What happened?

Now, this was a quicky. From AAA to –BBB to AAA in one week.
From Bloomberg:

Standard & Poor’s backtracked on ratings cuts issued last week and raised the ranking on commercial mortgage-backed debt from three bonds sold in 2007.
The securities, restored to top-ranked status, had been downgraded as recently as last week, making them ineligible for the Federal Reserve’s Term Asset-Backed Securities Loan Facility to jumpstart lending.
S&P lowered the ratings on a class of a commercial mortgage-backed bond offering from AAA to BBB-, the lowest investment-grade ranking, on July 14. The New York-based rating company reversed the cut today, S&P said in a statement. In a related report, S&P said it adjusted assumptions on the timing of projected losses on the mortgages.
“It is a stunning reversal and certainly raises questions concerning the robustness of their revised model,” said Christopher Sullivan, chief investment officer at United Nations Federal Credit Union in New York. “It may engender further uncertainty with respect to ratings outlooks.”
Debt rated below AAA isn’t eligible for the Federal Reserve’s TALF. Investors sought $668.9 million in loans from the Fed to purchase so-called legacy commercial mortgage-backed bonds on July 16, the first monthly deadline to finance the purchase of the securities.

Throw the ratings agencies out of the window

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When the music stops...

If you want to see the fall out of the real estate bust in the US, click here.
Edgar Martins, a Portuguese photographer, made this pictures for the NY Times. Be quick, before this paper also halts its activities.

An absolute fabulous novel is out: Hedge Fund Wives. You find the six first chapters here.

There was a time when the European Securitisation Forum was held in Barcelona. Brilliant time, that June 2007, when we drunk champagne and danced to a rock band called D’Leverage.
How different for the ex-colleagues who attended this year in Edgware Road, rather a cheapish venue in London, where coffee had replaced the bubbles.
The reason is obvious: the industry of repackaging mortgages, consumer credit or auto loans has ceased to exist

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Housing bubbles

Sometimes I can not believe my eyes. Here we have a chart of housing bubbles around the world – with Ireland as a clear winner – based on the price-rent ratio: the price of homes divided by rental income earned. If the ratio goes higher housing prices are leading rental income or rental equivalent costs of a home. And vice-versa.
Ireland was leading the troops. Amazing though that this ratio is going up again. An aberration? Or are rents going down faster than housing prices as foreigners are leaving the Emerald Isle in droves?

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Commercial real estate

Real Point, the commercial real estate analyst, has downgraded several hundred CMBS structures (commercial mortgage backed securities). Even better: they provided us with a comprehensive delinquency report for April. Most notable is the explosion in 90+ day delinquencies for March relative to April. Detoriation is accelerating in all categories.
This is in sharp contrast with the upbeat report REIT analysts of Merrill and BoA are producing just to facilitate placements of these outlets, the last couple of weeks.

I suggest that the steep rally of the last weeks was engineered by the Powers-That-Be in order to give way to a round of capital increases. That seems to be over now.

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Bear - part 1

Is it starting?
Is the rally over?
There are fascinating articles in the blogosphere depicting what’s happening.
Once more Goldman Sachs is leading the troops.
It’s clear this rally can not run much longer.
So we’re looking to short ETF’s again.
Look to the daily renko chart of ProShares Ultrashort Real Estate. On the daily chart everything is ok: this double short ETF is still loosing value:

However: the 60-minute ETF is telling another story. The trend is changing.

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The next disaster - but not yet

The vultures circling around commercial real estate deals are becoming more and more numerous.
The sale of the John Hanccock Tower to Normandy serves as a striking example of what’s going on. This property was appraised for 1.3 bln USD in 2006 after being traded at 935 mln USD in 2003. In the foreclosure auction two days ago this marquee building in Boston changed hands for 660 mln USD.
Mall owners have to renew a lot of loans this year while malls get emptier by the day. It’s obvious that firms are going to default soon.
Build on mountains of debt, outlets like Macerich (ticker: MAC), Simon Property Group (ticker: SPG), Taubman Centers (ticker: TCO) and Developers Diversified Realty (ticker: DDR) to name a few, are all doomed if a white knight is not passing by soon.
A REIT which can suit one who wants to short is SRS.
The rot is everywhere.

Let’s name them: Bank of Ireland and Allied Irish Bank have submitted proposals to the Irish government to set up their version of good bank – bad bank. They put 35 bln € forward as the total figure. What’s going to the bad bank? Mainly real estate/development loans which have crippled the Irish banks. No more chicken wings and Guinness in the Harbor Master the coming months, lads.

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Running for the exit

Commercial Real Estate is the next ship to sink. And it’s coming, fast and furious. Banks still try to ditch the hole, but the delinquent loans become so numerous that somehow this thing will implode.
You better close the windows when the trouble starts.
One glance at the ProShares Ultrashort Real Estate ETF (ticker: SRS) with components as Simon Property Group, ProLogis and Vornado Realty Trust will tell you the story

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