s NFL package for sure:

Comcast Brings Exclusive Wiggles Content To On Demand

FMD to downside developing.  The key from here will be what plays out at DA 92.60, which is about S2.  That battle appeas to be playing out right now.
Absent any news (or BS Stick), could be heading lower.
I would like to see pullback to 8800 or so over the coming days / weeks.

Looks like we are getting an answer !

Phil-  How could this development potentially affect SRS over the next week?  Thanks in advance.
Aug. 10 (Bloomberg) — The collapse in commercial real estate is preventing Federal Reserve Chairman Ben S. Bernanke from declaring the economy and financial markets are healed.
Property values have fallen 35 percent since October 2007, according to Moody’s Investors Service. That’s making it tough for owners to refinance almost $165 billion of mortgages for skyscrapers, shopping malls and hotels this year, pressuring companies such as Maguire Properties Inc., the largest office landlord in downtown Los Angeles, to put buildings up for sale.
The industry is likely to be high on the agenda when Bernanke and his colleagues sit down in Washington tomorrow for the Federal Open Market Committee meeting on monetary policy. Lawmakers including Barney Frank and Carolyn Maloney are pushing the central bank to extend an aid program designed to restore the flow of credit.
If nonresidential real estate remains in the doldrums, the Fed may be forced to leave emergency-lending programs in place and keep its benchmark interest rate close to zero for longer than some investors expect, given positive signs elsewhere in the economy.
Commercial property is “certainly going to be a significant drag” on growth, said Dean Maki, a former Fed researcher who is now chief U.S. economist in New York at Barclays Capital Inc., the investment-banking division of London-based Barclays Plc. “The bigger risk from it would be if it causes unexpected losses to financial firms that lead to another financial crisis.”
‘Close Attention’
The Fed is “paying very close attention,” Bernanke, 55, told the Senate Banking Committee on July 22, the second of two days of semiannual monetary-policy testimony before the House and Senate. “As the recession’s gotten worse in the last six months or so, we’re seeing increased vacancy, declining rents, falling prices, and so, more pressure on commercial real estate.”
The pressure may be easing in other areas of the economy. Gross domestic product shrank at a better-than-forecast 1 percent annual pace in the second quarter after a 6.4 percent drop the prior three months, and residential housing starts rose unexpectedly by 3.6 percent in June as construction of single- family dwellings jumped by the most since 2004, according to data from the Commerce Department.
Employers cut fewer workers than anticipated last month as the jobless rate fell to 9.4 percent from 9.5 percent in June — the first decline since April 2008, based on Labor Department figures.
‘Danger Zone’
Amid such glimmers of improvement, commercial real estate is a “particular danger zone,” said Janet Yellen, president of the Federal Reserve Bank of San Francisco, in a July 28 speech in Coeur d’Alene, Idaho. The market may be “under stress for some considerable period of time,” William Dudley, chief of the New York Fed bank, said the following day in New York.
Nonresidential construction may decline as much as 9 percent this year and another 5 percent in 2010, predicts Kenneth Simonson, chief economist at Associated General Contractors of America, an Arlington, Virginia, trade group whose members include Essen, Germany-based Hochtief AG’s Turner Construction Co. in New York, one of the largest U.S. builders. In the second quarter, it accounted for 3.6 percent, or $509 billion, of U.S. gross domestic product on an annual basis, down from 4.3 percent in the final three months of 2008.
A dozen lawmakers questioned Bernanke on the topic during his July testimony. Some asked about extending the Term Asset- Backed Securities Loan Facility, the emergency program the Fed began in March to restart the market for securities backed by auto, credit-card and education loans. The central bank expanded the facility in June to cover as much as $100 billion in loans to support commercial mortgage-backed securities.
One-Year Extension
Forty-one House members — including Frank, 69, a Massachusetts Democrat who chairs the Financial Services Committee, and Maloney, 61, a New York Democrat who heads the Joint Economic Committee — signed a July 31 letter seeking a one-year extension through December 2010 and asking for a decision by mid-August.
Fed policy makers will prolong the program if they judge financial markets are still “some distance from normal operation,” Bernanke said during his July 22 testimony. “We will certainly be monitoring the situation.”
The Fed likely will change the end date — just not right away, said former central-bank Governor Lyle Gramley.
Market Developments
“They’re probably going to want to wait a while to see how markets develop,” said Gramley, 82, now senior economic adviser with Soleil Securities Corp., a New York-based investment- research firm.
