by phil - April 21st, 2010 8:13 am
Is Los Angeles Burning?
Well, if not, it may be soon as 3,500 city jobs go on the chopping block including 61 firefighters in an area that routinely bursts into flames. Los Angeles County seeks to eliminate an additional 1,400 positions with both the County and the City looking to trim their budgets down from last year. “The mayor’s budget plan will make it harder to do business here, harder to raise a family and harder to keep neighborhoods safe,” the Coalition of Los Angeles City Unions said on April 16. The group represents 22,000 workers. The mayor’s proposed budget includes $63 million in savings from forcing some employees to take as many as 26 days off without pay.
We talked about this last month, Los Angeles, like hundreds of other cities across America, is simply out of money and, unlike the US Government, they can't go endlessly into debt and pretend it doesn't matter. Fitch just cut LA's bond ratings to A- on the 16th following a similar cut by Moody's on April 7th. Spending in LA County, with 9.8M residents, will be reduced by $885M or 3.7% from last year while the city is relying on one-time tricks like selling bonds based on future parking meter collections to avoid drastic cutbacks – this year.
As we get closer and closer to budget time (fiscal years begin July 1st) for local governments, we'll get a clearer picture on what this recovery really looks like. Cities and Counties are collecting less income tax revenues not more, their expenses (inflation) are going up, not down and their taxable land bases and sales tax collections are down, not up. It's easy to fudge national numbers as you only have to control a couple of dozen reports written by a hundred Federal employees operating under a strict hierachy – try doing that on a national scale with 50 states, 3,141 counties and 18,000 cities and towns and things tend to fall apart and, from that rubble, you may actually get to the truth!
I sent out a special Alert to Members this morning titled "Notes on AAPL and Complacency" in which I warned that "I am DEEPLY disturbed by the combination of complacency AND bubble valuations I’m seeing in the markets." People are all excited that AAPL earned $3.33 per share yesterday but, as I pointed out: THAT'S PER…
Tags: AAPL, CDS, CMBS, Consumer Confidence, debt, Greece, GS, WYNN
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by ilene - August 3rd, 2009 9:57 am
Courtesy of Henry Blodget at Clusterstock
Richard Parkus of Deutsche Bank has updated his Commercial Real Estate outlook with Q2 data. Check out how much the situation has deteriorated since the end of Q1.
First, here’s where things stood at the end of Q1. The lines on the chart are the percentage of loans that are delinquent, measured by length of delinquency (the black line is the average). Deutsche Bank (bearish) was looking for 3.5% average delinquency by the end of the year.
And here’s where they were at June 30. Deutsche Bank is now looking for 6%-7% delinquency by the end of the year.
Note that these problems have nothing to do with "liquidity." (Remember earlier this year, when Tim Geithner was blaming everything on a "lack of liquidity"?) These loans are going bad because the real estate companies can’t make their interest payments--because the tenants can’t pay their rent.
