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Fitch: U.S. CMBS and CDO Delinquencies Continue Climb 2009/04/22

Fitch: U.S. CMBS and CDO Delinquencies Continue Climb

Apr 20, 2009 10:58 AM, Staff report



Crumbling U.S. Infrastructure Weighs Heavily on Developers

Fitch: U.S. CMBS and CDO Delinquencies Continue Climb

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Starwood Sues Hilton, Executives

Observers Think General Growth Properties is Likely to Survive Chapter 11



No Assurance Government Bailout Will Work, Expert Panel Concludes

FASB 157: Warning Light or Smoking Gun?

Market Participants Assess Distressed Debt Opportunities

Despite Rescue Bailout, Institutions Wait on the Sidelines





An uptick in both the number and average loan size of new commercial mortgage-backed security defaults resulted in a one-quarter point climb in March delinquencies to end the month at 1.53%, according to the latest U.S. CMBS Loan Delinquency Index results from Fitch Ratings.

“Continued larger loan defaults within the Index are indicative of the moderate to severe macroeconomic stress environment that Fitch now views as applicable to U.S. CMBS performance,” said Fitch Managing Director and U.S. CMBS Group Head Susan Merrick. “Recent vintage transactions, which are typically more concentrated by loan balance and have greater exposure to larger loans without stabilized income at issuance, will prove particularly susceptible to future losses attributable to the prolonged macroeconomic downturn.”

The 2006 through 2008 vintages, which represent 56.6% of the Fitch rated universe, now account for approximately 53.8% of all delinquencies within the Index.

U.S. commercial real estate collateralized debt obligations (CDO) also saw an increase in delinquencies. Twenty-one newly delinquent assets pushed the delinquency rate up for 6.5% for March from 5.4% in February, according to the latest Commercial Real Estate CDO delinquency index from Fitch Ratings. Fitch currently rates 35 commercial real estate CDOs encompassing approximately 1,100 loans and 370 rated securities and assets with a balance of $23.8 billion.

“Further maturity defaults are likely as the illiquid credit markets provide limited prospects for the payoff of loans,” said Senior Director Karen Trebach for Fitch.  

via Fitch: U.S. CMBS and CDO Delinquencies Continue Climb.


fitch Says Corporate Debt Market Will Not Recover Until 2011 2009/04/20

fitch Ratings has issued a bleak prognosis for the recovery of corporate credit conditions. Even with positive economic growth from 2010, due to the time lag in achieving “trend” growth – the point at which recovery begins to manifest itself in corporates – the agency still does not forecast a return to more benign credit conditions for its corporate portfolio until mid-2011.


As a result, the current heavily negative bias to corporate rating actions represents a forward-looking assessment, rather than a reaction to current earnings reports.


From a financial perspective, those issuers most exposed to downgrades will be those where economic conditions both generate a material increase in leverage (through gross debt increases or depletion of operating cash flow), and, also, where a rebound in future profitability will be unlikely to restore the financial profile within the foreseeable future, Fitch says. Also more at risk are sectors or companies where an individual business model or industry position is likely to exit the current recession in a materially impaired condition.

Typically, vulnerable companies are more likely to be in the manufacturingand media sectors.

Issuers where Fitch’s forecasts indicate more financial resilience to the current economic stress include those where either current Fitch forecasts indicate profiles staying broadly within the tolerance bands for the current rating, or where a more material increase in leverage is offset by the potential for strong recovery as and when the economy recovers.

Typically, these companies are more likely to be in the energy, telecom andnon-discretionary consumer product sectors, and services such ashealth care and education.

A final category of vulnerability relates to the most difficult area to forecast – liquidity. Fitch’s report notes that the hurdle for ‘access assumption’ – the assumption that an issuer can generally access funds both on reasonable terms and with no material delay – rises in current conditions from investment grade to mid- to high-investment grade for many industries. Exceptions to this include defensive sectors such as major telecom companies andregulated utilities.

Thus far in 2009, liquidity pressure in western economies from the rationing of bank refinancing has been in part offset by surprisingly robust corporate access to both investment-grade bond and equity markets. Bond market funding has also typically been inexpensive on an all-in basis, with spreads at record highs offset by interest rates at or near record lows. Fitch, however, regards this level of access, notably for ‘BBB’ and lower rated entities, as vulnerable to further deterioration in sentiment.

