RSS Feed
Twitter
Facebook
Email
HomeFull Throttle
Posted by Larry Doyle on May 27th, 2009 11:28 AM |
To say that we are in the economic fight of our lives would be a gross understatement. While we are feeding ammo into all our weaponry on the main deck, are we remiss in keeping a close eye on what is happening “in the engine room”?
Let’s go into the control room on the main deck and scope things out. On one wing, we see the plans to combat the problems in the commercial real estate market have suffered a setback. Bloomberg reconnaissance provides details: Top Rated Commercial Mortgage Debt May Face Cuts:
The highest-graded bonds backed by commercial mortgages may be cut by Standard & Poor’s, potentially rendering the securities ineligible for a $1 trillion U.S. program to jumpstart lending.
As much as 90 percent of so-called super senior commercial- mortgage backed bonds sold in 2007 may be affected as the ratings firm changes how it assesses the debt, New York-based S&P said today in a report. About 25 percent of the bonds sold in 2005, and 60 percent of those sold in 2006 may be cut.
“We believe these transactions are characterized by increasingly more aggressive underwriting than prior vintages,” S&P said. “Furthermore, recent-vintage CMBS, particularly those issued since 2006, were originated during a time of peak rents and values,” and may be more affected by falling rents.
Cutting the ratings would exclude the securities from the Federal Reserve’s program to bolster credit markets by financing the purchase of older commercial real-estate debt. To be eligible for the program, collateral can’t carry a rating below AAA from any rating firm.
This development is a MAJOR setback in our economic battle. An overhang of office space and underperforming real estate properties will be a significant drag not only on earnings for holders of the loans but also on the economies where these properties are located. (more…)
Is The Economy Turning The Corner?
Posted by Larry Doyle on April 21st, 2009 7:05 AM |
Markets correct by price (both up and down) and time (extended). Despite the 3+% price declines in equity markets yesterday, the markets are up approximately 20% since the market lows seen on March 6th. Some analysts believe this upward move signals an improvement in the economy largely due to the fiscal and monetary stimulus provided by Uncle Sam. I am not in that camp.
A few emerging economies, specifically China, have improved. Can the rest of the world, including the U.S., expect those economies to be the engine for a global turnaround at this juncture? I do not think so. I still see the following issues on our domestic horizon:
1. continued deterioration in loan performance on bank books
2. a banking system woefully capital deficient
3. an automotive industry which must downsize
4. municipalities which are faced with the predicamant of capital shortfalls and underfunded pensions
5. commercial real estate just starting to experience real defaults
6. a housing market with increased foreclosures pressuring prices
7. an unemployment rate clearly headed toward double digits
Earnings reports for the first quarter have been mixed. I view the recently reported bank earnings as largely “managed” via accounting gimmicks. Meredith Whitney believes the earnings for major money center banks will turn negative in the 2nd quarter. The regional banks, without the benefit of large capital market activities but facing credit writedowns, report earnings today. Key Corp just reported a loss of $1.09 eps (earnings per share) versus an estimate of -.21. I suspect we will see losses from other regional banks of a similar magnitude. (more…)
