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The Burden Of CRE Credit Became Unbearable For Borrowers And Lenders Alike

A weekend topic starting with the Telegraph. “The underlying crisis in the banking system continues to deepen as $5 trillion of commercial real estate debt taken out during the zero-rate era comes due in tranches. ‘It’s not a liquidity problem; it’s a solvency problem,’ said Professor Tomasz Piskorski, a banking specialist at Columbia University, and one of the lead authors. ‘Temporary measures have calmed the market but half of all US banks are running short of deposits with assets worth less than their liabilities, and we are talking about $9 trillion. They are bleeding capital and could not survive if something triggers a sudden loss of confidence. It is a very fragile situation and the Federal Reserve is watching it closely.'”

“‘The entire commercial real estate space has to be reset. No one really knows where the values are,’ said Scott Rechler, chairman of Long Island developer RXR and a board member of the New York Fed. Trophy buildings in prime spots are holding up but he is purging ‘B’ and ‘C’ grade blocs from his portfolio. They are no longer viable in the post-Covid world of hybrid working. ‘It’s stuff that’s competitively obsolete: side-streets, dark buildings. You can’t give them away,’ he said.”

From Bloomberg. “Soaring rents and cheap funding made blocks of US rental apartments seem like a ‘can’t miss’ investment during the pandemic. More than $1 trillion of multifamily debt is due to mature through 2028, according to data compiled by Trepp, potentially leading to increased defaults and losses for banks and bondholders. ‘I expect a great deal of pain in multifamily as we adjust to a higher interest rate environment along with a lot more supply hitting the market in 2024,’ said Daniel McNamara, founder of hedge fund Polpo Capital, which is betting against commercial mortgage bonds.”

“‘There were a few unprofessional people getting over their skis,’ said Jim Costello, chief economist at the data provider, regarding borrowers. While stories about the problems those debtors run into will dominate headlines this year, current price declines are bringing values back to pre-pandemic trend levels, he said.”

The Denver Post in Colorado. “Commercial real estate represents an anchor that is likely to only grow heavier in the months ahead as apartments join office space in stressing banks and weighing on the larger economy. ‘Office is a four-letter word right now,’ said Marcel Arsenault, CEO and founder of Louisville-based Real Capital Solutions. The share of available office space in downtown Denver crossed 30% in the third quarter, marking the highest vacancy levels since 1990 when the state was coping with a severe energy bust. Metro Denver has about 120,000 new apartment units on the drawing board. Roughly 48,000 of those units are under construction. Research firm Capital Economics predicts office building prices could fall another 20% on average, bringing the peak-to-trough decline to around 43%. That is an average, for the market as a whole. Some buildings are effectively worthless.”

Axios on Florida. “Miami’s rental market ‘is slowly cooling down’ after a blistering hot year, according to Zumper. Rents for one-bedrooms fell 14.4% in Sunny Isles Beach and two-bedrooms fell 14.5% in Aventura and 10.4% in North Miami, the Miami Herald reported in December. Anyone moving into a new rental over the next six months will have more bargaining power as property owners trying to fill new builds will offer move-in deals, Zumper’s report predicts. ‘Eventually, they’ll have no choice but to cut asking rents,’ it says.”

KSL in Utah. “The controversy over the incomplete five-story apartment building facing demolition on Historic 25th Street in Ogden is now in court. Developer Summa Terra Ventures filed a lawsuit against the contractor that was handling the project, Makers Line, seeking at least $9.7 million in damages. The new lawsuit adds to ‘a growing list’ of alleged legal problems involving Makers Line and its affiliates stemming from projects around the state, according to Building Salt Lake. Ultimately, Ogden officials ordered a stop to work in late March last year, initially because wood used to build the structure wasn’t sufficiently fire resistant. Later, city officials deemed the building dangerous after finding additional ‘structural deficiencies’ and Summa Terra Ventures decided last month to tear down the building. Demolition is ongoing.”

The Waco Tribune in Texas. “How many rooms are too many? Some established hoteliers are raising the question as plans advance for some 1,200 new hotel rooms in the Waco market. ‘I do not think our occupancy rates will remain at the same historical highs we have seen with the addition of new supply that is currently slated,’ said Hotelier Kary Lalani, president and CEO of Lalani Lodging. ‘We are already seeing a softening in the market on the occupancy side, and this will only be magnified with the additional rooms coming online. In light of this, yes, we are very concerned with the notion of over-saturation. A market our size can only absorb so many rooms at once.’ Lalani said Waco could suffer problems of its own making. ‘What is even more frustrating is that a lot of these issues are self-inflicted given the city’s approach to public incentives to most of these new hotels coming downtown,’ said Lalani, whose Waco portfolio includes Hilton Garden Inn and Homewood Suites by Hilton, both at Legends Crossing.”

Bisnow Washington DC. “The weeks before and after the New Year’s ball dropped have seen a plunge in D.C. office values, with a series of older properties trading hands at steep discounts. The latest deal comes in at less than a third of its 2017 sale price. TA Realty sold a 13-story office building near the McPherson Square Metro station to Melrose Solomon for $18.2M, according to documents posted Thursday to the D.C. Recorder of Deeds. TA Realty declined to comment. Boston-based TA Realty had purchased the property at 1101 14th St. NW for $61.75M from American Realty Advisors at the end of 2017.”

Bisnow Chicago in Illinois. “An investor purchased a distressed office building across the street from the Willis Tower for an 89% discount compared to the property’s value a little over a decade ago, one of the most dramatic examples to date of a downtown Chicago office building bleeding value. A venture of locally based Igor Gabal snagged leasehold interest in the property for $4M, a $34M drop from the building’s appraised value of $38M when it sold in 2012, according to Crain’s Chicago Business. The 12-story building at 300 W. Adams St. sold for slightly less than $16 per SF, a depressing data point for owners trying to offload distressed office buildings.”

San Diego News in California. “Record lows in San Diego’s industrial market: Kidder Matthews Quarter 4 report had some major findings about San Diego’s economy, including that leasing volume dropped to a new 15-year low of 1.8 million square feet (SF) while rental prices are at a record high of $1.59/SF NNN. Meanwhile, sale prices fell 27% YOY to $286/SF. Concurrently, sublease availability reached a historical high, almost a quarter of the total available inventory. This uptick can be partly attributed to Amazon giving back approximately 600K SF since 2022.”

The Real Deal on California. “Top prices for Los Angeles multifamily properties in 2023 couldn’t compare with the previous year. A $125 million sale topped the 2023 list, about four times less than the $504 million trade which led the 2022 parade of priciest multifamily deals. Multifamily headlines didn’t bring in much cheer during the year. The average sales price for a residential unit in Los Angeles dropped by 19.4 percent, according to a NAI Capital study released in April. Eric Sussman, professor at the UCLA Ziman Center for Real Estate, placed most of the blame for the bearish market on skyrocketing interest rates. ‘It really put a kibosh on deals,’ Sussman said. ‘It was quicksand last year. It was dead while everyone tried to figure out interest rates, politics and the economy.'”

Hoodline in California. “San Francisco’s retail scene takes another hit as the Adidas store prepares to close its doors in the city’s largest mall. Located on Market Street at the beleaguered San Francisco Centre, the sports apparel giant is throwing in the towel with a final liquidation sale slashing prices in half, as per SFist. Struggling with a downturn that has already seen key players like Nordstrom and the Cinemark movie theater exit stage left, the mall is grappling with vacancies that challenge its future viability. The San Francisco Centre, formerly known as the Westfield San Francisco Centre, lost its dazzle after defaulting on a $558 million mortgage last year. While smaller businesses and Bloomingdale’s cling on, the mall’s occupancy is teetering at half.”

The Mercury News in California. “A big and empty San Jose office building that has tumbled into neglect — including a defunct fire alarm system — faces receivership and a loan foreclosure as the Bay Area’s commercial property woes worsen. The office building, located at 3100 North First Street, is in default on its loan and could be seized by its lender, according to documents filed on Jan. 4 with the Santa Clara County Recorder’s Office. The default problems that confront the building, which totals 99,400 square feet, provide fresh evidence that financial woes continue to jolt the Bay Area office market in the wake of the coronavirus outbreak. Santa Monica-based Vista Investment Group owns the building, which at one point was leased to Nio USA, a unit of a China-based maker of electric vehicles. The building is currently empty. Nio vacated the building in October 2023, according to documents on file at the San Francisco County Superior Court.”

“When told by Nio USA that it wouldn’t be continuing as a tenant, Vista Investment Group distributed $2 million in rent to the real estate firm’s equity investors and affiliates, according to the San Francisco county court records. This decision by Vista Investment Group ‘clearly impacted on the borrower’s ability to now pay for these essential services which are necessary to protect and preserve the property,’ representatives of East West Bank stated in the court records, referring to the stuck elevator and the difficulties with the fire, burglar alarm and other systems.”

