Mr. Freeze? US Existing Home Sales YoY Fall For 7th Consecutive Month (-4.10% In September), Median Price YoY Continues To Cool

Well, ain’t this a kick in the head.

US existing home sales YoY fell for the seventh straight month, -4.10% in September.


Existing home sales median price YoY has cooled to 4.2% YoY while inventory remains below the long-run average.


Is Fed Chair Jerome Powell really Mr. Freeze?


The Mist! US Housing Starts Plunge Under Rising Interest Rates (Hurricanes Florence and Jerome)

There is little doubt that Federal Reserve policies have resulted in mispriced risk and massive distortions in the economy. Fed Chairs Bernanke and Yellen were masters of distortion (keeping rates too low for too long) while Fed Chair Powell (Hurricane Jerome) is raising rates rapidly in the face of little-to-no inflation. Throw in Hurricane Florence and we have “The Mist” where fear changes everything.

Housing starts for September were released yesterday and, as expected, the numbers were down across the board (except for the West where it is seemingly always sunny).


1-unit starts (aka, single family detached) are still below 2000 levels thanks, in part, to The Federal Reserve dropping their target rate like a hammer to 1%. We got a massive construction response. That blew up, so The Fed dropped their target rate like a hammer … again from which Hurricane Jerome is only recently begun raising.


But it is with multifamily (5+ unit starts) that Fed rate increases are being daunting.


In a sense, The Fed destroyed the single family detached housing market (along with other misguided Federal programs) and now The Fed is applying its mist to the multifamily market.


Courtesy of the great Jesse’s Cafe Americain!

Mall Madness! Sears Declares Bankruptcy, Neiman Marcus, Digicel, David’s, Blackboard And Others On Distressed Watch

As expected, Sears has declared bankruptcy!


There was a time when Sears sold houses, rifles, electric belts, autos and groovy (Eleri) pants in their catalogs. But alas, those times are gone. There is only so long that a company can survive of negatve EPS.


Forty-four CMBS have exposure to 30 Sears properties that are closing as part of its Chapter 11 bankruptcy filing, according to a Morgan Stanley. That is $2.3 BILLION of exposure to Sears.

  • CMBS has exposure to six K-Marts and 24 Sears, Morgan Stanley analyst Richard Hill wrote in a client note. Seven of the Sears properties are owned by Seritage
  • Two SASB deals have 100% exposure: BBCMS 2015-VFM (a loan for Vintage Faire Mall in Modesto, California), and WTOWN 2017-KNOX (a loan for West Town Mall in Knoxville, Tennessee)
    • Seven deals have 10%+ exposure, according to Morgan Stanley
    • CMBX.10 has exposure to three properties across six deals with $336m of debt
    • CMBX.6 has exposure to five properties across four deals with a balance of $302m

But Sears is not alone.  These companies are on Bloomberg’s distressed list.

