Today I saw a chart very similar to late February panic in the subprime CDS market in late February. That time I’ve got a very timely warning to predict the February 27 crash few days in advance.
It’s deja vu all over again:
The CMBX-NA-A 2 index, protecting commercial mortgage CDO papers of Banc of America, Citigroup, Morgan Stanley, Wachovia and few others. This is class A paper, investment grade.
The loss of 23 bp in just few days with coupon income of 25 bp represents the loss of 11 months of income. It’s not that bad as subprime crash February 23rd, when 5 years of income was erased in one day, but it’s a lot. Btw, Chinese stock index fell after that, like it fell today. Interesting.
If this chart doesn’t get back tomorrow then I predict good market crash next week. This chart means run, run, run!
Edit: There is another blog about CMBX/CMBS. It tells that total outstanding value of those mortgages is $770 bln. So yesterday crash is no joke. Let see how it unfolds.
The Theroxylandr in Flame 
April 19, 2007 at 10:29 pm
This would be bad for commercial reits (e.g. ggp, spg, etc…) as well, right?
April 20, 2007 at 12:31 am
It should mean “run, run, run”, but just watch the market set a new high next week. This market is oblivious. There are obvious cracks showing up all over the place, but most of the earnings reports are written by marketing folks, it would seem, in order to make everything look real nice unless you happen to read that tiny footnote at the bottom of page 53. I thought it was going to go down in March, but no. Now I’m thinking the market will stay oblivious for a few months longer and that’ll just make the inevitable that much more catastrophic.
April 20, 2007 at 3:24 am
I should clarify – “run,run,run” is related to REITs. The whole market is too big, I have no clue where it will go.
April 20, 2007 at 6:31 am
23bps will be more than 11 months of income, as you need to multiply it by the duration to get the price drop (i dont know much about this index, but if it is ~5yrs, then duration ~4.5, so price drop ~103.5 cents, or over 4 years of income).
April 20, 2007 at 11:40 am
So, which CRE REITs do loans and sell them in the secondary market?
April 20, 2007 at 11:42 am
A crash should have happened some time ago already had the Fed not meddled in the stockmarkets all the time since the crash of 1987. Whenever something threatens, or has happened already as the assault on the Twin Towers, the Fed floods the markets with liquidity and the Plunge Protection Teams start to buy index futures and -calls in order to prop up the markets. It’s this sea of liquidity that prevents the markets from sinking. This will only happen as this flooding will no longer work. But when will that be?
April 20, 2007 at 12:55 pm
This post was visited 3,000 times. Wow!
April 20, 2007 at 1:06 pm
If you look at the commercial mortgage REITs, they are doing quite well today. I track ABR, BRT, CSE, CT, GKK, SFI, NRF, and RAS in that space. Gramercy, which reported after the bell Wednesday, had a solid Q1 and particularly strong credit results. GKK has yet to experience an actual loan loss. In fact, SFI and RAS have recently levered up even more because their ROEs have been so strong. Many of the commercial mREITs have done an excellent job of diversifying geographically through joint ventures in Europe and throughout the U.S. I wouldn’t bet against the commercial mREITs right now, particularly as traditional sources of financing through the depository instuitions are drying up in the wake of the subprime blowup.
April 20, 2007 at 1:56 pm
It could be a one-day blip in CDS prices. If price gets back to normal within 1-2 day then nothing will happen.
If the price stays where it is now it will take few days to a week until market will react.
The CDS is a very early warning, like it was with ABX. ABX took a dive around Feb 20-23. The market reacted Feb 27.
April 20, 2007 at 5:04 pm
sd
April 20, 2007 at 5:34 pm
The market is already crashing:
http://goldsilver.com/the_dow_is_crashing.php
Also see
http://www.gata.org
April 20, 2007 at 6:58 pm
[…] Panic at the commercial Real Estate market Today I saw a chart very similar to late February panic in the subprime CDS market in late February. That time […] […]
April 20, 2007 at 8:06 pm
[IMG]http://i85.photobucket.com/albums/k65/bitchpix/house.jpg[/IMG]
April 20, 2007 at 8:39 pm
I have bought credit card debt for about 8 years now. Garbage is garbage & there is plenty of market that does NOT deserve credit. Period.
Does not surprise me.
April 20, 2007 at 10:17 pm
Well I don’t know anything about REITs, but since the Feb 27 crash, I have positioned my portfolio for (1) a market correction with short ETFs, (2) rising energy prices with energy stocks and a leveraged energy ETF, and (3) stagflation with some gold stocks.
This probably won’t happen overnight. It will take a while for the sub-prime problem to manifest in outright foreclosures that pressure real-estate prices. Credit contraction will play out more slowly, and you can bet that the Fed and financial community will play that down. Going for the market right now is all that liquidity, recent positive earnings surprises from the blue chips, the Presidential cycle factor, and the relative cheapness of stocks to bonds on an earnings yield basis. Also resources and blue chips will buoy the market because of sector rotation and defensiveness respectively.