The Canadian Press. “It’s poised to be another challenging year for office real estate investment trusts, but some money managers say there could be decent entry points in the sector for long-term investors. ‘We are in a ‘darkest before dawn’ scenario heading into 2024 for office REITs — there is no denying they are cheap … but there are numerous headwinds that office landlords face,’ said Michael McNabb, portfolio manager at Purpose Investments Inc. ‘I think a lot of investors forget that this was the hottest REIT asset class heading into 2020,’ he said, when office vacancy rates were extremely tight and investors flocked to the sector for its monthly payouts. Units in Slate Office REIT, Allied Properties REIT, True North Commercial REIT and Dream Office REIT are all down between 62 and 85 per cent since March 1, 2020.”

“McNabb said he’s still very cautious on the sector and wants to see vacancy rates improve. But he believes longer-term investors could start ‘picking away’ at higher-quality companies, which could prove to be a good investment in time. ‘Commercial real estate follows the simple economic rule of supply and demand … and currently supply is outstripping demand by a very wide margin,’ McNabb said.”

The Globe and Mail in Canada. “When it comes to downtown Toronto office buildings, class A is no longer getting an A grade from tenants. The latest research shows that older class A office buildings now have as much empty space as class C buildings as demand for downtown offices has declined and a raft of new class A skyscrapers have opened. ‘You can be an iconic tower, but what the tenants are all saying is they want the newer stuff,’ said Carl Gomez, chief economist with CoStar Group, a commercial real estate firm. ‘The newer stuff has all the low vacancy. Everything else that is older has double-digit vacancy.'”

The Irish Independent. “Investors and commercial property agents are expecting that the recent fall in property values will bottom out in 2024 and thus present buying opportunities and generate activity. However, agents are reluctant to say how much further values may fall. According to agents JLL, office values fell 20.3pc in the 12 months to the end of September while industrial values fell 6.2pc and retail 5pc over the same period. Those falls across all sectors were sparked by rising interest rates and the difficulty experienced by investors in raising funding. Declan O’Reilly, of Knight Frank acknowledges that office values will ‘face a challenging first half’ as price discovery will remain an issue and ‘we are likely to see an increase in receivership sales.'”

The Times of Malta. “The earliest-known real estate crisis is documented in the Old Testament, a high-rise in the city of Babel. We don’t know what the Babel Tower looked like, of course. But according to pictorial representations of Pieter Bruegel the Elder, whose two 16th-century paintings of the abandoned undertaking can be admired in the Kunsthistorisches Museum, Vienna, the abandoned construction site was a total mess. The project was an exercise of hubris from the very beginning: vast, sky-high, useless, and unsuited to its surrounding. It was a vanity project without a sound business plan, not taking account of possibly ruinous risks.”

“While we try hard to challenge Him, we don’t suffer the wrath of God in Malta yet. But we can see a modern-day Babel in the German city of Hamburg: the Elbtower. Planned to be the highest building in Hamburg and – with 245 metres – the third-highest in Germany, the cranes stopped at 100 metres now, on the 25th floor. The continuation could not be financed anymore. The workers went home, bemoaning their plight in many different languages.”

“Real estate, particularly commercial real estate (CRE), is in trouble all over the world. The reasons are multi-fold, as I will soon explain. But the main reason is inflation. Calculated profits evaporated. The burden of CRE credit, no matter how well-secured, became unbearable for borrowers and lenders alike. Property valuations started to melt as the servicing of loans started to exceed achievable rents.”

“A good, example for value-destroying over-supply are Chinese apartment buildings. For many years, Chinese residential real estate developers were seen by the CCP as engines of growth. Cheap loans, cheap land and the political will to swamp the country with cranes for the sake of economic expansion produced nothing but vast suburbs of empty apartment blocks all over the country. Nobody wanted to live in them, but they were gobbled up by retail savers in the belief that housing will always boom. Now valuations came crushing down. The construction behemoths pampered for a long time are going bust one after the other. Retail investors, often invested in not-yet-built and now never-to-be-built apartments, lost big time.”

“The warning signs are flashing red all over Europe and the rest of the world. In major cities like London, up to 40 per cent of the available office space remains empty. We Work, until recently one of the biggest landlords outside China, went bust. Its business concept, to lease long term and to let out short term on a vast scale, was a rental gamble turned awry. This will force banks to book loss provisions and to tighten lending standards. They will refuse to throw good money after bad. Developers in need of fresh credit and capital will sit high and dry, and the banks will end up with secured property nobody wants. It is one thing to mortgage the Elbtower. It is an entirely different matter when you end up owning an unfinished Tower of Babel nobody wants to complete.”

This Post Has 137 Comments
  1. ‘The entire commercial real estate space has to be reset. No one really knows where the values are…It’s stuff that’s competitively obsolete: side-streets, dark buildings. You can’t give them away’

    I knew that’s where you were going Scott.

  2. ‘We Work, until recently one of the biggest landlords outside China, went bust’

    And they were renting fooking desks.

  3. ‘The new lawsuit adds to ‘a growing list’ of alleged legal problems involving Makers Line and its affiliates stemming from projects around the state, according to Building Salt Lake. Ultimately, Ogden officials ordered a stop to work in late March last year, initially because wood used to build the structure wasn’t sufficiently fire resistant. Later, city officials deemed the building dangerous after finding additional ‘structural deficiencies’

    The link in this article to the Building Salt Lake report is worth reading. Like the Austin/Storybuilt fiasco, some people are headed to prison.

  4. ‘at one point was leased to Nio USA, a unit of a China-based maker of electric vehicles. The building is currently empty. Nio vacated the building in October 2023, according to documents on file at the San Francisco County Superior Court’

    Wa happened to my self driving flying electric taxi California?

    ‘When told by Nio USA that it wouldn’t be continuing as a tenant, Vista Investment Group distributed $2 million in rent to the real estate firm’s equity investors and affiliates, according to the San Francisco county court records. This decision by Vista Investment Group ‘clearly impacted on the borrower’s ability to now pay for these essential services which are necessary to protect and preserve the property’

    Take the money and run…

  5. I purged the blogs caches this morning so you may have to log in manually. If you do remember that I don’t need a real email address. Just make one up and the system will go from there.

  6. “The share of available office space in downtown Denver crossed 30% in the third quarter, marking the highest vacancy levels since 1990”

    I don’t know anyone who, given the choice, goes into downtown Denver anymore.

    1. Perhaps coincidental, but 1990 was a year when a recession started, along with a real estate bust that lasted over half a decade, at least in California…

  7. KDVR — Denver eviction filings hit record high in 2023, exceeding recession numbers (1/5/2023):

    “2023 had a significant number of eviction filings, something local housing groups are working to combat in 2024.

    But why is this happening? Colorado Housing Connects, a phone line for those needing housing assistance under the Brother’s Redevelopment organization, says there are multiple factors

    “Its high prices, high rent, changes in the safety net programs, fewer supports available to help people keep a roof over their heads. Its several things coming at once really making it difficult for the average person trying to make ends meet,” said Patrick Noonan, the Colorado Housing Connects Program Director.

    In 2023, there were 12,910 eviction filings. In 2022, there were 8,863. That’s a nearly 45% increase. The only year even close is 2010, post-recession, with a little over 10,000.

    These numbers are taking a toll on those who are working to give that needed assistance.

    “We saw over 79,000 phone calls and emails coming in from people looking for help,” Noonan said. “I know there’s our team there to support people and meet them with compassion and education and information to help empower them in that situation, but it is tiring and it does drain on our staff trying to keep up with those moments of desperation for a lot of families out there.”

    1. but it is tiring and it does drain on our staff

      As long as the paychecks don’t bounce a job is a job.

      1. According to a bit I saw, the mayor claims Denver has hit 10% of the general fund that it is paying for the invasion. I’m sure this number will climb and soon checks will be bouncing and city jobs will be cut. At some point people may start to care and blaming Texas will no longer work. We’ll see…

        1. I’m sure other departments are being told that their budgets will be cut to pay for the invaders. At first they will cut wasteful spending and other fat, but once that is gone they will have to choose between firing people or turning invaders away. And of course Texas can send more and more buses chock full of unemployable communists.

          Denver used to put these people back on buses and ship them off to New York, Chicago and other sanctuary cities, but it is clear that the regime has told them to stop doing that and so they have.

          1. Funny anecdote but I’m thinking I may one day, this year need to go to the Denver DMV and all the tellers will speak Spanish or whatever it is Venezuelans sprechen sie

    2. Sounds like leftover COVID evictions that are finally happening. So what happened to the stimmie chex and $2400 unemployment that people were saving up for three years? I guess that’s all gone too.

