Financial, Real Estate, Stock Markets Trends and Current Affairs

Summary: I said it! Bill Gross said it (and put his money where his mouth was by selling off all US treasuries)! Common sense says it... Central Bank manipulated interest rates are too low. They will rise. What happens when they rise during a supply glut of real estate, foreclosure issues and a slow economy??? Put it this way... What made the markets crash in 2008: unemployment, slow economy, snow... Or real estate prices getting in touch with reality?

As I sit back and contemplate the content and delivery style that would be best suited for my upcoming keynote speech at the ING Real Estate Valuation Conference in Amsterdam (this is my first presentation to a large group where English is not the primary language), I am bombarded with news bits and bytes that confirm what I've been modeling, warning, fearing and preparing for - for nearly 2 years. That is almost 23 months to the date. What is it, you ask? It is the market's return to the adherence of fundamentals and global macro forces versus following the whims of the concerted efforts of central banks around the world to openly manipulate real asset, equity and bond markets on a global basis.

Really, sit back and think about it. Put some thought into figuring out how difficult it is to successfully manipulate real estate (commercial and residential), stock and bond markets in just one major country. Then give the same thought to how difficult it would be to do the same in nearly all of the developed nations who participated in this crisis. The mere attempt to do so has loaded them up with debt at a time of marginal if not negative GDP and economic upside, a disgruntled populace ripe to ripple from the causes of social unrest rising from the rife economic conditions that the aftermath of incessant bubble blowing has wrought, and last but not least - fundamentally overvalued investment markets.

I made an appearance on CNBC's Fast Money show yesterday. It was a very short clip on real estate, and the fast moving short clips are not conducive to the communication of the thick, fact heavy style of analysis that is common to BoomBustBlog, and yours truly. Nevertheless I am quite thankful for the opportunity to share my contrarian views in the mainstream media.

Now that I have (quite honestly) issued my most sincerest thanks, let's attempt to remedy the shortcoming of the limited amounted of time that I had. You see, after the 3 minute hit ended there was a brief discussion of commercial real estate in which I didn't get to participate, thus I will take the liberty of doing so through this medium.

Yes, commercial real estate has shown some marginal increases in the last quarter, and REITs have been on fire. The issue is, many publicly traded equities have detached from their underlying fundamentals. Let's reference “A Granular Look Into a $6 Billion REIT: Is This the Next GGP?” The following are excerpts from it:

Yes, we are in a balance sheet based, real asset depression. If you take a look at it from an empirical perspective there should be no surprise in this statement, but since most derive their information from the mainstream media media and the sell side of Wall Street (both of whom have a preternatural proclivity for the positive spin) this may come as a bit of a shock to a few. Let's ponder the term "depression" as outlined in Wikipedia with some Reggie edits:

In economics, a depression is a sustained, long-term downturn in economic activity in one or more economies. It is a more severe downturnrecession, which is seen by economists as part of the modern business cycle. than a

Well, we have had a severe downturn in real estate in much of the EU, the middle east, the UK, Japan, and definitely the US. See "The Inevitable Has Finally Been Admitted In Europe: The Macro Experiment Has Ignited Inflation Without Commensurate Growth & Rates Will Spike" for a series of graphs that compare real estate markets in several of these countries.

Last week I posted a comprehensive piece, The Coming Interest Rate Volatility, Sovereign Contagion, Geo-political Unrest & Double-Dip Recessions: Here’s The Answer To Valuing Global Real Estate Through This Mess. The goal was to outline the literal mess that those who decided to drag us through this “Great Global Macro Experiment”have left us in. Since then, in merely one week's time, we have bore witness to:

• The potentially imminent toppling of another multi-decade, long standing regime, the third in as many months. Gaddafi asserts control amid worldwide dissent - Libyan U.N. mission urges Gaddafi's downfall - Gaddafi son denies civilians bombed - Analysis: Libya could face chaos in post-Gaddafi era. Leading up to the Libyan affair, Tunisia and Egypt fell into the hands of virtually weaponless protesters (at least from a conventional weapons perspective) armed with simply laptops and cellphones (the new age computers and apparently the weapon of choice for those in uprise) to post messages on Twitter and Facebook, amassing solidarity with supporters to converge in certain areas to join the mass protests. Identifying, fearing, and failing to understand the true power of the Internet in toppling a regime, Libya has repeated the faux pas of Egypt in attempting cut the country off from cyberspace - attempting to halt the charge of an African bull elephant with an Acme Walmart (by way of China) fly swatter. It is apparent that Egypt's efforts to isolate its populace from the Internet, although failing to halt the toppling of its regime, did succeed in hiding the futility of such an effort from Quadafi, et. al. This not only forms another basis for contagion, but one that was actually foreseeable nearly a year in advance- see Egypt’s Social Unrest As A Pan-European Economic and Financial Contagion? It Can Happen!!! and First Tunisia, Then Egypt, Now Yemen: Will This Reach The Powder Keg That Is The EU & What Will Happen If It Does? Subscribers should reference Potential Spillover Effects from the Middle East to the EU. 
  

In reviewing today's headlines, we come across the reliably unreliable Eurozone statistician and forecasting figure failure, again: Euro Zone Economic Growth Below Forecasts:

The euro zone economy grew at the same quarterly rate in the fourth quarter as in the third, data showed on Tuesday, defying expectations of an acceleration.

The European Union's statistics office Eurostat said gross domestic product in the 16 countries using the euro at the time grew 0.3 percent in the October-December period, the same as in the third quarter.

Year-on-year, the expansion was 2.0 percent in the fourth quarter, compared to 1.9 percent in the third quarter.

Economists polled by Reuters had on average expected increases of 0.4 percent quarter-on-quarter and of 2.1 percent year-on-year.

Of course, it is that expected (yet not actually achieved) growth that was supposed to fund the deficits in many of the PIIGS group austerity plans. Export was a major component of this, but if the Eurozone is growing slower than anticipated (big surprise) and the EU members rely primarily on trade with each other, then who will buy all of the stuff to allow these states to pull each other out of the hole. The kicker is that the individual countries' forecasts are considerably more optimistic than the economists' forecasts, which in and of themselves were simply too optimistic. This has been a pattern since the markets collapsed three years ago. Referencing "Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!" you can see where this is a pattern in country after indebted country in Europe - both in and out of the Eurozone - Greece, Spain, Italy, Portugal, even the UK. To wit...

This is my response to an inciteful insightful comment posted by GJK313. It is in reference to an article which readers can find here, titled "FASB Surrenders - America Win". I suggest readers read the aforelinked document in its entirety before moving on. Notice how this is written by economists and analysts, not real world investors that are investing THEIR OWN CAPITAL! When I state "own capital" I mean their money, and not that of their clients. I cannot fathom how anyone who had their own money at stake would ever want more ambiguity in pricing assets, in lieu of less.. Let me pick this apart...