“[We] must control the risk of real estate loans,” said a mystery banker. “In the first half of the year, our country’s banking loans expanded rapidly… but the loans growth has led to accumulated risks also increasing.” Our man of the moment said his banking sector had become “not prudent and impulsive” in issuing loans for new housing projects, many of which have falsified their capital levels to meet current standards. He urged lenders to “strengthen risk management” right way, before they loan themselves into poor credit positions.

So who is he? Robert Shiller, who just recently suggested another housing bubble could be in the mix? Or maybe some vintage Ben Bernanke, circa 2007? Nope… Liu Mingkang, the head of China’s version of the FDIC, said the above over the weekend at a conference in Beijing. China bulls take heed.

And at the risk of belaboring the obvious — he’s Chinese. We know what kind of exigency would get an American regulator to speak out against a bubble in the making. We imagine it’s far more politically dangerous for a member of the Chinese government to publicly go against the grain.
Back in America, the housing market rejoices: Housing starts climbed an unexpected 3.6% in June. According to the latest from the Commerce Department, builders broke ground on new homes at an annual rate of 582,000 in June, well above the Street’s expectations and the “best” month for housing starts since November. Curiously, single-family homes led the way, with a 14% building boom from the month before. That’s the biggest one-month gain since 2004.

Of course, this is a “signal that the housing market was improving” in June, as The New York Times suggests. But we dug up a longer-term chart of housing starts this morning that didn’t inspire as much confidence. Starts may have come up from the deep blue abyss, but we’re yet to emerge from uncharted waters

And who says more housing starts are a good thing? We may be market simpletons, but we’re under the impression home prices are falling because demand is exceptionally weak and supply is exceptionally high. So explain to us again how adding more inventory to the 3.8 million existing homes on the market helps stop the bleeding.
Over 1.53 million homeowners were in the foreclosure process in the first half of 2009. That’s an all-time high, said RealtyTrac late last week — and up 9% from the last half of 2008 and up 15% from the same time last year.

Around 1.9 million individual properties are in some form of foreclosure, or one in every 84 U.S. properties. And we’re adding new homes at an annual rate of 582,000? Really, we must be missing something this morning.
The stock market is still giddy over recent earnings surprises. The S&P 500 finished last week up 7% after companies like Intel, Goldman Sachs, JP Morgan, IBM and Citigroup all beat earnings.

Today the market looks poised to finish in the black again. CIT, the commercial lender we discussed Friday looks like it might live to fight another day. The lender managed a last-minute debt-equity deal with bondholders that will give them another $3 billion to play with. (Look for this crisis to repeat in a couple weeks.) Still, the market has dodged a bullet, and is up about 0.5% as we write.
“In last week’s market, you could almost feel portfolio managers reacting to the prospect of missing a rally,”writes Dan Amoss, a former money manager himself. “Career risk drives many irrational investing decisions. And missing out on a rally is a cardinal sin for portfolio managers. This goes a long way toward explaining this week’s rally.

“The consensus seems to be looking for a return to something resembling the environment before the credit crisis. They’ll be waiting for a long time. Sure, there are still lots of wealthy people. But the essence of the financial crisis has to do with most consumers and businesses stretching their budgets and capital spending plans in unsustainable fashion. The next few years will reverse this trend, and we’ll continue to see economic development in emerging markets maintain pressure on commodity prices.

“Mr. Market is now testing the conviction of the bears. But through the rest of 2009, the momentum favors the bears. The stock market is far below its peak, but this is justified by long-term fundamentals. In fact, the recent rally has priced in very rosy earnings for many sectors and stocks, including our short ideas.

“Remain patient with your short positions. This rally will end soon enough, probably by the time the fourth branch of government — the mega banks — are done reporting their paper trading profits and we learn more about the bleak outlook for earnings in the real economy.”
Four more banks failed this weekend. Two in California, one in Georgia and another in South Dakota got the FDIC kibosh late Friday. That makes 57 failed financials for 2009, at an FDIC cost of over $13.4 billion.
After a long flight from Baltimore to Vancouver, we were able to move through Canadian immigration last night with relative ease, but many Czechs and Mexicans were suddenly not welcome. Just another sign of the times… the Canadian government recently legislated rules that prohibit any Mexican or Czechoslovakian from entering Canada without a visa.

