POSTS: MONDAY 08-02-10
GEO-POLITICAL TENSIONS - ISRAEL / KOREA / IRAN
IRAN
ISRAEL
KOREA
SOVEREIGN DEBT & CREDIT CRISIS |
GREECE
Greek Revolutionaries Declare Country Unsafe For Travel
SPAIN / PORTUGAL
FRANCE
Sarkozy Orders $230 Million Jet To Compete With Air Force One
BI
GERMANY
ITALY
UK
Factory output growth beats forecasts
FT
JAPAN
Japan- Land of the Rising Debt ZH
CHINA
Chinese Manufacturing Slows, Now Just A Hair Above Contraction
BI
Hot political summer as China throttles rare metal supply & claims
South China Sea
Pritchard
Assumptions that Beijing would never risk its reputation as a
global team player by abruptly strangling supply have proved
naive. |
State-Owned Groups Fuel China’s Real Estate Boom
NYT
All around the nation, giant state-owned oil, chemical, military,
telecom and highway groups are bidding up prices on sprawling
plots of land for big real estate projects unrelated to their core
businesses |
China's economy to slow significantly, say observers
Finance Asia
USA
After GDP Report, Barclays Takes The Hacksaw To US Growth
Estimates BI
One by one, the firms that previously saw robust growth are
ratcheting down their expectations for the US.
Here's the latest from Barclays:
And here's why they're hacking their estimates:
A year ago, we were expecting stronger-than-consensus growth,
mainly because we believed that inventories would propel growth at
a notably faster pace than the 2% pace then projected by
consensus. In the event, real GDP growth over the past year has
averaged 3.2%, with inventories contributing about 1.9pp of that
growth. However, the revisions to GDP this week contained new
information that leads us to become less optimistic about the
outlook. In particular, the recent path of real consumer spending
growth was revised down by nearly a percentage point, in part
because of upward revisions to the PCE price index, and H1 growth
is now estimated to be just 1.7% annualized. Consumers are
clearly more cautious than previous data had suggested,
with the saving rate in Q1 10 revised up to 5.5% from 3.5%, and it
rose further to 6.2% in Q2 10. In Q2 10, real disposable income
rose an annualized 4.4%, but real consumer spending rose only
1.6%.
We see
little reason for an abrupt acceleration in consumer spending from
this trend, and thus have lowered our GDP outlook to reflect a
weaker trend in consumer spending. The softer growth trajectory
also means that the Fed is likely to stay on hold for longer than
previously. We now look for the first rate hike to
be in September 2011 (previously April 2011). We note, however,
that the revised data make deflation look even more remote. The
PCE price index stood at 1.9% y/y in Q2 10, and the core PCE price
index at 1.5%; the revisions raised the profile of both measures
by 0.4-0.5pp.
|
Why The U.S. Economy Isn't In Expansion Mode
BI
Lloyds to lead way with £1bn in profits
FT
Banks in demand as HSBC earnings shine
FT
Interim pre-tax profit doubles to $11.1bn
BNP boosted by retail banking strength
FT
Banking recovery brings threat of backlash
FT
The banking resurgence that could yet lead to a fall
FT
Criminals To "Run Wild" After East St. Louis Slashes Its Police Force
BI
HUNGARY
Regulators close banks in Fla., Ga., Ore., Wash.
AP
FDIC
Unholy
trinity sets up bank failures
ATimes
Alan Greenspan- "The Financial System Is Broke" ZH
For the definitive confirmation that the Fed is and
has always been very open to, at least philosophically, pushing
the market higher no matter what the cost (if not in practice -
they would never do that, oh no, Liberty 33 would never stoop
so low), is this quote from former Fed chairman Alan
Greenspan who was on Meet The Press earlier, where he said the
following stunner: "if the stock market continues higher
it will do more to stimulate the economy than any other measure we
have discussed here." In other words, the Fed's dual
mandate of maximizing employment and promoting a stable inflation
rate have been brushed aside, and the one and only prerogative for
Chairman Ben currently, and for the short and long-term future, is
to keep the Dow Jones (because nobody in the administration, even
the Fed, has heard about the S&P yet), above 10,000. Yet
Greenspan, who now apparently is off the reservation concludes
with this stunner: "There is no doubt that the federal funds rate
can be fixed at what the Fed wants it to be but which the
government has no control over is long-term interest rates and
long-term interest rates are what make the economy move. And if
this budget problem eventually merges to the point where it begins
to become very toxic, it will be reflected in rising long-term
interest rates, rising mortgage rates, lower housing. At
the moment there is no sign of that because the financial system
is broke and you can not have inflation if the financial system is
not working." In other words, we will be in deflation
until the broke financial system becomes unbroke... and then we
will have hyperinflation. Well, ladies and gentlemen, Q.E.D. |
DODD FRANK ACT
RATING AGENCIES
Record Commercial Real Estate Deterioration In June As CMBS Investors Pray
For 50% Recoveries ZH
In continuing with the trivial approach of actually caring bout
fundamentals instead of merely generous (and endless) Fed
liquidity, we peruse the most recent RealPoint June 2010 CMBS
Delinquency report. The result: total delinquent unpaid balance
for CMBS increased by $3.1 billion to $60.5 billion, 111% higher
than the $28.6 billion from a year ago, after deteriorations in
30, 90+ Day, Foreclosure and REO inventory.
