reggie_speaks

A 7 minute video of my opinions on Greek haircuts, US and Manhattan real estate overvaluation, China bubble busting and hard landings, Case Shiller shortcomings and Germany's penthouse suite in the EU roach motel.

 Below I have aggregated hours worth of related content via video, blog postings and subscriber research...

 Related Videos

The First Major Real Estate Collapse In Europe? I've Found The EU Equivalent Of GGP, The Largest Real Estate Failure In US History Monday, 19 December 2011

What many do not understand is that the real estate crash of the previous decade is far from over, because The True Cause Of The 2008 Market Crash Looks Like Its About To Rear Its Ugly Head Again, With A Vengeance. This is true for not only the US, but the EU countries as well. Unlike our European and Asian counterparts, many US investors are much too detached to what occurs overseas, quite possibly from a hubristic, apathetic or even ignorant stance that what happens over there has little effect on us stateside. Unfortunately, that is not the case. What do you think, pray tell, happens when the liquidity starved, capital deprived, overleveraged banks fail to roll over all of that underwater Eu mortgage debt?

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Investors seeking safety in Germany, the UK and France may truly be in for a rude awakening!

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Interesting Documentary on the Power of Rating Agencies, Reggie Middleton Excerpts

 Subscriber Research

•  Insurer at Risk Report_122511 - Professional/Institutional edition
•  Insurer at Risk Report_122511 -Retail edition

On 5/24/11 I recorded a podcast interview with the Sound of Money, an interesting financial show that airs on NYC's WNYE radio. You can listen to 46 and a half minutes of my viewpoints and opinions via this link, Sound-money-interview-of-reggie-middleton-05-24-11. Be sure to peruse the blog of the show as well.

For anybody who didn't catch the hint, another banking crisis the continuation of the banking crisis is inevitable. I've said it before, Is Another Banking Crisis Inevitable? This is the current landscape, undoubtedly fudged over by optimistic marks.

Banks NPAs to total loans

Source: IMF, Boombust research and analytics

Euro banks remain weak as compared to their US counterparts

Health of European banks is weaker when compared to US banks. European banks are highly leveraged compared to their US counterparts (11.1x versus 4.1x) and are undercapitalized with core capital ratio of 6.5x vs. 8.5x. Also, the profitability of European banks is lower with net interest margin of 1.2% compared with 3.3%. However, non-performing loans-to-total loans for European banks are slightly better off when compared to US with NPL/loans at 4.9% vs. 5.6%. Nonetheless, considering the backdrop of high exposure to sovereign debt in Euro peripheral countries, we could see substantial write-downs for Euro banks AFS and HTM portfolio, which would more than offsets the relative strength of loan portfolio.

I really do mean substantial!

Here's a quiz for you. An ages old correlation that has pretty much remained rock solid is now upon us. Real estate has been highly correlated to inflation and has acted as an inflation hedge for a very long time. This makes sense, since hard assets that both throw off income and have an actual demand for physical use (in other words, they have have intrinsic value) that hold when fiat currencies assimilate toilet paper in both value and use as input prices skyrocket. The question du jour is, "What happens when you have a glut of unused real estate supply abound in a tight credit environment, a guaranteed increase in rates AND higher input prices?". Of course the smart people out there (in other words nearly everyone with the impetus to read BoomBustBlog) are then forced to challenge the thesis, "So is this time different? After all Reggie, you have been bearish on real estate."

