Saturday, April 11, 2009

The Imminent Disinformation Schism

With articles like this coming out of Time magazine, it is inevitable that in the immediate future, the United States will be split into two partisan camps. However, this will not be the traditional schism of republicans vs. democrats, contrary to Mr. Barney Frank's attempt to start ideological partisan warfare. The real split will be of naive, easily-manipulated, small-time mom and pop investors, who only care about looking at their daily yahoo finance screens and 401(k) statements, seeing more black than red, and only focusing on what happened in the immediate past, and the forward looking taxpayers, who see the upcoming budget deficit fiasco, the social security ponzi scheme, the Medicare/Medicaid debacle, the ridiculous underfunding in public and corporate pension funds, the rising city and state taxes, the shuttering factories, the rising unemployment, the plummeting American production base, the "seasonally" upward-adjusted economic data coupled with consistently downward revised prior economic releases, the increasing savings rate and the multi trillion discrepancy in consumer purchasing power. The taxpayers are becoming angrier and angrier at the net present value destruction of future opportunities of being a U.S. citizen, while investors cheer every piece of information (whether or not supported by facts) that provides a push to their current net worth, ignorant of what this may mean for the future. There will come a point where this schism reaches a boiling point, in the meantime, the paradox is that so many of the taxpayers are also investors, who are caught in a tug of war with themselves on what the proper response to the crisis should be: happy as a result of bear market rallies, or sad when they put the facts into perspective.

Speaking of facts, Time contributing author Douglas McIntyre may have considered presenting some to justify his thesis that the "the great banking crisis of 2008 is over." Pointless regurgitation of secondary viewpoints serves no purpose in the mainstream media, especially not in formerly reputable mainstream media such as Time (Zero Hedge's subscription is running out with no plans for renewal). It is even worse when the MSM represents as "facts" the disinformation by banks, who claim that the downward inflection point has been reached and ignore the full context: a much weaker mark-to-market methodology, the FDIC and SEC aiding and abetting wholesale "pennies on the dollar" blue light specials of bankrupt banks such as Wachovia and Washington Mutual, taxpayer funnels such as AIG being used to pad the top and bottom line, a financial system balance sheet which has over 70% of its assets guaranteed by the Fed and the Treasury, and lastly, a spike in commercial real estate deterioration to unprecedented levels. Mr. McIntyre's article is childish and unsubstantiated to the point of generating derisive laughter from his readers. Then again, a casual glance of his self-description in Seeking Alpha is enough to put his opinion into perspective: Mr. McIntyre "knows technology cold, has a sharp understanding of what's priced-in to [sic] stocks, and writes extremely well (as you'd expect)." How a self-ascribed technology specialist (who writes "so well" that he makes grammatical mistakes in the very same sentence making that claim) ends up stating "the financial crisis is over" is beyond Zero Hedge's meager attempts at comprehension. What Zero Hedge is not beyond, however, is presenting the facts and not perpetuating the disinformation fallacy.

The cold facts - "When you stare at the abyss, the abyss stares back at you."

Why is everyone so afraid to stare at the proverbial abyss? Readers of Zero Hedge know all too well, about my fascination with the economic fundamentals, and my desire to expose the real abyss in all its deep glory.

I dare anyone: McIntyre, Kudlow, Geithner, Obama, to look at the chart below and tell me we are in a V shaped recession. Yes, ISM may be bottoming (at record low levels which is not indicative of much), and unemployment may soon be bottoming (it has not, yet somehow the market believes it is just a matter of time), however one look at the chart of accelerating commercial real estate delinquencies and what they mean for the multi-trillion commercial real estate market should stop any V-recovery fans dead in their tracks.

I will present some more factual glances of the abyss, compliments to the good folk at Realpoint.

Through the February 2009 reporting period, the delinquent unpaid balance for CMBS increased by a substantial $1.2 billion, up to a trailing 12-month high of $11.99 billion. Overall, the delinquent unpaid balance grew for the sixth straight month, up over 244% from one-year ago (only $3.48 billion in February 2008) and now over five times the low point of $2.21 billion in March of 2007. While a slight decline was noted in the 30-day and 60-day delinquent loan categories, the distressed 90+-day, Foreclosure and REO categories grew for the 15th straight month – up over 216% in the past year. This increase took place despite another $53.9 million in loan workouts and liquidations reported for February 2009 across 20 loans. Ten of these loans at $19.1 million, however, experienced a loss severity near or below 1%, most likely related to workout fees, while the remaining 10 loans at $34.8 million experienced an average loss severity near 46%. As additional pressures are placed on special servicers to maximize returns in today’s market, loss severities are expected to increase while liquidation activity is expected to slow further as fewer transactions occur. This would be the result of reduced or distressed asset pricing, lower availability of funds, and increased extensions of balloon defaults through the end of 2009 and into 2010.

The total unpaid balance for all CMBS pools under review by Realpoint was $837.78 billion in February 2009, down from $842.8 billion in January. Both the delinquent unpaid balance and delinquency percentage over the trailing twelve months are shown in the chart above and the one below, clearly trending upward for the timeline.

The resultant delinquency ratio for February 2009 increased to 1.431% from 1.281% one month prior. Such ratios above 1% reflect levels not seen in since April 2005. What is more concerning, however, is that the delinquency percentage through February 2009 is more than three times the 0.399% reported one-year prior in February 2008. The increase in both delinquent unpaid balance and delinquency ratio over this time horizon reflects a slow but steady increase from historic lows through mid-2007.

Assumptions based on three-month historical data:
  • Over the past three months, delinquency growth by unpaid balance has averaged roughly $1.65 billion per month, while the outstanding universe of CMBS under review has decreased on average by $3.5 billion per month from pay-down and liquidation activity.
  • If such delinquency average were again increased by an additional 25% growth rate, and then carried through the end of 2009, the delinquent unpaid balance would top $32 billion and reflect a delinquency percentage slightly above 3.8% by December 2009.
  • In addition to this growth scenario, if one adds the potential default of the $3 billion Peter Cooper Village / Stuyvesant Town loan and the $4.1 billion Extended Stay Hotel loan, the delinquent unpaid balance would top $39 billion and reflect a delinquency percentage near 5% by December 2009.
"V-shaped recovery" indeed. But let's continue:

Special servicing exposure has also been on the rise, having increased for the 10th straight month to $17.11 billion in February 2009 from $14.38 billion in January 2009 and only $12.78 billion in December 2008. The corresponding percentage of loans in special servicing has also increased to 2.04% of all CMBS by unpaid balance, up from only 0.50% in both February 2007 and 0.67% February 2008. The overall trend of special servicing exposure since January 2005, by both unpaid balance and percentage, is presented in Charts 3 and 4 below.

Realpoint's default risk concerns for the more recent 2005 to 2007 vintage transactions relative to underlying collateral performance and payment ability are more evident on a monthly basis. Both the volume and unpaid balance of CMBS loans transferred to special servicing on a monthly basis continues to raise questions about underlying credit stability in today’s market climate for these deals, as evidenced by attached table. An additional 117 loans at $2.28 billion issued from 2005 through 2007 were transferred to special servicing in February 2009, mostly (but not only) for delinquency. Such figure reflected 71% of the current month’s transfers and 13% of total special servicing exposure in February 2009. Furthermore, over 51% of delinquent unpaid balance through February 2009 came from transactions issued in 2006 and 2007, with over 27% of all delinquency found in 2007 transactions. Extending a review to include the 2005 vintage, an additional 16% of total delinquency is found meaning over 67% of CMBS delinquency comes from the 2005 to 2007 vintage transactions. The chart below shows the increased delinquent unpaid balance relative to these three vintages over the past six months, clearly reflecting the increasing trends highlighted in recent months.

