skip to Main Content
thehousingbubble@gmail.com

Participants Saw The Growing Economic Calamity And Realized The Assumptions They Had No Longer Worked

A report from Market Watch. “The coronavirus pandemic has turned the $4.4 trillion U.S. commercial real estate finance market upside down. Moody’s analysts warned that property-level ‘cash-flow stress, particularly across hotels and retail properties,’ will trigger more defaults. In the first two weeks of the U.S. coronavirus outbreak, more than 2,600 borrowers with CMBS loans sought potential debt relief, according to Fitch Ratings, which tracked 47% of the relief requests to hotel assets and 30% to retail properties.”

“How bad could things get? After commercial property spent years soaring to new heights, values slipped 1.3% in March, according to Green Street’s Commercial Property Price Index, and the real estate tracker’s Peter Rothemund sees potential for the hardest-hit sectors to tumble 30%.”

From Bisnow. “Pending commercial real estate transactions are falling through more often as buyers change price expectations amid the coronavirus pandemic and economic slowdown. In another sign of market weakness and illiquidity, the number of buyers dwindled. The sharp drop comes as financing for many property types, from student housing to fully leased office buildings, becomes less available and buyers become more uncertain of likely revenues, especially in the short-term.”

“Investors and brokers say many in capital markets are effectively on the sidelines, at least until a more firm timeline for reopening arises. ‘A rising number of busted deals shows that participants saw the growing economic calamity and realized that the assumptions they had in place for transactions no longer worked,’ RCA Senior Vice President Jim Costello wrote.”

From Real Estate Weekly on New York. “New figures from the Rent Guidelines Board paint a grim picture of the city’s stock of stabilized housing, according to landlord groups. ‘Building operating expenses continue to increase faster than building income,’ said Joe Strasburg, president of the Rent Stabilization Association, which represents 25,000 landlords of the nearly 1 million rent-stabilized apartments in the five borough. ‘This is the formula for a housing disaster – and coupled with the draconian changes to the state rent laws last year, we are heading down that road fast.'”

“In its latest Income and Expense Report, which the city uses to calculate annual rent increases on rent-stabilized housing units, the RGB found net operating income of rent-stabilized landlords fell in 2018 for the first time in more than a decade.”

The Southwest Journal in Minnesota. “Some Minnesota landlords have barely registered a change in payment, while others have seen a jump to 25% nonpayment, according to a recent survey of 28,000 units by the Minnesota Multi Housing Association. Dawn Zugay, interim co-executive director of the Conflict Resolution Center in the Wedge, expects to handle more remote mediation sessions between renters and landlords while the courts are closed. ‘There aren’t a lot of other alternatives right now and everybody’s facing a crisis,’ she said.”

“She’s hearing from renters who can’t pay rent and landlords who can’t pay the mortgage. ‘There’s a lot of desperation on both sides,’ she said.”

From Bisnow on Massachusetts. “Massachusetts is poised to enact a moratorium on most eviction and foreclosure proceedings, which property owners say will give tenants a free ride at their expense. Landlords fear tenants will take advantage of the moratorium’s protections and quit paying rent even if the pandemic hasn’t hurt them. ‘This whole approach, in my opinion, is completely wrong,’ said Ray Smalley, who owns three apartment properties in Holyoke. ‘If the tenants can’t pay the rent, the landlords can’t pay the mortgage. The bank can’t pay its investors. Do we want the whole financial system to collapse?'”

From KQED in California. “On April 6, the state Judicial Council suspended new eviction filings for 90 days after the state of emergency is lifted. It was a decision that tipped the balance of power in favor of tenants, according to attorneys who represent both landlords and renters, and one that property law experts and activists say could have major ripple effects across California’s housing market for months, if not years, to come.”

“‘It used to be a landlords’ market, but now it’s a renters’ market,’ said Gustavo Lopez, a realtor and property manager for a dozen rentals in the San Francisco Bay Area. ‘Nobody saw this coming.'”