Canadians say political and economic strife in both nations has caused a wave of immigrants seeking refugee status, many of which are bogus. So the Canadian government drafted the law last Monday and enacted it on Tuesday… Canadian diplomats in Mexico City have been ripping their hair out ever since:

The scrum for last-minute visas at the
Canadian embassy in Mexico City

Heh, nothing stokes a free market like sudden and severe travel restrictions.
We’re in Canada this week for our Investment Symposium (more below in the P.S.) and got a visceral reminder of the loonie’s recent strength. 98 cents to the U.S. dollar at the airport currency exchange! No thanks… we’ll wait till we stumble upon a bank.

The Canadian dollar is once again rapidly approaching parity. The ol’ loonie is officially at 90 cents today, up a full cent since Friday and about a nickel in July. Most of the loonie’s strength can be attributed to dollar weakness. Since breaking through that historic barrier at 80 last week, the dollar index has been in steady decline. It’s at 78.9 today, nearly a two-month low.
Oil’s recent stabilization has been helping out the Canadian dollar, too. Light sweet crude traded as high as $64 a barrel today, a $4 bump from last week’s low.
Gold is performing nicely as the U.S. dollar falls. The spot price is up $20 from Friday’s low, to $955 an ounce.
“The first thing to understand,” writes Mr. Byron King, “as an old geology professor at Harvard once told me, is that ‘gold is where you find it.’ And the second thing to understand is that no matter where you look, gold is hard to find — and getting harder.

“In the past decade, gold-related exploration efforts and expenditures have increased dramatically. I’ve seen numbers adding up to tens of billions of dollars poured by mining companies into gold exploration.

“But despite the best efforts of the global mining industry, world gold production has DECREASED since early in this decade. Take a look at the chart below, depicting world gold production 1850-2008.

“I love this chart. I could spend all day discussing it. For example, look at the very steep rise in gold output during the 1930s. That was during the depths of the worldwide Great Depression. In both the U.S./Canada (blue area), and the rest of the world (gray area), people were digging more and more gold. The Soviets (purple area) increased their gold output too, courtesy of Joseph Stalin and his Gulag. Desperate times call for desperate measures, I suppose. Will that sort of history repeat this time around?”

If it does, will you be ready? Check out Byron’s favorite gold plays here.
“To back up Mr. Shiller,” writes a reader in response toRobert Shiller’s call that the new wave of “cheap” homes might cause another housing bubble, “I was Skyping a friend in Phoenix last week, and they were all excited that they just bought a foreclosed home for a ‘steal,’ with an 80/20 FNMA-backed mortgage. Not five minutes later, I read the 5 article regarding that the Phoenix market is still dropping. I still don’t think that many people (my friend included) get it that prices can still drop, and that just a 10% drop wipes out almost all their equity, since they will have to pay some sort of 6% commission. I myself have seen a greater than 20% drop on my very expensive house in Atlanta, costing me hundreds of thousands of dollars.

”My wife is an agent, and she has counted three (yes, three) home sales in our area in six months. Two of them were foreclosures. The unsold homes continue to accumulate, and the market is moving toward ‘the only sale is a short sale.’ I live in Augusta, and my prayers go to my neighbor who was just transferred up to an area outside of Detroit. I can see the wealth destruction personally, and can only imagine the nationwide ramifications.”

Source:   China’s Bubble Warning, New Home Paradox, Gold Production Sea Change, Vancouver Updates and More!

The latest Federal Reserve survey of senior loan officers finds very few shoots of green in that garden. According to the survey, “A significant majority of banks reported that credit quality for all types of loans is likely to deteriorate over the year.” And this assumes the economy won’t get any worse than it already is now! Here are some specifics (hat tip, Real Time Economics)

Commercial and industrial loans: Of 52 banks responding, none said they expect improving quality, but seven said they expect delinquencies and charge offs to stabilize at current levels.

Commercial real-estate loans: Only 1 of 51 banks (the other doesn’t make such loans) sees improving quality, and three see quality stabilizing at current levels. Of the 47 who see a worsening picture, 13 expected a substantial deterioration in 2009.