  8. CPR — Campaign to protect natural gas at the Colorado ballot box gains momentum and money (1/4/2024):

    “After years of threatening to reignite Colorado’s oil and gas ballot wars, the state’s fossil fuel industry appears more serious than ever about mounting a campaign to ask voters to protect gas stoves and furnaces this November.

    The ballot push is led by Protect Colorado, an advocacy group funded by the state’s largest oil and gas operators. The organization proposed an initiative in August 2023 to block laws that restrict the type of energy residents use for heating and cooking, whether that’s solar from a rooftop or natural gas from a pipeline.

    While supporters have framed the measure as a referendum to preserve household energy choices, backers also acknowledge it has a more specific objective: slowing the movement to remove fossil fuel appliances from new buildings.

    Across the country, climate-minded communities from New York City to Crested Butte have approved local building codes and laws to require all-electric buildings — without natural gas hookups — in order to protect indoor air quality and take full advantage of growing supplies of zero-carbon energy sources like wind and solar.”

    Climate minded communities?

    Crested Butte is getting overnight lows down to -10F this week. How’s that “heat pump” working out for you?

  9. “Record lows in San Diego’s industrial market: Kidder Matthews Quarter 4 report had some major findings about San Diego’s economy, including that leasing volume dropped to a new 15-year low of 1.8 million square feet (SF) while rental prices are at a record high of $1.59/SF NNN. Meanwhile, sale prices fell 27% YOY to $286/SF.”

    With purchase prices of retail space dropping, it seems like commercial landlords are going to have to reduce their rental prices if they want to avoid a high vacancy rate.

    Am I missing something?

    1. This is the question Louis Rossmann keeps asking about why so many Manhattan storefronts stay vacant for so many years. Something to do with loan covenants or securitizations preventing landlords from lowering asking rents?

  10. What would happen to Treasury yields if the Fed ended Quantitative Tightening?

    And how would doing so affect Fed credibility and inflation expectations?

    1. An end to quantitative tightening could support bonds, though timing is tricky
      Published Jan 05, 2024 02:16PM ET
      An end to quantitative tightening could support bonds, though timing is tricky
      By Davide Barbuscia

      NEW YORK (Reuters) – A potential ending to the Federal Reserve’s balance sheet reduction measures this year bolsters the case for Treasuries to extend their 2023 rally, investors said, though many believe factors such as fiscal concerns could counterbalance gains.

      Minutes from the Fed’s Dec. 12-13 policy meeting, released earlier this week, showed some officials are already discussing what it would take to end the shrinkage of the central bank’s cash and bond holdings.

      That process, known as quantitative tightening, has seen the Fed’s balance sheet contract by nearly $100 billion per month as it allows Treasury and mortgage bonds it owns to mature and not be replaced. In doing so, it has reduced its balance sheet by just over $1 trillion, to $7.764 trillion on Dec. 27, complementing the aggressive rate increases it started in early 2022.

      Some market participants said perceptions that an end to quantitative tightening was approaching could be another positive factor for bond markets in a year during which the Fed is expected to cut interest rates after a tightening cycle that saw them rise 525 basis points.

      Yields on the benchmark 10-year Treasury, which move inversely to prices, have plunged over 100 basis points from 16-year highs hit in October on anticipation of rate cuts. That reversal spared bond markets for what could have been an unprecedented third straight year of declines.

      Still, factors such as widening fiscal deficits – estimated to hit $20 trillion in the coming decade – and possibly lower demand for U.S. Treasuries from large foreign buyers are likely to keep bond prices from rising too far, market participants said.

      1. Contracting money supply poses risk to bonds
        Onsel Gulbiten, Ph.D., CFA, Director, Global Macro Strategy | June 16, 2023
        A member of Putnam’s Fixed Income team since 2007, Onsel Gulbiten analyzes macroeconomic issues, including inflation, interest rates, and policy developments.

        Stress in the banking sector — whether or not more banks fail — remains an area of concern for us because of potential implications for the Treasury and agency MBS markets.

        – The contracting money supply (M2) will reduce the aggregate commercial bank balance sheet and bank earnings.

        – Banking sector issues combined with the Fed’s quantitative tightening are likely to cause U.S. banks to hold less Treasury debt.

        – Higher Treasury issuance following the debt ceiling resolution will reduce global liquidity and could, by itself, tighten financial conditions.

        Contracting M2 money supply shrinks bank balance sheets

        Fearmongers have been pounding the table about the dangerous contraction in the U.S. money supply, but considering the relatively narrow definition of M2, we believe this does not really mean the end of the world. Major contractions in capital markets always come with contractions in the broadest measure of money. The money supply had been artificially inflated in the early days of the Covid pandemic — the inflated supply was not created by the banking sector. M2 has been coming down as excesses are cleared out. Since the first quarter of 2022, thanks to the Federal Reserve’s tightening, aggregate household wealth has been declining, and so has M2.

        The Fed’s rate hikes along with QT reduced household wealth. Gradual retail deposit outflows are a consequence of this. Student loan repayments that are soon starting will be enhancing the trend. In addition, businesses have been reducing demand for loans, partly in response to higher rates and tighter credit standards. Low or negative bank loan growth will likely add to the destruction of money that is already in train. As a consequence, the aggregate commercial bank balance sheet will be declining. This is assuming, of course, the Fed does not do QE all of a sudden (not full quantitative easing, necessarily, but a narrow program meant to address a market malfunction). A decline in the U.S. aggregate commercial bank balance sheet means a decline in aggregate bank earnings.

        Figure 1. The money supply is contracting under QT

        Sources: Federal Reserve. M2 is a measure of the money supply that includes bank accounts (checking, savings, and time deposits), retail money market accounts, cash, and other liquid assets.

        Even if further bank runs are prevented, large unrealized losses can constrain banking activity and earnings. A key feature of this cycle is that households and businesses have extended the maturity profile of debt during the low-interest-rate environment of the past 10 to 15 years, and this is now the banks’ problem. The private sector became less sensitive to rising rates, and the Fed had to tighten in a rush. Consequently, households’ and nonfinancial businesses’ gains became banks’ (unrealized) losses.
        Banks may buy fewer Treasuries and MBS

        Constrained and likely declining bank balance sheets might have implications for the markets in which banks are big participants — especially the Treasury and MBS markets. Unrealized losses might stay on bank balance sheets, waiting to be gradually unwound over time. Given their recent experiences, banks are likely to buy fewer long-maturity Treasuries and mortgages. Commercial banks’ Treasury holdings peaked in May 2022 at 7.5% of all outstanding marketable Treasury debt, then declined to 6.4% today. Commercial banks and the Fed together held about one-third of outstanding Treasury securities at the peak and now own about 28%.

        Continuing QT, along with these banking sector issues, will further reduce the share of outstanding Treasury debt held by U.S. banks and the Fed. This is happening in parallel with declining foreign ownership of Treasury securities. Just 10 years ago, major foreign owners held more than 50% of outstanding Treasury securities, but their share has declined to 30% today. Foreign central banks do not seem to be selling, except during times of currency interventions, but they have not been buying as much. This is a structural change reflecting decoupling among major economies and the de-dollarization trend. Going forward, more price-sensitive economic agents will be absorbing the increasing Treasury debt.

        Commercial banks’ heavy participation in the agency MBS market might be a bigger issue. U.S. commercial banks hold about a quarter of agency mortgages. The Fed owns another quarter, while foreign participation in this market is lower, about 11%. Foreign holders do not seem to have sold mortgages but are not buying them, either. However, the share owned by the Fed and banks will be declining more noticeably. The Fed does not want to hold mortgages on its balance sheet and will continue to wind them down over time. Neither do banks; given mortgages’ long maturity and negative convexity, banks’ appetite for them is likely to be limited going forward. The only factor supporting the agency MBS market for now is the low level of mortgage originations. With the housing market likely to remain slow, supply might remain low for some time. This dynamic can keep mortgage spreads only on a gradual uptrend. When the housing market starts to recover, likely after the recession and/or when the Fed cuts rates, mortgage spreads may not rally as much as other sector spreads, adjusted for risk.

        Less bank participation in the Treasury and mortgage markets is likely a medium-term trend. The recession ahead might divert banks away from extending credit and toward owning more Treasuries. Banks are likely to prefer T-bills over long-duration bonds. That is, banks’ new preferred habitat might have a steepening effect on the yield curve, rather than pressuring the whole Treasury rates curve higher. However, when the Fed is paying interest on bank reserves, and the yield curve is inverted and pricing in a lot of rate cuts, it is questionable how much curve steepening banks could cause.

        1. “The only factor supporting the agency MBS market for now is the low level of mortgage originations. With the housing market likely to remain slow, supply might remain low for some time.”

          Is that good?

