Reggie Middleton's  Instablog

Riddle me this. An industry gets into trouble due to chasing fads, loading up on debt and overpaying for property. Many participants in said industry flirt with insolvency due to difficulty meeting debt service and asset values that have dropped below liabilities. This industry has been gifted with a special tax provision that allows them to pay no corporate taxes as long as they pay out 90% of their income to their shareholders. By now I am sure you have guessed the industry, but let's move on .

After special meetings with the IRS, who were told that the world would end if these entities were forced to dump distressed real estate onto an already distressed market (in reality, commercial real estate prices will simply return to fundamentally supportable prices), these companies were given a special reprieve on top of their already gifted special reprieve that allows them to pay said dividends in stock rather than cash.

The need to conserve cash, as explained above, stems directly and primarily from imprudently participating in bubble binging, and from a tertiary perspective, the dwindling refinancing market - of which would not be such a big deal if companies didn't overpay for, and overleverage properties in the first place. The solution? Team up with the Wall Street banks that gave you the imprudent loans that most should have known couldn't be paid back in an effort to shift the losses to the retail investor. This is a win -win situation for the banks that made the loans as well as for the REITs that took the loans. Here is the playbook (for illustrative purposes only, of course):

I'll admit it to everyone, I am absolutely disgusted with my investment performance over the past two quarters. I came into the second quarter up nearly 500% for the two years running thanks to top notch research across myriad sectors (see Research_Samples 11/17/2008 for examples) and loss about half of that profit fighting the bull rally that I easily saw coming but severely underestimated the length, depth and breadth of. Having switched over to market neutral in the third quarter (see Recent strategy analysis sample available to the public) caused me to simply hover with a few percentage point gains here and there, since by then most of the drastic moves were over, but I was biding my time in mostly cash waiting for the fundamentals to kick back in. You see I am a fundamental investor, and I kill it when 2+2=4, and I do even better when it equals something else. The caveat is when it does equal something else, I have to wait until it starts moving back towards that number 4 for me to realize my meal. This severe boom/bust market is basically custom tailored to my investment style (see "The Great Global Macro Experiment, Revisited", and realize why I call it BoomBustBlog!) just to an aggravated extreme! 

BoomBustBloggers  have been on a wild CRE and residential rollercoaster ride over the last couple of years. Starting in 2007,we ran into Lennar and discovered things off balance sheet that the sell side and the company itself forgot to tell us (Voodoo, Zombies, Lennar’s Off Balance Sheet Accounting and Other Things of Mystery & Myth), Ryland and their sell happy management (What does Reggie Middleton and Ryland's Upper Management have in Common?), Hovnanian and his you should by a house now (as he puts his on the market, Credibility is the Key to Success for a CEO – Hovnanian has Lost that Key: A letter to Mr. Hovnanian) and a whole host of other homebuilders. We gave

I'll coin this term in order to explain the travesty that is being allowed in the banking industry. Institutions are literally paying little old ladies' less than a half a percent on their life savings and using said funds to gamble in the risk fraught derivatives market, with the risk being totally underwritten by the government through the:

Of the many issues that I have been warning about concerning banks, their balance sheets and the risks that they take, one of the (and there are a few) most underappreciated is the currency risk of the "mother of all carry trades". See Roubini Not Alone in Fearing Dollar Carry Trade and Roubini Sees `Huge' Asset Bubbles Growing in `Mother of All Carry Trades'.

You know, I happen to really, really appreciate the blogoshpere. There are a select handful of blogs that offer unique, insightful and very difficult to come by expertise, opinion and commentary. Much more so than the mainstream media and even more so than the more specialized media. Despite this, there are certain components of the MSM and corporate America that still do not respect the blogs. Now, why is that? Well, I dare you - no, I double dare you - to find an MSM outlet that performs investigative analysis at the level of the top blogs. I'm not even going to bother to mention who those blogs are (hint, hint), but just want to throw the challenge out there as I show how PNC may have possibly pulled the wool over the collective media, sell side and market's eyes.