Throughout 2009, it is expected to see high delinquency by unpaid balance for these three vintages due to aggressive lending practices prevalent in such years. Also some loans from the 2008 vintage are expected to show signs of distress and default in cases where pro-forma underwriting assumptions fail to be met at the property level.

Focusing on deals that have seasoned for at least one year, the investigation reveals the following:
  • Deals seasoned at least a year have a total unpaid balance of $822.94 billion, with $11.661 billion delinquent – a 1.42% rate (up from 0.5% six months prior).
  • When agency CMBS deals are removed from the equation, deals seasoned at least a year have a total unpaid balance of $793.3 billion, with $11.656 billion delinquent – a 1.47% rate (up from 0.52% six months prior).
  • Conduit and fusion deals seasoned at least a year have a total unpaid balance of $701.2 billion, with $10.78 billion delinquent – a 1.54% rate (up from 0.54% six months prior).
Other concerns/dynamics within the CMBS deals monitored which may affect the overall delinquency rate in 2009 include:
  • Balloon default risk related to upcoming anticipated repayment dates (ARD's) or term maturity from highly seasoned transactions for both performing and non-performing loans coming due in the next 12 months that may be unable to secure adequate refinancing due to current credit market conditions, lack of financing availability, or further distressed collateral performance.
  • Refinance and balloon default risk concerns from floating rate transactions, as many large loans secured by un-stabilized or transitional properties reach their final maturity extensions, or fail to meet debt service or cash flow covenants to exercise such extensions.
  • Aggressive pro-forma underwriting on loans with debt service / interest reserve balances declining, more rapidly than originally anticipated, on a monthly basis.
  • Further stress on partial-term interest-only loans that begin to amortize during the year that already have in-place DSCRs hovering around breakeven.
  • The unpaid balance related to loans underwritten in the past three years with DSCRs between 1.10 and 1.25 is very high, and any decline in performance in today’s market could cause an inability to make debt service requirements.
  • A decline in distressed asset sales or liquidations as traditional avenues for securing new financing is becoming less available.
  • Additional stress on both the retail and lodging sectors as consumer spending declines and the U.S. economy weakens.
Monthly CMBS Loan Workouts and Liquidations

The rate at which liquidated or problematic CMBS credits are replenished by newly delinquent loans remains a concern, especially regarding further growth to Foreclosure and REO status (evidence of additional loan workouts and liquidations on the horizon for 2009). Through February 2009, newly reported CMBS delinquency continued to outpace monthly liquidations by a very high ratio, raising concerns for further deterioration in the market.

In February 2009, 10 loans for $34.8 million experienced an average loss severity near 46% - a clear reflection of true loss severity in today’s credit climate. Higher levels of loss severity will be the norm in 2009 for those loans that experience a term default where cash flow from operations is not sufficient to support in-place debt obligations.

Since January 2005, over $7.52 billion in CMBS liquidations have been realized, while 44 of the trailing 49 months have reported average loss severities below 40%, including 21 below 30%. While average loss severity increased slightly for the 12 months of 2007 when compared to 2006, monthly loan liquidations by unpaid balance declined significantly in 2007 when compared to 2006 (by 43% year-over-year). Liquidations in 2007 totaled $1.094 billion at an average severity of only 32.8%. Liquidations in 2006 totaled $1.93 billion at an average severity of only 30.2%, while 2005 had $3.097 billion in liquidations at an average severity of 34.2%.

Comparison by property type:
  • The highest loss severities in 2006 were found in healthcare (55%) and industrial (34.5%) collateral; multifamily collateral remained highest by balance before liquidation ($606.7 million), but reported the lowest severity (24.5%).
  • The highest loss severities in 2007 were found in industrial (50%) and healthcare collateral (44%); multifamily collateral was again highest by balance before liquidation ($356 million), but reported the fourth lowest severity (32.5%).
  • The highest loss severities in 2008 were found in mixed-use / other (36%) and multifamily collateral (31%); multifamily collateral was again the highest by balance before liquidation ($576.97 million).
Future Workouts – Delinquency Categories

The total balance of loans in Foreclosure and REO increased for the 16th straight month to $2.696 billion from $2.39 billion in January 2009, despite ongoing liquidation activity. These figures had declined steadily for some time through mid-2007, reflective of expedited loan work outs, but continue to be replenished with new loans due to aggressive special servicing workout plans. The chart below also shows the rapid growth of loans reflecting 30-day delinquency in the later half of 2008, transitioning rapidly into more distressed levels on a monthly basis, thus supporting the use of 30-day defaults as an early indicator of workouts to come in 2009.

Property Type
  • Multifamily loans remained a poor performer in January 2009, with over a 2.5% delinquency rate (up from only 0.9% in January 2008 – over a 177% increase).
  • Multifamily loans also are the greatest contributor to overall CMBS delinquency, at 0.51% of the CMBS universe and over 35% of total CMBS delinquency (but down slightly for the second straight month).
  • By dollar amount, multifamily loan delinquency is now up by an astounding $3.38 billion since a low point of only $903.3 million in July 2007.
  • As shown in Chart 7 below, multifamily, retail, office and hotel collateral loan delinquency as a percentage of the CMBS universe have clearly trended upward since mid-2008.
  • Only seven healthcare loans at 0.017% of the CMBS universe are delinquent, but such delinquent unpaid balance reflects 5.8% all healthcare collateral in CMBS.
  • As a percentage of total unpaid balance, year-over-year delinquencies for all categories increased by triple digits from February 2008 to February 2009.
  • In 2009 retail delinquency will increase substantially as consumer spending suffers from the overall weakness of the U.S. economy. Store closings and retailer bankruptcies will continue throughout the year.
  • In addition, the hotel sector will likely experience an increase in delinquency as both business and leisure travel slows further.


  • The top three states ranked by delinquency exposure through January 2009 changed as California surpassed Michigan in third position. This remained the same through February 2009. Together with Texas and Florida, these three states collectively accounted for 30% of CMBS delinquency.
  • Previously in November 2008, New York had passed Michigan and moved into third place in the rankings, following the reported delinquency of the Riverton Apartments loan at $225 million (CD07CD4). New York is now in the fifth position when ranked by delinquent unpaid balance.
  • The 10 largest states by delinquent unpaid balance reflect 62% of CMBS delinquency, while the 10 largest states by overall CMBS exposure reflect 53% of the CMBS universe.
  • The state of Texas remains a major concern at over 11.5% of CMBS delinquency, concentrated within the Houston and Dallas-Fort Worth, MSAs (almost 9% of CMBS delinquency); however, such MSAs reflect a fairly low percentage of total exposure in their respective MSAs (at less than 3.4%).
  • Four MSAs topped 4% of CMBS delinquency in February 2009 (up from three a month prior).
  • The 10 largest MSAs by delinquent unpaid balance reflect 37% of CMBS delinquency, while the 10 largest MSAs by overall CMBS exposure reflect 34% of the CMBS universe.

...And the facts go on and on and on... yet not one of them is mentioned in McIntyre's "analysis".

Commercial real estate is nothing more than a proxy for the intersection of the two historically core driving forces in the U.S. economy: real estate values and business conditions. And as the facts above indicate, the deterioration is only starting to pick up.

But what about all the stimulus programs skeptics will ask? The bail out packages? The constant funneling of taxpayer money into every underperforming segment of economy?

