Tag Archives: GDP

MORE TIDBITS OF REAL ESTATE MARKET INFORMATION

March 26 – One of you shared this with me.  Good info and it seems to put a definitive range on expected loan losses for CRE loans.  When two different methods come up in the same general range that can provide some confidence in the forecasts.

·         Commercial real-estate loans made by banks will suffer as much as a 2.5% loss rate over the next five years, according to the analysis of 12,500 loans now on the books of banks ranging in size from small community banks to the largest banks in the country. If that were applied to the $2.3 trillion of outstanding commercial real-estate bank loans, then losses would amount to $57.5 billion, Trepp says.

·         The Fed’s own stress tests of banks capital adequacy assumes a CRE loss rate of $65.7B.

·         Loss rates last year were less than 0.1%.

·         Between 2008 and 2011, the peak default rate was 4.4%, according to Trepp. That default rate will hit a peak no higher than 2.7% in the expected Covid-19 downturn, Trepp said.

·         Defaults this time probably won’t soar so high partly because bank portfolios were in relatively strong shape leading up to 2020.

·         Hotels and shopping centers will likely be the hardest-hit property type with cumulative default rates over five years of 34.8% and 16%, respectively, according to Trepp.  Apartment buildings and industrial property will be hurt the least with respective default rates of 3.3% and 3.0%, the analysis said.

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On a different issue, I heard a nice, concise explanation of how large of a bailout is needed in the USA.  Last year, our GDP totaled $21.44 Trillion.  If 2Q GDP falls 25% to 35% (or pick the number you like), then the bailout will need to be $5.4 to $7.5 Trillion.  The various bailout Acts passed by Congress and the purchases by the Fed are heading towards that range.

What I don’t get is the backside of this decline.  As of today, annual GDP projections for 2020 are around -3.0%.  That would indicate an annual economic loss of less than a trillion dollars.  So, how is the Fed and the US Government going to get  back $4-6 Trillion they lend out?  I doubt they will get much back.  We basically increase our overall debt many fold.  Of course, even these amounts are trivial compared to the $100 Trillion+in unfunded pensions, government handouts, and so on.

Another video I was watching (Hidden Secrets of Money – Part 1…the series is on YouTube.  I highly recommend viewing it.) said a researcher found 600 (!!!) fiat currencies in history that began with the letter A and was half way thru the B’s when he stopped.  All 600 currencies went to Zero.  The point being the US Dollar and all other existing currencies won’t be exceptions.

Lastly, I am seeing numerous predictions that many countries will totally disappear in the upcoming years.  That may seem surprising. But, go back to an atlas of 1900 and see how many countries no longer exist in 2020.  So, I guess I won’t be surprised to see dozens of countries get ate up by their neighbors.  That was the norm throughout history until the past 70 years.  We have lived in an anomaly that has come to an end.  I think the only good thing for us in the Western Hemisphere is that most of the changes will occur in the Eastern Hemisphere.

The 1920’s were the Roaring 20’s.  That term might apply again to these 20’s, but for a different reason.  Some aggressive countries will be roaring as they take over their neighbors.

Enough cheerful news for today.  Everyone be safe.

The Mann

THE MARKET ENTERS THE PREDICTED RANGE

UPDATE MARCH 27 (EVENING) – The DOW peaked at 22,595 on Thursday.  That is within 100 points of my target.  I’ll be surprised if my third forecast target in a row is this accurate.  But, if so, I’ll take it.

I will revisit price targets for the upcoming low next week.

The way the waves are looking the following should occur:  The US Dollar will rally to new highs short-term, Gold will fall below $1050-$1250 longer term, Silver will decline below $8 longer term. and stocks will fall 30% from current levels short-term.  How all of that happens I have no idea.  But, that is what I see happening.  I never ask why or how.

The $2+ Trillion stimulus bill was signed today.  And the DOW was down 915 points.  The markets already have priced in all of the stimulus that will be thrown at the country ($6+ Trillion).  They are looking at where we will be this Summer or Fall and they aren’t happy with what they see.  I am guessing they are pricing in the virus coming back in the Fall and Winter.

Regarding Oil, I did get a reply from the experts at Elliott Wave International.  My thoughts that the combination 120-year bull and bear market might well be coming to an end are on target.  Obviously, it is rare to have such an opportunity occur in a our lifetime.  There is an issue regarding the length of this bear market (timewise).  I need to analyze the 120-year move in a bit more detail to see what I can figure out.  I will keep you posted.

I have a gripe about healthcare providers complaining about going to work….about being on the front lines and subject to getting the virus.  Seriously?  Did you think you would take care of sick people and not encounter a contagion?  Geez, too much complaining about having to work nowadays.  Just do the job you chose as a career.  Be proud that you are helping people.  You have a chance to help others and change the course of history.  Stop complaining.

Oh, I do hope GM cans their CEO.  Trying to make a killing off of this crisis is obscene.  Like him or not, Trump is great at not letting anyone screw over our country.  I am glad he invoked the Protection act and I do hope GM doesn’t get a dime for the respirators they will make.  To think we bailed them out last time around….and this is the thanks we get.  I will never buy a GM product.

Til Monday evening…stay safe.