“Andy Kim and his wife purchased a four-unit apartment building in Oakland’s Eastmont neighborhood last year. Most of the tenants use Section 8 vouchers to subsidize their rents, Kim said. And two of them couldn’t make payments this month. Kim said he has no plans to evict his tenants. But he doesn’t know how long he can cover his mortgage without their rent.”

“‘We can do maybe six months, and then we’ll be forced to sell the building,’ he said, adding that the time frame includes getting his bank to agree to a forbearance on the mortgage and taking out loans. ‘If I don’t pay for April, May and June, my bank won’t charge interest, but come July, I have to pay in full,’ he said. ‘And if I don’t pay anything until then, I will have a really big bill.'”

The Redlands Daily Facts in California. “It turns out that all those bills the Legislature passed over the last 18 months to make denser housing commonplace in California for relief of the longtime housing crunch may suddenly be rendered irrelevant by a virus. Gov. Gavin Newsom spent much of the last two years lecturing California citizens and cities that they must OK construction of 3.5 million new dwelling units before the end of 2025 to slake California’s thirst for housing. That would have been a pace of about 700,000 new units per year, roughly five times what was actually built in Newsom’s first full year as governor and far more units than there are financially qualified buyers.”

“Countless corporations, from telemarketers to newspapers and law firms, have sent their white-collar workers home to use kitchen and dining room tables while cubicles stand empty. Millions of square feet of office space, maybe billions, are idle.”

“No dummies, some executives now realize they never really needed all that office space. And some workers are coming to understand they don’t really need to spend hours each day fighting traffic jams. What happens then to all that office space? Already the owners — including real estate investment trusts (REITs) whose shareholders suddenly see their stock values plummeting and dividends drying up – are near panic.”

“Said one multi-billion-dollar REIT (or is it really worth that much now, with tenants refusing to pay rent and government edicts preventing evictions?) in a letter to stockholders, ‘The COVID-19 pandemic has drastically impacted the viability and valuation of almost all types of commercial real estate.’ The solution to that REIT’s problem is obvious — and it’s also the answer to California’s housing problem: Sell off a lot of that office space as apartments and condominiums.”

From Real Estate Miami Beach in Florida. “The developers of Eighteen Sunset, approved as a luxury residential building with retail and restaurant space in Miami Beach’s Sunset Harbour, are now proposing Class A office space as the primary use instead. Deco Capital Managing Principal Bradley Colmer said the change has been contemplated for more than year following feedback from a ‘soft marketing’ effort for the residential units. ‘Given the glut of inventory that’s out there in almost every sector of the residential market and also the additional cost a luxury condo product entails,’ Colmer said, the developers began looking at the office market.”

From 12 News in Arizona. “A month after Arizona’s three major universities canceled all in-person classes and moved to online-only classes, some students are still living in campus housing. ‘It’s almost like a ghost town,’ Katey Waszkiewicz said. ‘It’s really empty, which is crazy.’ Waszkiewicz is one of a handful of students still living in Taylor Place, a dorm on ASU’s downtown campus. ‘There’s probably like five of us left on my floor,’ ASU student Susan Wong said.”

“Waszkiewicz said she’s staying in the dorm because she had already paid for the room. Wong said she thought it was safer in Phoenix than back home in San Francisco, a coronavirus hotspot. Students at all three universities had demanded refunds for room and board costs after being told the universities were basically shutting down and students were encouraged to leave. After some back and forth, all three universities decided on plans that give refunds, though mainly through credit toward housing costs, not cash.”

“‘I didn’t even think it was a question,’ NAU student Payton Romney said. ‘They said, ‘Oh, don’t come back,’ so we assumed, OK, we’ll get a refund.’ NAU initially decided not to give refunds but changed its mind weeks later.”

This Post Has 73 Comments
  1. I’m going to have more posts today as I’m trying to catch up.

    ‘After commercial property spent years soaring to new heights…’

    You get a boom,

    ‘values slipped’

    You get a bust.

  2. ‘This whole approach, in my opinion, is completely wrong…If the tenants can’t pay the rent, the landlords can’t pay the mortgage. The bank can’t pay its investors. Do we want the whole financial system to collapse?’

    ‘Sir, this is a Wendy’s.’

