Sink The Economy! CMBS Storm Unfolds As Delinquent Office Loans Hit Five-Year High (They Call Biden “The Sleeze!”)

Biden and The Fed are playing their own version of Johnny Horton’s “Sink The Bismarck!” This version is called “Sink The Economy!”

The commercial real estate space is experiencing stress following the recent turmoil in the regional bank sector, with the rapid rise in interest rates, tightening lending standards, and structural changes, such as sliding demand for office buildings.

Some structural factors, such as remote work and hybrid work, have doomed the office space segment. This has left empty office buildings scattered across major US cities as the number of landlords falling behind on repayments due to the difficulty of refinancing and high vacancies has hit a five-year high.

According to real estate data firm Trepp, more than 4% of office loans packed into commercial mortgage-backed securities were delinquent in the last 30 days as of May, the highest level since 2018.

Dan McNamara, the founder of Polpo Capital Management, told Bloomberg about impending CRE turmoil:

“This is just the tip of the iceberg for office delinquencies as $35 billion in CMBS office loans are scheduled to mature this year and the refinancing market is effectively shut to this asset class.”

The rise in delinquencies comes as security card swipe data from Kastle shows many workers have yet to return to their desks in major US cities, resulting in high office space vacancies nationwide.

After banking failures, we first warned premium subs about the “CRE Nuke Goes Off With Small Banks Accounting For 70% Of Commercial Real Estate Loans“ in mid-March.

As Goldman pointed out to clients days ago, one major issue is a steep maturity wall of floating and fixed-rate CMBS loans due this year and next. The inability to refinance in these challenging market conditions will likely unleash a tidal wave of defaults in the second half of this year.

Already, we have noted “CRE Giant Brookfield Defaults On $161 Million Debt For DC Office Buildings” and “San Fran’s CRE Apocalypse: The City’s Two Biggest Hotels Have Defaulted.” And also cited data from Moody’s Analytics that showed first-quarter CRE prices fell for the first time in over a decade.

Goldman Sachs chief credit strategist Lotfi Karoui told clients last month, “the most accurate portrayal of current market conditions” is data via the Green Street Commercial Property Price Index, which suggests trouble ahead.

Just how much danger? Karoui believes “Green Street indicates a 25% year-over-year drop in office property values and a 21% drop in apartment property values.”

So the combination of high vacancies, sliding prices, and tightening lending standards is a perfect storm that could ignite an eruption of delinquencies in office loans in the coming quarters.

And after the FBI confirmed that Joe and Hunter Biden received $5 million EACH in bribes by Burisma, the Ukrainian energy company, they call Joe Bidens “The Sleeze.”

Simply Irresponsible! Biden Signs Grossly Irresponsible Debt Ceiling Hike/Budget As Cryptos Demolished (Bitcoin Down -6%)

Simply irresponsible. Biden’s budget that is!

Biden signed the debt ceiling bill craftted by McCarthy (RINO-CA) and Schumer (Communist-NY). Its allows for uncontrolled spending and borrowing for at least 2 years. And as Milton Friedman once said “There is nothing more permanent than a temorary Federal program … or debt limitiations.

With Biden signaling that government has gone wild with no controls on fiscal responsibility (and Elizabeth Warren flailing her arms and screaming for regulations on cryptocurrencies), cryptos today are getting demolished.

China, Japan and the BRICs realize that there are no controls on ANYTHING coming out of Washington DC. Insane spending, an insane Federal Reserve, corrupt DOJ and FBI.

Doctor, doctor (Yellen), we’ve got a bad case of Federal corruption.

Bidenville! Case-Shiller 20 Metro Home Price Index Growth Goes Negative (-1.15% YoY In March, Seattle Down -12.43% YoY, SF Down -11.22%) While Commercial RE Price Growth Went Negative Too

Resident Biden and Congress unleashed inflation of the unsuspecting American middle class. Now real estate is starting to feel the pain of Fed monetary tightening.

For March, the S&P CoreLogic Case-Shiller 20 metro home price index actually fell -1.15% YoY as The Fed continues to tighten its monetary noose on the US economy.

The biggest losers in terms of home prices? The west! Los Angeles, Denver, Phoenix, Portland, Las Vegas, San Diego, San Francisco and Pramila Jayapal-ville, Seattle.

On the commercial real estate side, quarterly returns were all negative in Q1 2023. Especially office space.

California Governor Gavin Newsom (Nancy Pelosi’s newphew). “Watch me make housing values collapse!” Abracadabra!

Gov’t Gone Wild! Biden Refuses To Cut Bloated Budget, Cory Bush’s $14 TRILLION Reparations Demand (US Dollar DOWN -21% Since Sept 2022 While Bitcoin UP 41%, Gold UP 21%, Silver UP 28%)

This is truly the new version of “Girls Gone Wild!” except this time it is elderly politicians in Washington DC acting like demented children. Biden will not budge on spending cuts with the debt limit soooo close to the point of no return. But Biden may not budge since he has the corporate media spewing hate against Republicans nonstop.