Prime residential mortgages: Only 1 of 50 banks sees improving quality, and seven see quality stabilizing at current levels.

Subprime mortgages: No bank sees improving quality, and only two see quality stabilizing at current levels.

Home equity lines: No bank sees improving quality, though nine expect quality to stabilize around current levels.

Credit card loans: None of the 31 banks who make such loans expects improvement, and three expect stabilization.

Other consumer loans: Only one of 50 banks expects improvement, though 12 see loan quality stabilizing around current levels.

The volume of commercial mortgages at risk of default has quintupled since the beginning of 2008 as a deteriorating economy has made it increasingly difficult for shops and businesses to keep up with their payments.

Special servicers, companies that collect payments from borrowers in distress on behalf of mortgage bond investors, reported $23.7bn of mortgages under their care at the end of the first quarter, according to Fitch Ratings.

That was five times higher than the $4.6bn of mortgages needing special servicing at the end of 2007. Servicers experienced an almost 50 per cent increase in the volume of distressed commercial mortgages in the first quarter alone.

Mortgages for multi-family residential properties suffering from the housing downturn represented the largest share of the troubled loans at 31 per cent, said Fitch. However, mortgages for shops and businesses were catching up, with retail loans at 28 per cent of the distressed pools.

“Retail properties were the first property type to see the effects of declining economic conditions and consumer spending,” said Stephanie Petosa, analyst at Fitch. “[We have] observed an increase in defaults of retail loans and expect them to eventually surpass multi-family as the highest property type concentration.”

Fitch says it expects commercial mortgage defaults to continue to increase this year. At the end of the first quarter, defaults and payments more than 60 days late were at 1.53 per cent of outstanding mortgages. Fitch said they could reach 4 per cent by the end of 2010.

Good luck to banks holding onto junk commercial real estate loans… They better hope the government has deep pockets to cover the coming wipe out.

Obama as Prime Mover will have to turn the chaos in America’s housing and mortgage market into harmonious order. Then He has to single-handedly leap a tall legacy of toxic assets in a single bound, freeing up banks to lend by buying all of their dodgy assets.

It’s a big ask. But if anyone can do it, He can. Especially when He’s got America’s credit rating to abuse!

Reordering the financial universe is not cheap. It takes a lot of energy and a lot of matter in the form of new U.S. dollars. Reuters reports that, “Goldman Sachs estimated that it would take on the order of $4 trillion to buy troubled mortgage and consumer debt. That number could shrink if the program were limited to only certain loans or banks, but it could also grow if other asset classes such as commercial real estate loans were included.”

How much is $4 trillion? “At $4 trillion, that would be the equivalent of nearly 1/3 of U.S. gross domestic product. If the government had to fund that amount by issuing additional debt, it would intensify investor concerns about massive supply scaring off demand.”

Yes. You can imagine the world’s main owners of dollar-denominated reserve assets (China, Japan, the Petro states) would be intensely concerned about a $4 trillion increase in dollar denominated debt. But wait a tick…

It’s one thing to say you might need to float as much as $4 trillion in debt to fund your bad bank. It’s another thing to sell that debt? Who will buy it? Even these days, $4 trillion is a lot of capital to loan. Maybe that number has been floated to make a smaller number, say $2 trillion, look small by comparison.

Good news everyone! The Bad Bank is going to cost us half as much as we thought!

If the ‘big bang’ goes off this week, what will it mean for Planet U.S. Dollar? Or Planet Gold? Well, as our friend Steve Belmont in Chicago reported on Friday, gold is moving toward a day of reckoning after trading in a range for the last ten months. It will either break out much higher, Steve says, or buckle. We’ll be watching.

Did you notice the obnoxious change in political rhetoric this weekend? You knew Barrack Obama was going to give it to Wall Street, calling executives “shameful” for getting bonuses while their firms received TARP money. Remember, by the way, the TARP money was forced on some firms in an effort to boost confidence in the overall plan.

We normally try to keep a reserved, ironic, and sceptical air when reading the statements of politicians. Most of them are not worth taking seriously. But every once in a while, you get the scent of something so noxious and dangerous that you have to put aside humour and call it what is. Today is one of those days.

