Sunday, December 30, 2007
ok, NOW, I'm scared!
Wall Street's Next Crisis
Dec 17 2007
Now that the subprime shakeout is nearly over, another real estate mess looms, this time in commercial property.
by Jesse Eisinger
So far, the current credit crisis has zeroed in on mortgages for the less affluent. But easy credit was a sprawling millipede whose wobbly legs reached into the farthest corners of the financial markets. This is the year the other 999 shoes start to drop.
Any loan to any borrower can begin to seem subprime if there's too little down and too much debt. And that, unfortunately, brings us to the commercial-real-estate market.For the past several years, the market for commercial property—offices, malls, apartment buildings, industrial plants, warehouses, and the like—has enjoyed the very best of times. Prices soared, and lenders lent readily. Owners had no problem meeting their payments. By early 2007, delinquencies had fallen to record lows.
In their own way, however, commercial-real-estate loans were no less foolish than those made to home buyers with speckled credit. And as with the subprime mess, the reckoning will come. Just like what happened in other sectors already hit by the credit crunch, these loans will cause problems that will probably find their way beyond the obvious players in the commercial-real-estate market. Judging by the aspects of the credit crisis we've already seen, commercial-real-estate trouble will probably emerge sooner than people expect—and will be worse than they anticipate. Portfolio
Analysis: as a Commercial Real Estate Appraiser here in lovely NYC I speak from first hand experience when I say that what people are paying for rinky dink apartment buildings in Brooklyn is just a little too much for my comfort, stomach and most of all common sense. It seems the same yayhoo's who thought that finishing a Carlton Sheets or Ron LeGrand workshop qualified them as "house flippers" also qualified them as real estate "entrepeneurs" and therefore they can "MAKE IT BIG!" in multi-family investing. The most quoted, and hence, the least favorite thing I like to hear is "Hey, but it sold for 10 times rents!" SO!?!? What are the rents? What are the taxes? Expenses? INSURANCE!?!?! Vacancy rates? Neighborhood trends? Oh and most importantly, DEBT SERVICE?
When your "posh" Bed-Stuy / Bushwick / 'Billy Burg "gonna be condo one day" shack starts losing tenants because of the more than likely recession because the rents were too high from the git go you're gonna have a hard time paying YOUR mortgage let alone the building's mortgage.
Hint: WAIT! Keep your powder dry. Walk the streets of those neighborhoods that you're thinking of investing in. Use your EYES. Honestly assess the stability and quality of the neighborhood(s) your looking at. No cars on blocks? GOOD! But crackheads around the corner? NOT GOOD! Take a lesson from Warren Buffet: invest in something that is unpopular, cheap, but WILL rebound and most of all wait. Don't be Donald Trump.
Tuesday, December 4, 2007
Ever drop a hammer on your foot? What about an engine block?
Home prices see biggest drop in 25 years
Housing values fall 1.3 percent nationwide in the third quarter, according to a Freddie Mac survey.
NEW YORK (CNNMoney.com) -- National home prices showed their biggest quarterly drop in 25 years during the third quarter of 2007, said a report Tuesday.
Freddie Mac's (Charts, Fortune 500) home price index fell 1.3 percent on an annualized basis in the quarter, according to its survey of home purchases and mortgage refinance appraisals.
"The number of home sales fell during the third quarter, and the inventory of existing single-family homes for sale rose to 10.5 months by October, the highest level since 1985," said Frank Nothaft, Freddie Mac's chief economist.
Housing values fall 1.3 percent nationwide in the third quarter, according to a Freddie Mac survey.
NEW YORK (CNNMoney.com) -- National home prices showed their biggest quarterly drop in 25 years during the third quarter of 2007, said a report Tuesday.
Freddie Mac's (Charts, Fortune 500) home price index fell 1.3 percent on an annualized basis in the quarter, according to its survey of home purchases and mortgage refinance appraisals.
"The number of home sales fell during the third quarter, and the inventory of existing single-family homes for sale rose to 10.5 months by October, the highest level since 1985," said Frank Nothaft, Freddie Mac's chief economist.
