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HomeWhat About Commercial Real Estate
Posted by Larry Doyle on March 16th, 2009 12:31 PM |
On my radio show last evening, I touched on some of the pressing issues facing our economy and, in turn, our markets. These issues include residential housing, municipal finance, automotive, and commercial real estate. While the first three issues seem to get a wealth of very personal and humanistic coverage from the media, the world of commercial real estate seems much more opaque. The site of large office buildings, suburban shopping malls, upscale hotels, warehouses, and apartment complexes do not evoke the level of human emotion involved in a foreclosed home, municipal layoffs, or factory closings. That said, the problems in the commercial real estate industry should generate just as much concern if not more. Why?
These commercial properties are the glue in our entire world of global finance. While the development of the commercial mortgage-backed securities market brought a large amount of liquidity to this sector, the shutdown of that market has just as quickly sucked the oxygen right back out. What has happened as a result? The lack of a transparent market has caused an overwhelming lack of liquidity and as a result properties are not trading. Why? The disparity between perceived value from the buyers’ and sellers’ perspectives is so wide that we could drive that proverbial Mack truck through it. (more…)
Lessons from Bear Stearns
Posted by Larry Doyle on March 16th, 2009 10:37 AM |
It was one year ago that the Federal Reserve and Treasury delivered Bear Stearns into the hands of JP Morgan for $2 a share. Bear Stearns stock had traded above $170 a share in 2006. With the passage of time, what are some of the lessons learned and what questions remain unanswered.
1. Although Bear Stearns employees and shareholders may not qualify a price of $2 a share (revised to $10 a few weeks later) as being saved, would the financial system have been better off letting Bear totally fail? Why? If Bear had failed, many people do not believe we would have had the breakdowns in our financial systems that occurred because of Lehman’s failure.
2. Did Dick Fuld, CEO of Lehman, assume that the Fed and Treasury would save Lehman much as they did Bear? Was he less aggressive in pursuing increased capital injections during the Summer 2008 as a result? Many people believe this to be the case. (more…)
In 30 Minutes, Join us for “No Quarter Radio’s Sense on Cents with Larry Doyle”
Posted by Larry Doyle on March 15th, 2009 7:30 PM |
SAME GREAT SHOW, BRAND NEW NAME! Join me this evening from 8:00 to 9:00 p.m. ET on No Quarter Radio for Sense on Cents with Larry Doyle. These are truly historic times in the global economy. Let’s “navigate the economic landscape” without the pandering or nonsense found elsewhere! With the stock market near 12 year lows, what is driving the flows? What is truly going on in the economy? Where are markets headed? What is happening in Washington and how is that impacting Wall Street? So much to cover.
The developments in the markets, economy, global finance, Wall Street, and Washington are occurring at breakneck speed. I will try to slow things down a bit and provide a sense of perspective. What did we learn in the markets over the last week and month and what do they mean for the weeks and months ahead? What is happening overseas and how does that impact us here at home? What is happening in the municipal sector and how will that impact the markets and our personal finances?
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AIG “Robs the Bank”
Posted by Larry Doyle on March 15th, 2009 9:07 AM |
When an entity has an 80% equity stake in a company, one may think that nothing of substance could happen there without that majority shareholder’s consent. Well, how is it that the black hole known as AIG to Pay $450 Million in Bonuses.
We may see some arm waving and loud pronouncements from Congress about investigations, but the question still begs as to how this happened. The government took this majority stake in AIG last September. Are we to believe government representatives were both unaware of potential contractual payments and that they did not approve them? How could the government approve payments within a division that brought the global markets to its knees?
Perhaps we should revisit the theme of my piece, How Wall Street Bought Washington. Embedded in that piece, we can see the insurance industry lavished $220 million in campaign contributions and $1.1 billion in lobbying dollars on Washington over the last decade. AIG was one of the primary sources of that money.
Follow the money!!
LD
Let’s Meet David Darst
Posted by Larry Doyle on March 14th, 2009 6:00 PM |
David Darst may not be a household name for the general public, but for those involved in the world of finance he is held in very high regard. In fact, I think so highly of David that in the Sense on Cents Reading Room, I included his book:
The Complete Bond Book: A Guide to All Types of Fixed-Income Securities
by David Darst
– the Wall Street insider’s Bible to all types of fixed income securities.
David was interviewed yesterday on Bloomberg News. He touches on issues I have recently addressed here at Sense on Cents. I appreciated his commentary on the fact that the equity market rally this week was a “psychological” bounce in the context of a bear market. I addressed the particulars of the current market psychology in my piece, Is the Market Oversold? UPDATE.
Darst also offers enlightening color on overall market outlook, inflation, and places to hide amidst this turmoil. I know you will not be disappointed in viewing Morgan Stanley’s Darst Sees Psychology Driving Stocks. It’s a 5 minute clip from a man with a lifetime of experience!! I am happy to bring it to you as we collectively navigate the economic landscape.