The rally could last most of this year, but because of the sharper rise since Feb 27, the next pullback should fairly sharp as well – so volatility will be increasing.
I think energy stocks are a very good bet here. The U.S. dollar is into its next downleg, and commodities, after having paused since last summer, are going to surge again, creating more inflation. Supply disruption will be a factor in energy (regional conflicts, hurricanes, warmer weather etc..) – and possibly foods such as grains – that should cause some price spikes.
For now I’m early, and down overall about 5% since this re-positioning. I cover this in detail in my blog at http://stockadventures.wordpress.com/
Cheers
Allocator
April 21, 2007 at 1:48 am
[…] by pebcac on April 21st, 2007 Here’s an interesting look at the not-so-distant real estate market. Investors should pay […]
April 21, 2007 at 3:51 am
[…] Commercial Real Estat Indicator(theroxylandr) If this chart doesn’t get back tomorrow then I predict good market crash next week. This chart means run, run, run! […]
April 21, 2007 at 12:33 pm
[…] Panic at the commercial Real Estate market « The Theroxylandr in Flame Panic at the commercial Real Estate market « The Theroxylandr in Flame […]
April 21, 2007 at 11:23 pm
This may help to explain what’s going on:
http://tinyurl.com/2v3uoz
http://tinyurl.com/39fmo3
April 11 (Bloomberg) — Moody’s Investors Service, one of the two largest credit-rating firms, will require more protection for investors in securities backed by mortgages on apartment buildings, offices and other commercial properties because of “a continued slide” in lending standards.
Surging delinquencies on subprime residential mortgages caused by looser lending practices are an “elephant in the room” that has called attention to standards on other loan types, Moody’s said. As with home loans, commercial mortgages have been requiring less documentation and including the use of more interest-only loans and secondary financing, it said.
“This is a direct response to the slow but steady erosion in underwriting quality within the securitized commercial mortgage lending world,” Jim Duca, a group managing director at Moody’s in New York, said in the statement.
April 22, 2007 at 12:15 am
Classic Kinleberger and a case of the pathologies of overzelous creditors. A housing-market bubble…Japan in the 80s. The question now remains: will the US stock market bubble feel the US housing market crash?
YES.
April 22, 2007 at 12:16 am
*over zealous/overzealous – correction
April 24, 2007 at 2:25 pm
Look again at the CMBX-NA-A 2 today. What happened? It eased from 60 to 24.5! Seems like someone has rescued the markets once again!
April 24, 2007 at 5:48 pm
German – I’m not sure where you are looking.
Markit shows CMBX-NA-A 2 to be 50 today. It’s down from 59.5 top it was last Friday – but still well above typical interval of 35-40 after February crash from 15.
The total loss in 2 months is 35 bps, comparing to 25 bps coupon. I can’t say investors are happy here.
April 24, 2007 at 11:46 pm
I looked at http://213.177.33.28/information/affiliations/cmbx – CMBX-NA-A 2 is 24.44 there, now.
April 25, 2007 at 8:14 am
german, this is a total mistery for me. Your link
http://213.177.33.28/information/affiliations/cmbx
shows clearly different numbers than
http://www.markit.com/information/affiliations/cmbx.html
Where did you get it?
April 25, 2007 at 10:55 am
I googled “CMBX” some weeks ago and bookmarked that link. The values were identical to yours until yesterday. Perhaps markit introduced different CMBX Indices for bulls and bears? 😉
April 25, 2007 at 1:10 pm
I just contacted markit. 213.177.33.28 is an internal test server, so the values there are wrong! I don’t know where or how i fetched that link. Just forget about it. 🙂
April 25, 2007 at 7:29 pm
Thanks german! So it’s bear. I will post more findings in few minutes
May 19, 2007 at 1:55 pm
[…] It’s very clear that capital is moving from small stocks into big ones. REITs are moving down. Remember this post? […]
June 23, 2007 at 2:17 am
Nice comments, can’t say I agree with all of them. Need to do more research and then comment
August 15, 2007 at 1:01 pm
[…] This is another situation where the industry folks (bankers, lenders, brokers etc.,) are way ahead of the knowledge (panic) curve, so beware! For the most part, Real Estate Agents (though this is changing) and certainly Sellers and some Buyers are still in the dark, or in denial, about the magnitude of this correction and where it will eventually take the market. The media and the National Association of Realtors (NAR) are spinning like crazy (its a great opportunity to buy! Hint – it isn’t). Even Wall Street has just seemingly awoken to the danger that Mortgage Backed Security and Collateralized Debt Obligation defaults pose to investors (yes, the market is tanking, but this inevitable correction is long overdue). […]
September 6, 2007 at 10:20 am
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October 17, 2007 at 2:59 am
[…] Stock crash to happen next week? article […]
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