The truth is that the more taxpayer money is dumped to try to fill the abyss, it may become marginally shallower, but only at the expense of it geting wider. At some point soon (if not already), the U.S. economy will be unweenable from the trillions and trillions of taxpayer subsidies all the while it becomes more indebted to both its investors and taxpayers, further exacerbating the abovementioned paradox (presumably not without a motive). As the multi-trillion CRE crash continues to deplete the left side of the financials' balance sheet with an exponentially growing pace (and I have not even touched on the credit card topic), the banks will be left scratching their heads what accounting rules to bend, which insurance companies to implode and get another AIG-like piggybank, how to break REG-FD more and more creatively with select memo leaks, how to manipulate the market, and how to make the Tsy curve becomes even more upward sloping with the compliments of the Fed and the Treasury. In the meantime the disinformation rift between the American taxpayers and investors will keep growing until inevitably, one day, it will escalate to the point where empty promises on prime time TV by the administration's photogenic representatives will not suffice, and real actions that benefit future American generations will be demanded... What happens after I have no idea.

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Anonymous said...

Fantastic post with amazing detail.
When you mentioned the new parties at war now, I was yelling at my screen in agreement. The "American Dream" has been sold as get a job, buy as much house as you can, stash as much funds as you can in your 401k, and sit back and bathe in the returns. The problem is all three areas hit a wall and no one has an investment to "hedge" any of this risk. In fact, the reality is large houses and 401k bets are actually compounding the risk of losing your job.

TPC said...

Good post Tyler. I've been banging the drum on this for weeks. It's nice to see that people are beginning to catch on to this incredible sham that our leaders are trying to pull.

The only wrinkle in our analysis might be the potential that Geithner actually allows these banks to unload all of the toxic assets by buying them from eachother in what would essentially become the worlds largest money laundering crime. Lord knows what the long-term ramifications of that would be....The FDIC and Treasury would be saddled with trillions in losses and the long-term ramifications of that would be devastating for not only you and I, but our children and grandchildren.

Keep up the good work.

GS751 said...

good post the most interesting part is that when this happens and exactly how is anybodies guess...

Fred said...

Completely agree with the post and TPC's comments regarding the debacle that the exchanging of assets betwen banks at artificially inflated prices would cause. No doubt the genius Time author sleeps well in blissful ignorance. Hopefully he's about to get very long on the FAS.

aviat72 said...


Could you elaborate more on who suffers in this mess? And who is likely to gain?

Commercial deals were supposed to have a significant equity component. When the loan defaults, that part of the capital structure clearly gets wiped out. However, it is still possible that the bond holders are able reorganize the capital structure where they take some haircut on their holdings in return for new equity.

How much do cash flows have to deteriorate for the haircuts to be come significant? What are the typical equity to debt ratios in the capital structure (30/70 or is the leverage higher?)

Clearly derivatives of the CRE backed securities are going to take a big hit even with a 10% principal loss on the bonds. What is the size of that market and who are the principal holders of that paper?


Anonymous said...

two parties, the Bears and the Ostriches

pick your camp

(bears live longer, right?)

space_monkey said...

Someone forgot to tell the Time douche he wasn't a beautiful flower, but the singing, dancing, shit of the world.


He'll make good venison.

fourthestate said...

Would love to trade links. At we focus on media bias. Problem is that when it comes to at least political news consumption (leaving aside financial news consumption for the moment), a part of the problem also rests with the news consumer. News consumption has become less about information gathering for the purposes of decision making; but instead, the consumption of news for self-affirmation. This 'new value' proposition drives media outlets to segment and target specific demographics more aggressively. Editorial content is cheap. For every wire services story, we've seen a 3K X proliferation of commentary on hot days on the Internet. Consumption patterns and segmentation are extremely high: Three trends emerge: 1. people want ideologically oriented news, 2. news outlets are happy to give it to them given its cheaper to produce, and 3. fast and lazy is the best way to be profitable in the news business these days given 1 and 2. Now, when it comes to people's money...maybe they'll be different and want the facts straight up.

fourthestate said...

You can also check this out:

Benign Brodwicz said...

Tyler -

don't burn out, man, we need you to keep going

unfortunately the economy is likely to show a bounce here based on its previous postwar "pulse"; see

...which means Obama, who fooled me and whom I would now peg as an an appeaser on the order of Alan Greenspan, will probably not clean up the financial system before heaping most of its problems on the taxpayer.... and it is possible that, much as inflation defeated Ford and Carter, Obama may be the first of several one-term presidents to confront the financial crisis

we are in for ten years of this crisis that could easily lead to civil or world war

Anonymous said...

I'm sorry but I dont have the attention span to read your post and process a coherent and evidence based argument. Instead I am going to listen to Cramer and Time magazine because one is on TV and the other one has pretty colors which catch my attention. Come to think about it, Cramer has pretty colors too. Hey, wait, what were we talking about?

Economic Darwinism said...

Thanks for another great post.


One the themes I keep trying to drill home to anyone who will listen is the fact that this crisis is NOT about mortgages. BY focusing on mortgages, whether residential or commercial misses the point. For the past 6+ years we've been experiencing a global asset bubble that was in no way limited to mortgages NOR an effect of the mortgage market.

I wrote about that here

Embrace the Recession

I pointed out that lax credit standards were prevalent across the entire fixed-income spectrum here

Our Voices Will Be Heard

where I said

"If the problems were confined to mortgages, Geithner’s plan might have a chance to succeed. Unfortunately, the scope of the problem is more accurately described as a global epidemic infecting all forms of debt. Banks have been pooling together every form of debt imaginable and constructing CDOs from the interest payments. There are CDOs of auto loans. There are CDOs of school loans. There are CDOs of residential mortgages. There are CDOs of commercial real estate loans. There are CDOs of corporates bonds. There are CDOs of municipal bonds. There are even CDOs of other CDOs."

Now, I know this from living through it on the buyside, but you are so super about collecting and presenting the hard data that I wonder if you might be able to help put some numbers to the problems outside residential and commercial real estate?

How big is the CLO market?

How many high yield bonds have been packaged into CDOs with weak covenants like PIK toggles?

How about the ABS market for credit cards? Student loans?

Again, if the problems were limited to real estate, Geithner's plan MIGHT work, but the problems go far further and deeper.

How can we quantify the size of the problem outside of real estate?

tippi canoe said...

not so fast benign:

"The question, given the severity of the current slump globally, is whether this forecast is plausible in the face of possibly very large increases in macroeconomic volatility."

remember included in the animal spirit family are swans and vultures and bears...

oh my

Anonymous said...

"The managers who have the assets under management to meet the minimum requirement have mostly proven to be incompetent in mortgage-backed securities," said Jeffrey Gundlach, chief investment officer of TCW Group in Los Angeles.",flstry-1.cms

arnoldsimage said...

tyler... are a phantasmagoric, terminator-terrorizing fact mongering BEAST!

Anonymous said...

I have only today discovered your blog. I am hooked. Brilliant observations and analysis. And you're damn good writer to boot!

I will be reading here daily.

Great work you are doing. TRULY, great work.

Tyler said...

ED - this is a good top down start:

George said...

Great post.

I am struggling to understand the point behind this bailout (aside from just keeping banking institutions afloat).

How is it that guaranteeing and/or outright paying face value for old debt actually "stimulates" anything aside from the pocketbooks of the people who made these bad investments?

Is it because these same people are now going to turn around and spend that money on "new" investments?

If it is because it instills "confidence" how does that work? I mean unless we are going to assume that these "new" investments are subject to the same guarantees?

Leaving all trending and graphs aside for a second. Let's assume that I am a single investor and that I "invested" $1 million in some ABS that was originally rated AAA but is now next to worthless. (Let's say $100,000). If, by dint of a government "bailout" I receive my $1 million back how does that help anything? I guess it gives me an extra $900,000 but how am I now going to do anything different? My original "risk" appetite was for AAA "safety. Whether I get $ 1 million or $100,000 how am I now going to change into so kind of risk driven investor. In fact, i guess one could argue that if I only get the $100,000 I am more likely to try to seek out higher returns for a while (Of course I know this is not prudent). The point is how does this "stimulate" anything? Is there something about "institutional" psychology that somehow is different and reacts according to a different model? That giving them a "do over" will somehow mean that they are going to start investing again in serious wealth-producing businesses instead of structured financial instruments?

