Wednesday, August 31, 2011

S&P's Credibility Gap

From Bloomberg:  S&P rates subprime mortgage bonds AAA but won't give US bond' a AAA rating.  The market's reaction to Treasuries after the S&P downgrade may explain the credence given to the rating agency.

Wednesday, August 24, 2011

Timely News

I received an email today from a "due diligence" firm that announced two pieces of non-traded REIT news.  I learned that Wells REIT II had a $250 million bond issue in...April!  I am glad I now know this important news five months after the transaction.  Wait, I think I wrote about it April.  Wells REIT II used the bond proceeds to repay acquisition financing on its $615 million Market Square transaction. 


I bought small positions in the double-short gold and silver ETFs just before congress passed the debt ceiling extension thinking that would cause gold and silver to pull back.  Wrong.  I've been on the losing side ever since.  I saw a Wall Street Journal article yesterday that said that iShares' gold EFT had more market capitalization than iShares' S&P ETF.  After the last two days, I doubt this is still the case.  It's amazing to me that one commodity tracking ETF can have more money invested in it than an ETF tracking the entire market.  I am keeping my double-short positions for the near term.

Update:   Gold dropped about $100 an ounce today, or 5.38%.  My double-short gold EFT only rose 6.27%.  I thought I owned a double-short, not a one and a fifth short.

More Update:  The Wall Street Journal article on gold ETFs included an interview with a realtor who explained that because of the weak dollar he was dumping other investments to buy gold ETFs.   Realtors talking the dollar and currency markets always gives me comfort.

Smart Phone

My iPhone auto corrects "reits" as "twits."

Friday, August 19, 2011


HP's decision to leave the PC and tablet market is amazing.  Here is link to Bloomberg discussing HP's new strategy and reason for dumping computers.  Apple is really the technology king.  HP's abandonment of PCs and tablets concedes the field to Apple.  I am a huge Apple fan and user.  I am a former PC user, probably like many Apple users.  My first venture to Apple was its iTunes software that I ran on PC.  The simplicity and brilliance of this piece of software made my decision to switch to Apple easy.  I would not be surprised if RIM's tablet soon follows HP's into the garbage bin.

Heads or Tails?

I just read a short 8-K from Hines Global REIT.  It bought a 100% leased office building in Canton, Massachusetts from another non-traded REIT,  Inland American REIT, for $57 million.  Hines estimates a first year cap rate of 9.08% on the acquisition.  A cap rate this high would seem to indicate a good price for Hines Global, but I'd like to know Inland American's side of the story.

Thursday, August 18, 2011

More On Mortgages

Further down in the New York Times article I referenced in the previous post is this paragraph:
During the boom years, S.& P. and other ratings agencies reaped record profits as they bestowed their highest ratings on bundles of troubled mortgage loans, which made the mortgages appear less risky and thus more valuable. They failed to anticipate the deterioration that would come in the housing market and devastate the financial system.
My emphasis added.  S&P can't be blamed for missing the housing market's decline.  I don't remember any experts predicting a housing decline to the levels we've experienced and the impact this decline would have on the greater economy and credit markets.  (I re-read my posts from 2006 and many included links and comments on the overvalued housing market.)   Anyone who didn't drink the housing Kool-Aid was considered a heretic and dismissed as an outlier.   This is not to excuse S&P, but its thinking was the same as every other big firm.  But really, the true reason behind the AAA ratings wasn't the housing market but the non-insurance insurance of credit default swaps that supported mortgage bonds.  The worthlessness of this protection is a large part of the story.

Mortgage Miscue

The Justice Department is investigating S&P's ratings on pre-credit crisis mortgage bonds.  Mortgage bonds that were rated AAA and that ended up in default played a large role in the credit crisis.  Here is a key paragraph from a New York Times article on the investigation:
In the mortgage inquiry, the Justice Department has been asking about instances in which the company’s analysts wanted to award lower ratings on mortgage bonds but may have been overruled by other S.& P. business managers, according to the people with knowledge of the interviews. If the government finds enough evidence to support such a case, which is likely to be a civil case, it could undercut S.& P.’s longstanding claim that its analysts act independently from business concerns.
That's a pretty serious allegation.  After S&P lowered the United States' credit rating I heard a guest on a BBC news cast that 97% of all pre-credit crisis mortgage bonds S&P rated AAA defaulted.  I don't know whether this statistic is true, but it's even half accurate, it is a staggering figure.  

Thursday, August 11, 2011

Stating The Obvious

On a pure intellectual level, how can hydraulic fracking not be bad for the environment?  Pumping tons of chemical laden fluids deep into the earth to loosen hydrocarbons can't be good.  Here is a Bloomberg article on a government panel that released a study saying that fracking can cause environmental damage if not done properly.   The panel also recommends that drillers adapt best practices.  This may be simplistic, but the country's long-term energy needs must be balanced with safe, appropriate environmental standards.  It doesn't benefit industry or the country to ruin land for a short-term gain.  There is too much at stake to not get fracking right.

I recommend listening to the July 10th podcast, Game Changer, of the NPR's This American Life, which discusses fracking from many points of view.   (You can find the podcast on iTunes.)

Tuesday, August 02, 2011


The manufactured debt crisis in Washington is over, but Washington's prolonged intransigence is seeping into the economy and the credit markets.  Bloomberg details new concerns in the CMBS market.  Delinquencies are at 9.88%, and are now at record highs.  Here is a quote from the article:

Borrowers are falling behind on payments as a revival in new debt sales stumbles after investors pushed back on deal terms. Wall Street banks sold $3 billion in commercial mortgage- backed securities last month at the highest yields since issuance resumed in November 2009 and Standard & Poor’s exacerbated market turmoil by withdrawing rankings last week on new deals.

S&P’s decision forced Goldman Sachs Group Inc. (GS) and Citigroup Inc. (C), to scuttle a $1.5 billion deal after it was placed with investors.
CRE Review noted the aborted Citigroup and Goldman deals last week along with the departure of the head CMBS trader at both firms.  Wall Street needs to ignore the games in Washington and focus on putting together good deals.  It's no time to start playing credit games.