  3. ‘Andy Kim and his wife purchased a four-unit apartment building in Oakland’s Eastmont neighborhood last year’

    Last year? Oh dear…

    ‘he doesn’t know how long he can cover his mortgage without their rent. ‘We can do maybe six months, and then we’ll be forced to sell the building,’ he said, adding that the time frame includes getting his bank to agree to a forbearance on the mortgage and taking out loans. ‘If I don’t pay for April, May and June, my bank won’t charge interest, but come July, I have to pay in full,’ he said. ‘And if I don’t pay anything until then, I will have a really big bill’

    You are fooked Andy.

    1. then we’ll be forced to sell the building

      Fortunately you’ve got a whole year’s worth of appreciation to cash in on.

      I can hear the keys jingling already.

  4. ‘Moosa’s agency, Sun Realty, also handles property management …He said he hasn’t seen an especially large number of renters unable to pay their month’s rent, though he said he’s working with those who do have problems. Commercial renters, though, do seem to be struggling already, he said – a potential cause for concern.’

    “On the commercial market, it seems to have hit the commercial market harder than the residential,” Moosa said. He estimated maybe 80% of the commercial renters he works with were already unable to pay rent this month.’

    “For Fallbrook, it’s really tough because a lot of the businesses in Fallbrook were close to the edge to begin with,” he said. “For some of them, this is gonna push them over.”

    https://myvalleynews.com/pandemic-activity-drives-home-buying-activity-down-real-estate-agents-say/

  5. The fundamental principle of land economics is this. Of the four factors of production, land, labor, capital and entrepreneurship, land is the only one that is locked in place. That means that it is the last to get paid, but in expansions it end up capturing all the net gains at the expense of labor, capital and entrepreneurs alike. As Henry George noted in Progress and Poverty.

    The flip side is land takes the majority of the losses in downturns. Its value can even drop to zero. A friend told me a story of his relatives in New York City during the Great Depression. Landlords offered a month’s free rent to get tenants. So his relatives just cut and ran every month to a new place, and never paid a dime.

  6. ‘China’s government habitually fudges its economic growth data, so if it’s admitting to a 6.8% year-on-year contraction in the first three months of this year we can only guess at how bad the truth is. One thing is certain: The economic fallout from Covid-19 is only beginning for a country that claims to have the outbreak under control.’

    ‘Official gross-domestic-product data released Friday showed China’s first contraction since it emerged from Mao Zedong’s Cultural Revolution in 1976. Research firm Capital Economics estimates a contraction of about 34% on an annual basis. The bad data may still be too rosy. Some indicators such as retail sales have fallen off a cliff, while fixed-asset and real-estate investment showed signs of an implausible recovery in March that might mask the scale of the downturn.’

    ‘But China has unique problems in managing the economic damage. Beijing staved off recession after the 2008 financial panic by ramping up credit and public-works spending to extraordinary degrees. That playbook won’t work again.’

    ‘Exports are only part of the problem as China’s trade partners grapple with their own recessions. Companies around the world will reconsider their reliance on Chinese manufacturers in supply chains. Political blowback over Beijing’s cover-up of the viral outbreak will compound the damage. Yet Covid-19 also is exposing domestic weaknesses even as China has been growing less dependent on exports.’

    ‘The main vulnerability is the debt overhang from Beijing’s post-2008 stimulus. That stimulus pumped trillions of dollars in credit through the banks. Assets in the banking system grew 4.5 times between 2008 and 2020, to an almost unfathomable $41.8 trillion (yes, with a “t”) as of February, the Rhodium Group calculates.’

    ‘Much of that credit was economically unproductive—the 4.5-times expansion of bank assets produced only a tripling of GDP, according to Rhodium. Even that figure probably overstates the genuine productivity of the stimulus, since GDP data have been inflated by a real-estate bubble.’

    https://www.wsj.com/articles/beijing-pays-a-coronavirus-price-11587147252

    ‘to an almost unfathomable $41.8 trillion (yes, with a “t”)’

    1. ‘China’s government habitually fudges its economic growth data, so if it’s admitting to a 6.8% year-on-year contraction in the first three months of this year we can only guess at how bad the truth is. One thing is certain: The economic fallout from Covid-19 is only beginning for a country that claims to have the outbreak under control.’

