Posts Tagged ‘commercial real estate’

An Interesting Bit on Household Wealth

U.S. household wealth already fell in the third quarter by the most on record, Federal Reserve figures showed earlier this month. Net worth for households and non-profit groups decreased by $2.81 trillion, the most since the Fed’s data began in 1952.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aQ7HBEgYCzUE

That’s a lot of disappearing cash…

Of course I wonder how they calculate “household wealth”.

Then I found this out…

Sheryl King (Merrill Lynch analyst) writes that household balance sheets shed almost $3 trillion in the third quarter, thanks in large part to a decline in stock prices. That loss, the largest 3-month drop on record, brings the total loss by U.S. households in 2008 to $10 trillion, or about 10 years worth of equity earnings.

So it looks like household wealth at least has stock portfolios and home values figured into the equation (although I question the wisdom of considering a mortgaged home a form of wealth).

Anytime household wealth begins dropping, it makes people feel poorer. This switch in moods can affect an entire population. And then it changes the mindset from “spend, spend, spend” to “save, save, save”. From that same report…

Persistent negative wealth effects from the slide in housing and equity prices should reinforce the uptrend in the personal savings rate, creating a highly disinflationary environment as job losses mount and unemployment rate rise toward 8-1/2% in the coming year. We estimate that the savings rate will rise to around 5% by 2010, on its way towards a more sustainable 6-7% at some point just beyond our forecast horizon. This is a daunting prospect for future US economic growth given that for every one percent increase in savings, consumer spending – that 70% of the GDP pie – is suppressed by a roughly equal amount.

So it seems that the velocity of money will slow in the coming YEARS. That could put a ceiling on how bad inflation could get (since saved money is money not spent. And money not spent does not contribute to price inflation).

And to think, we’re going to see even more losses from the commercial real estate bust, the emerging market bust, the municipality bust, the credit card debt bust, and the list goes on…

I just don’t see how a long-term rise in inflation could possibly happen in this environment. Perhaps in a few years, but it doesn’t seem like it could happen tomorrow, or next month, or even this year.

- CD

Today’s Top Headline: Commerical Real Estate in the Crapper

It feels like I just talked about this the other day…

How the commercial real estate market would be set to see higher delinquencies and losses come 2009. Looks like i’m not the only one who feels that way.

Dec. 22 (Bloomberg) — U.S. commercial properties at risk of default could triple if rental income from office, retail and apartment buildings drops by even 5 percent, a likely possibility given the recession, according to research by New York-based real estate analysts at Reis Inc.

Lenders that used optimistic rent estimates to grant mortgages beginning in 2005 stand to lose as much as $23.1 billion, or 7.02 percent, of total unpaid balances if landlords lose 5 percent of net operating income, according to Reis. Analysts examined data on 22,890 properties that together may account for unpaid loans of about $329 billion in 2009, said Victor Calanog, director of research.

Banks are at risk as office vacancies are forecast to rise to 15.6 percent next year from an estimated 14.6 percent at the end of 2008.

I can’t imagine banks being willing to lend too much considering the losses that they have yet to face.

Listen, reader, the commercial real estate market has to see losses. It’s the only thing that could happen when you see consumer spending drop as much as it has.

The logic goes like this…

1. Consumers are running out of money, so they buy less.

2. As consumers buy less, businesses suffer and layoff workers.

3. This causes even less spending in the economy, which results in businesses going bankrupt or closing the doors (resulting in more people losing their jobs/income).

4. As businesses close the door, they miss their commercial real estate payments and then banks have to take the write down.

So you see, a commercial real estate downturn is to be expected after seeing the economy slow as much as it has.

And with commercial real estate losses picking up steam, you can be sure that corporate bankruptcies, bank failures, and credit card defaults will all slap the banks like the greedy institutions they are.

Looking over the next year, this market is going to struggle. It won’t be an easy ride. That’s why you should position yourself short after any bear market rallies.

- CD

Charles Delvalle Here…

Hey Everyone,

Charles Delvalle, here.

You might remember me from Financial Goodness blog and from reading me regularly in Investor’s Daily Edge.

This is my new blog.

And because it is simply a new blog that I put up in about two hours time, it looks a tad “rough around the edges”.

Be assured this, just like the final days of George Bush’s Presidency, will soon come to pass. I have some big ideas for how to take this blog to the next level. And I welcome any input or comments from anyone letting me know their thoughts on getting there.

In other words, what do you want to see on this blog when you come everyday? What do you want to learn? How do you want it presented?

I can be a sarcastic ass from time to time, but the truth is that’s not going to change.

And right now, i’m a pessimist. Because i think this stock market downturn has a lot further to go. But i don’t want you to confuse my longer term outlook with my short term one.

Just because i think stocks have further to fall, doesn’t mean i think it’s going to happen come Monday… or Friday, or even the week after that.

I use technical indicators to give me an educated guess as to how the market will move in the short term. For the long term, i look into over reaching trends in the financial world.

This is what i know, that you, dear reader, may not be aware of…

- Banks will cut back Credit Card balances by Over $2 trillion next year. This at a time when the US consumer is relying more on credit cards just to pay the bills.

- The commercial real estate market is starting to see more losses. It was a profit party there too as regulation and prudence got thrown by the wayside.

- More hedge funds and corporations will go bankrupt next year then we’ve seen in a long time. This will add to the jobless numbers quite significantly. Not to mention all the liquidity that will get squeezed out of the system.

See why i’m so pessimistic? Just because the government saved GM today doesn’t mean that GM won’t continue to layoff nearly as many workers as it would have had it gone bankrupt. All it means are that the job losses will be spread out over a few years and not all at once. Therefore, the impact isn’t as strong, but it lasts a lot longer.

Kinda like taking cold medicine. Your symptoms last longer, they’re just not as bad.

With all of this in mind, i feel that next year might only be slightly better then this year, but overall it should still be bad.

People just have way too much debt that they need to pay off.

But you should know that the seeds of a new “bubble” are certainly being sown today. Ultra low interest rates and a flood of new money will be sure it happens.

Some say the new bubble is US Treasuries. But that makes me wonder what are people considering bubbles? It would seem to me that a bubble takes place over a long period of time. The real estate bubble didn’t take a year, it took a few. And so did the internet and commodity bubbles.

But US Treasuries? The dollar is in a long-term downtrend. I don’t see how there could be a bubble there. All there is is short-term panic. And the panic should come in waves throughout the next year.

Once the panic subsides, treasuries will drop. Doesn’t seem like a bubble to me.

But alternative energy… That, I feel, will be the next big bubble. And it will be fueled by at least four years of positive government help, too.

I’l talk a little more about that next time.

-CD

P.S. I have some big ideas for how to take this blog to the next level. And I welcome any input or comments from anyone letting me know their thoughts on getting there. In other words, what do you want to see on this blog when you come everyday? What do you want to learn? How do you want it presented? Comment below.