Now, the populist shame game is to be expected. That’s not a big deal. What’s more alarming is the bilge and claptrap spilling from Kevin Rudd’s gob and what it may mean for your ability to preserve and create wealth in the coming years.

In The Monthly, Rudd plants a Neo-Marxist flag in the ground of the current debate with the kind of jargon-laden elitist preening that makes academic critics of the free market (who’ve never spent a day in the business world creating value) so nauseating.

Specifically, Rudd writes that, “The time has come, off the back of the current crisis, to proclaim that the great neo-liberal experiment of the past 30 years has failed, that the emperor has no clothes. Neo-liberalism, and the free-market fundamentalism it has produced, has been revealed as little more than personal greed dressed up as an economic philosophy.”

Why not proclaim, since he is apparently in the position to make such proclamations, that the experiment in paper money and the deliberate policy of inflation it implies is theft? It is bureaucratic lust for power and authority disguised as monetary policy? It’s also, at its heart, the belief that one or a few people in government know better than you how you should lead your life.

Leave it to Rudd and the resurgent global Left to use the present crisis as an occasion to expand their political ideology of government power and wealth confiscation. Despite the fall of the Berlin Wall in 1989, Marxism never really went away. It ensconced itself in Western universities and colleges, and in the careerism of the political class, which believes it is entitled to govern by virtue of its intellectual superiority and the moral justness of its anti-market position.

Their strategy, as always, is to control the rhetorical high ground by framing the discussion in populist terms and making an enemy of “greedy capitalists.” Don’t get us wrong. There are plenty of greedy capitalists to go around, or to go to jail. In fact, many more of them would be going out of business if the government would quit propping them up with taxpayer money. This generation of corporate executives shares plenty of blame for playing fast and loose with the corporations they were supposed to be stewards of. They over-levered, over-speculated, and over-paid themselves.

But Rudd is an ignoramus of the lowest order to say that current events somehow negate the last thirty years of globalisation, or three hundred years of economic growth and the division of labour. Tens of millions have been lifted out of poverty. Hundreds of millions have more economic and political freedom than ever before.

These results can only be the product of a system in which risk taking entrepreneurs have access to capital and savings, allocated through competitive markets where firms that deliver real value to consumers thrive and those that don’t fail. That system has worked for 300 years of Western history to create wealth, choice, and opportunity.

Shame on Kevin Rudd for calling that “market fundamentalism”, as if belief in the institutions that create wealth and liberty is akin to the same kind of religious fundamentalism that permits suicide bombing. If there is a more offensive use of rhetoric to equate two vastly different things, we haven’t seen it.

But the Neo-Marxists are back on the march. And they are probably coming for your wages and pension sometime soon. Make no mistake about it. 2009 is the year the Neo-Marxists have been waiting for.

It is their chance to undo all the perceived evils of Thatcher and Reagan. There would be plenty of those to undo, of course, not least the idea that deficit spending is morally permissible. But the real push by the Neo-Marxists is to use the present occasion to expand the scope and reach of government power into your private life, so they can tell you what to do, what to watch, what to eat, what car to drive, and ultimately, what to think or say.

This will be disguised as better more “parental” regulation to achieve more equality and social justice. But behind the false populist outrage and the elevated language of idealism, it’s just another push for government elites to expand their ability to compel you to live the life they think you should lead.

The simple regulatory response to all this is to reduce the amount of leverage available to financial players. Reduce margin lending in shares. Let bankers get back to making prudent loans in the housing market based on what a buyer can actually repay, rather than letting the government subsidise subprime lending because it’s politically desirable.

There are other sensible regulatory responses to the mess. But they will be discarded in favour of grandiose and over-reaching plans to redesign the entire world in some utopian image. A “big bang”? Really. Does that mean they’re going to blow things up and call it a “fix?”

What we’re getting at is that it’s going to be a tremendous challenge to withstand this push in the next few years, mostly because it will have so much popular support from people with no brains who believe in fine sounding speeches and appreciate getting tax rebates/credits/handouts from the government. The first battle in the war on wealth creation is wealth redistribution, whether you like it or not.