For details see “Corporate Forecasts: Macro-Level Assumptions: April 2009 Update“, which outlines Fitch’s principal assumptions driving its internal forecasts for corporate performance in the next two years.


Jobless Rate Climbs in 46 States, With California at 11.2% 2009/04/18

Jobless Rate Climbs in 46 States, With California at 11.2%

California and North Carolina in March posted their highest jobless rates in at least three decades, as unemployment increased in all but a handful of states during the month, the Labor Department said Friday.

California’s unemployment rate jumped to 11.2% in March, while North Carolina rose to 10.8%, the highest for both since the U.S. government began a comprehensive tally of state joblessness in 1976.

The state-by-state employment figures showed only a few states avoiding the deterioration seen nationwide. Unemployment rose in 46 states during the month, and 12 states plus the District of Columbia posted unemployment rates in March that were significantly higher than the 8.5% nationwide figure the government released earlier this month.

The Nation’s Unemployed


March unemployment rates, state-by-state.

The chief economist for California’s finance department, Howard Roth, said the state’s unemployment rate hasn’t been this high since reaching 11.7% in January 1941. The highest level on record in California is 14.7% in October 1940, he said.

California lost 62,100 jobs in March, with Florida next at 51,900 jobs lost, Texas at 47,100 and North Carolina at 41,300, according to the federal figures.

California, the nation’s most-populous state, has been hit particularly hard by the housing-market crash. That led to major job losses in the construction and financial industries. “We did it bigger in terms of the housing bubble,” Mr. Roth said. “You pay for that by falling farther.”

Still, the latest figures offered a “glimmer of hope,” he said. March losses were about half the 114,000 jobs shed in February, a sign that the pace of decline in California’s job market may be slowing.

Most economists expect job losses across all U.S. nonfarm employers to continue in April at or near the rapid pace seen in March, when 663,000 jobs disappeared.

California exemplifies the troubles across America. Teresa Nelson, a 54-year-old public-interest lawyer, has sought work at government or nonprofit agencies since last summer. She has applied for 20 jobs and landed five interviews. “I have a lot of qualifications, lots of experience, but people assume I need a higher salary,” said Ms. Nelson, who lives in the San Francisco Bay area. “It’s been frustrating.”

The federal report showed 48 states and the District of Columbia posted payroll declines in March. Only Mississippi and North Dakota had slight gains of about 300 jobs.

Among states, North Carolina experienced the largest month-over-month percentage drop in payroll employment, about 1%. It was followed closely by Idaho, Minnesota and Washington state, each losing about 0.9%.

Eight states have already seen double-digit unemployment rates, which are calculated on a different survey than payroll numbers. As the economy deteriorates, and job hunters face difficulty finding new work, economists expect joblessness to top 10% nationwide by late 2009 or early 2010.

Michigan, battered by turmoil in the auto industry, reported the highest unemployment at 12.6%. Oregon followed at 12.1%, then South Carolina at 11.4%.

Only North Dakota and the District of Columbia saw unemployment rates decline for the month. Rates remained flat in Georgia, New York and Rhode Island.

Write to Stu Woo at and Sudeep Reddy at


Double Dipping in 2010 2009/04/17

Filed under: global market — rogerwang2046 @ 02:23

Double Dipping in 2010

Asset prices have started to climb again, but their rise stems from a bear-market bounce, opening the door for a second global dip in 2010.

By Andy Xie, guest economist to Caijing and board member of Rosetta Stone Advisors

(Caijing Magazine) At the beginning of 2009, I wrote that the global economy would stabilize in the second half, and a bear market rally could start in the second quarter of 2009. I thought that stagflation would be the dominant trend for the next few years. I am still sticking to my story. The bear market rally began earlier than I expected. The reason was that major governments have been introducing subsidies for speculation. They believe that the main problems are liquidity and confidence. Hence, if investors or speculators are brought back in the game, the world economy could return to a virtuous cycle again. I think that this type of approach could lead to a second dip in 2010.

Subsidizing risk taking does inflate asset prices – mainly stocks for now. However, the hope that rising stock prices will lead to economic revival will not be fulfilled. We are in the middle of a debt bubble bursting. Rising asset prices lift the economy through boosting borrowing for investment and consumption. As the current levels of indebtedness are already too high, we won’t see rising debt demand for consumption or investment. When the dream of a quick economic recovery is dashed, stock prices will slump again, which could expose more problems in the financial system and trigger a second dip in the global economy.