If people keep losing jobs and their incomes fall and their houses lose value they are not going to purchase things and services. If they do not purchase things and services companies are going to react to that by cutting back on the things and services they produce causing further job losses.

There is some limit to this obviously hence the cyclical nature of markets. However, how can a new "boom" get started if we are paying higher taxes over the next decade to pay for "cleaning up" the old boom?

How does "saving the banks" jump start this boom? I mean industry is the engine of the economy. Banking is maybe just the key to the ignition. But if someone told you it would cost as much as a new car (or more) to fix the ignition switch I think you would just buy a new car.

Anonymous said...

TD, Only bad thing is you are loaded with SRS and down 50%. Your charts (delinquency rate of commercial properties, etc.) show something happening in real economy right now, but the stock market already discounted them. Why else was IYR going down since 2007, when CMBS market did not show similar stress?

BobbyG said...

@George -

"I am struggling to understand the point behind this bailout (aside from just keeping banking institutions afloat).

How is it that guaranteeing and/or outright paying face value for old debt actually "stimulates" anything aside from the pocketbooks of the people who made these bad investments?"

It's a "Don't Ask, Don't Tell" policy. Simon Johnson asserts that most of the major banks are truly worth perhaps 1 to 5 cents on the dollar. That's called "insolvency" by any rational definition. Recall, WAMU got bought from the FDIC by Chase for 1.6 cents on the dollar. A classic "bad paper" sale of an insolvent institution.

So, to forestall a national -- no, global -- panic, they're gonna open the bailout money spigot, and also let the banks "Mark-to-Model" and put egregiously inflated value lipstick on their pig "assets" to keep up the appearance of "solvency." They're also counting on the MSM Court Composers to chime in en masse and opine adoringly on the Emperor's fine clothes -- .i.e., The Great Banking Crisis Is Now Over Folks, Nothing More To See Here, Just Move Along.

VC said...

boom check it...Zh strikes again. sooner than later you may want to consider a Zoro-esque calling card :]

Charts and Coffee said...

New to your blog and a new subscriber. I'm recommending your blog as a good read for my readers. Great stuff.

Anonymous said...

Can someone please answer a simple question:

If CRE delinquencies are rising, and the implosion is near, why is SRS sinking like a stone tied to a boulder?

Anonymous said...

It's like MK-ULTRA, controlling your brain
Suggestive thinking, causing your perspective to change
They wanna rearrange the whole point of view in the ghetto
The fourth branch of the government, want us to settle
A bandana full of glittering, generality
Fighting for freedom and fighting terror, but what's reality?
Martial law is coming soon to the hood, to kill you
While you hanging your flag out your project window

faustroll said...

I note cognitive dissonance in both the buy side and the buy side shills. The dissonance lies not just in the body politic but in the very minds of those who would double down into equity investment in the face of this great debt deflation.

There is hope amongst the ignorant that all the dramatic attempts to inflate the fed balance sheet will somehow have a stabilizing effect. There is hope that the damaged banks are really not so damaged. Dissonance is evident in Mcyntire's convoluted prose and in his inability to think anything through. It is also evident in some people's naive faith that somehow the mighty market has priced the great trainwreck in.

How can the market price anything in when the very process of price discovery is what the powers that be are trying their best to forestall? Larry "the mandarin" Summers himself wrote in a long ago paper that losses on bank books were and are always three times what the banks say they are during a crisis and about twice what the regulators assume. He also wrote that by the time they come clean on the losses it is always already too late.

In an official capacity, he must leave reason at the door and assume the mantle of obscurity that has always been the cloak of the banker. Bankers do not like daylight. They abhor transparency.
They know that theirs is a confidence game.

Would that all the citizens could use the powers of reason to assess the liability in the system. Would that we could take the losses and come clean.

But we, as Marty Wolf has said again and again, we lack the political will. I applaud any honest effort by any person to think this situation through.

A thorough reading of Hyman Minsky will help those who are interested in thinking through the scale of the crisis and what will surely be the eventual inability to prop up the banking system as it is currently organized.

What will happen in the short term and how long the effort to prop up the current Bank Holding Companies will continue is unknown. We can hazard to guess that the authorities know very well how dire the situation is and what great risk is evident. We can also hazard to guess that anyone who does not know how dire the situation is, is not thinking it through. We are reaching the very limits of a system that has gone in for the short term fix during every crisis of the last thirty years.

Tyler is one of the few people who are getting at many of the points of stress in the system. Every time someone says that we are in a liquidity crisis, one can usually safely assume that we are in a solvency crisis.

Do we have the political will to face the crisis? Apparentlly not.
Will Congress give the Fed the authority to unwind a Bank Holding Company?

That question is much more important than where GS or SRS trades next week or next month.

Thank you Tyler for thinking, for using reason. You can bet that you have readers who are in positions of authority who cannot speak as freely but who are appreciative of your efforts.

Anonymous said...

Tyler proves the market CRE market is only CNBC cheap.


Anonymous said...

Color me perplexed. Even if CRE defaults jump to 10%, we're still only looking at $80 billion in losses (I know, it's a weird use of the phrase only). But we already have enough in TARP to cover that amount What gives?

Anonymous said...

When is the question, not if. Every neighborhood around mine has about 1/10 for sale signs in the yards right now and more are on the way (these are not big homes, 90-170K now, though many bought in at inflated prices and those are the ones with the for sale signs).

If I take a casual drive to any of the four or five "bigger" strip malls close by, a few anchors are hanging on (grocery stores mostly but some larger retail that hasn't gone TU yet) plus dollar stores, a hair/nail salon or two, and fast food. The other 60-70% of the properties are empty. These areas are lower to middle class (I read above my punching weight here, and didn't take huge risks).

I know folks at my work who are now middle to upper-middle class, and many of our jobs are at risk in the next 3-6-9 months. Not saying what I do, but it's related to finance and it sickens me that I am the "crazy guy" at my job trying to tell everyone in the office to get right with God or creditors (if you can) - whatever.

New Orleans is my proxy - 5 homicides in the last three days, and you just know some church is gonna get strafed on Easter tomorrow after a couple more killings tonight (they will happen; the place is simmering higher). Miami is my other proxy city.

The one thing I just can't believe is, that I'm going to have to live through this and 15 years ago I told my parents there will be a bad thing happen to these here United States.

Our only hope now is an all-out shooting war where we need to replace heavy equipment fast, and I'm not so sure even that will pull us out.

The cities are going to go down; the countryside is the only (perhaps) safe place.

God help us all.

MAX2205 said...

TIME has been served. Thanks. Freefall over, sure.

Chris Monoki said...

An excellent and detailed post, which has my utmost appreciation.

But there are two things I disagree with. First is FASB's move on FAS 157 mark-to-market, especially on level 3 assets. The recent vote to enable 'significant judgment' on valuing assets when markets are distressed is really nothing new. In fact, FAS 157 had already allowed for it. What was happening, such that accountants do not understand, is that accounting judgment is hardly allowed.

Think of it. Just imagine a publicly traded company use 'significant judgment' in valuing those assets previous their 'reiteration'. Auditors' notes would highlight that judgment. Investors would call it aggressive accounting tactics. And with Sarbox, no CEO and CFO would sign off on it. Thus, even under existing 157 rules, no company dared to use judgment, but the lowest number possible, even if it was far below cash flow value.