  • Neiman Marcus
    • Oct. 15: Interest due on 2021 senior unsecured notes
    • Oct. 31: Payment due on 1L term loan
    • NOTE: Co. said to discuss debt overhaul with creditors; lender Marble Ridge asserts potential default on MyTheresa transfer; co. appoints new CEO amid restructuring talks with creditors; owned by Ares Management and Canada Pension Plan Investment Board
  • Digicel
    • Oct. 15: Interest due on 2021 senior unsecured notes
    • Oct. 19: Deadline for debt swap
    • NOTE: Ad hoc group bondholders sign lock-up agreement; bondholders said to hire Moelis to improve debt deal; co. offers to swap 2020 and 2022 notes for new cash-and-PIK securities and extend maturities, seeks to eliminate covenants and events of default; Bloomberg reports bondholders organize
  • David’s Bridal
    • Oct. 15: Coupon payment due on 2020 notes
    • Co. working with Oaktree Capital and Evercore on reworking debt as creditors hire advisers; controlled by Clayton, Dubilier & Rice
  • Blackboard
    • Oct. 15: Interest due on 2021 2L notes
    • Nov. 15: Interest due on 2019 senior unsecured notes
    • NOTE: Price of debt falls as colleges switch to other systems; S&P changes outlook to negative, citing “tightening covenant headroom” that leaves “little room for error” in managing liquidity
  • Windstream Holdings
    • Oct. 15: Interest due on 2020 senior unsecured notes
    • Nov. 8: 3Q earnings call pre-market
    • NOTE: Court decision pending after Aurelius claims spinoff of Uniti Group amounts to a default; co. refinances bonds, extends maturities, focuses on pushing out maturities on revolver and TL, per CFO
  • Intelsat
    • Oct. 15: Interest due on 2020 unsecured notes
    • Nov. 15: Interest due on 2024 senior unsecured notes
    • NOTE: Co. announces plan to sell 2024 notes to finance repurchase or redemption of 2021 bonds; co. buys back $1.72b of 2020 senior notes; Moody’s and S&P say capital structure is still unsustainable; Cowen says balance sheet has been repaired
  • Ultra Petroleum
    • Oct. 15: Payment due on 2022 senior unsecured notes
    • NOTE: Co. unable to reach pact with lenders, may need to request another break on loan covenants, Bloomberg reports; S&P downgrades on expectation leverage will exceed estimates
  • Uniti Group
    • Oct. 15: Interest due on 1L April 2023 notes
    • NOTE: Bonds fall to record lows as noteholders await Windstream verdict; Moody’s downgrades in June on potential failure to meet debt obligations; S&P affirms B- rating on expectation that Windstream will continue to make rental payments on lease agreement
  • Acosta
    • Oct. 30: Payment due on 1L senior secured term loan
    • NOTE: Bonds fall after co. says customers cut spending; bondholders organize with Davis Polk and seek financial advisers; Moody’s cutsto Caa2 in April on increased likelihood of distressed exchange, calls capital structure unsustainable; co. reports 20% drop in Q1 Ebitda, names new CEO; owned by Carlyle Group
  • QGOG Constellation
    • Oct. 31: New maturity date on $150m credit line after extension and on project financing loans after extension
    • NOTE: Co. hires Evercore to advise on debt talks, Bloomberg reports; S&P downgrades in May after co. says it won’t make interest payments
  • Fresh Market
    • Nov. 1: Interest due on 1L notes
    • NOTE: Moody’s downgrades to Caa2 in July on possibility of distressed exchange within 12 months; notes rally as same-store sales improve; controlled by Apollo Global Management
  • California Resources
    • Nov. 1: Conference call on 3Q results
    • Nov. 15: Interest due on 2024 senior unsecured notes
    • NOTE: Co. amends credit agreement so it can repurchase debt below par and use permitted refinancing indebtedness to refinance
  • Community Health Systems
    • Nov. 15: Interest due on 2019 senior unsecured notes
    • NOTE: Moody’s downgrades, says $262m DOJ payment weakens liquidity; co. “dangerously close” to breaching covenant, but it’s likely to be waived, per BI; co. offers $1b new senior notes to pay down term loans; co. said to hire restructuring advisers, continues selling assets with proceeds likely to pay down term loan
  • Bellatrix
    • Nov. 15: Interest due on 2020 senior unsecured notes
    • NOTE: Co. completes swap that cuts debt by $10.5m and sets stage for more 2020 exchanges; revolving credit facilities extended; co. in discussions with potential new lenders
  • PetSmart
    • Dec. 1: Interest due on 1L notes
    • NOTE: Term loan holders sue, claiming credit agreements breached by Chewy asset transfer; co. denies wrongdoing; Wilmington Trust says transfer must be reversed and a default declared; lenders organize and enlist restructuring advisers

Here are some of the pages from old Sears catalogs.





Maybe for my ailing back!


Why is there an electric wire attached to “The Netherlands”? Or as Ron Swanson called it, “The Nuggets”?

Just in case you thought malls were paranoid about Amazon and changing shopping preferences.


When The Fed Comes Marching Home: Mortgage Refinancing Applications Killed By Fed Rate Hikes (Purchase Applications Stalled)

When The Fed Comes Marching Home … to normal interest rates.

It was inevitable. Federal Reserve rate hikes and balance sheet shrinkage is having the predicitve effect: killing mortgage refinancing applications.


