So, let’s talk econ…

Extend & Pretend Coming to an End

Go read, then come back. Good times.

Lots of info in there, but let me tell you. I own a real estate company. I have for almost ten years now, and while I mostly deal residential and the Florida condo market, I can echo the bullet points in the article above verbatim. Here’s why:

In a recent interview with The Casey Report Miller details a dramatic turn for the worse in the commercial real estate market he has witnessed in the last few months. His company deals with distressed commercial real estate. This segment of his business was booming in 2009 and into the middle of 2010. Then magically, there was no more distress as the “extend and pretend” plan was implemented by the governing powers. The distressed market dried up completely until November 2011. Miller describes what happened next:

“All of a sudden, right after Thanksgiving in 2011, the floodgates opened again. In the last six weeks we probably picked up seven or eight receiverships – and we’re now seeing some really big-ticket properties with major loans on them that have gone into distress, and they’re all sharing some characteristics in common. In 2008 and 2009, these borrowers were put on a workout or had a forbearance agreement put into place with their lenders. In 2009, their lenders were thinking, “Let’s do a two- or three-year workout with these guys. I’m sure by 2012 this market is going to get a lot better.” Well, 2012 is here now, and guess what? It’s not any better. In fact I would argue that it’s still deteriorating.”

Why the sudden surge in distressed properties coming to market in late 2011? It seems the FASB finally decided to grow a pair of balls after being neutered by Bernanke and Geithner in 2009 regarding mark to market accounting. They issued an Accounting Standards Update (ASU) that went into effect for all periods after June 15, 2011called Clarifications to Accounting for Troubled Debt Restructurings by Creditors. Essentially, if a lender is involved in a troubled debt restructuring with a debtor, including a forbearance agreement or a workout, the property MUST be marked to market. Andy Miller understands this is the beginning of the end for “extend and pretend”

Remember when they said, “Hey, move that date out cause by then, the market will have gotten better…”?

Well, here we are and it hasn’t. In fact, the fundamentals have not changed since 2008. The amount of debt in the system has not cleared and we are again at the precipice of the cliff. One has to wonder when we will actually make a move.

I have personally been waiting for such an event for over four years now, saying constantly, that “something has indeed got to give”, yet here we are.

This is a badness thing.

Collapse: War as the other hand moves

Go read this bit by Kerodin.

Here is the Silicon Greybeard post referenced in the bottom.

China is a myth. At it’s core, this statement rings true:

I have held for a long time that the rise of China is a Zero Sum game, slightly modified: Every dollar they earn is a direct result of American policies.  The day America chooses to gut the Chinese, it is a simple matter of closing the ports to her imports.

A little pain here…and an E.L.E. in China (Extinction Level Event).

Better believe it Suzi. You can wax poetically all you want about the new Chinese century, and how wealth is shifting east, and I will still echo the concept above. America holds all the cards here, sovereign debt or not.

With regard to war in Europe though. It has been made abundantly clear that the people on the EU have no intention of shrugging off their banking masters’ chains. Berlusconi & Greek Papa-whatever’s resignations are clear signs that the ruling class is still very much calling the shots and running the show.

One More Hit Off the Crack Pipe

Just. One. More.

Denninger seems to write the same blog post about every three days. I commend him on this. It’s hard to write about the same topic over and over and remain relevant and interesting. Yet, despite that difficulty, he pulls it off.

See his latest here.

When debt grows faster than output on a compound basis the two curves inevitably run away from one another and must always result in a collapse.

This is not a political issue, it is not a left or right issue, it is a function of simple mathematics.  Those who were IPOing these businesses in the 1990s and who were building and selling houses into the ramp in the 2000s were simply believing that they would unload the bag on you before the leverage pyramid in that particular part of the economy fell over.

That’s all the last thirty years was folks, and now we’re desperately scrambling on a global basis to find just one more sucker.  To obtain just one more hit off the crack pipe.  To stave off death just one more day and draw one more breath.

The days of the indebted nation state as the central power are coming to a close. Simple as that. How do you adjust, adapt, and overcome to not only survive, but thrive in the new societal construct?

Current Positions & Plans

Lots of noise out there. The world’s most riveting most complicated reality TV series starring Barry and the idiots in Congress has shifted into sweeps week big time.

Referencing this post by Karl, I give you this comment in the forum:

Quote:

With the rampant devaluation I fear is nigh, I’m suddenly not feeling very good about my all-cash position. But I can’t think of anything safer.

I have been cash and PM’s for several years and refuse to invest in a propped and overvalued market. We are at a historic crossroads where there is no safe haven. Everybody can’t jump into Swiss Francs. We may be at the point of what loses least.

As to the US dollar, we are the best looking hag in the bar and damn, the drinks are starting to wear off! Everywhere you turn all the “rich countries” are broke and all the emerging countries are holding the paper of the “rich countries” There have been paper money failures before, but never so many countries on the brink of a fiat disaster of this proportion.

Historically, gold has not been that good of an investment unless you happened to be in a country that had currency issues. Even then, you may have had the option to hold another currency. This is why the dollar was welcomed all over the world because it was somewhat a store of value compared to the national currency.

When you look around the world today, every country is on the edge and there is no safe haven currency because we are all interconnected. One of my dad’s favorite sayings was “When America sneezes the rest of the world catches cold”. We now have Europe and America on the edge of cardiac arrest. That is the equivalent of two Americas by economic size.

Resource rich countries like Australia and Canada have been heavily supported by China’s use of raw materials, but even China too is an overheating ponzi. When China blows up and they will, it is party over not only for those two countries, but because the rest of the world has been looking at China to spur economic growth.

When the depression hits, all commodities are going to get smacked because consumption will drop in the toilet. Gold will probably lose the least of the commodities and likely gain because its use against suffering currencies will remain high and the USD/Euro will no longer be considered a safe haven or any country for that matter.

When the dust settles, we will probably end up with a new monetary system and gold will probably play a part in it. If for no other reason than confidence will need to be restored and historically gold has played a role as money.

Otherwise, the best investments are probably for your personal safety and means to weather the storm that lies ahead. If you are in a big city you probably want an escape plan and a place to go to if you have to leave.

The Matson portfolio looks much the same- lots of cash and very minimal securities. I have felt that liquidity is a better evil than anything else over the past few years. While I don’t think it’s time to max out credit for long term goods, I do think that day approaches.

As the “discussions” continue, we will come to find the truth that, if the issue can be kicked down the road any further, it will be kicked.