Total delinquent
unpaids represents a record 7.7% of total
outstanding CMBS exposure.
Even worse, total Special Servicing exposure by unpaid balance
has taken another major leg for the worse, jumping to $88.6
billion, or 11.3%, up 0.7% from the month before. And even as
cumulative losses show no sign of abating, average loss severity
on CMBS continues being sky high: June average losses came to
49.1%, a slight decline from the 53.6% in May, but well higher
from the 39.6% a year earlier. Amusingly, several properties
reported loss % of 100%, and in some cases the loss came as high
as 132.4% (presumably this accounts for unpaid accrued interest,
and is not indicative of creditors actually owning another 32.4%
at liquidation to the debtor in addition to the total loss, which
would be quite hilarious to watch all those preaching the V-shaped
recovery explain away. Of course containerboard prices are higher
so all must be well in the world). Putting all this together leads
RealPoint to reevaluate their year end forecast substantially
lower: "With the combined potential for large-loan delinquency in
the coming months and the recently experienced average growth
month-over-month, Realpoint projects the delinquent unpaid CMBS
balance to continue along its current trend and potentially grow
to between $80 and $90 billion by year-end 2010.
Based on an updated trend
analysis, we now project the delinquency percentage to potentially
grow to 11% to 12% under more heavily stressed scenarios through
the year-end 2010."
In other words, the debt backed by CRE is getting increasingly
more worthless, even as REIT equity valuation go for fresh all
time highs, valuations are substantiated by nothing than
antigravity and futile prayers that cap rates will hit 6% before
they first hit 10%. We dare all the V-shapists to point out
where precisely on the chart above is one supposed to look for
this ephemeral economic improvement.
And an even scarier dynamic is currently occurring in the
Special Servicing space, where after a slight decline in the rate
of deterioration, June once again saw a surge in this forward
looking indicator.
RealPoint has this to share on the role of special servicing:
Special servicing exposure continues to rise dramatically
on a monthly basis, having increased for the 26th straight
month through June 2010. The unpaid balance for specially
serviced CMBS under review in June 2010 increased on a net
basis by $5.23 billion, up to a trailing 12-month high of
$88.6 billion from $83.38 billion in May 2010 and $81.38
billion in April 2010. Special servicers will play a key role
in the level of delinquency reached in the next 12-24 months
as large loan modifications, lender financing (through
discounted assumptions and modifications prior to
foreclosure), maturity extensions and approved forbearance
have the potential toslow down or mitigate delinquency growth
and delay losses. In addition, while vacancies across most if
not all property types are near historic highs, optimism has
recently surfaced regarding asking rents and vacancy across
distressed loans. Some experts believe that increased
interest for vacant retail space and pent-up demand may fuel a
recovery for the sector.
We hope for the sake of all those value investors who have
bought into the GGP resurrection story, that they are right,
although if one actually goes by such things as fundamentals,
which value investors presumably track as well, things are not
looking good:
- Special servicing exposure increased for the 26th straight
month to approximately $88.6 billion across 4,830 loans in
June 2010, up from $83.38 billion across 4,755 loans in May
2010 and $81.38 billion across 4,689 loans in April 2010.
- For the 31st straight month, the total unpaid principal
balance for specially-serviced CMBS when compared to 12 months
prior increased, by a high $48.07 billion since June 2009.
Such exposure is up over 119% in the trailing-12 months.
- Conversely, for historical reference, special servicing
exposure was below $4 billion for 11 straight months through
October 2007.
- Exposure by property type is now heavily weighted towards
office collateral at 24%, followed by retail at 22% and
multifamily at 21%.
- Unpaid principal balance noted as current but
specially-serviced decreased to a low of $1.44 billion in July
2007, but has since increased to $30.9 billion (up slightly
from $29.73 billion a month prior).