Second, FAS 157 is based on the efficient market hypothesis. I'm sure Tyler Durden even knows that markets are inefficient. It's a reason why we're hear. Yet we have a rule that is religious to it. That conflict, in my view, unecessarily destroyed wealth, yet its absense wouldn't be a savior of that value either.

Third, the funneling of taxpayer monies through AIG and into counterparty coffers is a shame, and frustrates this writer. However, it was meant to make whole those counterparties (perhaps to prop up earnings surprise later?) and fulfull those contracts and thus confidence in those CDS products. I see this as a good intention; I don't like that the taxpayer was forced to foot the bill.

Everything else you posted is excellent. Much of the data supports the bear-market rally notion. Much of it, if the trend continues, could turn the world literally upside down. No one is great unwind and resulting deflation as they should, this time being global (see Irving Fisher). We're starting to see social unrest and balk throughout the world.

Keep pressing,
Chris Monoki

Fish Gone Bad said...

Your ability to produce content is just amazing. Thank you.

In Debt We Trust said...

Amazing fundamental analysis! Keep up the good work.

2 markets are already starting to see the effects of inflation -

a) Grains traders

b) Forex

When you replace "taxpayers" w/treasury sellers then everything becomes clearer.

fourthestate said...

What's the solution?

As far as the average person goes, banks have changes some names, the FDIC has stepped in a few places, but bread lines of significance have not formed.

Is mass multi-institutional bankruptcy the answer? Maybe? I have no idea. What's the prescription?

tip c. said...

"That question is much more important than where GS or SRS trades next week or next month."

far more important indeed.

Friedrich Nitzschpik said...

The correct translation is, "When you look into the abyss, the abyss also looks into you." And I sure as hell wasn't talking about economics.

As for Time being "reputable", I am confused on this point: specifically, when have they been reputable? This is the same rag that claimed Intelligent Design wasn't as widely accepted as Darwin's theories only because Darwin had a 150 year jump on ID. Time is garbage.

Benign Brodwicz said...

Tippi Canoe (and Tyler too?):

regarding the forecast - we shall see, won't we?

and that's no bull

and on the subject of "what should be done":

let private losses accrue to private parties, and let the government provide income and health support for the unemployed

Mijadedios said...

Thanks Zerohedge! Awesome post once again. I'm just an average person. No Business background. Still trying to figure out some of the acronyms in this post, but I get the jest of it. Gerald Celente said the next bubble would be the CRE sector, originally Roubini was saying 'L' shaped recession now he's saying it could be a 'U'...either way we (avg.people) are beginning to see it's bad and it's going to get a whole lot worse. no matter what the G20 or the IMF decide it's going to be greater than the great Depression and it will be unavoidable. eventually the US will be disassembled and handed out. I recall a certain Russian Economist who had a story about the US and it's 'prophetic' end being sold off to different Countries. Sounded dumb then but looking plausible every day. It's so sad to be on this side of History, knowing what Freedom was and looking into the abyss of the despotism that stares back at us. Keep Writing!

Kamster said...

Two thumbs up Zero Hedge. Well-developed argument backed by solid data.

Anonymous said...

I gotta say Tyler, your insights are uncanny.

With the list of reasons for an unfortunate outcome growning as rapidly as they are, and an imminant run on the banks is on the horizon, what's the point of attempting to protect the value of your assets?

Isn't the moral of a snowball rolling down the hill getting bigger and bigger that eventually it reaches bottom and destroys everything down there?

How can so many indicators point to disaster yet our leaders, as well as our captain's of industry, continue to put us on the road to ruin instead of working toward softening the blow?

Seriously, if the proverbial final curtain is pulled back (which it seems is happening rather fast) and everything does go by the wayside, what's left? A world of people walking around wondering what happened? Hardly.

tippi said...

touche' amigo.
too f'n shay.

Jonny said...

Perhaps the real schism here should be those who still believe that government is an essentially benign institution there to protect the little guy and make the trains run on time and those who see it for the festering, power crazed pack of jackals that it really is.

This crisis and its bald faced socializing of losses after centuries of privatizing gains while the people responsible for those losses remain in power, unimpeached and, even, gainfully employed is a con job that even Karl Rove could barely dream up. Not only has free market capitalism turned up dead on our door steps, but the spectacular lie of 'democracy' is also shaking loose of its moorings before our eyes.

These are our darkest days.

What we see before us is not a system trying to fix a problem, but rather an elite who, having broken everything they have ever touched, are trying feverishly to save their own positions as lords of the Universe. Enabled by TV anchors who play real journalists on the nightly news and a soporific public barely able to rouse itself from the sofa, they're not only getting away with it... they're able to elaborately throw their voices and get us fixated on this, that and another: AIG's meaningless bonus pool, fall guy Bernie Madoff, a bit of piracy on the high seas.

99% of people deserve exactly what they are going to get, sadly. They didn't care enough to even care a bit.

Anonymous said...


You’ve done a great cut and paste...but how about some historical context since you are taking Realpoints analysis and using it in a manner it was not intended?

All the graphs go back to only 2005 or 2006…how does that tell me much? Other than how we are today relative to the "best of times" in commercial real estate? Try going further back in time to some period useful to me, unless you are just trying to scare me. And also, try using % of balance…the use of dollars is misleading (since you are using it as a scare piece) as the volume of CMBS is skewed towards recent years.

"Such ratios above 1% reflect levels not seen in since April 2005"
Ahhh, the dreaded year of 2005, how could we forget that was… uhh, umm...well uhhh. Why exactly did you highlight that?

So just in the last month, Deliq rates increased 0.15%,...or annualized that’s 1.8% default rate. In a historical context that means what? Can you compare that to some other point in history that actually makes sense (besides the dreaded year of 2005, or the go-go years of 2007/2007)? How about comparing that rate with other times in history when we were 1+ years into a bad recession. That might be helpful in putting it into context for me.

"that the delinquency percentage through February 2009 is more than three times the 0.399% reported one-year prior in February 2008."
That is a big increase, most of which was in the last 6 months too. Feb 2008 was basically all time lows in delinq rates, doesn’t reflect any kind of normal delinq rate. Secondly, the credit crisis is almost 2 years old now, and also a year of recession (and a nasty one at that). Historical context would be helpful again here, unless the point is just to scare people.

""V-shaped recovery" indeed. But let's continue:"
While i don’t think there will be a V shaped recovery either...none of what you have presented to this point tells me anything since you have yet to put anything in any real historical context which relates to say another recession (and no, i don’t think 2001 counts).

Same comments on special servicing...use of $ instead of % is misleading along with the timeframe. Servicers are definitely swamped, that’s for sure, but servicers didn’t need to expand along with the increase of new issue since delinq rates were so low. They weren’t prepared for the volume created in 2005/2006/2007. The historical context, again, as it is related to the best of times, tells me little of real value from the presented info.

"an additional 16% of total delinquency is found meaning over 67% of CMBS delinquency comes from the 2005 to 2007 vintage "
More misleading info for your scare piece. Most of the 837billion CMBS loans were made in 2005,2006,2007, so it should be skewed.
Those three years are seeing outsized problems, as they should be...peak valuations, low points in quality of underwriting etc. But let us put those loans in a historical context (what you failed to do). Let us compare them to similar loans made in the late 80s and how they performed during 1991/1992. 2006/2007 loans currently have an annual default rate of maybe 2 or 3% after a year+ of nasty recession. Compare that to a default rate in mid/late 80s vintage loans that had annual default rates of 6 to 10% during the recession of 1991/2.
There we go, historical context, that is something I can use.

