Shenandoah

by John Galt

January 17, 2010

Shocker. The Wall Street Journal pops this headline this afternoon just as I was thinking the Commercial Real Estate (CRE) crisis was over:

Moody’s: CMBS Delinquencies Rise To 4.9%; 8%-9% Seen This Year

The astonishing thing is that people fail to realize, such as the writer’s in this Wall Street Journal article about Moody’s expectations, that they must underestimate the poor Q4 retail season’s impact on the CRE market. It was far worse in the largest states and that is the dirty little secret. When you look at this chart from the Mortgage Banker’s Association Q3 report on loan origination, you understand instantly the problems our commercial real estate markets have encountered and now appear to be worsening as the economy plods along:’

The graph above pretty much sums it up. With a base quarterly average of 100 based on the year of 2001, we are at 47% lower origination levels than that time period and there is no indication that the banking community is about to loosen the purse strings and start the process of loaning money in same fashion that they did in 2005-2007 insanity period. There were loans given on signatures, loan given on future purchases of assets or land, loans granted using incomplete projects as collateral, and loans granted to projects that would not be viable for upwards of half a decade. And now everyone is wondering why, with all of the bank failures, controls imposed from the FDIC, and meddling by lawmakers, the banks are not loaning in such an irresponsible manner again to save their pathetic political hides?

The most damning part of the report which the Bubblevision nor Mainstream Media will cover is this paragraph:

SOURCE: MBA Q3 Quarterly Survey of Multifamily/Commercial Bankers Origination

In other words, no money is being borrowed because it is impossible to qualify based on the terms that are oh so nebulous and distorted by the government’s actions and the mystery surrounding what will be the future for the traditional community, regional and super-national commercial banking sector. With the horrid retail season this past December, and I do mean horrid do not let the public pronouncements fool you, the retail sector will be triggering a wave of CRE defaults that will unfortunately have a shocking after effect that will ripple through the lending sector and worse, the pension and state investing sectors for years to come. Why the states? A ton of state officers in charge of their pension and general obligation funds piled monies into the CMBS side of the equation based on false promises given to them by the investment banks and their shyster boiler room operations. In other words, as I wrote about over almost two years ago; “Municide.”

Thus why I feel the Commercial Real Estate not only based on my professional exposure to the industry but the foolishness of the government’s at the city, county, state and of course Federal levels will continue to compound a problem that should never been allowed to exist in the first place if sound banking practices were practiced. When one adds the resets of the Alt-A and Option ARM residential portfolios that are about to expand exponentially along with the Commercial Real Estate debt that requires a massive roll over in the next 18 months (Estimates range from $800 Billion to $1.5 Trillion) not counting outright bankruptcies and defaults, then the nightmare of a deterioration in cash flow with the inability to find buyers for existing asset backed securities that need to be shuffled off of the books becomes more than quite apparent. I don’t care how many different labels and shovels you use to move piles of steaming crap, in the end, it is just that. The revisions to FASB-157 only enabled the banks to print more labels and delay the inevitable.

“Oh, but there’s a recover underway” the apologists will scream. Uh, yeah, okay, let’s check out that recovery.

Thank you again to all of our friends at www.chartoftheday.com as that chart says it all. Not only is the GDP bounce minimal at best in Q3 2009, but the equity markets, not even adjusted for inflation, looking weak by comparison to all prior “recoveries” as projected in the chart above. Why is this important? Some reality set in on the market this week when people took a peek at the non-seasonally adjusted first time unemployment filings which pretty much indicated that last week was no improvement over 2008 and when you review the chart I post ed in the link just mentioned, it means that the deterioration in hiring and layoffs continued no matter what the statistical voodoo experts claimed. Need more proof?

That is not some “John Galt” induced hallucination. That information is straight from the BLS and what should concern most sane people is the depths of the deterioration in the jobs market and just what that means with the lack of lending plus future business projections for most small corporations and companies. It means they are not hiring and this situation is not about to improve. For example, from the same BLS database, you can see what is happening in many of the largest states by population in the U.S.:

Uh, that would be 8 of the largest states in the union if my math doesn’t fail me. Then again, I did not attend Obamacommiemath 101 so maybe it only equals a few counties in each state so I’m getting excited for nothing. Or am I? Let’s look at the local stats as the BLS breaks it down to see if those large cities may or may not be hurting:

Sucks to be anyone that lives there.

Oh, crap. Wait a sec. I live in the Tampa-St. Petersburg-Clearwater statistical BEA. I’m screwed when I get fired I guess. Back to selling apples and dressing my cat up like a monkey to selling pencils to make ends meet.

While many might want to say that “things are getting better,” their own stats when revealed tell otherwise:

Thus from the data above it is not a reach to figure out that not only are employees being laid off our cut back, but once they attempt to find a job via the government the duration of unemployment is an expanding, not contracting figure as would be the norm during an economic “recovery” as they would have you believe.

So just how bad is it?  Here is our own government’s decadal projections with my highlights that indicate that a rude joke is about to slap the American worker in the face:

Thus according to the government, Bubblevision, the Bubbleconomists, and those Ivy League educated “experts” the United States is supposed to expand its economic strength and export base with a declining Manufacturing base, expanding “business service” base, and the myth that anyone besides the government will be building anything above Eisenhower Era levels in the construction industry. Believe but you want but the Construction projection barring a Panama Canal type project makes me chuckle. And cry.

This brings the question about; why would anyone be so bearish based on the amount of leverage the Fed is injecting into the economy and the absolute commitment to attempting a life altering hyperinflationary restart the Fed has attempted? The STAGFLATIONARY nightmare their monetary creation has attempted will only be answered with a massive stall as the lack of belief and trust in our government becomes apparent. Thus you can start to do what I did and tie it all together:

No jobs, no expansion beyond government, thus no consumer spending, thus more residential and consumer defaults, thus more credit problems, thus lather, rinse, repeat.

The savior of most economic downturns voted also and the folks at www. clusterstock.ocm captured the reality from the NFIB (National Federation of Independent Businesses) who think that sales will indeed turn further into the toilet instead of creating this groundswell of “patriotic hiring” we are expected to see:

So let us review the near future:

1. Little chance of a recovery in the Residential real estate market.

2. Jobs growth, if any, will keep the “official” rate above 10% for U-3 and well above 20% in the U-6 category.

3. Small business is hunkering down because they do not trust one damned soul in govenrment.

4. Tax policy could break the back of the economy but few care because 54% of the population gets a government hand out of some sort.

Damn.

We’re toast.

And that’s not even with my getting into the long term technical charts for the dollar and S&P to warn everyone just how bad their index based 401K’s and IRA’s are about to get reemed!!!!

BOHICA.

It is about to get ugly.

Later on, I drop some charts few review, few watch and some u-g-l-y projections on the economy. Sorry I postponed it but my wife needed a hug and so did I.