The boom-burst cycle has occurred frequently in history (see Manias, Panics, and Crashes: A History of Financial Crises by Charles Kindleburger). But a synchronized global one is rare. The last crisis comparable to the current one was the boom-burst of 1920s and 30s. A synchronized global cycle requires trade and cross-border capital flow to be large. A synchronized global burst is difficult to overcome, because devaluation and export promotion no longer work. East Asia came back this way from its banking crisis 10 years ago, but it won’t work this time around.

Policymakers are frustrated that their stimuli are not working so far. The U.S. government and the Federal Reserve have spent or committed US$ 12 trillion to bail out the American financial system. TheUnited States’ budgeted fiscal deficit for 2009 is US$ 1.75 trillion, 12 percent of its GDP, but will probably surpass US$ 2 trillion. ECB, the Bank of England, and the Bank of Japan have all cut interest rates to historical lows. Their governments are already running high fiscal deficits, but employment, business confidence, and consumer confidence continue to deteriorate around the world. It’s likely that major economies suffered contractions in the first quarter of 2009 similar to the ones they experienced in the last quarter of 2008. For the whole year of 2009, the euro zone, the UK, and the U.S. may contract by 4 to 5 percent. Germany and Japan could contract by 7 to 8 percent.

This sort of global economic collapse is unprecedented. Moreover, it is difficult to see how the world will grow again when the collapse is over. Out of desperation, governments are trying to support asset prices either directly or incentivizing reluctant speculators to play. Without understanding what governments are doing, most people think that things are either getting better or will soon. After all, shouldn’t stock prices tell us about the future? This positive thinking is leading many to chase the market. This is a bear rally that will swallow many smart investors.


This phase of government-targeted asset prices began with the Fed announcing it would buy up to US$ 1.15 trillion of Treasuries, and commercial and mortgage papers. Its goal is to stabilize property prices. However, this sort of policy necessitates the Fed know what property prices should be. U.S. property prices were 100 percent overvalued relative to income. After the bubble burst, they should go down. What the Fed is doing is to shift a big chunk of the adjustment through general inflation rather than property price decline. This will impact the dollar for years to come.


The second part came with Timothy Geithner’s plan for stripping toxic assets from troubled banks. Hank Paulson, Geithner’s predecessor, wanted to focus on stripping the bad assets off the banks too. His plan didn’t fly because the market prices for the bad assets were too low for the banks to survive. Most banks have questionable assets worth more than twice their equity capital. As these assets are trading at 30 cents on the dollar, if the toxic assets are sold at market price, the banks will be bankrupt. This is why Hank Paulson shifted to injecting money directly into the banks first. The hope was that it would stabilize the financial system, and toxic asset prices would rise sufficiently for the banks to survive. This hasn’t happened.


The Geithner Plan tries to boost the prices of toxic assets by subsidizing speculation. The centerpiece of the plan was offering government-guaranteed six-to-one leverage. The current toxic asset price, 30 cents on the dollar, reflects the expected return on the bad asset. It is equivalent to a 70 percent chance of bankruptcy and a total wash for creditors, and a 30 percent chance of survival for the borrowers that support the assets. Under the Geithner Plan, an investor that puts down one dollar can buy seven dollars worth of toxic assets, meaning he could buy US$ 23.3 of toxic assets. There is a 30 percent chance that the investor gets US$ 23.3, which would give him or her an income of US$ 16.3, after paying off US$ 6 of debt. There is a 70 percent chance that he or she loses everything. Hence, the expected income for the US$ 1 investment is US$ 16.3 times 0.3, or US$ 4.9.


This plan should have boosted demand for toxic assets tremendously. Indeed, based on the simple example above, investors should be willing to pay more than twice the current price. This would save the banks. Investors would reap rewards from the 30 percent of performing asset they bought and leave the 70 percent of non-performing ones to the taxpayers, meaning that this “beautiful plan” works by robbing taxpayers. But the prices for toxic assets have not risen that much. Why? The market doesn’t think that the plan can work. Public opinion may torpedo it before it goes into action, and if it goes ahead, Congress may pass retroactive laws to confiscate the profits from the investors who participate in this scheme. Essentially, the Geithner Plan is giving speculators free money, but they are not taking it because they are terrified of the consequences.


