Posts Tagged ‘REITs’

US Commercial Real Estate a Multi-Trillion Dollar Bloodbath in Progress

US Commercial Real Estate a Multi-Trillion Dollar Bloodbath in Progress

Courtesy of Jesse’s Café Américain

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.

My Budget 360
Commercial Real Estate Is $3.5 Trillion Time Bomb Hitting the Economy

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:

Putting together all…
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Which Way Wednesday – For Retail Sales?

[Retail sales chart]Remember this from last year?:

Price-slashing failed to rescue a bleak holiday season for beleaguered retailers, as sales plunged across most categories on shrinking consumer spending, according to new data released Thursday.  Despite a flurry of last-minute shoppers lured by the deep discounts, total retail sales, excluding automobiles, fell over the year-earlier period by 5.5% in November and 8% in December through Christmas Eve, according to MasterCard Inc.'s SpendingPulse unit.  "This will go down as the one of the worst holiday sales seasons on record," said Mary Delk, a director in the retail practice at consulting firm Deloitte LLP. "Retailers went from 'Ho-ho' to 'Uh-oh' to 'Oh-no.'"  The holiday retail-sales decline was much worse than the already-dire picture painted by industry forecasts, which had predicted sales ranging from a 1% drop to a more optimistic increase of 2.2%.

That was the December 26th headline in the WSJ (the chart is from last year too) which presaged poor Q4 earnings that sent the markets off a 27% cliff from Jan 1st through March 9th of this year.  The Dow was at 9,000 last January and managed to fall all the way to 6,500 on those retail results – the same retail results we are hoping to beat by 1% this year with the Dow at 10,500.  This will be interesting to say the least.  We remain skeptical of the rally but have put up a new, very bullish Watch List as we have identified many stocks we can buy into a technical rally if it holds up into the week after New Years as we begin to deploy some of our own sidelined cash.

We held our short-term bearish stance but our premise is wearing thin as even the 2.2% GDP (20% worse than expected) announcement yesterday was somehow taken as good news by the market.  Today the WSJ is touting strong interest in a $1.1Bn CRE auction held by the FDIC as another positive market sign – forgetting the fact that these commercial properties are being sold at 50-90% discounts and are just 3% of the over $30Bn of seized assets the FDIC is sitting on and must sell over the next 12 months (so $1.9Bn short of target this month already). 

The FDIC must raise more capital
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Friday – Is Anybody Working For the Weekend?

Rollercoaster monksWheeee, what a ride! 

Just like any good roller coaster, market plunges can be fun when you are strapped in safely and prepared for them.  Our members have been so prepared we’ll have to hand our Eagle Scout badges (we don’t need no stinkin’ badges) for riding out a toppy market for two tedious weeks, which I won’t rehash here but you can go back to my Sept 19th "Wrong Way Weekly Wrap-Up" to see how hard it was to stay bearish in the face of all that "great" news that the media kept throwing at us.  Nonetheless, had you followed our trading ideas in that post, you’d be a VERY happy camper right now!   

Now we are down 300 points from that Friday’s finish, about halfway to our 9,100 target, which is the top 5% of our original trading range around Dow 8,650.  We’d love to see 9,100 hold, especially on a nice volume sell-off so we can move our range up 5% and make 9,100 our new mid-point, putting the 33% (off the top) lines withing striking distance of a proper breakout but suddenly the news-flow has turned sharply negative.   This is something I warned members about way back on August 11th, the last time I thought we were getting toppy (and we were) at Dow 9,400 when I said: "Watch the newsflow in the MSM.  If it starts to get negative, look out below."  

Yesterday we talked about GS’s about-face on the REIT sector and, later that day, we noted during Member chat that JPM had decided to downgrade SKS, hitting the retail sector hard in the afternoon.  I called a slightly early top on Retail on 9/16, when I said to Members: "Right now all retail is being played like a huge winner, as if no segment will lose market share to another.  This is amazingly stupid in a declining wages and declining consumer credit environment." RTH was $88.76 that day after running up just about 20% from July 7th so we were looking for a pullback at least to $85, but I think worse as I see nothing in the data that makes me believe in Santa Clause this year or the rally he often brings. 

As you can see from David Fry’s chart of the XLY (another Retail tracker) we topped out at technical resistance and are now looking for a completion of a 5%
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Jobless Thursday – REITs Turn Rotten

Look out below!

I warned yesterday that the end of the quarter may well mark the end of Goldman and their Gang of 12's Global pump job and what better way to pull the rug out from under the markets then for Goldman Sachs themselves to issue a report that warns that REIT valuation seem "stretched" and they are projecting "flat to down 15% returns next year" with concerns that they are "just beginning what could be a multi-year down-cycle."

