USA and China Talk Money

The Coming Commercial Real Estate Crisis

From guest blogger Larry Levin

As usual in Washington, it's "Do as I say, not as I do." While Ben Bernanke is talking up the U.S. economy, Congress and the IRS are scrambling to stop another real estate collapse.

First, the political left and National Association of Realtors are in the process of extending the now famous "first time homebuyer tax credit." The initial plan, which was passed around this time last year and allows first-time homebuyers an $8,000 tax credit, is on track to cost about $15 billion, double the projected budget.

Heh, and just like "cash for clunkers" going massively over budget must be a sign of scorching legislative success. Thus, the new plan is to extend the tax credit into the summer of 2010, boost the credit to $15,000 and make all potential homebuyers eligible. Those who are content with their current home and/or unwilling to invest in a new one... well, they get the prideful assurance of knowing they played it safe - and their kids get the bill.

Also, the IRS has changed some rules to help keep commercial real estate afloat. It's a technical matter (aren't all American tax laws hard to understand?), but basically, the IRS fudged their rules on tax penalties for real estate investment pools. Under the new laws, certain commercial real estate loans could be modified or refinanced without hitting investors with a tax penalty.

We'll save the details for more seasoned analysts, like our resident CFA, Dan Amoss. But you get the gist... the government is going out of its way to keep commercial real estate from going down.

Complimentary Trend Analysis For Stock, Futures, And Forex

"The fundamental outlook for REITs and commercial real estate remains bleak," says Mr. Amoss, "and the market will soon wake up to this fact.

"The core of the bear case for REITs rests on falling comparative property values, falling rents, falling occupancy rates and tight to nonexistent refinancing conditions. Refinancing conditions are important because if lending remains tight, this will push up the amount of property foreclosures and liquidations. And conditions will remain tight because the regional and community banks that typically lend against commercial real estate collateral are not answering phone calls from desperate borrowers. They're nursing hangovers from their existing commercial real estate loans, and have regulators watching their every move...

"Richard Parkus, head of mortgage backed security research at Deutsche Bank, estimates that cumulative commercial real estate charge offs will be in the range of 10% of the banking system's $1 trillion in core commercial real estate loans. That's a $100 billion hole in the banking system's capital that many banks will not be able to 'earn their way out of.' I think 10% cumulative charge offs could be conservative.

"Thus far, according to SNL Financial data, commercial banks have charged off just 1-2%. So in baseball parlance, 'We're only in the first inning' of the process of recognizing and writing off whole commercial real estate loans sitting on bank balance sheets.

"As this occurs, this will lead to a flood of foreclosures and liquidations, which will push down market prices for commercial properties - the same types of properties owned by REITs."

Trade well and follow the trend, not the so-called "experts."

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Jeff Rubin believes that oil prices are going to escalate much higher. In his book "Why Your World is About to Get a Whole Lot Smaller," Rubin foretells $200 oil and a vastly transformed global economic picture coming into focus very soon. The premise of Rubin's book is that oil is a finite resource and so called "easy" oil is waning. Inevitably production will be unable to keep up with the growing demand worldwide, and the price of oil will skyrocket.

The chief economist at CIBC World Markets in Canada for 20 years, Rubin correctly predicted the price of oil reaching $50 in 2005 and $100 in 2007. No one believed him then, either. "There continues to be widespread skepticism regarding my oil price forecast," Rubin told Rigzone. "As I noted in the book, few people have ever changed their minds during the entire history of the peak oil debate, at least insofar as 'experts' are concerned".....Read the entire article

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"It's Rigged" From Larry Levin

From guest blogger Larry Levin

A few weeks ago I was on television and when asked about the market I said "It's rigged!" To be sure, I said more than that; however, that was the core of what I said and the video practically went viral. And when I speak of "the market" I am referring to the market in its entirety, which includes the bond market among others. Well folks, the bond market is rigged too! Other traders and I have discussed this on the floor for a while now but I didn't want to report rumors to you. Now it looks as if the rumors are a smoking gun.

Last Wednesday I wrote about the Treasury auctions that hadn't been going well. A 2-YR Note auction was poor, but the 5-YR Note auction was worse: it was so bad many declared it a "failed" auction. Because of this many market pros were very concerned about the following day's 7-YR Note auction, as was I. If it too had "failed" the fit would hit the shan.