- Within the 3.9% of CMBS current but specially-serviced, we
found 257 loans at $27.28 billion with an unpaid principal
balance at or over $20 million, compared with 266 loans at
$26.04 billion with an unpaid principal balance at or over $20
million a month prior.
- Unpaid principal balance was at or above $50 million for
128 current but specially-serviced loans in June 2010, and was
at or over $100 million for 68 loans. The largest of such
loans included the current but specially-serviced EOP
Portfolio loan at $4.93 billion in the GSM207EO transaction,
the $1 billion CNL Hotels and Resorts loan in COM06CN2, and
the $775 million Beacon Seattle & DC Portfolio Roll-Up loan in
MSC07I14.
The neverending deterioration has forced RealPoint to reduce
its already bleak outlook for future delinquency trends, noting
the following dynamics:
- Balloon default risk remains an issue form both highly
seasoned CMBS transactions as loans are unable to payoff as
scheduled. In many cases, collateral properties that have
otherwise generated adequate / stable cash flow results are
not able to refinance their balloon payment at maturity, due
mostly to a lack of refinance proceeds availability. This
continues to add loans to those with distressed collateral
performance in today’s credit climate.
- Five-year and seven-year balloon maturity risk is
growing for more recent vintage pools from 2003 through 2005
where little or no amortization has taken place due to
interest-only payment requirements, while collateral values
have also declined. Within this area of concern, large
floating rate loan refinance and balloon default risk
continues to grow, as many of such large loans are secured by
un-stabilized or transitional properties reaching their final
maturity extensions (if they have not done so already), or
fail to meet debt service or cash flow covenants necessary to
exercise in-place extension options.
- Declined commercial real estate values and diminished
equity in collateral properties continues to prompt more
struggling borrowers with marginal collateral performance to
claim imminent default and ask for debt relief.
- The aggressive pro-forma underwriting on loans originated
from 2005 through 2008 vintage transactions, comingled with
extinguished debt service / interest reserves required
at-issuance, has led to an increasing number of loans
underwritten with DSCRs between 1.10 and 1.25 with an
inability to meet debt service requirements. This is
especially evident with the partial-term interest-only loans
that will begin to amortize or those that have recently
converted.
- A cautious outlook for the hotel sector remains as many
sizeable hotel loans from 2005-2008 vintage pools have
reported poor or declined results in 2009 (especially on the
luxury side) and / or continue to be transferred to special
servicing for imminent default. Many properties had to
significantly lower rates to maintain an acceptable level of
occupancy across the country and in some cases have
experienced severely distressed net cash flow performance as a
result. Our expectations are that more of these loans may be
asking for debt relief in the near future and may ultimately
default if a resolution is not reached.
The 5 and 7 Year cliff refi issue is particularly notable in a
delinquency exposure chart by vintage, where it is all too visible
that 10 Year paper in need of rolling is going delinquent at an
alarming rate: well over a quarter of all outstanding 1999
CMBS is in delinquency as there is nobody willing
to fund a roll of the underlying debt!
And when looking at the most important category of all:
liquidations and loss averages, these show no improvement either,
as prevailing loss averages amount to about half of total
outstanding principal (a finding confirmed recently by
Chicago Real Estate Daily, which confirmed that a development
site in the South Loop was auctioned off for $11.3 million on
total debt of $25.3 million: a less than 50% recovery).
- Both liquidation activity and average loss severity for
these liquidations has been on the rise over the trailing
12-months, especially in the past few months of 2010.
An additional $762.9 million in loan workouts and liquidations
were reported for June 2010 across 126 loans, at an average
loss severity of 49%
- Since January 2005, over $10.9 billion in CMBS
liquidations have been realized, while only 48 of the last 61
months have reported average loss severities below 40%,
including 21 below 30%.
- Annual liquidations for 2009 totaled $2.18
billion, at an overall average severity of 42.1%. The overall
average was clearly brought downward by the number of loans
that experienced a minor loss via workout fees and / or sales
or refinance proceeds being near total exposure, while the
true loss severities by our definition averaged 62%.
- Comparatively, annual liquidations for 2008
totaled $1.297 billion, at an overall average severity of only
24.9% while liquidations in 2007 totaled $1.094 billion at an
average severity of 32.8%.
- Liquidations in 2006 totaled $1.93 billion at an average
severity of 30.2%, while 2005 had $3.097 billion in
liquidations at an average severity of 34.2%.
A table of montly average losses shows that there is little to
be cheerful for if one is a CMBS investor: in fact half of little
may be the best bet (especially for multifamily, industrial and
retail property types).