It ain't over 'til the fat lady sings and dances and her pictures get plastered all over the Internet
Fannie Mae could face more losses
A look at the bonds it holds, and the extent to which Fannie has marked them down so far, indicates that it may see as much as $5 billion more in write downs. Peter Eavis reports.
(Fortune) -- Could Fannie Mae be the next large financial company to announce billions of dollars of market losses on bonds backed by distressed mortgages?
The vast majority of Fannie Mae's mortgages are loans to borrowers with good credit, but over the past five years the government sponsored enterprise became exposed to mortgages that were made to people with poor credit -- subprime mortgages -- and to mortgages that were made with incomplete documentation of borrowers' income, called Alt-A mortgages in industry parlance.
One way that Fannie increased its exposure to subprime and Alt-A mortgages was to buy bonds backed with these types of loans. While these subprime and Alt-A mortgage-backed bonds are only a small proportion of Fannie's overall mortgage holdings, their combined value of $76 billion is almost double Fannie's $40 billion of capital, which is the net worth of a company and the last cushion against losses.
Losses are climbing on these loans as borrowers default, which has caused the market value of bonds backed with such loans to fall sharply. Investors are bidding down the value of mortgage bonds in anticipation that defaults will prevent many of the bondholders from being paid back in full.
CNNMoney
Let My People Go!
Break Free From Brokerages
Punk Ziegel & Co.
IN THE PAST FEW WEEKS THE RATINGS on three brokerage companies were raised from Sell to Market Perform. Two of them have fallen in price since that time, one rose.
I now believe that the upgrades were premature and I am adjusting the ratings back to Sells on all three stocks [Bear Stearns, Goldman Sachs and Lehman Brothers]. I am also adjusting the earnings estimates for each of the brokers.
[Merrill Lynch and Morgan Stanley are also rated at Sell]
My position from this point forward is to aggressively buy the bank stocks and sell the brokers.
BARRONS (yeah, I know it's a subscriber service, but believe me, it's worth it weight in gold).
Punk Ziegel & Co.
IN THE PAST FEW WEEKS THE RATINGS on three brokerage companies were raised from Sell to Market Perform. Two of them have fallen in price since that time, one rose.
I now believe that the upgrades were premature and I am adjusting the ratings back to Sells on all three stocks [Bear Stearns, Goldman Sachs and Lehman Brothers]. I am also adjusting the earnings estimates for each of the brokers.
[Merrill Lynch and Morgan Stanley are also rated at Sell]
My position from this point forward is to aggressively buy the bank stocks and sell the brokers.
BARRONS (yeah, I know it's a subscriber service, but believe me, it's worth it weight in gold).
And no, I don't know if she's gellin', like Magellan, but her last name is Yellen
Fed's Yellen: Economy's Downside Risk Getting Worse
Federal Reserve Bank of San Francisco President Janet Yellen said on Monday that worsening financial conditions and weaker-than-expected economic data have raised downside risks to the economic outlook.
"Since the October FOMC meeting, financial conditions have deteriorated, and we have seen some unexpected softening in the economic data," she said in a speech to business leaders in Seattle on the U.S. outlook and monetary policy.
"These developments necessitate some rethinking of my growth forecast, and have highlighted the downside skew in the risks to that forecast."
On inflation, Yellen said consumer prices were expected to rise broadly in line with price stability, although there were some "notable upside risks" such as higher labor costs, a weaker dollar and rising energy prices.
She added that more economic data to be released ahead of the Fed's rate-setting committee's meeting on Dec. 11 would have to be incorporated into the outlook.
CNBC
If it walks like a duck, quacks like a duck and flies like a hippo...
Hedge-Fund Nov. Losses Near Dot-Com Crash Levels
Hedge-fund investors suffered their worst month of investment performance since the bursting of the dot-com bubble, with intense volatility in global markets tipping every strategy into a loss, London newspaper the Times reported, citing preliminary figures from Hedge Fund Research (HFR).
The Global Hedge Fund Index worth $1.33 trillion lost 2.6 percent in the first 29 days of November, the Times said, despite many strategists predicting strong full-year profit for the sector.
The decline was last surpassed in April 2000, when HFR's Global Fund index down 3.9 percent after the value of Internet companies plunged. August's credit-market crunch caused a 2.55 percent drop in the index, the Times said.