A six-month continuance is more likely than the one year industry officials want, said former Fed Governor Laurence Meyer, Washington-based vice chairman with consultant Macroeconomic Advisers LLC of St. Louis.
That would still be useful and “provide more of a runway” for the TALF to be effective, said Jeffrey DeBoer, president of the Real Estate Roundtable, a Washington group representing 16 trade associations and property owners including New York-based Vornado Realty Trust, the third-largest U.S. real-estate- investment trust by market value.
Any sales of mortgage-backed bonds would be the first new issues in the $700 billion U.S. market for commercial-mortgage- backed securities since it was shut down by the credit freeze in 2008.
About $3 billion are in the pipeline, and the success of these sales may foster as much as $25 billion in total deals in the next six months, said Kenneth Rosen, who runs a $310 million hedge fund in real-estate securities and heads the University of California’s Fisher Center for Real Estate and Urban Economics in Berkeley.
Signs of Improvement
The market is showing some signs of life: The Bloomberg REIT Office Property Index of 14 companies, while down 56 percent from its February 2007 peak, has gained 41 percent in the past six months. Also, the yield gap, or spread, on top- ranked commercial mortgage-backed bonds relative to U.S. Treasuries is about 4.49 percentage points compared with 8 percentage points at the start of May, according to Barclays data.
The Fed’s efforts to revive credit may be overpowered by continuing job losses, even as the pace of those losses slows. U.S. employers eliminated 247,000 workers from payrolls last month, according to an Aug. 7 Labor Department report, bringing the cumulative reduction to about 6.7 million since the start in December 2007 of the worst contraction since the Great Depression.
‘Negative Fundamental’
“Demand for commercial space comes from employment and the income generated by that employment,” said University of Pennsylvania Professor Joseph Gyourko, director of the Wharton School’s Samuel Zell and Robert Lurie Real Estate Center in Philadelphia. Mounting job losses are a “really significant negative fundamental,” signaling that “conditions are going to be tough for the industry for a while,” he said.
That may spill over into mounting losses at some banks. Forty-seven percent of loans at the 7,000-plus smaller U.S. lenders are in commercial real estate, compared with 17 percent for the biggest banks, according to New York-based Goldman Sachs Group Inc.
Regions Financial Corp., the Birmingham, Alabama, lender that accepted $3.5 billion in U.S. rescue funds, had $36.9 billion in nonresidential real-estate and construction loans at the end of the second quarter, 38 percent of its overall total. Regions posted a net loss for the period of $188 million compared with a profit of $206.3 million a year earlier as more developers and home builders fell behind on payments.
Third Straight Loss
Salt Lake City-based Zions Bancorporation, which operates in 10 Western states, reported its third straight quarterly loss July 20 on a surge in commercial-property defaults. Thirty-five percent of its loans for the period were in nonresidential real estate and construction, and its provision for loan losses rose to $762.7 million from $297.6 million in the first quarter.
One developer based in U.S. Representative Walt Minnick’s district is in a bind because a lower appraisal means he can’t renew the full amount of a $10 million, three-year loan he took out for a recent project, the first-term Democrat from Idaho said in an interview last week. The person may be forced into bankruptcy, said Minnick, 66, without identifying the developer.
“That is a microcosm of what is happening to commercial property” everywhere, he said. “It’s the next shoe to drop.”
Relinquish Control
Maguire bought 24 properties and 11 development sites for $2.88 billion in 2007 from New York-based Blackstone Group LP, the world’s largest private-equity company. Later that year, credit markets froze, blocking the Los Angeles-based company’s efforts to refinance its mortgages. Now Maguire may relinquish control of seven Southern California buildings with $1.06 billion of debt, the company said today, adding it’s not planning on filing for bankruptcy.
New York-based Brookfield Properties Corp. faces a $1.8 billion debt maturity in October 2011 arising from the 2006 purchase of Trizec Properties Inc., which made it the second- biggest owner of U.S. office buildings by square footage. Brookfield has said it expects to refinance some of its obligations and sell buildings to cover the rest.
Commercial real estate remains “an important downside risk,” said Gramley, a Fed governor from 1980 to 1985. “I don’t think it’s going to be a blockbuster negative, but it’s one additional reason why this recovery is going to be of modest dimensions.”
To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net.

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