It would be more honest if the Left just came out and said something like, “The last ten years have been a huge wealth transfer from the middle class to Wall Street and from the developing world to the developed world. We’re going to try and reverse all that now because we know it’s our best shot in the last thirty years to get some back. So here we come! Open your wallet and shut your mouth!”

Neo-liberalism isn’t the culprit in all this. What does that word even mean? Isn’t Rudd using it because it sounds like Neo-Conservatism? And everyone knows that Neo-conservatism is evil, therefore Neo-Liberalism must be evil too!

The real evil of the last thirty years is the vast expansion of credit in the world that changed personal and corporate incentives. The plunge in the cost of capital-encouraged by governments and Central Banks-set of an orgy of bad risk taking, quietly condoned by regulators and politicians who all benefitted in some way from housing/commodity/trade booms.

But now the credit cycle has turned. The Credit Depression is upon us. And Comrades Rudd and Obama will try and use it for the next great push in the Neo-Marxist dream, one world government with one world currency. More on that tomorrow!

Source: Marxism Marches On

And Wells Fargo & Co. (WFC) completed its $12.7 billion purchase of Wachovia Corp. (WB) – outbidding Citigroup Inc. (C) and making a massive bet that it accurately quantified the still existing risks in Wachovia’s huge portfolio of mortgage and real estate loans.

The deals are the latest examples of how billions of dollars in U.S. bank rescue funds are helping fuel buyouts worldwide, and not lending at home, as a Money Morning investigative report demonstrated.

By closing its buyout of Merrill Lynch, Bank of America reaches $2.7 trillion in assets, and bypasses both JPMorgan Chase & Co. Inc. (JPM) and Citigroup in size (as measured by assets). To finance the merger, BofA had expected to issue 1.71 billion common shares, equal to $24.1 billion, plus 359,100 preferred shares. Merrill Lynch shareholders received 0.8595 of a Bank of America common share for each of their Merrill common shares.

The transaction, originally valued at $50 billion, was announced in the early morning hours of Sept. 15, about an hour before Lehman Brothers Holdings Inc (LEHMQ.PK) went bankrupt. The deal ends more than 94 years of independence for Merrill, but very likely saved the investment bank from a fate similar to Lehman in a year in which five top Wall Street banks were bought, went bankrupt, or changed their business structures.

By acquiring Merrill, BofA’s Lewis is swallowing Merrill’s so-called “thundering herd” of 17,000 brokers, which he has labeled as the “crown jewel” of the buyout deal. The Charlotte, N.C.-based Bank of America also will absorb Merrill’s big investment bank, which by volume ranked fifth in debt and equity underwriting and third in merger advice in 2008, Thomson Reuters reported.

The combined company’s brokerage, credit card, investment banking, mortgage and wealth management operations, plus its deposit base, will make it the nation’s largest, or close to it.

Bank of America also takes over Merrill’s nearly 50% stake in the powerful money manager BlackRock Inc. (BLK).
“We are now uniquely positioned to win market share and expand our leadership position in markets around the world,” Lewis said in a statement on Thursday.

Big Challenges for the Big Bank

The Merrill Lynch transaction creates new challenges for Bank of America, whose shares fell 66% last year as the worsening economy led to soaring loan losses, including from Countrywide Financial Corp., which BofA bought in July. A big challenge: Lewis must find a way to stem defections of top performers and key executives even as he slashes at least 30,000 jobs in a cost-cutting initiative that should save the big bank $7 billion annually by 2012.

That won’t be enough, however. While Bank of America and Merrill together raised $25 billion of capital from the U.S. Treasury Department’s $700 billion Troubled Asset Relief Program (TARP), and BofA halved its dividend, analysts believe another dividend reduction is inevitable. And it may have to raise additional capital, too.

BofA has managed to navigate the banking mess – and has tried to capitalize on it.

Before buying Merrill, Lewis had spent close to $110 billion to buy FleetBoston Financial Corp, credit card issuer MBNA Corp., LaSalle Bank Corp., the wealth-management business of U.S. Trust, and Countrywide Financial.

Now Bank of America is generally viewed as being “too big to fail.” For his efforts, American Banker, the banking industry trade journal, last month named Lewis “Banker of the Year” for the second straight year.

