OJO Zafado

Are the Commercial REITs Now Stabilizing?

I have had some success trading CBF. The author presumes lower interest rates. The commodities bubble make this a seemingly very short term scenario. This week it was WB reporting more losses out of left field on Saving's Bank life insurance! The shoes continue to drop in the financials. There was the former "Free Money World", Fed Chairman making sanguine remarks on Thurs. More shoes may yet drop in the foreign banks. Why did the Fed increase the TRCAs with the ECB and SNB by 100% this week? We are now in a period of public insecurity and distrust. The geniuses are now trying to discern if the period is now one where inflation expections are out of control yesterday, or if there is still a short window of time left before that time actually arrives. At the beginning of last month Ford extended 0%/60 financing to nearly it's entire line of vehicles. At some point they will stop giving away cars and trucks as well as participating in the depreciation. This will be the period of increasing "idle capacity". that is recession. Consumers have maxed out their HELOCs and many banks are ending the programs. If you have paid for gas in cash lately you will be stuck in line behind someone trying to get a few dollars authorized on their Debit card. Undaunted by the bank refusing the debit due to the wife beating them to the grocery store an hour earlier, they try over and over again, holding up the line. Most of these are the ones who already had their credit cards maxed out and shut off. What has Eddie Lampert done? It was supposed to be a Real Estate conglomerate Sears/K-Mart? What is the story on this "CENTRO" of Australia? Are they going to make it? It will be a long period of recovery this time as the consummer is becoming shell shocked by the real inflation not of any real consequence to the geniuses. Ben the Dollar Slayer stated upon assuming the Fed chairmanship,"The Fed's goal will be to maintain the current expectations for inflation" . Early last month the signal was from Ford. This month it is again from the financial markets as the PST & TBT kicked off on May 1st. The ETF is not a way to invest anymore. the ETF is a plce people who have or still have money put their money so that it will maintain it's value. This is what used to be called in third world countries the currency black market. If you had c-notes or fifties you could get 15% more shekels from a Russian trying to accumulate hard currency to send home than you could from an Israeli Bank. Commercial real estate may just beginning to deteriorate! It is a vicious cycle once underway. Idle capacity generating higher unemployment, causing consumption to fall, causing big box stores like the Home Depot slaughter, to close causing more unemployment causing more idle capacity etc. What comes first the idle capacity or the fear, anxiety & uncertainty brought on by huge disruptions in what was the American way of life? We can be sure that no martter who is elected in Nov as the leader of the "Free Money World", they will apply the same formula that has gotten us to this point. Big tax cuts combined with massive spending increases. Maybe one side would fund way more health care, Student loans, food Stamps, and unemployment insurace extensions, while the other will dump a few trillion more down into the cesspool of IRAQ. It is already begun as the champions of the Bear Stearns bondholders explain the idiocy of subsidising homeloans that the lender agrees to partially write down, and helping the Student loan situation. Enrollments are expected to drop at the nations colleges by 10-15% this Fall. Hey a few trillion here and a few trillion there and pretty soon you are talking about electronic money instead of a linen fiat currency. That should help out by saving on printing costs as the national mints now turn out pennies that cost 1.25 cents to make and nickels that cost 7 cents. There is still value in the US Dollar though if only in the pre'82 copper bullion coin Lincoln cent worth 1.5 cents. It is of course illegal to melt them down so that will stop that from happening for sure! In another year or so they will of course disappear. I would be very cautious going into commercial REITs before we emerge from the Summer market. A period that traditionally has defined the lows in market cycles.

'SuperREIT' CapitalSource Swoops Up Fremont's Branches

CSE is a darling and recommended pick of the Motley Fool. So you will get some of their true believers criticizing your concerns. As far as doing business with I-Star the bond market is calling I-Star junk. There is a huge risk premium in I-Star. PCAP and ARCC are BDCs that have fared not much better than CSE in this credit thing. Allied Capital seems to be holding up as well as International Leasing.. I have round turn traded the CBF comercial real estate lender twice in the last year. I am out of it now despite it again comming back strong. Untill after the summer doldrum market conditions pass none of these things seem like very safe investments. The unwind of the LIBOR charade has really moved some adj preferreds. The UBS-PrD took off like a rocket last week. Many of these are still trading priced at or below their default yields (Libor + their index or say 4.5% whichever is higher), with the preferreds like BAC's FBFPrN, USBPrE , HJJ,MSJ, all still trading substantially below par. With some yielding well over 7% it seems like buying CSE for the yield is not quite the same as a combined investment in Aa1 rated HJJ and Aa1 rated FNMPrP for a combined inflation protected yield of 6.9%. All at a price substantially below par. Add in a little DXKSX as a leverage insurance and you can sit back and relax until this credit card and commercial real estate picture becomes clearer towards the end of the Summer. CSE may yet prove to be a strong company and may be a double with a very generous dividend. That is of course based on taking a lot of risk in holding or initiating a position in it.