The short answer is, no this time is not different. It rarely ever - if ever - different this time. The key is the terminology. You see, many in the media are throwing around the word "inflation", and understandably so as they see prices (particularly staples, commodity and input prices) and money injected into the system go up appreciably. The problem is that the core real assets are not only in a deflationary cycle, but in a downright depression - reference In Case You Didn’t Get The Memo, The US Is In a Real Estate Depression That Is About To Get Much Worse. How can you have inflationary input prices and deflationary real asset prices amid stagnant employment? The answer is STAGLFATION! I have been calling for stagflation since 2008, and it definitely seems as if I called it correctly. Keep in mind that this will be one of the corner stone topics discussed in the ING Real Estate Valuation seminar in Amsterdam on April 8th, which has now sold out its capacity of 250 seats -see www.seminar.ingref.com. Amsterdam is a very interesting city to have such a discussion, for the pundits there are calling for a 25% office vacancy rate at a time of increasing inflationary pressures. On top of that, they have actually called in the world's leading real estate bear as the keynote speaker! It should be fun. I actually have an implementable solution to this mess. I wouldn't necessarily call it light at the end of the tunnel, but it is a way of pricing, valuing and transacting in these depreciating, illiquid assets correctly. Something that is currently lacking. Let's dig in, shall we...

The Huffington Post has an alarming story on its front page. Although alarming, I think we all know it to be fact before today.

The White House is preparing for a situation in Japan that could be "deadly for decades," a U.S. official tells ABC News. According to the official, the U.S. believes a larger evacuation zone should be imposed and that the next 24-48 hours are "critical."

"It would be hard to describe how alarming this is right now," ABC quoted the anonymous official as saying.

The nuclear crisis in Japan has intensified since the massive earthquake first damaged nuclear facilities. On Wednesday, the White House advised Americans within 50 miles of the Fukushima nuclear facility to evacuate and plant employees were temporarily forced to retreat as radiation levels "soared."

The difficulties caused by the evacuations were blamed for "escalating" the chances of a meltdown.

"They need to stop pulling out people -- and step up with getting them back in the reactor to cool it. There is a recognition this is a suicide mission," the unnamed U.S. official was quoted by ABC as saying.

My condolences truly go out to the people of Japan. A massive earthquake, a horrifyingly destructive tsunami, and then multiple nuclear emergencies and radiation poisoning is more distress than any nation had had to endure in such a short period of time in recent history. I am reticent to discuss the ramifications of such, alas that is the crux of the analysis of BoomBustBlog. I have noticed that many professional investors are detached from the real world causes and consequences of volatility and large swings in the markets. In a way, I can sort of understand. It's like playing a video game. All you are doing is pushing buttons in reactions to changing pixels on a glowing screen. Unfortunately, the reality of the matter is sometimes much more than that. Thus, as we go on to illustrate what I see will probably come out of this situation, let’s keep in mind that real people are getting hurt to very significant extent. Real children, real families, real grandparents...

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. 
  

My stance on China's comeuppance for attempting to pack 50 years of growth in to 3 years is still quite unchanged. I am fully aware that many "smart" bankers and analysts have different perspectives, but as I posted a couple of weeks ago, "Currency Crisis! Inflation! Sovereign Defaults! Bahhhh… Who Are ‘Ya Gonna Believe, The Government Or Your Lyin’ Eyes?". From Bloomberg, this morning: U.S. Index Futures Fall After China Raises Banks’ Reserve Ratio

China’s central bank raised reserve requirements for lenders for the second time this year to counter inflation and curb property-price gains.

...Reserve ratios will increase half a percentage point starting Feb. 24, the People’s Bank of China said on its website today in a one-sentence statement. Today’s move came 10 days after China raised interest rates.

And anecdotally on the ground as reported by BoomBustBlogger John:

We import from Asia, V-nam mostly. After Chinese new year factories returned back to:

1. 1. 8% devalution in the dong
   2. New Taxes for using moterbikes and cars
   3. Interest on loans from 14 to a new 20%
   4. and more prices controls.

On top of that the real kicker. Business in Vnam had to buy US$ from the black market, the diff was 30% compared to the banks. Business would buy on the black market and get a fake bank reciept at the banks rate and keep the 30% spread & use the fake reciept for accounting, this helped keep their prices down. Now the gov is matching the black, the spread is gone.

We have people on the ground in Vnam. So who is going to pay these new prices that are coming over here right now, higher prices are on their way. Can you say margin compression, possible a big one. Look for shorts in low margin retail, big ticket item retail that are heavy into made in Asia not made in USA.