But I guess we don't have to worry about that any longer. The kleptocracy under Bush & Greenspan is alive and thriving under Obama & Bernanke. If you haven't guessed what happened yet, the Fed rigged the 7-YR Note auction and voila - all was fine. If you don't like the term kleptocracy, try on generational theft/thieves for size.

From Zerohedge...

In a brilliant piece of investigative reporting, Chris Martenson (original article here) has uncovered that the Fed, merely a week after issuing $28 billion in 7 year bonds via its puppet, the US Treasury, of which $10 billion ended up being purchased by primary dealers, has turned and bought 47% of the primary allocated bonds in Open Market Purchases. This is undisputed monetization removed simply via one primary dealer and less than 5 days of temporal separation in order to leave no easy trace. As Martenson points out:

"A more honest and open approach would have been for the Fed to simply buy them outright at the auction but this way, using 'primary dealers' and 'POMOs' and all these other extra steps the basic fact that the Fed is openly monetizing US government debt is effectively hidden from a not-too-terribly inquisitive US press and public."



The question is did the Fed implicitly tell the primary dealers they are merely holding the treasuries for a flip, and that it would acquire them immediately. Absent this $4.8 billion in effectively monetized bonds, what would the Bid-To-Cover have been for the primaries? Would this have been the second practically failed auction for USTs after the deplorable 5 year auction results a day prior? One wonders if there would have been 62% indirect interest in these bonds (which the day before had a measly 32.5% indirect bid) if the purchasers were aware of the Fed's immediate prompt monetization of a large part of the directs' balance.

It is truly a sad state of affairs when the Fed has to manipulate public and media perception in this way, and has to cover up for the complete lack of interest in US Treasuries.

Here is the evidence Martenson dug up:

(copy and paste these links into your browser and you'll see what I mean)

http://www.zerohedge.com/sites/default/files/images/7%20years%20CM.jpg

http://www.zerohedge.com/sites/default/files/images/7%20Years%20CM%202.jpg

Martenson's conclusion needs no elaboration:

"The speed of the shell game is accelerating.

This immediate repurchase of newly auction bonds by the Fed tells us that demand for these bonds is not nearly as high as advertised, and that things are not quite as strong as represented.

And oh, by the way, don't expect any stock market weakness while so many billions are being shoveled out the Fed and into the pockets of the primary dealers. They'll have to do something with all that freshly minted cash....."

I think it's clear folks; there is no "free market" and what is left of the stock and bond markets have become a pyramid scheme that makes Bernie Madoff look like a piker.

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What’s Up With The Currency From Down Under?

Let's take a trip down under today.

It has been sometime since we last looked at the relationship between the US dollar and the Australian dollar (USD/AUD). Today seemed like an opportune time to look at this cross and to figure out where it is headed using our “Trade Triangle” technology.

We’re also using MarketClub’s Fibonacci tool. If you have not seen this tool in action, I strongly recommend that you watch today’s video.

You can watch this video with our compliments and there is no registration requirements. We would love to get your feedback so please feel free to leave a comment.

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Euro vs. USD....Learn Their Relationship

From guest blogger Adam Hewison....

Today, we are dissecting and examining one of my favorite markets … the Forex market. The Forex market is the biggest market in the world and is traded on a 24/7 basis.

What makes these markets so exciting is the fact that they have a very strong tendency to trend, that is, once they get started in one direction they tend to continue in that direction for some time.

I learned how to trade Forex in the trading pits of Chicago where I was a member of the IMM, a division of the Chicago Mercantile exchange. The CME has grown dramatically over the years, and I have many fond memories of trading in the old exchange in Chicago. Today, you can trade the stock of the CME (NASDAQ_CME). I digress to today’s video.

Today we are exploring the relationship between the Euro and the Dollar (EURUSD). In this short video, which we are making available without cost or registration, you’ll catch a glimpse of a conservative way to trade the Forex markets. This approach will detach you from your computer screen and show you how to enjoy your free time without having to worry about the markets.

I would not recommend this movie if you are risk adverse. Trading in Forex, the futures markets, and in any market for that matter always has an element of risk.

I hope you enjoy this educational Forex trading video and that you’re able to see the value in this approach.

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