And mortgage purchases applications SA have stalled in terms of growth with Fed rate hikes and balance sheet shrinkage.


WASHINGTON, D.C. (October 10, 2018) – Mortgage applications decreased 1.7 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending October 5, 2018.

The Market Composite Index, a measure of mortgage loan application volume, decreased 1.7 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 2 percent compared with the previous week. The Refinance Index decreased 3 percent from the previous week. The seasonally adjusted Purchase Index decreased 1 percent from one week earlier. The unadjusted Purchase Index decreased 1 percent compared with the previous week and was 2 percent higher than the same week one year ago.

The refinance share of mortgage activity decreased to 39.0 percent of total applications from 39.4 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 7.3 percent of total applications.

The FHA share of total applications increased to 10.5 percent from 10.2 percent the week prior. The VA share of total applications remained unchanged at 10.0 percent from the week prior. The USDA share of total applications increased to 0.8 percent from 0.7 percent the week prior.


Yes, The Fed has begun its bomb run.


Homebuilder Stocks Decline As Fed Hikes Interest Rates And Unwinds (Rez Construction Spending Growth Declining)

The bloom is off the rose for homebuilders. Yes, it had been a great run, fueled by The Fed’s zero-interest rate policy (ZIRP) and asset purchases (QE). But despite a roaring economy, SPDR S&P Homebuilders ETF have been falling since January as The Federal Reserve Open Market Committee (FOMC) sticks to their guns and keeps normalizing interest rates.


Yes, the Fed Dots Plot project indicates that there is still upside momentum to short-term interest rates.


And the Fed’s System Open Market Accounts (SOMA) show a declining inventory of Treasury Notes and Bonds to let mature.


So, let’s put on some groovy pants, put on Iron Butterfly, and chill.



US Treasury 10Y Shorts Rise To Record As 10Y Rate Rises (Jay Powell And The Sunshine Band)

10 year Treasury Note shorts just hit an all-time high as speculators bet on more interest rate hikes and rising 10 year rates.


Because .. that’s the way Central Banks like it!


Losing Game: Pimco Total Return Risks First Losing Year Since Gross’s Ouster (Fed Isn’t Helping)

Pimco has been playing a losing game for their total return fund.

(Bloomberg) — The Pimco Total Return Fund could be headed for its first annual loss since 2013 as the bond firm’s former flagship lags behind competitors four years after the ouster of longtime manager Bill Gross.

Hurt by rising interest rates and emerging-market bets, the $70 billion fund fell 1.62 percent this year through September, ranking in the bottom 30 percent of its peers, according to data compiled by Bloomberg. It also narrowly trails the Bloomberg Barclays U.S. Aggregate index, which has declined 1.6 percent this year.

Total Return’s last negative year was 2013, when it lost about 1.9 percent. Since its 1987 inception, the only year it had a bigger decline was 1994, when it fell 3.6 percent as interest rates soared.


Of course, The Federal Reserve isn’t helping Pimco’s fund, particularly since The Fed started their great unwind of their balance sheet.



Darth Malled! JC Penney Is Now A Penny Stock (Almost) – Another Mall Retailer Bezos’d!

Mall retail anchor JC Penney is yet another victim of the on-line shopping revolution.  Note that JC Penney lost 50% of their stock price between early 2007 and the beginning of The Great Recession. It has gone from over $80 per share in early 2007 to under $2 per share today.


And their corporate bonds, once at par in 2010, have swooned to $44.625 today.


Of course, JC Penney has had relatively attroicious earnings per share growth, in part due to on-line sales from competitors and changing consumer tastes.


Yes, American retail shopping malls are getting Bezos’d. Or Darth Malled.


Lumber Futures Nosedive Along With Home Building Stocks (When The Music’s Over?)

Is the music over for housing construction and the housing bubble?

Lumber futures, a harbinger for housing, are down solidly on the year amid weaker demand.


And US homebuilding companies relative to the S&P 500 index has been falling since 2017.


Or are homebuilders “riders on the storm”? Or is it “The End” of the housing bubble?