Stock-market strategies were the hardest hit, with HFR's Equity Hedge index slumping more than 4 percent in November, while "event-driven" and convertible arbitrage strategies all generated losses, according to the London paper.
CNBC
Hedge-fund investors suffered their worst month of investment performance since the bursting of the dot-com bubble, with intense volatility in global markets tipping every strategy into a loss, London newspaper the Times reported, citing preliminary figures from Hedge Fund Research (HFR).
The Global Hedge Fund Index worth $1.33 trillion lost 2.6 percent in the first 29 days of November, the Times said, despite many strategists predicting strong full-year profit for the sector.
The decline was last surpassed in April 2000, when HFR's Global Fund index down 3.9 percent after the value of Internet companies plunged. August's credit-market crunch caused a 2.55 percent drop in the index, the Times said.
Stock-market strategies were the hardest hit, with HFR's Equity Hedge index slumping more than 4 percent in November, while "event-driven" and convertible arbitrage strategies all generated losses, according to the London paper.
CNBC
He was born at night, just not last night...
Deutsche Bank Chief Turns Down Chance at Citigroup
Dec. 4 (Bloomberg) -- Deutsche Bank AG Chief Executive Officer Josef Ackermann turned down an opportunity to pursue the top job at Citigroup Inc., the biggest U.S. bank, according to a person with knowledge of the matter.
The New York-based bank contacted Ackermann by telephone about two weeks ago to ask the Swiss-born manager if he'd be interested in becoming CEO, said the person, who declined to be identified because the talks were private. Ackermann will stay at Frankfurt-based Deutsche Bank, the person said.
Citigroup is seeking a replacement for Charles O. ``Chuck'' Prince III, who stepped down last month after the bank reported its first loss in 17 years. Ackermann, in five years at Deutsche Bank, raised profit 14-fold by expanding the securities unit, cutting more than 14,000 jobs and selling assets.
BLOOMBERG
Dec. 4 (Bloomberg) -- Deutsche Bank AG Chief Executive Officer Josef Ackermann turned down an opportunity to pursue the top job at Citigroup Inc., the biggest U.S. bank, according to a person with knowledge of the matter.
The New York-based bank contacted Ackermann by telephone about two weeks ago to ask the Swiss-born manager if he'd be interested in becoming CEO, said the person, who declined to be identified because the talks were private. Ackermann will stay at Frankfurt-based Deutsche Bank, the person said.
Citigroup is seeking a replacement for Charles O. ``Chuck'' Prince III, who stepped down last month after the bank reported its first loss in 17 years. Ackermann, in five years at Deutsche Bank, raised profit 14-fold by expanding the securities unit, cutting more than 14,000 jobs and selling assets.
BLOOMBERG
WWWWWWEEEEEEEE!!!!!!!!!!!!
CDO Sales May Tumble 65% in 2008 on Subprime Slide
By Jody Shenn
Dec. 4 (Bloomberg) -- Issuance of collateralized debt obligations will tumble 65 percent next year, with ``little or no'' sales of CDOs made up of structured-finance securities such as subprime-mortgage bonds, JPMorgan Chase & Co. says.
About $163 billion of new CDOs will be sold, down from an estimated $469 billion this year, according to a report yesterday from New York-based JPMorgan analysts led by Christopher Flanagan. The decline will occur with ``the very concept of securitization under pressure,'' the analysts wrote.
Securitization, or the packaging of assets into securities, has slowed amid losses on home-loan debt. Many mortgage-linked securities originally carried investment-grade ratings, only to be downgraded at an unprecedented pace following record homeowner foreclosures. CDOs are created by packaging pools of assets into new securities with varying risks. None were sold in the U.S. last week, according to JPMorgan data.
Losses for banks and brokerages from the credit-market seizure have totaled $66 billion, as companies including Merrill Lynch & Co. and Citigroup Inc., both of New York, took writedowns largely related to CDOs. Default rates on subprime loans, made to borrowers with poor credit, have reached records.
BLOOMBERG
By Jody Shenn
Dec. 4 (Bloomberg) -- Issuance of collateralized debt obligations will tumble 65 percent next year, with ``little or no'' sales of CDOs made up of structured-finance securities such as subprime-mortgage bonds, JPMorgan Chase & Co. says.