      I keep thinking of what a former poster who used to lecture us that China’s growth was destined to stay north of 6% forever might say…

    2. “…the 4.5-times expansion of bank assets produced only a tripling of GDP…”

      Sounds like alot of CCP Yellen bucks headed off to money heaven.

    3. How’s the CCP plan to turn all of China’s rural villagers into city slickers working out for them?

      The Financial Times
      The Big Read Chinese economy
      China’s economy: the risk of a second coronavirus wave
      Hopes for a strong recovery from a disastrous first quarter are at risk from new infections and a collapse in exports
      © Reuters
      Tom Mitchell and Xinning Liu yesterday
      Be the first to know about every new Coronavirus story

      On the same day that Chinese authorities began to relax a 77-day quarantine on Wuhan, the city that exported coronavirus across China and ultimately to every corner of the world, a small town on the country’s border with Russia was locked down for the second time in three months.

      On April 8, residents of Suifenhe in northeastern Heilongjiang province were ordered to stay at home, with only one member of each household allowed out every three days to buy food and other supplies. Train services to Harbin, the provincial capital, were suspended. Like Wuhan, Harbin is a major industrial city with a population of about 11m people.

      Most of the Chinese cities, towns and villages that were locked down at the peak of Wuhan’s epidemic in January and February were relatively unscathed by the first outbreak of coronavirus. At the time, Suifenhe was reported to have had no official cases.

      But now Suifenhe faces a real crisis, after Chinese nationals returning home from Russia triggered a much-feared “second wave” of infections. The city has more than 320 confirmed cases and almost 1,500 people in centralised quarantine facilities.

  7. https://www.nasdaq.com/articles/jpmorgan-chase-stops-accepting-heloc-applications-due-to-coronavirus-uncertainty-2020-04

    JPMorgan Chase (NYSE: JPM), the largest banking institution in the United States, has announced that it has stopped accepting new home equity line of credit, or HELOC, applications. The bank confirmed that this change was made due to the uncertainty in the economy, and didn’t give an end date to the pause.

    This is the second major move JPMorgan Chase has made recently to pump the brakes on risk in its mortgage-lending operation. A few days ago, it announced that it would raise its mortgage lending standards to require at least a 700 FICO score and a 20% down payment for new purchase mortgage applicants — a dramatic tightening, since the typical minimum requirement for a conventional mortgage is a 620 FICO score and as little as 5% down.

      1. I generated plenty of them in 2004-2005 working for a bank that later got a TARP bailout.

        They were already underwater, but the appraisers, underwriters, and borrowers took a few years to learn that.

    1. This is a signal that the FED is telling the big boys that they won’t be backstopping consumer credit any time soon. Interesting. You’d think the banks would be trying to goose spending right now to prop up the economy? Maybe they’re finding out that trying to pull more demand forward will simply break the rope?

      1. Are you saying no government loans to banks at zero or negative interest rates? My friend, who closed this week on a new to her home but can’t move for another two months, was told by her mortgage broker this would happen along with the prospect of refinancing to a lower interest rate in 6-12 months.

  8. ‘Working-class New Yorkers are organizing a “massive wave” of rent strikes starting May 1, a coalition of tenant groups and housing advocates announced Thursday, the most aggressive step yet in pressuring a resistant Gov. Andrew Cuomo (D) to cancel rent for the duration of the coronavirus crisis as millions here find themselves without a job or a paycheck. ‘

    ‘In a statement Thursday, groups including New York Communities for Change and Housing Justice for All announced plans to get one million New Yorkers to withhold rent starting next month. ‘

    “With so many New Yorkers unable to pay rent for the foreseeable future, the current crisis is unsustainable and demands action,” the groups said in a statement. “Many tenants have no ability to pay rent, and landlords can’t collect rent from tenants who are broke.”

    ‘The rent strike, they say, will continue until Cuomo cancels rent across the state for four months, or for however long the pandemic lasts; freezes rent prices; and houses the 92,000 homeless people across the state, for whom stay-at-home orders are “cruel and meaningless.”