          “This dynamic can keep mortgage spreads only on a gradual uptrend. When the housing market starts to recover, likely after the recession and/or when the Fed cuts rates, mortgage spreads may not rally as much as other sector spreads, adjusted for risk.”

          The world loves a dismal scientist!

        1. April 11, 2023 21,977.40
          November 27, 2023 20,770.10

          Annualized rate of decline since peak was
          (20,770.10/21,977.40)^(365/231) – 1 = 8.5%.

          Maybe”slow burn” is a more fitting description than “sudden nosedive”, but M2, a monetary metric which normally always goes up, nonetheless is CR8Ring.

  11. Are San Diego home prices rising or falling going into 2024? The experts and the data are in open disagreement. Maybe if Zillow stopped reporting those pesky Zestimates, falling prices would become less noticeable?

    1. Business
      San Diego in ‘24: Experts predict higher home prices and more
      Rainbow is seen over La Jolla
      A rainbow is seen over La Jolla from Mt. Soledad on Dec. 30.
      (Meg McLaughlin/The San Diego Union-Tribune)
      The San Diego Union-Tribune Econometer panel of business leaders and economists makes its predictions for 2024
      By Phillip Molnar
      Jan. 5, 2024 6 AM PT

      This year could see yet another jump in home prices amid rising unemployment and gas prices, a group of local experts is predicting.

      We asked our Econometer panel of San Diego business leaders and economists to predict what the economy will look like in the coming year. Detailed forecasts are listed at the bottom of the article.

      At the start of 2023, the panel also made predictions — and came close to calling how the year would end.

      For the price of oil ($71.65 per barrel, as of Dec. 29) and the Dow Jones Industrial Average (37,689 as of Dec. 29), Norm Miller was closest with his prediction of $73 and Lynn Reaser was closest with her prediction of 35,000, respectively. David Ely and Austin Neudecker both predicted the San Diego County unemployment rate of 4.2 percent in November. No one guessed the county’s median home price of $850,000 (as of November), but three came close at $800,000 — Haney Hong, Bob Rauch and Jamie Moraga.

      Question: What economic indicator will you monitor most closely in 2024?

      Chris Van Gorder, Scripps Health

      The 10-year treasury note: Mortgage rates closely follow it, and housing is a huge part of our economy. The 10-year note is also terrific to use to understand what the market thinks of the chances of long-term growth and is helpful for gauging recession risk too.

      Jamie Moraga, Franklin Revere

      The Consumer Price Index: The CPI is a measure of inflation and can be used as an indicator of the effectiveness of economic policy as well as a tool to formulate fiscal and monetary policies. The CPI measures changes in consumer prices and can help determine what is getting more expensive for the average consumer. It is also one of the indicators utilized by the Federal Reserve to determine if they will raise or lower interest rates in the future, especially if they desire a soft landing in 2024.

      Norm Miller, University of San Diego

      Interest rates: In 2024, we will all be watching interest rates and inflation, with the hope that interest rates will be falling. We need mortgage rates to drop well under 6 percent for the housing market to pick up significantly. This will also curtail refinancing struggles and possible foreclosures in the commercial real estate sector.

      1. “In 2024, we will all be watching interest rates and inflation, with the hope that interest rates will be falling.”

        Is hoping an established economic forecasting tool?

        “We need mortgage rates to drop well under 6 percent for the housing market to pick up significantly.”

        The Treasury yield curve is as flat as a pancake at a little above 4% yields from 3 years out to 30 years. A 4%%+ longterm Treasury yield will not support mortgage rates dropping to well under 6 percent.

        Goid luck to you, rate daters!

    1. And the land the scrap steel sits on is valuable. They aren’t making any more land, ya know?

    2. “some value as scrap”

      $50/ton is the most recent number I’ve heard on jobsites.

      I just passed final inspection on one in the City of Lakewood, which has decided it wants to be Boulder. They require all demo’d materials to be weighed, recycled, and receipts provided to the City as a condition of granting a certificate of occupancy.

      The labor costs of this far exceed any revenue from scrap. It’s nothing more than a virtue signal.

    3. Grade B office buildings might have some utility as migrant/homeless shelters or safe injection sites. At least they have natural light and some plumbing.

      1. as a condition of granting a certificate of occupancy

        Until a meth lab explodes or and electrical fire (too many extension cords) burn it to the ground.

      2. And only the first few floors. The elevators in abandoned buildings break down right away, so residents are forced to use staircases, which becomes difficult beyond about the third or fourth floor.

  12. The 2024 Election Year Variant.

    The Hill — Why fears over a ‘tripledemic’ are surging (1/7/2024):

    “Cases of three major respiratory viruses — the flu, COVID-19 and RSV — are surging in the U.S., pushing the country toward a feared “tripledemic” during its first post-pandemic respiratory viral season.”

    Respiratory viral season.

    “Optimism was high this autumn as the U.S. headed into the viral season.”

    The viral season.

    “But now, confidence is waning. Accessing the vaccine for RSV, or respiratory syncytial virus, has been a struggle for many, and enthusiasm for the new COVID-19 vaccines turned out to be abysmal. COVID-19 hospital admissions have been rising since November and wastewater detection indicates most sites — 69 percent — are seeing large increases in virus levels.”

    Viral season is that now part of the Associated Press Style Guide? Call it what it is: propaganda and lies to steal elections.

    P.S. Bret Weinstein on a recent Tucker Carlson episode reports that over 17 million people have died from the CCP Flu vaccines.

    1. The rapidly rising cases of the flu, COVID-19 and RSV could not be linked to the unwashed masses of humans entering our Nation from around the world and being dispersed in the middle of the night to locations across the nation, or could it ?? But then again, if you are one of the upper elites with concierge medical care for yourself and your immediate family, what does it matter ??. Follow the lead of our Friends in China and Mexico and mask up at the first sign of anyone getting the sniffles or when you venture out in public. I have drawn a happy face on my mask and dispose of it as I leave the maddening crowd.

    2. My guess is that next year is going to be a much lighter year for the sniffles. We just need some time to get our immune systems back into shape.

  13. Property taxes.

    And a reminder that under Marxism, children are the property of the state.

    Washington Post Editorial Board (via Archive) — Home schooling is surging. States have to step up their oversight (1/6/2024):

    “If the coronavirus pandemic turned “working from home” into common parlance, “learning from home” might be next: The Post reported last year on the skyrocketing number of home-schooled children, of whom reporters estimate there are now between 1.9 million and 2.7 million. Data on these students is spotty, so that’s only a guess — which itself raises big concerns.”

    Big concerns.

    “Home schooling was once a niche practice, attractive mostly to religious households dissatisfied with the secular public school system. Now, it has increased by what The Post believes might be as much as 51 percent over the past six academic years — across geography and demography alike.

    Several states are encouraging this trend, with at least six extending vouchers to home-schoolers, offering parents thousands of dollars per year to educate children outside the public school system. But the influx of funding hasn’t been accompanied by a matching increase in oversight — and states that aren’t funneling dollars into home schooling are scarcely paying attention to the practice at all.

    None of this means that home schooling isn’t a good choice for plenty of children. It only means that when it’s a bad choice, fairly often no one finds out — much less intervenes.

    Part of the allure of home schooling, for many parents, is the ability to depart from the typical path drawn by public education. Some home-school curriculum developers, for example, offer for purchase “unschooling” modules that allow children to direct their learning according to their interests and at their pace. But where there’s no oversight, there’s no guarantee that children will learn skills considered foundational in public education and essential to adult life.”

    Translation: give us your children, or else.

    1. skills considered foundational in public education

      What would those be? The gender is fluid and anyone can transition?

      Maff be raycis.

    2. This shouldn’t be that difficult. Simply make the homeschool kids take any standardized final exams, depending on how the state handles it. Demonstrate the basic proficiencies in math, the sciences, English, social studies, foreign language, whatever. If the kids pass, they’re fine.

      The real reason these school districts want kids in school is to raise up their stats in graduation rates, attendance rates, and test scores. When you remove the good kids, the bad kids are all that’s left.

        1. Yup. School districts get money for every registered student. So while many complain that they are overwhelmed with the invader’s kids, they probably welcome them for the extra $$$

          1. The baby bust is real and is reflected in school districts in many areas. I’ve seen some data on school districts around Chicago, and most districts are hemorrhaging students, even with the invaders kids. The best school districts in upper middle class areas are losing the fewest number of kids, and some are remaining stable, but middle and lower class districts, and some upper class, have lost between 10-20% of their student population since 2018. Like a k-6 school with 600 students suddenly only having 480 students. And at many of these schools, the ESL kids, meaning the invaders who dont’ know any english, are becoming a greater population of the students, even while the overall population is declining. I can’t speak for every school district, but it’s happening all over Chicago. And the school districts are asking for lots of new taxes and $$$ to pay for this. How can they ask for more money when there are fewer students? YUp, the illegals are very expensive to teach.