Full RealPoint
report here.
|
RRESIDENTIAL REAL ESTATE - PHASE II |
Greenspan Says Home-Price Drop May Spur New Recession
BL
Greenspan- Ongoing Fall In Home Prices Could Bring Back The Recession
BI
Homeownership rate continues to slide
USAT
Housing Update – dynamite to blast us out of our lethargy?
Fabius Maximus
EXPIRATION FINANCIAL CRISIS PROGRAM/font>
|
PENSION & ENTITLEMENTS CRISIS
|
Spoiler Alert- U.S. Unemployment Is Now Rising, Not Falling BI
GOVERNMENT BACKSTOP INSURANCE |
OTHER TIPPING POINT CATEGORIES NOT LISTED ABOVE Why
Increasing Lending To Small Businesses Is A Horrible Idea For Job Creation
BI
How
short-selling sleuths spot accounting gimmicks on financial reports
MW
Rise in demand prompts mining consolidation FT
Supply chain woes threaten global recovery FT
Industrial groups warn they may be held back
Industrials’ success squeezes suppliers
FT
Initiative launched to overhaul global reporting standards FT
Buy-out firms turn to ‘passing the parcel’ FT Trend
driving the price of bigger deals to new highs
FLASH CRASH - HFT - DARK POOLS
Guest Post- HFT Bot-Versus-Bot ZH
HFT began with the observation that there is “structure” to
the tick-by-tick movement of the markets, that as market
participants – analog Hedge Funds, Real Money Investors, Brokerage
Houses – made their trades, there were patterns to the price
movements that could be predicted, and therefore profited from.
From this position, it is a natural next step that as HFT trading
bots become a large part of the transaction volume of the stock
market (they are) that the algorithms that power these HFT trading
bots should look to exploit the “structure” provided by other HFT
trading bots. A logical next step, no doubt, but we are really at
what I call “the end of the rationale road” of this stock market
thing. We created this stock market thing so Montgomery Burns with
capital, could get that capital to Transatlantic Zeppelin, which
needed capital, in an efficient manner. Now, who knows why it
exists. And concomitant with the rise HFT trading bots is an
increasing correlation between the individual components of
indexes[1] (e.g. all the stocks in the S&P are moving in
lockstep). That great line that traders started in the 80?s “The
ticker symbol is just a name on my screen, I don’t even know what
the company does” has now become in the roaring 10?s “The name is
just a line in the computer code, I don’t even know what the
fucking name is anymore!?!” |
MARKET WARNINGS
Valuing the S&P 500 Using Forward Operating Earnings
Hussman
Subpar Economic Recovery Gets Premium Market Valuation Hester
S&P 500 Full Year Sources And Uses Of Cash ZH
M&A and Underwriting bankers are all too familiar with a
Sources and Uses of Cash analysis (and yes, for our NYT readers,
this is far more popular, practical and worthwhile than a DCF).
Yet we had never seen an Sources and Uses conducted for the entire
market prior to this table created by Goldan Sachs, which
demonstrates succinctly and to the point precisely how roughly
$2.25 trillion of cash was raised in 2009 by the S&P 500 (ex Fins
and CNBC parent General Propaganda), and what this cash was used
for.
It is not surprising that nearly 50% of cash was generated from
operating cash flow ($1 trillion) while $600 billion came from new
debt issuance (the rest from asset disposition). Yet despite
consistent claims that companies have massive deleveraged, just
$635 billion of debt was repaid, meaning only $35 billion of
debt was actually retired! What the flow was used for,
however, was to extend maturities, and to shift debt across
different sections of the S&P500's balance sheet, lowering the
debt cost of capital. And while $400 billion in new cash was used
for CapEx (far less than the recent historical average), only $189
billion was put to use in the form of dividends: a fact that
shareholders are certainly not too happy about.
In a comparable operation, while just $63 billion of new equity
was issue, double that amount was bought back, thus boosting EPS
by reducing the denominator. Yet total shareholder friendly cash
in 2009 (dividends and buybacks) amount to just over $300 billion:
a small fraction of the total $2.25 trillion used by companies for
various purposes.
|
Hedge Funds Now Advertising Ultra Short-Term Liquidity Exposure As Market
Becomes A Day-Trading, Speculative Venue ZH
Fund advertises that 100% of its assets have a sub-1 day liquidity
GOLD MANIPULATION
VIDEO TO WATCH
QUOTE OF THE WEEK
ZH - Zero Hedge - Business Insider,
WSJ - Wall Street Journal, BL -
Bloomberg, FT - Financial Times |