The third piece is changing the mark-to-market rule. The U.S. Financial Accounting Standards Board has changed its rule for accounting asset value. It now allows financial institutions to value their assets according to their judgment rather than market price if they think that the market isn’t working. The market may not value asset prices perfectly, but who could do better? This rule change is to allow the banks in trouble to stop reporting losses from asset quality deterioration.


After this revision, the share prices of troubled banks rose sharply. The market was not just reacting to a superficial change. If banks can name their price for the assets on their books, they don’t have to raise capital to stay in business. This means that they might make enough money over time to recapitalize. Hence, bankruptcy risk lessens. The increased survival chance has boosted their share prices.


Isn’t it good that banks aren’t going bust? Not necessarily. Look at what happened in Japan. Its banks essentially didn’t report their losses and tried to make money to recapitalize. It kept the economy down for ten years without alleviating the capital shortfall. Changing the accounting rules doesn’t alter reality. These banks know they don’t have enough capital. Hence, they won’t increase lending and will try to milk their existing assets for profits to recapitalize. They will be a drag on the economy for years to come. The U.S. seems to be copying Japan.


In addition to U.S. policies for targeting asset prices, most other major economies are encouraging their banks to lend. What does “encouraging” mean? Banks normally lend to maximize profits by balancing risk and reward. When governments encourage them to lend, it really means pressuring banks to lower standards, i.e., taking on more risk for the same or less reward. In effect, these policies trade future non-performing loans for boosted demand today. The argument in favor such an approach is that, if every bank lends, the economy improves, which decreases non-performing assets. This sort of free lunch thinking works temporarily by inflating another bubble. Of course, it will create a bigger mess in future.


I think leakage will start to overwhelm these attempts to re-inflate the bubble. Another major dip in asset prices is likely. Further, I think that inflation will become a problem, which could cause Treasuries and other government bonds to lose value. Government bonds are the last bubble to burst. Other asset prices will bottom when this bubble deflates. This force could reverse all the air that governments are putting in now.


I have argued above for a second dip in 2010 and stagflation beyond. I want to add some comments on the nature of bear market rallies. In a structural bear market that lasts for years, stock markets can have big bounces from time to time. These bounces can be as big as 40 percent from bottom to top. Obviously, rallies of such size are mouthwatering. It is difficult for investors to stay on the sideline. I am not against playing such bear rallies, but one must remember that bear rallies are at best zero-sum games and often negative-sum games. One’s profit is someone else’s loss. Timing is everything in playing bear bounces. Getting in and out early are the basic principles. The most harmful behavior is chasing.

The last structural bear market happened in the 1970s and lasted for ten years. It is obviously difficult for investors to stay on the sideline for a decade. After all, how long does one live? This is why a structural bear market swallows more and more people through such rallies. The ones that jump in later tend to be more patient and probably smarter. I am afraid that the current bear market won’t end until it brings down Warren Buffett.

Full Article in Chinese:


Morgan Stanley Says Sell Following Best S&P 500 Rally Since ‘38 2009/03/30

Filed under: global market,U.S macro economy — rogerwang2046 @ 05:19


By Nick Baker

March 30 (Bloomberg) — Investors should sell U.S. stocks following the steepest rally since the 1930s because earnings are likely to keep weakening, according to Morgan Stanley.

The Standard & Poor’s 500 Index has advanced 21 percent in the past 14 trading days, the most since 1938, according to data compiled by New York-based S&P analyst Howard Silverblatt. It closed at 815.94 last week, rebounding from the 12-year low of 676.53 reached on March 9.

“We cannot see large upside for the S&P 500 above the 825- 850 level,” Morgan Stanley strategist Jason Todd wrote in a report dated yesterday. “We see a lack of fundamental support outside the financial sector, where there is now a fast-growing belief that policy action and bank guarantees may have finally backstopped the downside.”

U.S. companies will start reporting results for the first quarter in the next two weeks. Analysts, who have overestimated profits for every period since the third quarter of 2007, expect S&P 500 earnings to drop 36 percent on average, paced by retailers, automakers and semiconductor suppliers, according to data compiled by Bloomberg. They’re forecasting S&P 500 companies won’t halt the longest streak of declining earnings since at least 1947 until the fourth quarter.

“In the rush to buy a cyclical recovery, it seems earnings or valuation no longer matters,” Todd said. “We would be comfortable with this view if the earnings trough was closer, but it is not, and we think this does matter.”