LD
The Global Economic Horizon
Posted by Larry Doyle on March 14th, 2009 2:45 PM |
While there is nothing like a nice 10% rally in equity markets to salve a wounded soul, let’s not get overly ebullient. The global economy is facing a host of issues the likes of which it has not seen in a long time, if ever.
I truly relish the honest perspectives offered by a number of our Thought Leaders. A recent piece posted by Professor Ken Rogoff, a former chief economist for the International Monetary Fund, and currently a professor of Economics and Public Policy at Harvard, lays out a logical road map for global interest rates, economic growth, sovereign defaults, and inflation. Let me preface Rogoff’s piece by stating the road will be long and steep!
What does Rogoff think about the prospects here in the United States under the Obama administration? He writes, “US long-term growth could be particularly dismal, as the Obama administration steers the country toward more European levels of welfare assistance and income redistribution.”
I strongly recommend Rogoff’s What is the Deficit Endgame? Please access a wealth of other global perspectives at the Thought Leaders link (in the left sidebar), which provides access to leading global economists and over 400 periodicals from around the world.
LD
Mortgage Modification Guidance
Posted by Larry Doyle on March 14th, 2009 12:00 PM |
There is little doubt that there was massive fraud perpetrated by unsavory and unethical mortgage brokers during the housing boom. I do not mean to paint all mortgage brokers with the same brush. As with any industry, there are a tremendous number of highly ethical people working hard to make an honest living. Regrettably, not everybody falls into that camp.
Our economy would be well served if both local and federal authorities worked harder to expose the criminals in the system, indict them, prosecute them aggressively, and make them pay a very stiff price for their actions.
Not too surprisingly, some of the same ilk that wrote fraudulent mortgages are now populating the mortgage modification industry. People need to be exceedingly careful in engaging those who seem to want to help them modify their mortgage. (more…)
Sense on Cents “Central Station”
Posted by Larry Doyle on March 13th, 2009 6:30 PM |
I am pleased to relaunch our weekly departure from “Central Station” on Saturday mornings. This endeavor here at Sense on Cents is a few hours of written Q/A with your resident host. I like to utilize the theme of a ride on the rails, so please allow me to expound.
With so many cross currents at play in the markets, economy, and world of global finance, where can one go to develop a framework of understanding, enjoy the company of friends, and make sense of the madness? Welcome to Sense on Cents “Central Station.” Our ride departs Saturday morning at 9 a.m. with an expected return at 12 noon. While we traverse the curves along our track, we can address a wide range of issues, including: Obama’s economic plans, Secretary Geithner’s outlook, the market performance this week, month, and year to date, developments overseas, the outlook for our financial regulatory structure, issues of personal finance, or anything else on your mind.
Our ride is most productive with as many people participating as possible. Please bring not only your questions, but also your views. Invite friends, neighbors, and colleagues along for the ride as well.
Your conductor is not a professional financial planner. I recommend that you consult with a licensed, qualified professional before making any investment decisions. I am merely a Wall Street veteran looking to help you navigate the economic landscape!!
Come on back tomorrow morning at 9, submit your questions in the comments section, and away we go.. Aaaaaaaaaaaaaaaall Aboard!!
LD
Is Your Broker Working For You?
Posted by Larry Doyle on March 13th, 2009 3:01 PM |
The biggest secret in the money game is the manner in which people are compensated. Why is this compensation process such a secret? Very simply, if the general public understood the compensation process they could then understand the motivations of those managing their money.
At the institutional level, Wall Street typically pays people on a salary plus bonus format. The salary often would represent only 20% of the overall compensation. The bonus would be tied to individual, group, division, and company performance. The bonus would typically be paid 2/3rds in cash and 1/3rd in stock. That stock component would typically be paid out over a three to five year time frame, thus tying the individual to the firm. That lockup is known as “the golden handcuffs.”
Under this format, people are motivated to maximize profits in order to maximize compensation. In maximizing profits, however, inordinate residual risks have often been left on the banks’ books. Thus, the risk/reward model has been skewed. Expect the Wall Street compensation model to change to address this issue going forward. (more…)
Very Entertaining
Posted by Larry Doyle on March 13th, 2009 10:35 AM |
If I go to a comedian, I look to be entertained. I do not look for piercing insights on global issues. Alternately, when I want cogent financial analysis I don’t go to an entertainer. The following photo and captions from the New York Post are self-explanatory:
If you want to review a topic which is less entertaining, but much more critically important in navigating the economic landscape, let’s take a quick look at how the Chinese export engine is humming. Uh-oh!! Chinese exports in February dropped almost 26% from a year earlier. That decline displays an acceleration in the 17% drop experienced in January. Thank you John Mauldin, one of our Economic All-Stars (left sidebar), for providing us this less than entertaining but extremely insightful perspective, China: Exports Drop.
LD