    “The COVID-19 crisis is making clear what many tenants have known for a long time: we are all just one life event — the loss of a job, a medical emergency — away from losing our homes,” the pledge states. “Today, millions of New Yorkers are out of work. That means millions of us will be unable to pay the rent on May 1st. So if we can’t pay, let’s not pay, together!”

    https://www.huffpost.com/entry/rent-strike-new-york-may-1-coronavirus_n_5e99d368c5b6ea335d5aca4a

    ‘stay-at-home orders are “cruel and meaningless.”

    1. “The COVID-19 crisis is making clear what many tenants have known for a long time: we are all just one life event — the loss of a job, a medical emergency — away from losing our homes,” the pledge states.

      You’re getting exactly what you voted for: corrupt crony capitalism. The sole purpose of your existence is to enrich the oligarchy – the instant you aren’t adding to their wealth with your labor and productivity, you become a useless eater in the elites’ eyes, and the eyes of their political minions. So don’t expect any sympathy and understanding, much less financial assistance, proles.

    2. Seems like landlords in the ghetto can rid themselves of “rent-controlled” tenants for lack of payment, and seek nominal rents from new tenants.

      1. in the Seattle area, some more liberal members of the weyerhaeuser family in the last 4 years have set up a non-profit to provide legal advise to lower income folks.

        Job 1 was to fight landlords etc. These guys can delay eviction for at least 1 year.

        The travesty here is not the 100+ units building that are owned by corps – but the long held <20 units owned long-term Seattle area families. A friend of a friend 's family has a small building in Shoreline that they purchased less thtan 20 years ago. Even before the virus, they have 3 units that are not paying rent and have spent (close to 10K$ on legal fees each unit).

        huh – perhaps i can find a diploma mill and pass the WA state bar

        1. The “rent-controlled” places have strict rules, and the long-term tenants obey so they won’t lose their cheap crib.

      2. Seems like landlords in the ghetto can rid themselves of “rent-controlled” tenants for lack of payment, and seek nominal rents from new tenants.

        Good plan. Too bad if “nominal rents” turn out to be even lower than the rent controlled number last year. That’ll leave a mark.

    3. ‘…houses the 92,000 homeless people across the state, for whom stay-at-home orders are “cruel and meaningless.”…’

      There’s no good solution for the homeless problem overlaid by COVID-19. And good luck once the outbreak is rampant in the homeless community (maybe already happening…).

    4. If the state wants your property to build a freeway through it then they use eminent domain, and the property owner is compensated at prevailing values. But now, the governor wants landlords to shelter tenants without compensation? Seems like the governor should start writing checks or STFU.

    5. “stay-at-home orders are “cruel and meaningless.”

      I thought Bill Gates would foot all the bill. Otherwise why would one even attempt to deny others from their livelihood?

    6. and houses the 92,000 homeless people across the state, for whom stay-at-home orders are “cruel and meaningless.”

      I thought they wanted housing ?

  9. ‘This whole approach, in my opinion, is completely wrong,’ said Ray Smalley, who owns three apartment properties in Holyoke. ‘If the tenants can’t pay the rent, the landlords can’t pay the mortgage. The bank can’t pay its investors. Do we want the whole financial system to collapse?’”

    Otter’s speech from ANIMAL HOUSE:

    Otter: Ladies and gentlemen, I’ll be brief. The issue here is not whether we broke a few rules, or took a few liberties with our female party guests – we did. [winks at Dean Wormer] But you can’t hold a whole fraternity responsible for the behavior of a few, sick twisted individuals. For if you do, then shouldn’t we blame the whole fraternity system? And if the whole fraternity system is guilty, then isn’t this an indictment of our educational institutions in general? I put it to you, Greg – isn’t this an indictment of our entire American society? Well, you can do whatever you want to us, but I for one am not going to stand here and listen to you badmouth the United States of America. Gentlemen!
    [Leads the Deltas out of the hearing, all humming the Star-Spangled Banner]

  10. “‘It used to be a landlords’ market, but now it’s a renters’ market,’ said Gustavo Lopez, a realtor and property manager for a dozen rentals in the San Francisco Bay Area. ‘Nobody saw this coming.’”