And on top of Biden’s outrageous budget, largely payoffs to progressive groups, Missouri Representative Cori Bush (D-of course) is demanding $14 TRILLION in slave reparations. Or what?? More BLM riots? Even California Governor Gavin “Gruesome” Newsom isn’t stupid enough to approve budgetary disaster like reparations.

But that is where we are in the US. A President who acts like a spoiled 12 year old bully, members of Congress like Cori Bush and AOC who think The Fed can just print trillions MORE and give it to preferred groups. Senator Diane Feinstein (soon to be replaced by a horrible human being in the person of Adam Schiff). John Fetterman, the next Bernie Sanders?? C’mon DC. A true ship of fools. And dangerous ones at that.

So since September 26, 2022, we have seen a fundametal shift in markets. The US Dollar is down -21% since September 26, 2022 while Bitcoin is up 41%, Gold is up 21% and Silver is up 28%.

Biden is sitting pretty, If McCarthy chickens out and agrees to Biden’s outrageous budget, Biden looks like a hero. If Biden defaults, the MSM media will blame McCarthy and Republicans, so Biden wins. No wonder Biden said he isn’t worried about the debt ceiling negotations. He wins no matter what, And we the 99% get screwed.

Apocalypse Now? Statist Paul Krugman Says There’s No Real Risk To The Dollar Unless The US Defaults On Its Debt ($187 TRILLION In Unfunded Liabilites That Keep Growing Requiring MORE Debt)

The Federal government in Washington DC is broken beyond repair. Politicians get elected by promising free or cheap things, so they keep delivering the bacon. Or pork to political donors. The top 1% get massive payoffs (like green energy subsidies or bank bailouts), the bottom 99% get out of control entitlements like Social Security, Medicare and Medicaid. And other unsustainable entitlements. In fact, student loans are now an entitlement since some voters will vote for the corrupt politician (no, Joe Biden isn’t the only corrupt politician in Washington DC) who will forgive their student loans.

In fact, we now have $187 TRILLION in UNFUNDED liabilities that were promised to the 99%. The 1% will always get their political contributions paid. Biden and Schumer have promised their donor class trillions in spending, so that are threatening to let the US debt default to protect the 1%.

And unfunded entitlements are expected to soar, particularly Medicare.

Mandatory spending is expected to soar while discretionary spending is almost flat in terms of growth.

Meanwile, the US credit default swap remains elevated as the US Treasury short curve (2Y-3M) is near the most inverted in history.

And this headline, “Biden Not Ready Yet to Invoke 14th Amendment to Avoid US Default”. That means Biden would adopt extraordinary powers to prevent a debt default. Hence, the idiocy like the trillion dollar coin.

Nobel Laureate and Statist useful idiot Paul Krugman wants to keep spending trillions. As a result, he argues “Don’t worry about the declining US dollar hegemony … as long as the US doesn’t default.” Translation: Krugman agrees with Dementia Joe that Republicans should just pass Biden’s budget with no strings attached. C’mon Krugman. The growth of BRICs (Brazil, Russia, India, South Africa and growing) is partly due to 1) perceived weakness of Senile Grandpa Joe and 2) the fiscal spending and debt growth in Washington DC. Of course it matters, but Krugman wants to keep spending on green lunacy and entitlements until we break the back of the country. Sounds like Krugman is on board with Cloward-Piven.

They can’t cut promised entitlements. Look at France where Macron raised the retirement age by 2 years and there are endless riots. So debt default is the only option, though painful.

Will Congress and future administrations stop prominsing endless spending that benefits the 1%? Not likely. Our political system is hopelessly broken.

I am sure that China’s Communist Party has sent Dementia Joe a message “We own you! You better not default on what you owe us!!” Or default so we can own you financially.

Three of the four horsemen of the financial apocalypse. Yellen is the fourth horseman, but is too short to appear in the picture.

US Core Inflation Rises To 5.6% In March Keeping Rate Hikes On Table, Shelter CPI UP 8.2% YoY, Food UP 8.5% YoY (Taylor Rule Suggests 11.77% Fed Funds Rate)

US Core inflation keeps rising despite The Federal Reserve slowing M2 Money growth and raising The Fed Funds Targget rate as The Fed plays catch up from Janet Yellen’s “Too Low For Too Long” monetary policies under Obama. And she was … negligent.

US Core Inflation (Core CPI YoY) rose to 5.6% in March despite The Fed cranking up their target rate and rapidly withdrawing M2 Money.

Here is the CPI report for March. At least energy prices are down, but shelter is up 8.2% YoY and food is up 8.5% YoY.

How about REAL wages? Real average weekly earnings growth has now been negative for 24 straight months.