However, the competitive landscape Lewis faces going forward is changing radically – as is evidenced by Wells Fargo’s $12.7 billion buyout of Wachovia, a Charlotte-based rival of BofA.

John A. Thain, who became Merrill’s chief executive after losses in mortgage-related investments led to the October 2007 ouster of Stanley O’Neal, agreed to run the merged company’s global banking, securities and wealth management businesses. If he remains with the merged entity, Thain will be a prime candidate to eventually replace Lewis, who is 61 and became Bank of America’s CEO back in 2001.

Wachovia Closes Deal, Too

The Wells Fargo/Wachovia merger closed yesterday and more than doubles Wells Fargo’s size, making it the No. 4 U.S. bank as measured by assets. Wells Fargo now also has the nation’s largest retail brokerage operations, as well as its largest branch network, with more than 6,600 offices in 39 states and Washington, D.C.

The San Francisco-based Wells Fargo agreed on Oct. 3 to buy Wachovia, beating out a smaller bid by Citigroup, which was planning to only buy a portion of Wachovia. Citigroup’s bid included government backing, while Wells Fargo’s did not. Wells Fargo said Wachovia branches will keep their brand name – or they will at least for the “near future,” Reuters reported.

Regulators pushed Wachovia to find a buyer after it was pushed to near ruin by zooming losses from “option” adjustable-rate mortgages (ARMs) that it took on back in 2006 when it bought California lender Golden West Financial Corp.

In November, Wells Fargo announced that it expected it would have to write down $71.4 billion of Wachovia’s $482.4 billion loan portfolio, including $36 billion of option ARMs and $9.6 billion of commercial real estate.

According to Reuters, analysts have said Wells Fargo was cautious in its assessment of the risks Wachovia’s mortgage portfolio, but the U.S. economy and housing market have continued to deteriorate so quickly that those estimates might now be out of date.

“We’re not at the end” of the housing slump, Wells Fargo CEO John G. Stumpf said on Dec. 10 at a conference. “But we’re starting to see some early signs that maybe we’ve reached the bottom in housing or close to it.”

Wells Fargo is the nation’s No. 2 mortgage lender. It remained profitable by avoiding many of the risky loans that plagued Wachovia, caused the failures of Washington Mutual Inc. and IndyMac Bancorp Inc. and drove Countrywide Financial into the hands of BofA.

Wachovia shareholders received 0.1991 of a Wells Fargo share for each of their shares, valuing the bank at $5.87 per share. That’s down from $59.39 when the Golden West merger was announced in May 2006, a level never again reached. Wachovia shares closed Wednesday at $5.54, down 85.4% in 2008.

Shares of Wells Fargo closed Wednesday at $29.48, down just 2.4% for the year. The KBW Bank Index, which includes Wells Fargo, fell 50% last year, Reuters said.

Wells Fargo expects the merger to result in at least $5 billion of annual cost savings, and to boost earnings per share by 20% or more in 2011 and higher amounts thereafter.

Including Wachovia, Wells Fargo has about $1.4 trillion of assets.

Source: Bank of America, Wells Fargo End Year by Closing Major Buyout Deals

On November 19, bonds and stocks backed by commercial real estate loans plummeted on investors’ fears the struggling U.S. economy might lead to a wave of defaults.

Big real estate companies suffered big losses: shares of Simon Property Group, the top U.S. mall operator, declined 13%; Boston Properties Inc., owner of skyscrapers and office buildings in key U.S. markets, fell 12.1%.

General Growth Properties Inc., which owns more than 200 mall properties throughout the United States, is teetering on the brink of annihilation. If the flailing company can’t come up with the $958 million of its debt that is now due, and the $3.07 billion due next year, it will have to file for bankruptcy protection.

“Ghost malls” may become a common sight around the country, with major mall developers and big-name retail chains like Linens ‘n Things and Circuit City going broke and others, such as Starbucks, closing hundreds of stores nationwide. Small businesses are even worse off as shoppers tighten their belts.

A recent Newsweek article quipped that it would “take some kind of sorcery to keep the current mix of store closings, skeletal inventories, hard-to-find sales staff and anxious consumers from turning the yuletide shopping season of 2008 into a seriously cranky Christmas. Even Santas have been getting pink-slipped.”