    Oh my…how the worm has turned.

    The “Nobody saw this coming” statements of non-culpability are starting to proliferate. Remember, kids: when nobody is responsible, nobody is accountable.

  11. “It turns out that all those bills the Legislature passed over the last 18 months to make denser housing commonplace in California for relief of the longtime housing crunch may suddenly be rendered irrelevant by a virus.

    That denser housing was supposed to be filled with Democrat entitlement voters, mostly imported from south of the border. Now that our “Greatest Economy Ever” is in full-blown collapse, taxpayers may start pushing back harder – and voting with their feet – against being forced to pay for these globalist-progressive social engineering schemes while barely holding their heads above water.

  12. Already the owners — including real estate investment trusts (REITs) whose shareholders suddenly see their stock values plummeting and dividends drying up – are near panic.

    Years of speculative malinvestment unwinding in weeks. Can’t wait to see the denouement.

  13. Landlords fear tenants will take advantage of the moratorium’s protections and quit paying rent even if the pandemic hasn’t hurt them.

    For the past 50-60 years, traditional values and virtues have been under relentless attack from progressives and Cultural Marxists. Now society is going to pay a heavy prices for the culture of entitlement, pathological victimization, erosion of public and private morality, and shirking of individual responsibility pushed so assiduously by the collectivists.

  14. “‘I didn’t even think it was a question,’ NAU student Payton Romney said. ‘They said, ‘Oh, don’t come back,’ so we assumed, OK, we’ll get a refund.’

    Another special snowflake gets her illusions shattered.

    1. My son just got his refund in the mail for the rest of the semester’s room and board from his small town Wyoming college.

      1. Are you willing to mention where he goes and whether he liked it? (Shopping around for a college for my recent Associate’s Degree recipient son…)

        1. Sure, but it’s a mostly 2-year local college that’s part of the University of Wyoming system. Except for nurses (I think) you can only get an associates there. It’s Northwest College in Powell, WY. I went there after high school before joining the army and it seemed like a good place for him to start, too, since he didn’t have strong opinions about anything yet and I don’t want him to have any loans if possible.

  15. “Waszkiewicz said she’s staying in the dorm because she had already paid for the room. Wong said she thought it was safer in Phoenix than back home in San Francisco, a coronavirus hotspot. Students at all three universities had demanded refunds for room and board costs after being told the universities were basically shutting down and students were encouraged to leave. After some back and forth, all three universities decided on plans that give refunds, though mainly through credit toward housing costs, not cash.”

    Something Wong.

    1. Current update to the information in the article posted below: The 10-year Treasury yield as of yesterday’s closing level stands at 0.65%, and the 3-month yield is 0.12%.

      Savers are getting destroyed by super low interest rates
      By Paul R. La Monica, CNN Business
      Updated 5:12 PM ET, Fri March 13, 2020

      New York (CNN Business) Bond yields are at record lows. That’s great news if you want to borrow money right now but it’s terrible for anyone trying to save by putting cash in the bank or buying US Treasury bonds.

      Now the Federal Reserve is making it painfully clear just how worried it is that the coronavirus pandemic will hurt the US economy.

      The Fed slashed rates in an emergency meeting earlier this month and is expected to cut them further at its regularly scheduled meeting on March 18 — perhaps bringing them all the way back to 2008 Great Recession/Global Financial Crisis era levels of 0%.

      The 10-year Treasury yield just dropped below 1% for the first time in history

      The rate cuts — along with similar moves by other central banks around the world — has pushed long-term and short-term Treasury bond yields lower as well.

      A 3-month US Treasury currently yields just over 0.25% while the 10-year rate is about 0.9%. Those rates were even lower earlier this week when stocks were at their worst levels and the Fed said it would support the broken Treasury market.

      And the average rate for a bank savings account is currently a paltry 0.1% according to Greg McBride, chief financial analyst at Bankrate.

      But all the while, Americans have been continuing to put more money into savings accounts.