About $163 billion of new CDOs will be sold, down from an estimated $469 billion this year, according to a report yesterday from New York-based JPMorgan analysts led by Christopher Flanagan. The decline will occur with ``the very concept of securitization under pressure,'' the analysts wrote.
Securitization, or the packaging of assets into securities, has slowed amid losses on home-loan debt. Many mortgage-linked securities originally carried investment-grade ratings, only to be downgraded at an unprecedented pace following record homeowner foreclosures. CDOs are created by packaging pools of assets into new securities with varying risks. None were sold in the U.S. last week, according to JPMorgan data.
Losses for banks and brokerages from the credit-market seizure have totaled $66 billion, as companies including Merrill Lynch & Co. and Citigroup Inc., both of New York, took writedowns largely related to CDOs. Default rates on subprime loans, made to borrowers with poor credit, have reached records.
BLOOMBERG
At least it will help with his handicap
Henry Paulson’s Mortgage Mulligan
The Bush administration, federal regulators, and major investment banks are “aggressively pursuing,” in the words of treasury secretary Henry Paulson, a plan to save some mortgage borrowers and their lenders from the consequences of their bad decisions. The deal is called “Hope Now.” It should be subtitled: “Worry Later.”
Part of the pact likely will call for mortgage lenders and their agents—including teetering mortgage giant Countrywide Financial and tottering financial-services giant Citigroup—to change the terms of, potentially, more than $100 billion worth of mortgages that they approved for home buyers over the past few years. In those cases, borrowers, often those who couldn’t afford high monthly mortgage payments or who didn’t have much money for down payments, took on mortgages that carried initial “teaser” interest rates. That is, instead of signing mortgages that required the same monthly payment for 30 years, the borrowers agreed to pay a super-low rate for one or two years, and then to pay a much higher one for the remaining 28 or 29 years. Investment banks then packaged and sold huge bundles of these mortgages to outside bond investors, providing the original lenders with more money to make more such loans.
For these deals to work after the teaser rates expired, the housing market could never falter, because few borrowers could afford the new, higher rates that they would have to pay in a few years. Both the borrowers and the lenders understood this risk, or should have, but they ignored it. They assumed that when the teaser rate came close to expiration, the borrower could simply refinance his loan, taking out a new mortgage with a similar teaser rate—which would buy more time for the borrower and also provide new fees to mortgage lenders and brokers. This scenario collapsed when the housing market started to decline, because a borrower can’t refinance a mortgage loan if his home is worth less than the amount of money he already owes.
CITY JOURNAL
The Bush administration, federal regulators, and major investment banks are “aggressively pursuing,” in the words of treasury secretary Henry Paulson, a plan to save some mortgage borrowers and their lenders from the consequences of their bad decisions. The deal is called “Hope Now.” It should be subtitled: “Worry Later.”
Part of the pact likely will call for mortgage lenders and their agents—including teetering mortgage giant Countrywide Financial and tottering financial-services giant Citigroup—to change the terms of, potentially, more than $100 billion worth of mortgages that they approved for home buyers over the past few years. In those cases, borrowers, often those who couldn’t afford high monthly mortgage payments or who didn’t have much money for down payments, took on mortgages that carried initial “teaser” interest rates. That is, instead of signing mortgages that required the same monthly payment for 30 years, the borrowers agreed to pay a super-low rate for one or two years, and then to pay a much higher one for the remaining 28 or 29 years. Investment banks then packaged and sold huge bundles of these mortgages to outside bond investors, providing the original lenders with more money to make more such loans.
For these deals to work after the teaser rates expired, the housing market could never falter, because few borrowers could afford the new, higher rates that they would have to pay in a few years. Both the borrowers and the lenders understood this risk, or should have, but they ignored it. They assumed that when the teaser rate came close to expiration, the borrower could simply refinance his loan, taking out a new mortgage with a similar teaser rate—which would buy more time for the borrower and also provide new fees to mortgage lenders and brokers. This scenario collapsed when the housing market started to decline, because a borrower can’t refinance a mortgage loan if his home is worth less than the amount of money he already owes.
CITY JOURNAL
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