"Focusing on deals that have seasoned for at least one year, the investigation reveals the following:
This data presented in bullets below this statement shows again that we are at an annualized 2% delinq rate. Realpoint used % and not $’s here, made your cut and paste easier without any math.

You have gone from "just a guy with a Schwab account who posted some market color and occasionally a cap arb trade or two", to " just a guy with a Schwab account who can copy and paste scary posts with misleading headers and info".

I guess the latter does create more traffic here and was the natural game theory outcome I suppose, so I shouldn’t be surprised.

fourthestate said...

Isn't the point of systemic risk that losses get socialized either way? Again, what's the appropriate policy prescription? Maybe someone can direct me to a link on zerohedge...?

Anonymous said...

@Anon 6:44

Because the people buying right now truly believe a corner has been turned. The stock market isn't always the bleeding edge of reality.

Anonymous said...

I have inside baseball knowledge on CRE and the nightmare has only begun. Major developers are going bk.

I became hooked on this blog with Tyler's KIMCO story. Best fucking piece I've read in a long time.

This entire fucking rally is based on nothing. Black swan event may be happening soon... Nothing is better. And the banks are stealing so much fucking money from the taxpayer that I highly doubt the theft is going to spread to other industries, the banksters need to steal too much.

God bless the USA, Lord knows we need it.

Anonymous said...

Anon 8:45 - this is the tip of the sword, so to speak.

You aren't listening when folks are telling you that defaults large and small are going to increase due to way more people being laid off.

Those loans may perform for a few more months, but after that, no more.

Trust me on this one, if you don't find it in yourself to trust anyone else.

I'm in a "middle class" neighborhood that is about to get wiped out in the next 3-6-9 months. Cross-check the mortgage and car and credit loan originations/balances/defaults, and then you shall see.

Ah well, if not... play your cards. I don't have any to play and there are a lot more like me out here.

goose said...

TD, great post as always. Here are the top ten signs you are living in a banana republic. Similar theme to your piece more comedic. Your piece is very well written I have sent it around the blogosphere.

Anonymous said...

Anon @ 8:45 = Fat Larry?

sweet! said...

Good post, and is only the tip of the iceberg. Tyler, while RealPoint is great for "rated" CMBS intelligence, drill down to subordinate level CUSIP bond detail and follow the breadcrumbs. Make sure to look up and down the stack & then think about 157 & CDS counterparties....not pretty. I'd suspect RealPoint's light a good 25-40% on timing and severity of default.

Anonymous said...

Well I thought it was a good post. But I also had to do a double take when the comparison was made to 2005?!?
And then I was thinking to myself how much frickin typing it took to make this post and you say it's all cut and paste? Jeez!
Anyway the key is the reply story describing the vacancies out in the real world.
I work in soybeans. Up 15 percent or so from the lows. If we get a hot and dry summer I guarantee social unrest and ski-hi food prices....pray for rain!

Anonymous said...

External events beyond our control may be the tipping point given our precarious state.

But eeven if no such event occurs, I do wonder what to do. It appears that no counterparty is safe.

Anonymous said...

They say $12 trillion has been spent so far to tackle this crisis (TARP, stimulus, Fed shenanigans, etc.)

My question is, how many more trillions will it take?

The problem is not the loans themselves defaulting, it's the derivatives tied to the loans. I think people don't understand or are overlooking that point.

You can have default rates of "only" 5%, but how many billions (or trillions) are tied to those defaults?

t42 said...

Are we all daft? There is no humanly possible way that any one (or two individuals) could churn out the volume and quality of original research we are all lucky enough to be privy to here.

Lets think about the variety of sources and markets on which "Tyler" posts. He's like a one man hospital emergency room TV show where all the twenty-something interns/doctors are experts on everything. Not meant to be a slight in any way; rather my post is meant to be the supreme compliment to ZeroHedge.

But lets not be so gullible as to think that this blog is solely the work of our dynamic duo here. No two individuals can have such command over equity, FX, credit, derivative, commodity markets let alone politics, central banking and world order as ZH's Batman and Robin.

Thank you ZH for your original, insightful and thought provoking research. But come out of the closet a bit....although I agree agree with 90% of your posts, it would be nice to get some context. Perhaps, on the other hand, it is better this way; without the baggage that comes with a known background. But i'm still curious and do know this site's not just the product of two Wall St guys on the beach!


Commissioner Gordon

ps i did watch Batman, Green Hornet, Speedracer, Little Rascals on a B&W TV after school everyday...but never liked the Three Stooges that much.......

jack said...

The first rule of Fight Club is:
you do not talk about Fight Club.

Anonymous said...

t42: don't ask why or how it's all here; it is.

how it gets here we don't need to know, just that it does.

act appropriately.

Tyler Durden may not be one person, but the blog is the finest around on the financial scene and that's why you see so many folks coming here for the insights.

i don't really care if it's one guy or 100 - do you know of any other (English-language) site that gives such riveting and detailed analysis?

I don't, and I doubt I will until much longer on the line to zero...

Until then, I'll read here and search out other sources.

Something big is about to happen, count on that.

Anonymous said...

Darkest Before Dawn.

Time to buy.

I actually bought as much stocks as possible as SnP approaches my 600 target. SnP bounced at 666.

Well, what is 66 points anyway.

Articles like this give contrarian investors a better handle of the situation.

If you buy when the first lights of dawn appears on the horizon - you will be buying at SnP 1100 or 1200 instead of 600 or 700 levels.

This is the crisis of the century folks. Most likely we will never see this type of crisis again in our lifetime.

Stupid not to take advantage of such a crisis at a time when the whole world seems to be falling to pieces.

Glad I did not invest on the way up to Dow Jones 14,200.

Zero Hedge, I think is a trend follower. Trend followers tend to make so many correct forecasts while the trend was in progress. Very satisfying, and very addictive to the ego.

Problem is when the trend reverses, those same trend followers go through the process of disbelief and denial and will only accept that a new trend is already in progress under overwhelming facts and after a prolonged period of time of positive data releases.

Don't fall in love with the trend, folks.

It is simply too normal to expect so many trend followers to fall in love with the trend either to the upside or the downside specially at the extreme end of the trend.

Anonymous said...

This post would carry a lot more weight if you hadn't been long SRS for a 60% haircut. There's talking your book and then there's being just flat out wrong. Like most good analysts you can't connect the dots between your analysis and the market....

Anonymous said...

@ 12:21: can you just crawl back into the hole you came out of - you have nothing at all of value to contribute to this thread. if you disagree with tyler's analysis either present opposing arguments or go buy Time magazine and jerk off to McIntyre's McIdiotic rant.

Anonymous said...

"I love watch'n the money fires..."

Anonymous said...

There's gotta be a plan "B." There's just gotta be.

Simply more of plan "A" isn't going to cut it. Clearly, this is bigger than having just one plan. Right?

Anonymous said...

Plan B:

Anonymous said...

Great blog guys,

Thanks for all your hard work and detailed analysis, but it would be interesting to get your views on what the end-game is here?

It seems that if the banks are successful and the gov doesn't experience a failed treasury auction, we could be in for a decade or more of deflation (a horrible investing climate), a la Japan. If they're not successful, and things get markedly worse (likely), then we could be looking at a decade or more of what Argentina went through.

What's sad to me is that people see the stock market going up and get on the bandwagon without realizing that these processes take many years to work themselves through the system. Robert Reich is right. We're barely at the beginning of this thing.

SRS Player said...

Thank you! Persuasive argument, irrefutable data & charts, powerful summary & conclusion. Superb job.

Anonymous said...

Anon @ 11:33

That's nice that you are declaring victory after the fact - posting next time as you enter would be nicer.