      Money earning next to nothing in a bank or bond

      The personal savings rate has steadily climbed for the past few months and hit 7.9% in January, according to government figures.
      That’s the highest level since last April. It means that more people are getting a lot less bang for their proverbial buck.

      This poses a problem for more conservative investors, particularly those approaching retirement age or who have already left the work force.

      These risk-averse investors may be forced into buying more speculative assets if they have any hope of earning a decent return.

    2. The Sovereign Fed
      In terms of crisis governance, the United States is not a country with a central bank. It is a central bank with a country.

      Trevor Jackson ▪ April 16, 2020
      Federal Reserve Chair Jerome H. Powell
      (Mark Makela/Getty Images)
      Read more of our coverage of the coronavirus crisis here.

      When Chinese supply lines were disrupted in late February because of shutdowns attempting to stop the spread of coronavirus, businesses and financial institutions around the world started to have trouble getting cash. In response, businesses sold assets, like stocks, and banks began to restrict lending. As everyone tried to sell all at once, prices collapsed, which necessitated more selling and caused further price declines. Over the next three weeks, stock markets around the world shed 20 to 30 percent of their value, and currencies collapsed as everyone everywhere sold everything for dollars. In effect, though not in cause, this was a sudden plunge back into the world between the failure of Bear Stearns in the spring of 2008 and the bankruptcy of Lehman Brothers that fall. In 2008 it was called a “credit crunch.” In general it’s called a “liquidity trap.” And there has never been a global scramble for dollars as fast as, and on the scale of, the coronavirus liquidity trap.

      In response, there has been a wave of unprecedented monetary policy activity. Central bankers around the world, especially the Federal Reserve, have intervened to support essentially every credit market on earth. On March 12, the Fed announced that it had made $1.5 trillion available for the “repo market,” which is the main source of short-term credit in the financial system. Even in the post-2008 world of gargantuan central bank interventions, $1.5 trillion was a lot. It bought a single good day: Friday the 13th. Over the weekend, the Fed decided that the pandemic—officially declared on March 11—had pushed financial markets into truly uncharted territory. It cut interest rates to zero, moving about four of its typical 0.25-percent steps in a single leap, and announced that it would buy $500 billion in Treasury securities (a variety of safe U.S. government debt issued by the Treasury Department for varying lengths of time) and $200 billion in mortgage-backed securities. The Fed thereby restarted the 2011–14 quantitative easing program on an immense scale. The point was to flood financial markets with cash as quickly as possible, so banks could keep lending, buyers of stocks could keep buying, and institutions could keep making their debt payments. The financial press, which likes military metaphors, called it a “nuclear bazooka.”

    3. This is interesting. Uncle Buck hasn’t given up the good fight, just yet.

      Markets
      The Dollar Is Still Strong. It’s a Warning Sign for the Stock Market Rally.
      By Alexandra Scaggs
      April 17, 2020 12:38 pm ET

      The stock market’s rally gives the impression that investors think the worst of the coronavirus slowdown is over. But the persistent strength of the dollar should be a warning sign for the bulls.

      The U.S. dollar spiked at the end of last month, as companies and investors scrambled to secure enough cash to withstand an indefinite period of coronavirus lockdowns.

      Since then, the Federal Reserve’s market interventions have relieved much of the pressure on global companies—and countries—that would otherwise be paying a premium for dollar liquidity.

      But the market hasn’t yet signaled a lasting reversal in the past decade’s trend of dollar strength, says Kit Juckes, currency strategist with Société Générale.

      1. Take-home quote:

        “Those of us who thought the peak of this cycle came when [U.S.] President [Donald] Trump was elected should have known we still hadn’t seen the peak of the emerging market debt bubble, let alone the pin that would burst it,” Juckes wrote in his Friday note. “Now we have, [and] it’s time for the denouement, along with the pain for many economies of deflating a debt bubble in the middle of a medical crisis and against the backdrop a world in economic hibernation.”

      2. If’n you’re lucky enough to have $10,000 stashed under the mattress that you don’t need to spend any time soon, look no further than these three top-rated U.S. stocks for your source of future riches. Don’t bother listening to those highfallutin’ financial theory types who suggest diversifying your HODLings.