  14. Does it seem like everyone and his dog is piling into the Bitcoin ETF speculative frenzy? The eventual fire sale will require lots of popcorn to take it in. Is it too early to buy popcorn futures?

    1. Financial Times
      Opinion Skin in the Game
      My new year resolution is bitcoin
      Yes I know the dangers, but I’m having some anyway
      Stuart Kirk
      January 5 2024

      Let’s begin the year with a bang! By which I mean I’ve decided to allocate some money to a spot bitcoin exchange-traded fund (ETF) if one becomes available soon. Emails to the usual address.

      I made up my mind while running along the Exmoor coast last week, steep cliffs plunging into the surf. Many readers will says that’s where my retirement savings will end up. But, as I wrote last summer, it’s time to take more risk.

      And there is no bigger investment story right now. Google searches for “bitcoin ETF” have tripled over the past week. The world’s biggest cryptocurrency started 2024 by trading 7 per cent higher. Since October add a zero.

      1. If you have some speculator in your blood, Bitcoin is probably not a bad place to be. Because really, what’s going to stop the perception of Bitcoin having inherent value? The proof that Bitcoin has no inherent value. And how does one prove, with some finality, that Bitcoin has no value? Adopt a digital currency and make it clear that Bitcoin will never be that currency. Could be a commodity-backed BRICS currency or an SDR/CBDC basket of currencies.

        But how long until that happens? Two years, five years?

        1. You could have speculated on Beanie Babies in the early 2000s based on the same logic that crypto fanbois are using to justify this new age form of Ponzi speculation.

          Except Beanie Babies have a physical existence. I know this first hand, as I own one, which was given to me as a token prize for doing well in a work training, long after their market value had dropped to approximately $0.

          1. The value of bitcoin is in the community of bitcoin supporters who agree to use it as a store of value. Nothing seems to shake bitcoin believers’ confidence in the inherent value of bitcoin, it’s like a region to them. They’ve all agreed to support it.

            The rest of the cryptomarket is a pump and dump and speculative investment fraud scheme

    1. Funny how the media has attacked him while saying that Nikki is OK. She is the Manchurian candidate.

      1. Globalist media endorsements should be the kiss of death for any GOP candidate’s political aspirations.

          1. Her full maiden name. She drops her first name and uses her husband’s name to not seem “foreign”. Of course it helps that she looks white. Vivek Ramaswami couldn’t get away with that, so he doesn’t try.

        1. War Karen

          Same with Lindsey Graham. Is there major MIC stuff going on in South Carolina?

  15. Ok, so Tucker did a interview with Dr Bret Weinstein a couple days ago that was a good summary of the Covid 19 insanity.
    First Weinstein confirmed 17 million deaths from Covid Vaccine Globally, or one in 800.
    Weinstein gave a good definition of how the new technology vaccine works, and how they used a Panademic under Emergency Use Authorization to get a dangerous failed technology distributed to billions, including children who didn’t have risk of Covid death.
    The Health Authorities , don’t acknowledge the overwhelming data of death and injury from these shots, and they want people to take the 6th so called “safe and effective booster.”
    What I have felt all along is that they want this failed expiermental technology , they want to put it in everything, and they aren’t about to pull it from the market no matter the data that shows death, injury, and the fact the vaccine doesn’t even work or stop transmission.
    Weinstein also covered the WHO Treaties whereby the new resolutions would give POWER to the World Health Organization, to dictate global response to anything. A few people deem a health emergency. They even want the power to obstruct free speech and dispute to declared health emergencies which could include “Climate Change Emergencies.”
    Weinstein said that the censoring of Dr’s and Scientists and medications that cured Covid during Covid Panademic only created a viable opposition of Credible Dr’s and Scientists that object to this bizarre and fraudulent power grab, under the illusion of Health policy or health emergency powers.
    Weinstein predicts that more health emergencies will be declared where vaccine mandates will be forced by the new WHO powers, granted by corrupted governments.
    SO, if the WHO treaties go through in MAY, a small unelected group of WHO health Authorities , (like Dr Tedros) could order vaccine mandates, lockdowns, masks, marshal law, censorship , you name it.
    This was the way they planned to supercede SOVERIGN states and Constitutions that protect human rights.
    And of course Joe Biden is on board for transferring these powers to these Entities that are puppets to The One World Order/ Great Reset take over.
    So, governments have been captured by being in collusion with this POWER GRAB. Do you see you government pulling killer shots, or stopping power transfers to corrupt and fraudulent WHO unelected psychopaths?

  16. “On my first day back in the White House, I’ll terminate every open borders policy of the Biden administration, stop the invasion on our southern border, and begin the largest domestic deportation operation in American history!” — DJT, Iowa 1/6/2023

    Sounds about right. Build the wall, deport them ALL.

  17. Property taxes.

    Note that this article does not once state the word “illegal.”

    CBS News — Denver Public School scrambles to educate surge of migrant students: “So many needs” (1/5/2024):

    “In the past year, the city of Denver has served more than 36,000 migrants from the southern border.

    After years of reporting a declining school-age population, Denver Public Schools is seeing a surge in the enrollment of newcomer students – many from Venezuela – a country in a deep economic and political crisis.

    McMeen Elementary is a dual language school that has long embraced students who are new to the United States.

    “The positive thing is we love international: new things, new families, new cultures, new languages, we love all that here, we embrace it every chance we can,” said Jean Boylan, a grandparent and volunteer at the school. “That has been completely washed away this year though because we’re completely inundated with pure survival.”

    Boylan’s kids attended McMeen, and now she has a grandson enrolled there. She became a full time volunteer after she said she saw the school “brought to its knees” by the number of new students.

    Pure survival? Brought to its knees?

    Jean Boylan you voted for this. All of this.

    1. Pure survival? Brought to its knees?

      And it’s going to get worse, a lot worse. Soon the majority of kids at that school will be non English speaking invaders whose parents don’t pay a penny in taxes. They are also going to get taxpayer provided breakfasts and lunches. Meanwhile the conga line at the border continues.

      1. Yes but when they grow up they’ll all vote Democrat, and the US will be a one-party state for four generations, just like it was in Mexico.
        Many members of congress are old and remember a time when the US Congress was almost exclusively controlled by democrats, by massive margins too, for over 80 years, or four generations, from the 1910’s to the 1990’s (the roaring 20’s were partially republican). All of this followed massive immigration from the 1890’s to 1910’s My state’s senators, Dick Durbin, is in his 80’s, and for the first 50 years of his life, Democrats controlled congress with near supermajority vote totals. This is exactly what Democrats are trying to replicate this model from a century ago. Modern history hasn’t been kind to Republicans after the civil war, with Democrats holding power far more years than Republicans.

  18. The border Invasion of US is proof that our Government has totally been captured and operates in collusion with this warfare against sovereign states. No other explanation for it.

    1. All of the public figures in the regime are puppets. The fact that Lloyd Austin was in an ICU for almost a week and no one in the White House noticed he was AWOL shows that he is a figurehead and not a decision maker.

      1. A puppet at least carries out the will of the puppeteer. Austin apparently doesn’t even do that, because he’s been in the ICU. LIke when Buttigjudge took maternity leave and no one even knew. These people aren’t even going into the office. They exist in name only, these are fake no show jobs.

    2. More than just captured, but massive numbers of people are ideologically committed to this invasion, upwards of 25% or more of the country is in favor of this massive immigration. And a lot of those people happen to have a lot of power, which is why they are doing it.

  19. Weekend long read.

    Brownstone Institute transcript of Epoch Times interview with Ramesh Thakur — The New Biosecurity State (12/22/2023):

    “Just as if I go to a doctor with a symptom and the doctor reacts with panic, “My God, I’ve never seen something like this. You might be dead in the next hour.” It’s time to look for another doctor. It’s the job of the doctor to reassure you. He should be able to say, “It is serious. I don’t want to understate it, but these are the risks. These are the options. This is what I would recommend. If you have doubts or further questions, it might be good if you consult a second opinion or a third opinion.”

    That has always been the norm. A second opinion has always been good. Yet, on some of the most important issues, and suddenly with Covid, you’re not even allowed to go and ask for a second opinion, and you’re not allowed to express a second opinion. Long-term, those have been very damaging to public confidence and trust. Without that element of trust in the public institutions, again, you cannot sustain a viable society. We need to start rebuilding. That’s why I like the theme of the conference this year, rebuilding freedoms. But we also need to rebuild trust and confidence in institutions that we now believe serve our interests and not the interests of the professional class or the people with power and money.

