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Sunday, April 29, 2012

Media Reports: Point to Top in Commercial Real Estate Market

Commercial Real Estate Market

Media Hype signals the kiss of death...

Media Reports are one of the most reliable key sentiment indicators that we use to identify the end of a market cycle, and a change in herd behavior. Once you read it on the front page of your news paper, it's already old news on wall street.

We first noticed the media's hype concerning the commercial real estate back in March, and this seemed to climax during the last week in April.  

NYC office rents seen rising 16% through 2013 

"Manhattan commercial asking rents will advance 16% over the next three years, the second biggest gain in the nation, according to a forecast released by Cushman & Wakefield Inc. on Thursday.

Only San Francisco, where rents are expected to jump 33% through 2013, will best New York, the report said.
New York is benefitting from a much stronger job market than many cities in the country, said Maria Sicola, head of research for the Americas at Cushman. She said that in New York, 40% of the jobs lost during the recession have come back.

I have always enjoyed good fiction, but I think it takes the imagination of a 3 year old to rationalize that a 40% come back in the jobs market equates to a 33% projected yearly gains in an already bloated Commercial Real Estate market!  

Irrational exuberance surrounding the REIT sector seems equally absurd, considering Fed easy money policy combined with Pressure on banks to continue reckless lending practices in the face of the a liquidity drought brought on by the collapse in the residential real estate market has only continued to fuel the commercial real-estate bubble globally.

Chines ghost cities:

History teaches us: A collapse in residential real estate is always followed by one in commercial real estate. Cycles every 25 years or so; so don't think that because the next shoe didn't fall in '08... that there isn't a size 12 coming in 2012.




Wednesday, April 25, 2012

Definition: Reinflate

Reinflate - Re-Inflate: 

1. Term for fed policy  which attempts to fill deflated asset bubbles with easy money. 

2. Term made up by money managers who hope to keep you confident, and fully invested, so that they can keep up with the payments on their Mercedes Bends SL500 each month.   

There are several problems with the above hypothesis:

1. Easy money seldom ends up where it's needed/intended; often causing asset bubbles elsewhere, such as the housing bubble of '08. 

2. Rather than fostering an environment of accountability, easy money policy encourages more risk taking, on the part of investors. "After all, the fed will always just bail us out when we screw-up."

3. An inflate policy keeps cost of living prices high, while at the same time asset prices may be deflating, and wage growth is stagnant, placing an undue burden on the middle-class and the poor.