None of what’s happening surprises Andy Miller, a consummate real estate entrepreneur and friend of Doug Casey’s, who presented his outlook on the commercial real estate market in the September edition of The Casey Report.

Miller on Retail Shopping Centers:
“Retail  are the most exposed product type. For example, we have a grocery-anchored shopping center in Phoenix that’s about 94% occupied. We’ve been trying to sell it for the last nine months. We’ve had it under contract probably four times. Each time, it’s fallen through because the buyers were unable to find a lender. The lack of liquidity is particularly acute in the commercial markets.

“Most commercial mortgages that were written over the last 10 years for most product types, except apartments, were done by conduits, and they were done by asset-backed finance securitizations, CDOs, etc. The overwhelming number of those conduits are now either out of the market or shut down. There’s going to be a tremendous upheaval in the commercial market relative to the fact that there’s almost no conduit money available anymore.”

Miller on Office Space:
“The office market, of course, is eroding. While I expect the central business districts around the 20 top cities in the country to probably be relatively stable in terms of office occupancy, I think the suburban markets are going to get creamed.”

Miller on Warehouses:
“Warehouses are bad. They’re very flat. Users are consolidating; they’re not expanding.”

Miller on Hotels:
“I’d also be wary of hotels. The hotel business is proliferating right now, in a way that I’ve never seen. There are so many new hotels being built right now nationally that there’s no way, even in good times, that I think they could sustain occupancy. A lot of these hotels now have created new flags and they’re putting them in multiple locations in most big cities. So there’s been a tremendous proliferation of hotels and, with high air fares and high gas costs, there’s no question that that’s going to be a bad place to be.”

Miller on the Real Estate Bubble:
“There is no historical comparison to the situation today. Not even the Great Depression was like this. I believe we’ve just lived through the greatest expansion of capital in the history of planet Earth, in the history of mankind.

“And this happened really all over about 12 or 13 years, this gigantic, dynamic expansion of money. There is no precedent for this. One truth about cycles is that the downward part of the cycle is usually quicker and more painful than the upward swing. We didn’t get into this thing overnight. It took many years, and we are not going to get out of it overnight. It’s going to take many years to unwind.”

Waiting for the other shoe to drop is an uncomfortable position to be in. Thankfully, there are a number of lifelines we as investors can grab on to, to avoid getting sucked into the whirlpool of declining asset values and a declining dollar… and we should take every chance we get to use them.

How well you do in the unfolding crisis will depend on how well informed you are. “Making the trend your friend” is now more critical than ever to financially survive the onslaught of tidal waves rocking the U.S. economy. The Casey Report diligently analyzes major economic trends and provides actionable advice on how to profit from the  “market riptides” – with the goal of preserving and multiplying your assets while others capsize in the stormy seas. Learn more here.

Olivier Garret, Casey Research

Source: Commercial Real Estate – the Next Show to Drop

The buck declined despite some upbeat news from the Institute for Supply Management. The ISM said nonmanufacturing sectors of the U.S. economy expanded during April after three months of contraction. Its services index rose to 52.0% from 49.6% in March. That handily beat economists’ projections for a decline to 49.4%.

Analysts believe traders were locking in their gains from last week’s rally, which was based on signals from the Federal Reserve that it is near the end of its interest-rate cuts. The dollar index, which charts the greenback against a basket of currencies, rose 2.5% last week.

Currency strategists at Brown Brothers Harriman are of the opinion that the “pieces of the puzzle we believe will contribute to a U.S. dollar uptrend this year are beginning to fall into place, but more pieces are needed for a more significant U.S. dollar rally.”

But the good feelings were diluted considerably by a report from the Federal Reserve on the credit crunch, which continues.

More than half of the banks surveyed by the Fed said they had tightened commercial and industrial loans, commercial real estate loans, residential mortgages, and home-equity lines of credit. Almost no banks eased credit terms for any type of loan, the Fed said in its quarterly senior loan officer survey.

“The significant tightening of standards for consumer loans is probably the ugliest news of this report,” wrote Harm Bandholz, of UniCredit Markets. “Investment will continue to shrink, while private consumption growth will come to a halt or even turn negative” in the second quarter.