The Mann

UPDATE MARCH 25 (EVENING) – The DOW rallied to 22,020 today.  It has satisfied getting to the range of a top for this counter trend rally.  It then fell almost a 1,000 points in the final 5 minutes due to Bernie Sanders threatening to hold up the bailout legislation.  It cannot be ruled out that the DOW could rally back above 22,020.  But, once a target range is satisfied, I start concentrating on the next wave – which is down to 13,900 to 15,400.

For trivia, this was the best 2-day rally since the 1987 crash.  And I think it was the first consecutive up days in a month.

Gold backed off its rally quickly.  Oil is starting to get its legs back.

Hopefully, Friday evening the waves will be telling us more.

Regarding real estate, early info is saying that buyers are asking for a 5%+ reduction in price on existing contracts.  That isn’t all buyers.  And that isn’t much at all.  Starter homes continue to sell well.  National Tenant Lease properties are in demand as a flight to safety.  Since these are really corporate bonds, and not real estate, this makes a bit of sense.  Of course, the question is do these buyers know what kind of downgrade the corporate bond rating will get for the tenant in the property they are looking at?  Or are these unsophisticated buyers just looking for anywhere to put their money?

Please share anything you are hearing regarding real estate prices, cap rates, closings falling thru, et al.  Til Friday evening…

The Mann

UPDATE MARCH 24 (EVENING) – I was going to post this regardless of today’s outcome.  But, worth noting today was the largest up day since the depths of 1933.

Most, if not all, analysts never state what could occur that would show their forecast to be wrong.  Flat out, if the DOW rallies above 24,200 my interpretation of the wave theory will be wrong.  Technically, it would just mean the waves were showing something else was happening.  But, to me, I say I am wrong.

I did some analyzing today and thought this rally would terminate around 22,500.  Bob Prechter’s firm put out their analysis this evening and said about 21,200-22,100 should be the top of the range.  The main point is this rally absolutely cannot go above the late February low around 24,200.

Some additional analysis suggests that 15,300-15,400 is really looking good for the final bottom (i.e. for this first ‘A’ wave of a Bear Market….wherever this low occurs, it should be broken down the road after a significant rally occurs).  But, a lower target of 13,900 showed up so I would have to update the ‘final’ bottom range to be 13,900-15,400.

So far, the 27,100 top forecast for Wave 2 of the decline was almost exactly on target.  And the 18,200-18,400 range for a possible appears to be for Wave 3 of this decline.  Both have been right on the money.  I suppose my luck will run out soon:)  Albeit, I usually do excellent in a major downturn, so we shall see.

22,500 for the top of Wave 4 and 13,900-15,400 for the bottom of Wave 5 of ‘a’ are up next.

I need to confirm with Mr. Prechter something I am observing regarding the Oil market.  It is significant, so I hope to get his thoughts on the matter.  Sam Zell said he bought some energy stocks.  If what I see occurring in the Oil market, per the wave theory, is accurate, then we might have an opportunity like that of the stock market in April 1933.  Will keep you posted on this one.

Oh, the $200 Gold rally in two days is due to people suddenly realizing they can’t buy the physical product anywhere.  I use KITCO and they are all but sold out.  However, the wave theory allows for this rally to still be part of the larger decline below $1056.  No change of thought on that forecast because of these two days.

Stay at home.  Be safe.  Enjoy time with your family.

The Mann

MARCH 23 (EVENING) – A fairly calm day in comparison to the past few weeks.  The Dow bottomed below 18,300 today.  It thus, entered the 14,600-18,400 range I forecast when it was around 25,000.

My analysis of the waves is very much in sync with others.  I would say there is a 25% chance of a significant bottom occurring between the 17,000’s and today’s low and a 75% chance of a bottom occurring in the 15,400 range.  This latter figure has significant support as bottoms in 2015 and 2016 occurred around this figure.  With both the waves and chart support suggesting 15,400 as the low, this figures gets greater weight at this time.

It is amazing to hear predictions of -30% to -50% for GDP and up to 30% unemployment.  If these figures occur, we will have blown away The Great Depression and The War of Northern Aggression (aka the Civil War for those north of the Mason Dixon line).

TRIN is at 0.82 is incredibly far from signalling a bottom (1.60+).

VOO is at about -$2.5 Billion for last week.  I would need to see -$10 to -$20 Billion to know the public has thrown in the towel.  Or maybe several weeks of -$10 Billion at a minimum.

For those interested in Corporate Bonds, I was introduced to an indicator to watch.  First, about 40% of Corporate Bonds graded BBB (lowest investment grade before becoming junk bonds) are expected to be downgraded to junk.    Keep that in mind regarding current ratings.  Remember, rating agencies are almost always BEHIND the curve with their grades.  They will finally lower their ratings once all of the decline has occurred.  They get paid for such hindsight.

Back to bonds….as long as the ETFs are trading at a discount to their NAV (Net Asset Value), the market is saying prices aren’t low enough, yet.  I will follow ticker symbol BND (Vanguard Total Bond Market Index Fund).  It is currently trading at about a 3% discount.

Regarding Corporate Bonds, does anyone have a source that shows what is out there and what their prices are?  Barron’s and the WSJ used to list all of them in their papers.  But, they don’t do that any more:(  If you know of a site that has this info, please share it with me.  Thanks.

We shall see what the next two days bring and I will be back Wednesday evening with an update.

Stay safe.

The Mann