  20. Climate Depot — Out w/ ‘carbon footprint’ — In w/ ‘climate shadow’ – National Geographic: ‘Forget your carbon footprint—your climate shadow is what really matters’ (1/5/2024):

    “The enormity of the global climate crisis is so vast that individual actions may seem meaningless…But critics argue that focusing on your carbon footprint is at best time consuming and at worst meaningless. Instead, the “climate shadow” has emerged as a more holistic alternative. …

    “Everywhere you go, it goes too, tallying not just your air conditioning use and the gas mileage of your car, but also how you vote, how many children you choose to have, where you work, how you invest your money, how much you talk about climate change, and whether your words amplify urgency, apathy, or denial.” …

    First coined by Portland, Oregon-based writer Emma Pattee, the climate shadow aims to paint a picture of the full sum of one’s choices—and the impact they have on the planet…The objective is not to create a climate shadow scorecard. Rather, Pattee describes it as “sharing my own spiritual and moral reckoning.”

    The larger the shadow—the greater an individual’s impact on doing good for the planet. While your carbon footprint may shrink if you place solar panels on your roof, for example, your climate shadow would, in contrast, grow when talking with your neighbors about your choices.

    1. your climate shadow would, in contrast, grow when talking with your neighbors about your choices

      I get to hear about all this virtue signalling claptrap from the European relatives. They are of course frustrated beyond measure that I refuse to fall into line.

      For whatever reason we don’t don’t do glass curbside recycling here in my little burg. I love telling the Euros this because it makes them apoplectic: “Why don’t you start a petition demanding they pick up glass?” – “Uh, because I don’t really care, plus it’s a well known fact that most of the stuff I toss into the big blue bin ends up in the landfill, even though everything in the bin is supposed to be recyclable. So it’s all kabuki theater.”

    2. Best way to combat climate change? Kill your grandchildren. Try that one on those rich virtue-signaling boomer women who are always moving to “be near family.”

      1. The message, which is loud and clear, is don’t have children. Millenials and Gen Z already believe that it’s immoral to have kids, not to mention a crimp on their lifestyle.

        And the WEF is working on how to force us into getting more mRNA jabs. So, they are culling the herd from both ends: get births to drop to near zero and send as many people as possible to an early grave. And if the masses start noticing, tell them that it’s climate change that is cause of all those heart attacks.

      2. The best way to combat Climate Change, is to make these Fraudsters prove their doomsday narratives, and prove solutions wouldn’t be insanity and genocide to globe.
        Remove co2 emissions to zero by 2050, you got to be kidding me. Remove 45% by 2030, you got to be insane.
        Mass brainwashing of humans to accept a pre planned con job to justify mass enslavement, deprivation, and global takeover by the One World Order insurrection.
        Face it, these world conquering sadistic psychopaths have already committed great crimes , and they need to be stopped NOW.

        1. make these Fraudsters prove their doomsday narratives

          And how do we do that? Is there a court where we can sue?

          1. When I was a kid and we were on a family roadtrip, I used to ask my dad what state we were in. He always had the same response: We’re in the state of insanity. Haha.

            Ever since, I’ve been (like you) looking for the state of Reality. We’re not there yet.

    1. Right, everybody is the enemy, except the real enemy.They have shown their true colors and have unleashed their warfare on humanity.

  21. ‘There were a few unprofessional people getting over their skis’…While stories about the problems those debtors run into will dominate headlines this year, current price declines are bringing values back to pre-pandemic trend levels’

    So we’ve seen 3 plus years of crater peso wise Jim? Yer right though, it’s a few bad apples.

  22. ‘Lalani said Waco could suffer problems of its own making. ‘What is even more frustrating is that a lot of these issues are self-inflicted given the city’s approach to public incentives to most of these new hotels coming downtown’

    I’m agin zoning of all kinds Kary, but I’d bet you got public incentives when you went all in on Waco too. So they fooked you with yer own tax money. But you had a 5% cap rate at the time!

  23. ‘The latest deal comes in at less than a third of its 2017 sale price…An investor purchased a distressed office building across the street from the Willis Tower for an 89% discount compared to the property’s value a little over a decade ago’

    This is looking like a lot.

    1. I thought price declines over 50% were unpossible. Have the wealthy all-cash Chinese investors perhaps left the building?

      I can’t help remembering how many Japanese investors became bagholders in the early 1990s US CRE bust. Is it China’s turn this time?

      1. Property Report
        Chinese Firms Flee U.S. Commercial Real-Estate Market After Big Property Bets Sour
        Investors from China who once snapped up American office buildings and hotels have sold a net $23.6 billion of U.S. commercial properties in recent years
        By Konrad Putzier
        Sept. 20, 2022 8:00 am ET
        SL Green Realty Corp. recently took over Manhattan office tower 245 Park Avenue from an affiliate of Chinese conglomerate HNA Group Co.
        Photo: Andrew Harrer/Bloomberg News

        Chinese firms for years were among the most aggressive buyers of U.S. luxury hotels, office towers and other commercial real estate. Now they are running for the exits.

        Chinese companies have sold a net $23.6 billion of U.S. commercial properties since the start of 2019, according to data provider MSCI Real Assets. That marks a dramatic turnaround. Between 2013 and 2018, Chinese firms were net buyers of nearly $52 billion of U.S. commercial properties, according to MSCI.

          1. Forbes
            American Investors Say ‘No’ To China
            Milton Ezrati
            Senior Contributor
            I write on finance and economics.
            Jan 1, 2024, 2:30pm EST

            Wall Street seems to have lost its former enthusiasm for China investing. For the first time in a very long time, portfolio flows show net withdrawals from Chinese stocks and bonds. Quite aside from Washington’s growing hostility toward China trade and economics, American investors have their own reasons for turning away from China. They worry, for instance, over the burden on Chinese finance imposed by the large and growing overhang of questionable debt. They have become wary of China’s general economic slowdown as well as recent news that infrastructure spending has failed to have its once impressive effectiveness. They wonder, not unreasonably, whether this picture signals still more fundamental Chinese economic problems.

            The data are compelling. Beijing’s State Administration on Foreign Exchange reports that not too long ago, high levels of American portfolio investments into Chinese stocks and bonds were the norm, but now there are dramatic outflows. In 2018, for instance, even as President Donald Trump began to impose punitive tariffs on imports of Chinese goods, American investors purchased a $17 billion net increase in Chinese stocks and bonds. The net flow rose to $36 billion in 2020, despite the pandemic. The flow held up in 2021, which saw a net inflow that almost topped $20 billion. But in 2022 net portfolio investment all but stopped, and this year through October, the most recent period for which data are available, has seen net outflows to the tune of some $31 billion.

            The same pattern emerges from statistics on private investment. Over the years American investor enthusiasm about China fostered the growth of several private equity funds that specialize in Chinese investments. According to Prequin, a private consultant that tracks flows of money into alternative investments, China-oriented private equity funds attracted as much as $140 billion as recently as 2019, with most of the funds coming from individuals and pension funds. By 2021, that figure had shrunk to $93 billion, and in 2023 through October, those inflows have shrunk to a mere $4 billion.

            If Wall Street is mostly moving for its own reasons, Washington has no doubt contributed to this investor rethink. Since 2022, the administration has conducted what can only be described as a trade war with China. President Biden, despite his campaign rhetoric, has retained the Trump tariffs on Chinese goods that went into effect in 2018 and 2019. The White House has forbidden the sale of advanced semiconductors to China and limited the ability of Americans to invest in Chinese technology. Most recently, Washington has made it clear that the tax credits for electric vehicles embodied in the 2022 Inflation Reduction Act will not apply to products that are made by Chinese companies or have a significant proportion of Chinese parts, including the batteries. Such strenuous government efforts could not help but affect investor thinking. But American business and American investors have concerns about China that have little to do with Washington.

            Top worry is the huge and growing overhang of questionable debt in China. Many U.S.-based investors have exposure to the debts of Chinese real estate developers, almost all of whom are threatening default. The losses and potential losses involved naturally have made these investors and others wary of sending more funds to China. Still more worrying is the burden this bad debt places on all Chinese finance. There are fears that even firms that have no direct exposure to the debts of developers will suffer losses from borrowers that do have such expose. And then there is the overhang of local government debt in China. Few, if any Americans have direct exposure to this debt, but they worry that any Chinese investment could suffer if payments on this debt are suspended or delayed. On an even more general level, American investors worry that the weight of bad debt, whatever the source, will limit the ability of Chinese finance to support new projects that might promote economic growth and hence returns on all investments in China.


          2. It seems like the Chinese economy is an imploding black hole of collapsing real estate debt.

            Would now be a good time for dips to buy?

        1. “Chinese companies have sold a net $23.6 billion of U.S. commercial properties since the start of 2019, according to data provider MSCI Real Assets.”

          Who were the lucky winnahs who bought the U.S. commercial properties the Chinese investors dumped?