Other headlined charts (and Zero-Hedge has the full scoop) are:

  • Still a long road ahead for a recovery in credit.
  • Cap rates to rise substantially.
  • Deleveraging process just beginning for the REIT sector
  • Despite pipeline reductions, development remains a risk

In other words, all the stuff I've been saying for for the last couple of months as they IYR has climbed 50% since July 15th is now the subject of a GS report on Oct 1st.  I was fine with the sector rising 20% (IYR $36) but the move to $46 was completely without merit and, as I noted in a post last week, we shorted it there and went very long on SRS (ultra-short on the IYR).  In fact, just yesterday, in the morning post, I discussed Friday's multiple plays on SRS.  We also have short positions on BXP and, of course, we're still overall short on the whole market as a correction in the real estate sector is not going to be an isolated incident.

Fortunately, at PSW, we don't have to wait for Goldman Sachs to tell us a sector is overvalued because we understand valuations and we practice sound fundamentals – something that is sorely lacking in the larger investing community.  There's a reason REITs usually trade at 10x multiples and it's the same reason commodity producers usually trade at 10x multiples as well – because the underlying commodity, whether it is land or oil or gold or copper, can fluctuate in price over time and will sometimes spike earnings up and sometimes spike them down so, on the whole, they are WORSE long-term investments than say AAPL, MCD, KO or PG, who tend to steadily grow their business over time and deserve stronger multiples.   

When the REITs were trading at 5x earnings in March, we were loading…
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Merrill: “Retail REITs – Tough But Stabilizing”

Courtesy of Tyler Durden

Merrill: "Retail REITs – Tough But Stabilizing"

In his first note released in the post Sakwa world, Craig Schmidt continues to attempt to restore confidence in retail REITs. It would, after all, seem prudent to bang clients’ heads into their desks until they see the light at the end of the tunnel (oncoming bullet train?) at a time when the only cash, and equity value, REITs can create is by raising expensive, dilutive equity in order to repay the cheapest form of capital (that of secured loans previously held by Mr. Schmidt uber parent, Bank of America). This is especially true, after these same clients have plunked down about $20 billion in new equity in companies that at this point exist on fumes of hope, speculation and short covering. not surprisingly, the report comes just prior to Realtors’s release which indicates that Commercial Real Estate activity in Q1 fell 4.8% from Q4 of 2008 and 12.9% year over year, while vacancy rates are poised to rise to 12.1% from 9.7% last year.

While the title is expected, even Mr. Schmidt is at a loss to present the REIT "green shoots" that would substantiate his note. Amsuingly, Schmidt quotes favorable restaurant trends to back up the stabilization thesis:

Some positive signs included Dr. Mark Zandi’s (Chief Economist, Moody’s economy.com) citing that restaurants reported stronger same store sales gains than supermarkets in the most recent period, which suggests an increase in consumer confidence. Additionally, retail trends, while still negative, have improved from 4Q08, which were so dramatically negative that retailers were behaving like “deer caught in the headlights.”

Now that people are rushing to Nobu, maxing out their Centurions and hoping, very much like YRC, they can apply for and receive TARP funding, all must be good. The other "solid" positive:

Of the most seriously troubled retail markets (Southern California, Florida, Phoenix and Las Vegas), the only market that seems to have improved somewhat is Southern California. We still hear very distressing things about the other markets.

Nothing like Californians spending with reckless abandon, concurrently with voting down Schwarzenneger’s hail mary proposals to scrape up some semblance of a budget. Next stop: California’s utter fiscal collapse, and Geithner fixing that problem as well, by securitizing all default credit cards through a AAA rated TALF issue. Now, as for


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ValueWalk

Workhorse Blows Up; Buffett And Berkshire Get Busy

By Jacob Wolinsky. Originally published at ValueWalk.

Whitney Tilson’s email to investors discussing Workhorse Group Inc (NASDAQ:WKHS) blows up; Buffett and Berkshire get busy; the king of SPACs wants you to know he’s the next Warren Buffett.

Q4 2020 hedge fund letters, conferences and more

Workhorse Blows Up

1) Another day, another blowup of one of the stocks I've warned my readers about...

On Monday, it was software supplier Ebix (EBIX). Yesterday, it was electric-vehicle developer Workhorse (WKHS), which tumbled 47% and was down ...



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Kimble Charting Solutions

Is Rising Inflation About To Hit U.S. Economy In Big Way?

Courtesy of Chris Kimble

Inflation seems to be a thing of the past… but current trading in bond and commodity markets tell us that it could become a thing of the future!

Inflation hasn’t been an issue, or even on our radar, since the 1980s. Sure, the 2007 surge in oil prices offered some concern but the financial crisis killed any thoughts of inflation.

So what’s got us concerned about inflation in 2021?

Today we take a look at long-term charts of two potential inflation indicators: Crude Oil ...



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Phil's Favorites

Within a Matter of Months, the Fed's Balance Sheet Will Hit $8 Trillion; These Charts Tell the Rest of the Story

Courtesy of Pam Martens

By Pam Martens and Russ Martens: February 24, 2021 ~

Every Thursday, at approximately 4:30 p.m., the Federal Reserve provides a report on its balance sheet as of the prior day. It’s known as the H.4.1 report or the Wednesday Level report.