Richard summarizes the situation:
Loan Performance Deteriorating Precipitously
- Speed of deterioration in loan performance is unprecedented, even relative to the early 1990s
- Total delinquency rate reached 4.1% in June, 2.2 times its March level and 3.5 times that in December
- Delinquency rates are likely to soar higher over next 24+ months on billions of dollars of pro forma loans that never stabilized and resetting partial IO loans
- With 2,158 delinquent fixed rate loans ($27.9 billion) special servicers may soon be under pressure
- DB CMBS Research projects term losses will reach 4.3-6.3% for the outstanding CMBS universe ($31.3-$46.4 billion), and 8.4-12.1% for the 2007 vintage
See Also:
Amazing Commercial Real Estate Devastation In Florida
Tags: CMBS, Commercial Real Estate, Economy, Real Estate, Retail
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by Zero Hedge - May 26th, 2009 4:52 pm
Courtesy of Tyler Durden at Zero Hedge
The lives of the
CMSA and Chris Hoeffel are about to get a whole lot more complicated. In a report issued today by S&P, titled "U.S. CMBS Rating Methodology And Assumptions For Conduit/Fusion Pools" Standard & Poors is issuing a Request For Comments on ‘its proposed changes to its methodology and assumptions for rating U.S. commercial mortgage-backed securities." Aside from the RFC, S&P goes into detail what the changes to its rating methodology will be, and the impact from these on CMBS. The latter will immediately cause many headaches for all who rode the CMBS AAA train from 1
,200 bps to 600 bps, and potentially start a selling puke shortly. In S&P’s own words:
Impact On Ratings
It is likely that the proposed changes, which represent a significant change to the criteria for rating high investment-grade classes, will prompt a considerable amount of downgrades in recently issued (2005-2008 vintage) CMBS. Classes up through the most senior tranches of outstanding deals (so-called "A4s," "dupers," or "super-duper seniors") are likely to be affected. Our preliminary findings indicate that approximately 25%, 60%, and 90% of the most senior tranches (by count) within the 2005, 2006, and 2007 vintages, respectively, may be downgraded. We believe these transactions are characterized by increasingly more aggressive underwriting than prior vintages. Furthermore, recent vintage CMBS, particularly those issued since 2006, were originated during a time of peak rents and values, and as such, may be more affected by the proposed rental declines discussed in this RFC. We are currently evaluating the impact of the potential criteria changes on conduit/fusion CMBS transactions from all vintages. Once we evaluate the potential impact on existing ratings, we expect to issue a follow-up publication to this RFC.
And all this just days after the government had finally drafted what it hoped was the last and final version of its TALF term sheet. Lets rewind: in the May 19th version of TALF, in order the be eligible, CMBS "must not have a rating below the highest investment-grade rating category from any TALF CMBS-Eligibile Rating Agency." Throw in a downgrade of 90% of the 2007 vintage and it’s time to go back to the drawing board.
Basically, the impending
…
Tags: CMBS, commercial mortgage-backed securities, ratings
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by Zero Hedge - May 21st, 2009 10:45 pm
Courtesy of Tyler Durden
Some very fitting words from Mike Cembalest of JPM, putting the Green Shoots theory, and the irrational exuberance of the past 2 months, in perspective (highlights added).
People are now just beginning to grasp that monetary and fiscal expansion that is 10x what was done during the 1970s should give them pause to reflect about unintended consequences. The way investment advisory firms have been latching onto "Green Shoots" is astounding. Its not that Green Shoots evidence is non-existent. It’s how they are ascribing almost a 0% chance to a negative reversal in activity or sentiment (e.g., April retail sales or Chinese exports), and have ruled out entirely that the bounce may just be a replenishment of a depleted supply chain, and not much more. Maybe they are simply tired of a bear market after 2 years, and just want it to go away. I am beginning to see counterfactual evidence (e.g., rising credit card losses, weakness in Chinese retail demand once you strip out government owned enterprises) selectively ignored by Green Shoots advocates (just like the old Pravda newspaper). And I read this today from an independent research shop: "Investors might have to chase returns over the next several months to stay ahead of their benchmark – a potentially bullish scenario for stocks, regardless of what the valuation picture looks like". Regardless of the valuation picture; gee, that was a great strategy for the LBO industry at 11x EBITDA.
More importantly, Mike provides some much needed color on the latest developments in the GGP bankruptcy.
As for the legal industry, they’re on the soapbox as well. The following commentary was sent out by Cadwalader on GGP:
"Impact of the Final Orders. The final cash management and cash collateral arrangements in effect turn the Project-Level Subsidiaries into debtor-in-possession lenders secured by administrative claims and first liens on the Main Operating Account. In comparison with the CMBS lenders’ prepetition collateral, the post-petition position of the CMBS lenders ironically represents an improvement in situations where the excess prepetition cash flow was not being trapped.
The final cash collateral order characterizes the upstreaming of cash as loans rather than a capital distributions and gives the CMBS lenders a replacement lien on
…
Tags: CMBS
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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.