On Fast Money today one of the analysts who thinks that banks are a buy, thinks that long banks and short CRE is a good paired-trade. Like this, off late I haven’t heard any positive statement related to commercial real estate market. Yet, CRE shares and IYR are holding-up very well.
The most positive thing for CRE is the provision in TARP II to purchase AAA rated CRE loans. It is not clear if this includes new originations or refi. This may be the reason why AAA rated CMBX securities are faring relatively better.
Click here for the latest spreads on various CMBX indices. With the exception of CMBX.NA.AAA.5, it appears that the spreads on everything else is on the verge of explosive move upward.
I cannot see why this doesn’t affect share prices of CRE companies. Translation – IYR, is on the brink.
On the other hand, SRS could have an explosive move upwards
Mohan:
A bit off topic, but ZEROSUM posted an article on Social about which I would be interested in getting your feedback.
http://social.stocktock.com/profiles/blogs/very-bearish-eu-newsthis
I believe the Telegraph story. Jesse talked about it this morning.
http://jessescrossroadscafe.blogspot.com/2009/02/european-bank-bailouts-could.html
He was also mentioning about it in a very cryptic way a couple of weeks ago (see link below). This was too general and vague but I guessed that he is onto something.
http://jessescrossroadscafe.blogspot.com/2009/01/notes-from-underground.html
May be I am a bit paranoid, I think that there is something big that could drop anytime, this time from Europe. Note this particular quote:
You want leverage? Imagine a 20 billion dollar portfolio of mortgage backed securities with a capital base of $10k, literally 2 million-fold leverage. Imagine the shock of the inventor as he watches as his successors expand similar portfolios up to $900 billion.
Forgot to add: Vikram Pandit said today at the hearing (paraphrasing) – there is not enough risk capital out there (in the world) to prop all the bad assets.
This sums it all.
Thanks Mohan. I look forward to your posts.
I’m confused about it too,,,over time i stopped trading srs cause there something “flaky” about it.
if you believe in conspiracy theory and PPT then CRE shares would be an excellent candidate for PPT to control/prop up…its a small slice of the equity market…relatively small index…propping it up (buying up IYR component shares) kills two birds with one stone…ie. it keeps the REITS from bankruptcy (mall shutdowns would have huge psychological effect) and by keeping the REITS propped up – as long as they can service their debt load – this keeps banks from having to set aside more capital….if regulators are still allowing REITS to be rated triple AAA and they must be (even if its a joke) then banks are required to set aside a very small amount of capital in their risk tiered system…thereby propping up much of the middle tier banks in the country.
Anyway…its an important component to the feds because it got added in on the don’t short list. I just use it in small doses …speculative play…it makes awkwards moves at times.
oh so what im thinking. ive bailed on the SRS trade. last entry was at the low and i quickly took profits. the CRE firms just wont post that bad of #s this quarter and the government wants to help them before they do.
this will be what pads our rally up through OPEX? im still a believer they will keep this market above the upward sloping trend line until the 20th. after that im going to be super naked hairy short for sure. maybe im wrong and cant get the RUT any cheaper. but im going to hold off to see if i can.. more fun that way.
ive switched my index bet to the Russels with TWM as the vehicle.
http://social.stocktock.com/photo/photo/show?id=2348194%3APhoto%3A16066
as things get worse will the indices start to head more in thier own directions? the Russels sure look weaker than the Dow and SP.
Great post, Mohan. Can’t we all agree that the REIT companies are already licky dirt?
Very good post but just one caveat. The telegraph is a very anti-EU paper so I would look for some corroboration. In my mind there is no doubt that EU banks are in trouble too. But there are differences. In fact British banks are the worst off after Ireland. Note that they are listed last in the list of problem countries.