So, the question is - how do you know this is the darkest before the dawn - that it can't get any darker. Many people called the top too early with great fundamental reasoning. You think you can nail the bottom without even having justification - it's that easy, just pick a number? (based on past downturns or whatever)

Trends begin and end, but for a trend over a decade (or decades) to resume after a couple years with essentially nothing done to fix anything except sweep things under the carpet puts the burden of proof on the contrarian.

I guess that makes Time magazine a fellow contrarian.

Anonymous said...

Endgame is ebb tide for financialization.

Make money while you can if that's your game; hopefully you'll be able to buy something.

Anonymous said...

"What happens after I have no idea."

Okay. Allow me.

1.) MUCH higher taxes. The socializing of costs and privatizing of profits at this scale means that "we" have to pay for all of this. And do not, for even a minute, believe that it will only be our grandchildren who have to pay. Our bill is already in the mail.

2.) MUCH lower dollar. The recent strength in the dollar is temporary. Eventually, (my guess is that it happens before 1/1/10) investors around the globe will decide that they can no longer accept what is being done to the dollar. A number of American experts and officials have pooh-poohed this as unlikely or impossible. The funny thing is, you could almost take their quotes verbatim and paste them into the interviews with American auto executives in the 60s and 70s when asked about the threat of Japanese autos. BTW, the people who think that this is a clever way to boost our competitiveness in export markets need to read #3.

3.) (Global) Demand implosion. Aggregate demand is already down in the US, China, Britain, and Italy, and is outright negative in all of those but China (of course, who knows about THEIR numbers?!). With the world's two largest economies having -6% and -12% GDP growth already, imagine what these numbers will look like when everyone wipes the fairy dust from their eyes and sees the hard truth of the numbers you've presented. Classic debt-deflationary cycle, which, although cleansing in the long-run, tends to be absolutely brutal to actually go through.

Result for investors; a plunge to even lower lows than November 08 or March 09, with no snap-back rally in sight. If you were planning to buy a home or automobile or even stocks this year, seriously, wait until next year. You'll be glad you did.

Anonymous said...

Anonymous said...

Please permit me to contribute to these thought-provoking comments:

1) The current global crisis is the end result of at least 20 years of economic and political rule-changing and greedy overreaching by the financial and government elite. Look at a multi-decade chart of the S&P: it went ballistic in the late 1980's when financial laws were changed to benefit Wall Street.

2)A 20-year global asset bubble has burst, and it cannot be re-inflated in this short a time, by these pathetic methods.

3)This crisis is steadily revealing to more & more people what some (like Tyler & Jonny already knew): just how deceitful, criminal, and co-conspiring the financial industry & the government are.

4) The derivative mortgage-backed securities "time-bombs" are more extensive, widespread, and dangerous than most people know or are willing to admit. All the banks, the FED, the Treasury, the White House, Congress, & mainstream media are covering up the banks' insolvency.

5) Financially dependent on Wall Street, and fearing a global financial crash, depression, and social violence, the government is trying desperately to "prop up" the banks, the stock market, and the economy, via Japan-style methods instead of by the smarter-but-harder Sweden style methods.

6) These efforts will cause bear-market rallies temporarily, but these rallies will all fail, and the bear market will resume until the deleveraging and deflationary problems work themselves out fully, over years not months.

7) The corporate-state elite are betraying the common people for generations to come. By protecting the likes of AIG and Citigroup from receivership and dismantling, our national debt will grow by tens of trillions of dollars by the time this crisis is over. How long will $20-40 trillion take to pay off?

8) As Anonymous said above, taxes will rise and the dollar will fall. As a result, the standard of living of average Americans will suffer and stay depressed for decades. We will have less after-taxes dollars & those dollars will buy far less.

9) Eventually, China, Japan, Russia, and Saudi Arabia, etc. will buy less of our debt, and even start selling our Treasuries. Facing default, a credit downgrade (and national disgrace), the government will be forced to pay down its astronomical debt & deficits by severely cutting Social Security, Medicare, Medicaid, other safety nets, and military spending.

10) Economic suffering and social tensions will cause crime, violence, and civil unrest to increase. There will be political upheavals. Our democratic processes and our constitutional rights will be severely tested.

How the balance of power and the sharing of wealth between the elites and the common people in America turn out will depend upon how active the people become in demanding the kind of life & future we desire & deserve.

It usually takes a Great Depression or a war before average people organize to demand justice & greater equality with the rich & powerful.

This is clearly a historic crisis: not just financial or economic, but political, social, ethical, and very personal.

Anonymous said...

Can IYR and SRS have done what they have done without major market manipulation?

FWIW, I follow NeoWave trading and learned it from Glenn Neely with his course as a floor trader 25years ago.

IYR looks like a textbook A-B-C where the C leg is pennies from being equal to the A leg in length. If we stop here, and at a channel line too, it screams correction. Print a 60 minute chart of IYR going back to December, put it on the wall and walk 10 feet away. It should look like this was a major correction in price and time due to the time and length spent going down, which should now continue. But with market manipulation and deals done in private with GS (who I accept as being the 4th branch of government) anything is possible.

I hope Milton Friedman was right when he said markets will go where they are going, and we can try to steer the ship in small ways, but it will end up at its destination regardless.


Anonymous said...

Great blog - learning a lot !! Here is another graph you can use sometime; not really to do with anything in particular but kind of makes more sense now...

Anonymous said...

Alright, I'm sorry. Didn't mean to hurt your feelings. I'll meet T2 down at 85 Broad St so we can hug-it-out!

Jus saying, pull back the f'in curtain already. If you want credibility these days you cannot present yourself as a cartoon character from a old movie, no? Especially if you're making the kind of calls that you are making. We all have enough drama Sunday pm - Friday pm.

Present a balanced story and I'll stop having to guess that you're a losing quant trying to get everyone to run to the other side of the TippiCanoe. (Obviously not MITers, NYU? The cult of Backus?)

I agree with so many of the arguments that you make. But one argument that I never see on this site is:

In a country that has a monetary unit that is tied to thin air, can the Fed outspend a worldwide financial disaster? Well, we all know the answer to that question. Damn the consequences. And that my friend has enormous impacts on the short term, and long. Place your trades accordingly.

Best of luck.

Anonymous said...

The FT ran a story Friday which linked to Greenspan's infamous 66' Randian essay

"Gold and Economic Freedom".

When they link to his 99" quote"

"gold is still the ultimate forma of imes of stress, nothing else will do"

it is time to worry.

Anonymous said...

Oh btw, comparing CMBS or anything financial requires skill and perspective.

CMBS today vs. CMBS in 2005,06,07 is comparing apples to oranges. Boom vs. bust.

As the say in real estate, show me comps. Show me CMBS for every downturn past to present. Maybe adjust for inflation, interest rates, shift of worldwide wealth.

Did you know many of the real estate transactions that were done over the last 5 years had a seller and a buyer (winner$$ and loser).

Where did that winning money go? Did they throw it in the money hole?

Anonymous said...

Furthermore, if you wanted to present a balanced article you would include facts like:

1)How many Americans own their property(residential and or commercial) outright without mortgage or liens.

That one is a confidence booster, and may surprise people reading this blog.

I believe in further corrections in this downturn, but my opinions are tempered with balanced facts.

crabsofsteel said...

To answer anonymous, about half of US residential real estate is mortgaged. I don't know the answer for commercial mortgages.

I agree with much of what Tyler says, but the mountain of statistics is overwhelming and belabors his point. The resi market is ten times the size of the commercial market, so its behavior is much more important to the economy as a whole.

Anonymous said...

And finally,
Fuck the commercial vanity monkeys like Trump he will always net-net lose.

Show me that Ted Turner's(the largest land owner in this country)portfolio is close to default and I might raise an eyebrow.