To contact the reporter on this story: Nick Baker in New York at

Last Updated: March 29, 2009 20:42 EDT

via Morgan Stanley Says Sell Following Best S&P 500 Rally Since ‘38 – .


CNBC Stock Blog — Investing, Treasurys, JNJ, Stock Market – CNBC Stock Blog – 2009/03/29

Filed under: global market,U.S macro economy — rogerwang2046 @ 18:11

Friday, 27 Mar 2009

Stocks vs Bonds: Two Strategists’ Picks

Posted By: JeeYeon Park

Topics:Economy (U.S.) | Bonds | Corporate Bonds | Municipal Bonds | Nasdaq | NYSE | Stock Market | Stock Options | Stock Picks

Companies:Johnson and Johnson

Despite the drawback in stocks Friday, Bill Spiropoulous of CoreStates Capital Advisors told CNBC that the market recovery “is in full swing” — while Joe Heider of Dawson Wealth Management said investors “can’t call the bottom” yet.

(See below for their investment recommendations.)

“[Today’s opening] is a little pull-back,” said Spiropoulous. “We’ve got to give the bear some hope that they’re not going to get totally crushed—but that’s coming. Be patient.”

He said this is a good opportunity for investors to start putting their cash to work.

“I think there are tremendous opportunities out there. To be 100 percent cash and hiding on the sidelines sucking your thumb is not a valid strategy,” said Spiropoulous.

Heider disagreed: “To be very honest, we freely admit that we can’t call the bottom,” said Heider. “And if anything, the last 15 months has told us we have no credible pundit that called bottoms and suggested when it was time to get out and when to get back in.”

Spiropoulous Recommends:

Johnson & Johnson [JNJ  52.83    -0.07  (-0.13%)   ]

Heider Recommends:

Managed Futures

High-Grade Municipal Bonds

Distressed Mortgage Funds—for those with “a larger risk appetite.”


Disclosure information for Bill Spiropoulous and Joe Heider was not immediately available.


CNBC’s Companies in the News:

Google [GOOG  347.70    -5.59  (-1.58%)   ]

Google to Cut 200 Sales and Marketing Jobs

AIG [AIG  1.02    -0.08  (-7.27%)   ]

New York AG Ramping Up Investigation of AIG

General Motors [GM  3.62    0.21  (+6.16%)   ]

GM, Chrysler Could Receive More Federal Aid: Obama

Pfizer [PFE  14.04    -0.34  (-2.36%)   ]

Alzheimer’s Disease on the Rise in the US



via CNBC Stock Blog — Investing, Treasurys, JNJ, Stock Market – CNBC Stock Blog –


Pros Say: Prepare for China to Hurt, Not Help

Filed under: global market,U.S macro economy — rogerwang2046 @ 18:03
Pros Say: Prepare for China to Hurt, Not Help
As the economic downturn continues to smother the prospects of a recovery in the West, many investors are still hoping that Chinese growth will provide a much needed global kick start.

But the once-booming dragon economy may see its growth more than half as a result of the credit crisis, which could dash expectations for a widespread recovery, experts told CNBC.

China’s Growth May Fall to 5%

“The bears see that China’s exports are falling apart and also the investment confidence at this moment is very low,” Dong Tao, chief regional economist at Credit Suisse, told CNBC.

“This is why the Chinese economy, in my opinion, the growth is coming down from 12 percent toward perhaps 5 percent,” Tao said.

Fitch Sees Higher Refinancing Risk in Asia

Companies in China, South Korea and Japan are most likely to run into problems refinancing their short-term debt, according to Tony Stringer, MD & head of corporates group, Asia at Fitch Ratings.

Hot Sector Picks in China’s A-Share Market

Karma Wilson, head of Asian equities at AMP Capital Investors sees opportunities in China’s A-Share market. She reveals which sectors she favors and why to CNBC.

Bullish on Chinese Banks

Cyrus Daruwala, MD for Asia Pacific at Financial Insights tells CNBC why he is bullish on Chinese lenders.

China’s Need for Commodities

As China grows wealthier, it needs to consume more commodities, says Dong Tao, chief regional economist at Credit Suisse, speaking to CNBC’s Karen Tso.

US Economy Getting Worse, Slower

Michael Yoshikami, founder, president, and chief investment strategist at YCMNET Advisors, suggests caution despite the recent run-up in stocks as the US economy is still hurting. He advises investors to take profit in rallies.