On Thursday, September 4, 2008, the ...



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Zero Hedge

Square Adds $170 Million In Bitcoin To Enable "Economic Empowerment"

Courtesy of ZeroHedge

Building on the list of recent companies to add crypto to their reserves, or embrace as a payments solution, Jack Dorsey's other company - Square - reportedly added $170 million of bitcoin to its existing $50 million reserves.

Full Square Statement:

Square also announced today that it has purchased approximately 3,318 bitcoins at an aggregate purchase price of $170 million.

Combined with Square’s previous purchase of $50 million in bitcoin, this represents approximately five percent of Square’s ...



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Digital Currencies

What Is Top Shot?

 

What Is Top Shot?

Courtesy of 

What I’m about to write is going to sound incredibly stupid. Some of it also might not be factually accurate, as I’m still very much a NoobWhale.  If you want to learn more, I suggest you start herehere, or ...



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Biotech/COVID-19

6 important truths about COVID-19 vaccines

 

6 important truths about COVID-19 vaccines

For many, distinguishing between fact and fiction is difficult. Olemedia/E+ via Getty Images

Courtesy of Sarah Lynch, Binghamton University, State University of New York and Kanneboyina Nagaraju, Binghamton University, State University of New York

One of the biggest barriers s...



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Chart School

Silver Review

Courtesy of Read the Ticker

We used to say billions, now its trillions of money printing, and investors are hunting for a way to defend their purchasing power, silver is one way to do so.


Lets review silver with Elliot wave, Wyckoff, Cycles and Fractals.


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Changes in the world is the source of all market moves, to catch and ride the change we believe a combination of ...

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Politics

Why the British abandoned impeachment - and what the US Congress might do next

 

Why the British abandoned impeachment – and what the US Congress might do next

The impeachment trial of Warren Hastings in 1788. Library of Congress

Courtesy of Eliga Gould, University of New Hampshire

Impeachment was developed in medieval England as a way to discipline the king’s ministers and other high officials. The framers of the U.S. Constitution took that idea and applied it to presidents, judges and other federal leaders.

Now that tool is in use, and in question, during ...



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Mapping The Market

The Countries With The Most COVID-19 Cases

 

The Countries With The Most COVID-19 Cases

By Martin Armstrong, Statista, Jan 12, 2021

This regularly updated infographic keeps track of the countries with the most confirmed Covid-19 cases. The United States is still at the top of the list, with a total now exceeding the 22 million mark, according to Johns Hopkins University figures. The total global figure is now over 85 million, while there have been more than 1.9 million deaths.

You will find more infographics at ...



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The Technical Traders

Adaptive Fibonacci Price Modeling System Suggests Market Peak May Be Near

Courtesy of Technical Traders

Our Adaptive Fibonacci Price Modeling system is suggesting a moderate price peak may be already setting up in the NASDAQ while the Dow Jones, S&P500, and Transportation Index continue to rally beyond the projected Fibonacci Price Expansion Levels.  This indicates that capital may be shifting away from the already lofty Technology sector and into Basic Materials, Financials, Energy, Consumer Staples, Utilities, as well as other sectors.

This type of a structural market shift indicates a move away from speculation and towards Blue Chip returns. It suggests traders and investors are expecting the US consumer to come back strong (or at least hold up the market at...



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Lee's Free Thinking

Texas, Florida, Arizona, Georgia - The Branch COVIDIANS Are Still Burning Down the House

 

Texas, Florida, Arizona, Georgia – The Branch COVIDIANS Are Still Burning Down the House

Courtesy of Lee Adler, WallStreetExaminer 

The numbers of new cases in some of the hardest hit COVID19 states have started to plateau, or even decline, over the past few days. A few pundits have noted it and concluded that it was a hopeful sign. 

Is it real or is something else going on? Like a restriction in the numbers of tests, or simply the inability to test enough, or are some people simply giving up on getting tested? Because as we all know from our dear leader, the less testing, the less...



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Insider Scoop

Economic Data Scheduled For Friday

Courtesy of Benzinga

  • Data on nonfarm payrolls and unemployment rate for March will be released at 8:30 a.m. ET.
  • US Services Purchasing Managers' Index for March is scheduled for release at 9:45 a.m. ET.
  • The ISM's non-manufacturing index for March will be released at 10:00 a.m. ET.
  • The Baker Hughes North American rig count report for the latest week is scheduled for release at 1:00 p.m. ET.
...

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Promotions

Free, Live Webinar on Stocks, Options and Trading Strategies

TODAY's LIVE webinar on stocks, options and trading strategy is open to all!

Feb. 26, 1pm EST

Click HERE to join the PSW weekly webinar at 1 pm EST.

Phil will discuss positions, COVID-19, market volatility -- the selloff -- and more! 

This week, we also have a special presentation from Mike Anton of TradeExchange.com. It's a new service that we're excited to be a part of! 

Mike will show off the TradeExchange's new platform which you can try for free.  

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About Phil:

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...

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