        1. Rest assured that nobody besides yourself and a few select too-clever-by-half others thought of these three companies’ stock shares as good prospects for tremendously high future returns!

          Coronavirus Market Rally: Where to Invest $10,000 Right Now
          Here are three stocks to consider investing your money in as the stock market recovers from the COVID-19 pandemic.
          Joe Tenebruso
          (TMFGuardian)
          Apr 18, 2020 at 11:30AM

          COVID-19 is a fearsome and relentless enemy. The disease caused by the novel coronavirus has infected more than 2.2 million people worldwide, and nearly 150,000 have died. Efforts to combat the pandemic are having severe economic ramifications, including millions of job losses and devastating damage to countless businesses.

          Yet hope remains.

          An army of doctors, scientists, and researchers around the world are working tirelessly to find a cure. Optimism is growing that an effective treatment for COVID-19 will be found soon. And the financial markets have begun to recoup their losses as investors look ahead to an eventual economic recovery.

          So now could be a good time to consider investing some money in the stock market. Even if the markets pull back again, investing in great businesses tends to be a very wise and profitable decision, particularly over the long term.

          If you’re fortunate enough to have $10,000 to invest, here are three stocks that can help you grow your money into a fortune.

          1. Amazon
          2. Microsoft
          3. Salesforce

          1. No economic activities, most companies will delay their cloud migration projects/budgets. Not sure how Amazon is a buy in this env. Other business is either a loss or barely even.

          2. most companies will delay their cloud migration projects/budgets

            The idea was that they would save money by dumping their servers and moving to the cloud. The problem in many cases is that in house apps that run on mainframes or large UNIX machines are a lot harder to port to the cloud than was initially believed.

            Most state unemployment insurance systems were written in old programming languages like COBOL or RPG and run on legacy hardware. Moving them to the cloud will likely require a complete rewrite.

          3. “The idea was that they would save money by”

            Cloud is more expensive in the long run. Then again corpidiots will probably go that route.

          4. Cloud is more expensive in the long run. Then again corpidiots will probably go that route.

            It feels good to write a big check to Amazon or MS or whoever. Feels safe and smart. Those sales guys know how to speak your language. Paying top dollar to some entitled Subaru driving nerd you have to see in the hall every day feels distasteful, even if it’s cheaper and actually safer.

          5. I wonder how business prospects are looking at PaaS and IaaS vendors these days, especially when a lot of their small biz customers not only cannot pay the rent next month, they can’t pay the cloud subscription. Or worse, they’ve closed their doors and won’t be back.

          6. “Cloud is more expensive in the long run.”

            Hiring qualified IT staff and bonding their activities isn’t cheap either.

  16. In all my years of following the real estate bubble, this article nails it like nothing I’ve read before.

    Very low interest rates increase the present value of future income streams. This drives real estate finance. But the future variability of those future income streams was way underestimated. There was a lot more standard deviation out there than people thought. And then–in a matter of weeks– the trend-line median values crashed below the one-standard deviation lines (busted the lower bound) and all the key assumptions went topsy turvy. All those smooth lines looked like spaghetti.

    So real estate values are now disconnected from future income streams. Prices will be set in the hurly burly of supply and demand by cash buyers, few of whom will overpay. So now the market moves from an environment of pervasive overpaying to one of hard-nosed buying–the difference between “other people’s money” and “spending your own dime.” A lot of real estate is going to be heading towards resolution markets where the assets are stripped of their encumbering debt and sold naked. The world of the vulture capitalist approaches.

    You cannot disconnect the assumption about the growth of future income streams from the concept that public policy has to support higher future private sector productivity growth that will create higher real wages. Rents are a dependent variable of the overall growth in the economy; they are not a driver of real economy growth. That was the weakness behind the over-inflated real estate values.

    1. future income streams. This drives real estate finance

      What we’ve seen is that prices reflected anticipated future price increases, irrespective of income streams.

      It was a mania.

      Manias only end one way.

Comments are closed.

Back To Top