Show me Turner's buying and I'll tell you 'I told you so'.

Check it.

Anonymous said...

great write, thanks a lot!

DABbio said...

Anonymous @ 3:55 am pretty much sums it up.

T2 said...

tyler@8:05 --

in the spirit of full disclosure, tippi canoe & tyler too are no more tyler and than u are tyler, or that tyler of ZH is the tyler of FC.

on the flip, in the spirit of FC, we are all are tylers, hence the name.

...i'ma tyler, he'sa tyler, u'rea tyler too...

this tyler respectfully suggests that maybe all of us tylers should go rent the film from NFLX and watch it again, as there's some subtlities in there that may have not been fully apparent on 1st viewing that have been uncovered in the last 8 years, especially the last 8 months.

in fact, this tyler chooses to believe that there are also tylers lurking in the bowels of manhat and DC and the core of the problem is that those tylers refuse to admit to anyone (most of all to themselves) that they are in fact tylers too, masquerading in their own 'identity' doing everything they can to prevent the appearance of their inner tylers.

i present our fair president as example par excellence (but that is simply a subjective view that is flexible based on future decisions).

as far as TD:ZH talking his book, EVERYONE is talking their book, whether or not they choose to disclose their true 'identity'.

Krugman, Mankiw, Roubini, Dimondog, Pandit the Bandit, Bernanke, Summers, Obama, Wen Jiabao, Putin, Soros, Rogers, Yves Smith, Bill Black, Simon Johnson, etc, etc, etc are ALL talking their 'book'. even good ol' Martin Armstrong (god bless him) typing away in the prison library is talking his book, in that his 'book' is personal vindication, justly or not (depending upon your own subjective viewpoint, for which in this case, you and i happen to agree on).

in that TD:ZH is disclosing his inner 'tyler', one could make the case that he at least he is being more intellectually and ethically honest in not masquerading around in his true 'identity' without full disclosure of his shadow side. this tyler finds it difficult to make the same case for most of the others in that above list.

whether or not you agree, is not the real point that we should be all applying our own personal multiplier on how we discount each 'book' in disclosing true 'reality'? for does not 'value', 'identity', 'truth' and 'reality' itself underneath its cloak of objectivity have a subjective core (and vice versa)?

is not that one of the fundamental issues that these times are revealing to us all?

with all said (and apologies to all for the long digression), i'm still down to have a hugs & fist-a-cuffs session with you and the other tylers on the corner of broad & pearl....if for no other reason than to further pull back the curtain dead center in the middle of the throne room so that we can more fully illuminate the deep crevasses that exist below the surface.

until then, a 1931 vintage honest abe back at'ya...

T2 said...

1st paragraph above revised:

in the spirit of full disclosure, tippi canoe & tyler too are no more the tyler of ZH than u are tyler of ZH or that the tyler of ZH is the tyler of FC.

Anonymous said...

Your quant spends a lot of time correcting flawed logic.

I agree you're all a bunch of Hollywood rooted fight club boys so it's a fitting description.

In your weight class I'm Urijah Faber, not TD. Wearing the belt and getting paid for real. Good day.

Hollywood vs reality

t not t said...

sorry to disappoint ya, but i haven't watched a movie for a solid 5 years, save for a long plane ride where i caught a triple feature of Dr. Strangelove, Vertigo & Fantasia.

plus, i thought FC was much better as a book than a movie.

and sorry, don't know Faber but i do know James Brown. congrats on your belt. i'm sure you wear it proudly.

as to the cloak of anonymity that you wear here, you might wanna check it for any flaws of transparency...

...especially to anyone that has travelled to your virtual Rome, visited the Forum and read the Old Testament (especially the 1st chapter)...

Ego unveils us all eventually, amigo, belt wearers included. please accept my sincere apologies for not including you and your boy mish in the list above.

of course, i could always be mistaken, but please be advised that it won't be because your possible future attempts to throw me off the scent.

if i am correct, i must take this opportunity to commend you for your disembodied CNBC appearance a couple months back. that smirk that Jimbo gave when he realized who it *really* was on the call -- priceless...

how's that for an easter egg?

Anonymous said...

So 50% of all home owners do not have a mortgage - YET?

As those same 50% move into retirment and realize that the average public/private pension funds have blown up. And that the average 50-65 year old has about $61,000 in thier 401K where do you think their retirement money is going to come from?

With respect to residential real estate, what is going to happen in May (particularily in California) after the 6 month halt on forclosures comes to an end?

Some local color, i am a Canadian. Lake Loiuse ski resort had thier slowest March since
1981. Great snow, but no UK, Japanese and few U.S.A guests. Just came back from Maui. The
4seasons Maui, 55% occuptancy (through canadain and us spring breaks). Worse for them Christmas reservations normally see a roll of about 80%-90% year on year (as you leave christmas 2008 you book christmas 2009). This year thier roll is about 40%.

Anonymous said...

A lot of data presented, but unfortunately no meat on the bone for me.
CRE delinquencies lag a recovery.
In the early 90s, CRE delinquencies continued to increase well after the end of the recession, peaking dramatically higher about a year after the recession ended.

I dont belive there will be a V shaped recovery, but this post does a poor job of connecting the dots between CRE defaults and an L shaped recovery. Especially considering there are so many other subjects that can be discussed that would support your case.

Danny Taggart said...

Wow. This blog sure has blown up in the past week.

For all accusing "Tyler" of being underwater egregious amounts of SRS, can someone please show me the link to where he posts real time trades, etc because I sure haven't seen it.

Anonymous said...

Gotta agree with anon April 11, 2009 8:45 PM and anon April 12, 2009 5:15 PM... most of Tyler's realpoint data is taken WAY out of context. everyone in the industry knows that talking about delinquencies in %'s is the way media makes mountains out of mole hills.

However, this data is just writing on the wall... just arrows that point in a certain direction. For that purpose alone, I guess its a good 'informational post.'

Everyone knows that Stuytown is going down...

Anonymous said...

Bailing out bankers, yet another infringement on our rights by the gov't. Add it to the ever-growing list of violations:
They violate the 1st Amendment by opening mail, caging demonstrators and banning books like "America Deceived" from Amazon, Wikipedia and Facebook.
They violate the 2nd Amendment by confiscating guns during Katrina.
They violate the 4th Amendment by conducting warrant-less wiretaps.
They violate the 5th and 6th Amendment by suspending habeas corpus.
They violate the 8th Amendment by torturing at Gitmo.
They violate the entire Constitution by starting illegal wars without declaration.
Impeach them all (both parties) and save this great country.
Last link (unless Google Books caves to the gov't and drops the title):
America Deceived (book)


This article is very timely and relevant. As I quote Cameron Muir, an economist, "Home sales are unlikely to fall much further..That being said we expect home sales not to decline much further."

But it's never too late, with the right business plan set up, it will lead to valuable outcome. This is what most counselors would give as an advise.

Anonymous said...

"Bailing out bankers, yet another infringement on our rights by the gov't. Add it to the ever-growing list of violations:
They violate the 1st Amendment by opening mail, caging demonstrators and banning books like "America Deceived" from Amazon, Wikipedia and Facebook.
They violate the 2nd Amendment by confiscating guns during Katrina.
They violate the 4th Amendment by conducting warrant-less wiretaps.
They violate the 5th and 6th Amendment by suspending habeas corpus.
They violate the 8th Amendment by torturing at Gitmo.
They violate the entire Constitution by starting illegal wars without declaration.
Impeach them all (both parties) and save this great country.
Last link (unless Google Books caves to the gov't and drops the title):
America Deceived (book)"

Thanks for the above truth.
The Canadian Banks are OK
The Canadian Healthcare system is OK
The Canadian immigration system is OK