One reason that core inflation is still rising is that The Fed still has not raised rates sufficiently. According to the Taylor Rule, the Fed Funds Target rate should be 11.77% based on core inflation of 5.6%. Hey, The Fed isn’t even half way there. It is like the Doolittle Raiders in World War II dropping their bombs 100 miles off the Japanese coast well short of their target.

Fed Funds Futures are pricing in one more rate hike (and a small one at that) before they resume cutting rates again.

Is The Fed chicken?

Sink The Banks? Deutsche Bank Credit Default Swaps Soar As ECB Raises Rates (DB’s Notional Derivatives Dwarf German GDP By A Factor >20)

Are central banks like The Federal Reserve and European Central Bank ({ECB) sinking the banks?

Deutsche Bank, Germany’s largest bank (eerily like Germany’s World War II battleship The Bismarck) is seeing a blow out in its 1-year credit default swaps (CDS) as the ECB cranks up it main refinancing rate to fight inflation.

And then we have Deutsche’s Banks gross notional derivatives exposure (Euro 55.6 TRILLLION) dwarfing German GDP (Euro 2.7 Trillion). By a factor of greater than 20! Now, THAT’S a lot of derivatives exposure.

On the bond front (the NEW eastern front), we see the US Treasury 2-year yield rising 17.1 basis points. But European sovereign yields are up double digits as well (except for Italy).

Sink the banks?

Are You Ready? Banks Postitioned For A Bail-in As Silicon Valley Bank Fails (FDIC, Fed Weigh Special Vehicle After SVB Collapses, AOC Alert!)

Are you ready?

Despite cries from Summers, Yellen and other the DC illuminati (Biden is oddly silent), US banks are NOT fine. In fact, banks in general are suffering from Fed rates increases due to holding of long-term Treasuries and MBS.

In fact, The Federal Reserve’s fight against inflation is causing serious problems, as exemplified by AOC. No, not THAT AOC. but bank Accumulated Other Comprehensive Income.

Accumulated Other Comprehensive Income (AOCI) are special gains and losses that are listed as special items in the shareholder equity section of a company’s balance sheet. The AOCI account is the designated space for unrealized profits or losses on items that are placed in the other comprehensive income category.

On the regulatory call reports, AOCI is added to regulatory capital. Since SVB’s AOCI was negative (because of its unrealized losses on AFS securities) as of Dec. 31, it lowered the company’s total equity capital. So a fair way to gauge the negative AOCI to the bank’s total equity capital would be to divide the negative AOCI by total equity capital less AOCI — effectively adding the unrealized losses back to total equity capital for the calculation.

Getting back to our list of 10 banks that raised similar red margin flags to those of SVB, here’s the same group, in the same order, showing negative AOCI as a percentage of total equity capital as of Dec. 31. We have added SVB to the bottom of the list. The data was provided by FactSet:

Or this chart of vulnerable banks from Morningstar of unrealized losses and liquidity risk.

Here is a snapshot of SVB’s balance sheet. Or UNbalanced sheet.

After Congress passed the greatly flawed Dodd-Frank banking legislation, bailouts of banks are prohibited. But bank BAIL-INs still exist. Banks use money from their unsecured creditors, including depositors and bondholders, to restructure their capital to stay afloat. Put simply, they can convert their debt into equity to increase their capital requirements. Although depositors run the risk of losing some of their deposits, banks can only use deposits in excess of the $250,000 protection provided by the Federal Deposit Insurance Corporation (FDIC).

In any case, the FDIC and Fed are weighing a special vehicle after SVB swiftly collapses. Special vehicle? Sounds an awful like the mega bank bailout of 2008 under Hank Paulson.

No, not THIS AOC!

US Mortgage Rate Rise To 7.13% As Inflation Remains And Fed Counterattacks

As Americans are painfully aware, inflation is still haunting us. Despite Administration proclamations that inflation is declining, it is rising again. And with rising inflation (and an overheated labor market), The Federal Reserve is in full counterattack mode, withdrawing stimulus and raising rates.

And with Fed tightening comes rising 30-year mortgage rates.

Out of boredom, I watched the Clive Barker film “Hellraiser” and noticed perpertual Democrat Presidential candidate Hillary Rodham Clinton in the cast as the female Cenobite.

Something Happening? Fed Repos Soar To $2.55 Trillion As US Treasury Yields Tank -14.5 Basis Points (Mortgage Rates To Decline)

There is something happening in markets this morning. And its not good.

First, banks are stashing cash with the New York Fed on an “overnight basis” although it is looking pretty permanent to me. Repos (or repuchase agreements) soared to $2.55 TRILLION as of 12/30/22.

But this morning we see the US Treasury 10-year plummeting -15 basis points. As I used to tell my University of Chicago, Ohio State and George Mason finance students, any 10 basis point shift (plus or minus) is a big deal. Something is happening.

The 10-year Treasury yield plunging -15 bps is a “good thing” for the mortgage market in that US mortgage rates will likely follow suit and fall.