    1. Q. Why do bitcoins have value?

      A. Because people who believe they will be able to sell them later for a higher price are willing to buy them today.

      1. Trade
        Cryptocurrency Bitcoin
        Why Do Bitcoins Have Value?
        By John P. Kelleher
        Updated October 08, 2023
        Reviewed by JeFreda R. Brown
        Fact checked by Pete Rathburn

        A bitcoin has value because it is able to be exchanged for and used in place of fiat currency, but it maintains a high exchange rate primarily because it is in demand by investors interested in the possibility of returns.

        Of course, many other factors influence Bitcoin’s value. Read on to learn more about why Bitcoin has value.

    2. The difference between tulips is that tulips buyers didn’t have an ideological framework of libertarian true believers supporting it. I’m no bitcoin fan, I still think it’s junk, but there’s a lot of people with a certain ideal system who believe otherwise.

      1. “…didn’t have an ideological framework of libertarian true believers supporting it.”

        Is a network of true believers sufficient to sustainably support an intrinsically worthless asset class?

        It eventually didn’t work out for tulip bulb buyers in Holland, South Sea Bubble share holders, investors in the original Ponzi scheme, dot com stock investors circa 2000, or WeWork stock owners last year.

        Maybe cryptocurrencies are different?

        1. Speaking of WeWork, are the ashes of that smoldering wreck of a company still glowing these days?

            ‘Adam Neumann Created A Secretive Billion-Dollar Startup To Turn Apartment Living Into A Utopian Fantasy. I Was The First Reporter To Set Foot Inside’
            Milly Struthers
            The WeWork cofounder Adam Neumann started Flow in 2022, promising to revolutionize apartment living. The startup, which received $350 million from A16z, has been shrouded in secrecy.
            3 weeks ago
            · 10.8k reads ·

            In tech circles, there have been few figures more talked about in recent years than Adam Neumann, the controversial cofounder of WeWork who resigned in 2019 after accusations of self-dealing and misbehavior and a disastrous attempt to go public.

            But in sunny South Florida, a world away from Silicon Valley or New York, life-insurance broker Matthew Sorrentino and most of his neighbors had never heard of Neumann, much less realized they’re essentially guinea pigs for the billionaire’s mysterious residential real-estate startup, Flow.

            Neumann started Flow in the summer of 2022 after landing a $350 million check from Andreessen Horowitz, better known as A16z, one of Silicon Valley’s most prestigious venture firms.

            Finally, last month, Neumann’s people agreed to let Business Insider’s Ben Bergman, tour Society Las Olas, which will officially be Flow’s first building come early next year.


          2. Bisnow – (almost) never boring
            WeWork Seeks To Reject Even More Leases As Bankruptcy Proceedings Trudge On
            January 2, 2024 Kayla Carmicheal, Deputy Newsletter Editor

            WeWork is looking to say goodbye to eight more leases as bankruptcy proceedings for the embattled coworking giant move forward.

            WeWork has asked the federal judge overseeing its restructuring to reject the leases, which span six locations across Dallas, Toronto, Atlanta and San Francisco, according to a motion filed Dec. 29. The request, if approved, would bring the total number of leases WeWork cut in bankruptcy to 81.


          3. Business
            WeWork seeks bankruptcy protection in stunning fall for a company once valued close to $50 billion
            Updated 2:30 PM PST, November 7, 2023

            NEW YORK (AP) — WeWork has filed for Chapter 11 bankruptcy protection, a stunning fall for the office-sharing company that once promised to upend the way people went to work around the world.

            The filing comes at a time of incredible disruption in the commercial real estate market. The COVID-19 pandemic led to a spike in vacancies and major markets, from New York to San Francisco, are still struggling.

            But it was an aggressive expansion in WeWork’s early years, that led to the bulk of its current troubles. The company went public in October 2021 after an attempt two years earlier collapsed spectacularly. The debacle led to the ouster of founder and CEO Adam Neumann, whose erratic behavior and exorbitant spending spooked early investors.


          4. BNN Breaking
            WeWork Co-Founder Adam Neumann Lists Northern California Estate for $27.5 Million
            By: BNN Correspondents
            Published: January 7, 2024 at 5:47 am EST | Updated: Jan 7, 2024 at 6:14 am EST

            Adam Neumann, the embattled co-founder of WeWork, is selling his sprawling Northern California estate. The 10-acre hilltop property, located south of San Rafael in Corte Madera, is on the market with an asking price of $27.5 million, a considerable increase from the $21.4 million Neumann paid for it just two years prior. The estate, designed by renowned architect Sim Van der Ryn, offers breathtaking panoramic views of the Golden Gate Bridge and San Francisco skyline.

            A Luxurious Haven

            The compound boasts a range of luxurious amenities. Its main house, spanning 10,000 square feet, includes four bedrooms, five bathrooms, a music room/theater, and a billiards room. A separate yoga studio provides a serene space for mindfulness and relaxation. Outside, manicured gardens and beehives contribute to the property’s charm.

            Constructed in 2002, the estate is a testament to eco-friendly design. It features the innovative rammed earth technique, which uses compacted soil and other natural materials to form thick walls. This construction method not only enhances energy efficiency but also adds fire resistance, a significant benefit in a region prone to wildfires.

            WeWork Saga Continues

            Neumann’s decision to sell comes after he stepped down as the CEO of WeWork last year. The company, known for its shared office spaces, was valued at a staggering $47 billion before it postponed its initial public offering. Investor skepticism about the sustainability of its business model led to a precipitous decline in its valuation. The sale of the property is seen as part of Neumann’s attempt to liquidate his assets amid the ongoing controversy surrounding the company.


          5. Adam Neumann, ousted WeWork boss, relists luxury Gramercy Park penthouse for $32M – a $5.5M cut from when it was listed three years ago as he struggles to sell it
            By Alex Hammer For Dailymail.Com 20:49 25 Jul 2023, updated 20:55 25 Jul 2023

            – The WeWork founder is looking for someone to buy his multimillion-dollar Manhattan penthouse – after he sought to offload the property in 2019 and 2020

            – This time around, the 44-year-old investor is asking for $32million for the six-bedroom triplex, a $5.5million cut from the previous $37.5million asking price

            – Set in a prewar building at the heart of Gramercy Park, the 7,880 home was bought by Neumann for $27.5million, at the height of WeWork’s success

            Disgraced WeWork founder Adam Neumann is once again looking for someone to buy his multimillion-dollar Manhattan penthouse – after he quietly sought to offload the property in 2019 and 2020.

            This time around, the Israeli investor – who posted the initial listing shortly before bringing his shared office venture to the verge of bankruptcy – is asking for $32million, a $5.5 million cut from the previous asking price.


          6. “Neumann started Flow in the summer of 2022 after landing a $350 million check from Andreessen Horowitz, better known as A16z, one of Silicon Valley’s most prestigious venture firms.”

            To align VC funding cycles, was 2022 roughly where the VC world was in 1998, so 2024 = 2000?

          7. 78 Irving Pl, New York, NY 10003

            Bizarre floor plan with false white front door and two kitchens. Black brick building with one ground level and one basement level was attached to the multi-story building on the right. Also devoid of architectural details characteristic of Gramercy Park.

  24. Epstein, Clintons & Cash: Why Zelenska Foundation is Vehicle to Divert Aid to Corrupt Ends

    by Ekaterina Blinova | Sputnik
    January 7th 2024, 4:25 pm

    The release of the Epstein documents has once again cast shadow over the Clintons and their philanthropic activities — and raised questions about their joint project with Ukrainian first lady Olena Zelenskaya in September 2023.

    Ortel said the Clinton Foundation and its numerous offshoots were nothing but a vehicle to transform the once-broke presidential family into mega-multi-millionaires and help their associates to get rich too. The Wall Street analyst is highly skeptical about the Clintons’ new joint endeavor with the Zelenskys, who have also been mired in corruption allegations.

    “By the time Hillary Clinton commenced work with Ukraine’s First Lady, the Clinton family had more than twenty years of experience breaking key charity laws, especially in New York City and State which, to date, have targeted Donald Trump and his family for charity frauds, but allowed Clinton charity frauds to expand in scope, scale, and international breadth,” Ortel told Sputnik.

    “In fact, ‘Clinton Global Initiative’ and ‘The Clinton Foundation’ have not complied with laws concerning ‘public charities’,” the Wall Street analyst continued. “These laws require that such entities be controlled by truly independent boards of directors, bar creation of ‘private gain’ through their operation, and forbid partisan political activities.”

    1. Yahoo
      Motley Fool
      Take Warren Buffett’s Advice: Don’t Buy Any Stock in 2024 Unless It Passes This Test
      Keith Speights, The Motley Fool
      Sun, January 7, 2024 at 2:50 AM PST·5 min read
      In this article:

      Thinking about buying stocks as the new year begins? You might want to press the pause button.

      No, I’m not recommending that you avoid the stock market altogether. That could prove to be a mistake over the long term. However, Warren Buffett has some words of wisdom that I think every investor should heed. Take Buffett’s advice: Don’t buy any stock in 2024 unless it passes this straightforward test.

      The Buffett test

      In Buffett’s annual letter to Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) shareholders released in 2014, he explained a test that he and his longtime business partner Charlie Munger applied before buying any stock. Munger passed away in November 2023, but it’s a safe bet that Buffett will still employ this same process in 2024.

      There are two steps to Buffett’s test:

      – Determine if you can “sensibly estimate an earnings range for five years out or more.”

      – If the answer to the first step is yes, buy the stock only if its price is reasonable compared to the lower end of the estimated earnings range.

      You might wonder if Buffett sometimes bends the rules. For example, would he still buy a stock if it passed the test but the overall economic picture looked uncertain? Would he buy the stock if Wall Street hated it? The answer is a resounding “yes.” He wrote to Berkshire shareholders nearly a decade ago:

      “In the 54 years we [he and Munger] have worked together, we have never foregone an attractive purchase because of the macro or political environment, or the views of other people. In fact, these subjects never come up when we make decisions.”

      Easier said than done

      While the Buffett test for buying stocks is straightforward, it’s easier said than done. The most difficult part is estimating earnings for a company for the next five or more years.

      Buffett readily acknowledged that he and Munger had frequently been unable to estimate future earnings with any degree of confidence, saying that this was “usually the case.” When this occurred, he stated succinctly, “[W]e simply move on to other prospects.”

      1. ‘Determine if you can “sensibly estimate an earnings range for five years out or more.”‘

        Answer for cryptocurrencies:

        Estimated earnings for five years out or more = $0.

  25. The godfather of the inverted yield curve warns a recession is likely coming in 2024 — and shares the 4 reasons why a downturn will be harder to avoid than last year
    William Edwards
    Jan 7, 2024, 3:33 AM PST

    Cam Harvey discovered the inverted yield curve as a recession indicator.
    Harvey is warning that a recession is likely in 2024.

    The Treasury yield curve has been inverted for 12 months now.
    Cam Harvey, the economist who discovered the Treasury yield curve’s ability to forecast recessions, is reiterating his call that a downturn is likely ahead in 2024.

    Harvey’s model says that when yields on 3-month Treasury bills stay higher than those on 10-year notes for at least three months — triggering an official inversion — a recession will follow. The indicator has preceded each of the last eight recessions and has not produced any false positives.

    Yields on the two government bond durations have been officially inverted for 12 months now.

    Harvey, a professor at Duke University and the director of research at Research Affiliates, said in a video presentation last month that the average lead time of inversions for the last four recessions has been 13 months, meaning a recession could be looming.

    In December 2022, Harvey told Business Insider that he believed the model would produce its first false signal this time around. But as the Federal Reserve held rates higher, he then said in April 2023 that he was reversing his call, and believed a recession would come.

    Last month, he said again that a recession is probable this year.

    “Given the Fed’s actions of keeping rates too high for too long, I think the probability of a recession has greatly increased,” Harvey said. “So no longer would I say that we can avoid completely a slowdown.”

    1. Home
      Economy & Politics
      Whether it amounts to an actual recession is uncertain, but U.S. is headed for a soft patch, economists say
      Published: Jan. 6, 2024 at 5:23 a.m. ET
      By Greg Robb
      Lackluster growth or mild recession, it will feel lousy for consumers
      Economists don’t want to get tied up in semantics.

      Asked whether the U.S. economy will experience a recession this year, analysts are saying there is going to be a soft patch. Whether or not the economy falls into an actual recession — meaning two straight quarters of negative growth – is more uncertain and perhaps beside the point. The bottom line is 2024 is likely to be a lousy year for U.S. households.

      1. meaning two straight quarters of negative growth

        What’s our growth rate when you subtract our debt?

    2. Stock Guidance and Research
      Should You Buy Stocks in 2024 Despite the Greatest Recession Risk in Decades? Take Advice From Warren Buffett and Peter Lynch
      By Trevor Jennewine – Jan 7, 2024 at 9:30AM


      – The Federal Reserve’s forecasting tool currently puts the odds of a recession within 12 months at 51.84%, its highest reading in four decades.

      – The S&P 500 declined by an average of 32% during the last nine recessions, but that doesn’t mean investors should avoid the stock market.

      – Peter Lynch believes market timing strategies lead to losses, and Warren
      Buffett’s Berkshire Hathaway has purchased stocks in every quarter for the last 25 years.

      1. “Take Advice From Warren Buffett and Peter Lynch”

        – Buy stocks everywhere and always?

        – Professor Bear’s hot tip: Hold lots of cash when Uncle Warren holds lots of cash.

        1. Financial Times
          Berkshire Hathaway Inc
          Warren Buffett’s Berkshire Hathaway sells stocks as cash pile swells to record levels
          Conglomerate offloads more than $5bn worth of US and international shares
          Fund managers follow Warren Buffett’s investment decisions closely
          Eric Platt in New York
          November 4 2023

          Berkshire Hathaway’s cash pile surged to a record $157bn in a quarter in which chief executive Warren Buffett continued to sell stakes in publicly traded companies, as the so-called Oracle of Omaha found a dearth of appealing investments.

          The company sold more than $5bn worth of US and foreign stocks in the third quarter, according to results released on Saturday. The sales lifted Berkshire’s divestments of listed shares to nearly $40bn over the past year.

          Investors must wait a further two weeks before they can see how Buffett adjusted Berkshire’s portfolio. But Saturday’s results filing indicated the company sold more than 12mn Chevron shares before it bought Hess for $53bn in an all-stock deal last month.

          The value of Berkshire’s portfolio of shares shrank to $319bn from $353bn at the end of June, a decline fuelled by the slide in the broader stock market as investors came to believe that the Federal Reserve would keep interest rates higher for longer.

          That has weighed on the valuations of publicly traded companies and prompted some portfolio managers to search for better returns in fixed income markets. The value of Berkshire’s stake in Apple alone dropped by more than $20bn, as shares of the iPhone maker fell 12 per cent in the three months to the end of September.

          1. Financial Times
            US banks
            Largest US banks set to log sharp rise in bad loans
            Earnings are expected to have shrunk in last quarter of 2023 due to unpaid debts and impact of high interest rates
            Various Wall Street bank logos
            Investors have been buying up bank shares, which have risen 20% since the end of October
            Stephen Gandel in New York
            3 hours ago

            A pile-up of bad debt threatens to sour investors’ growing optimism about the prospects for the US’s largest banks when they report fourth-quarter earnings this week.

            Non-performing loans — debt tied to borrowers who have not made a payment in at least the past 90 days — are expected to have risen to a combined $24.4bn in the last three months of 2023 at the four largest US lenders — JPMorgan Chase, Bank of America, Wells Fargo and Citigroup, according to a Bloomberg analysts’ consensus. That is up nearly $6bn since the end of 2022.

            The analysts estimate bank earnings shrunk in the final three months of 2023, dragged down by those unpaid loans as well as the lingering impact of higher interest rates, which has raised the cost of deposits. In addition, in December, a number of big banks said they planned to take a one-time charge by the end of the year to pay for a special assessment being imposed by the Federal Deposit Insurance Corporation to recover the $18.5bn last year’s failures of Silicon Valley Bank and Signature cost the regulator’s insurance fund.

          2. “Investors have been buying up bank shares, which have risen 20% since the end of October”

            Is that based on the assumption that these banks are too big to fail?

          3. FT FILM
            WHY BANKS FAILED IN 2023
            Video description
            The worst year for banks since 2008 | FT Film

            The banking sector survived two big shocks in 2023: the collapse of Silicon Valley Bank and the disaster-driven sale of Credit Suisse. Swift action prevented a global economic crisis but threats remain
            December 26 2023

            Produced, filmed and edited by James Sandy. Additional filming by Gregory Bobillot and Morgan Schmidt-Feng. Charts by Russell Birkett


  26. Is 4% really a high yield on longterm Treasurys? It seems like they were yielding over 5% when I bought the dip a couple of months ago.

    1. Investor’s Business Daily
      Stock Market Today
      Dow Jones Futures Fall: Can Market Rally Hold At Key Levels? Nvidia Leads 6 Stocks Near Buy Points
      ED CARSON 10:53 PM ET 01/07/2024

      Dow Jones futures fell slightly Sunday night, along with S&P 500 futures and Nasdaq futures.

      The stock market rally got off to a rough start in 2024, with the major indexes snapping nine-week losing streaks. But the S&P 500 and many leading stocks found support late in the week. Some stocks flashed buy signals.

      Those could work but that’ll largely depend on whether the stock market rebounds. And equities will continue to take their cue from the bond market, with Treasury yields back above 4%.

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