April 16, 2009

Global Market Comments
April 16, 2009

1) I chatted with Speaker of the House Nancy Pelosi yesterday as she was passing through the San Francisco Bay Area. I have known Nancy for 15 years, and she was breathing fire and spitting nails as usual. With the public fuming over banksters' bonuses and bail outs, Wall Street can pretty much count on a Congressional investigation of the causes of the crash, much like the Pecora Commission did in 1932. Health care, essentially a global competitiveness issue, isn't going to wait for better times either. A bill for a combined public-private national insurance system will reign in the runaway cost of Medicare and Medicaid, the most rapidly growing entitlements. Expect the fireworks to start soon. Investment in education yields the largest source of tax revenues for the Treasury, so expect more spending there too. Obama plans to cut his $1 trillion budget deficit by a third before the end of his first term, and two thirds by the end of the second. If Congress can't do this, inflation will rear its ugly head. No kidding. Debt service already exceeds $250 billion a year, or 8% of the total budget. Only 'pay as you go' programs will pass to control the deficit. The Feds are also going to go after $300 billion in uncollected taxes. Earmarks, which rose by 400% under the Republicans, will be cut in half, and the remainder published on the Internet. Growing up in an Italian American political dynasty that produced two mayors of Baltimore, the petite Nancy used a seat on the San Francisco Library Committee as a springboard to become the most powerful woman in the world in a mere 22 years. She has moved from the kitchen to the kitchen cabinet on the coattails of Obamaphoria. Now the Republican Party's worst nightmare, she has the power to get a lot of what she wants done.

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2) Mall giant General Growth Properties (GGP) filed for bankruptcy protection early this morning, marking one of the largest-ever real estate failures in U.S. history. Analysts say General Growth will likely survive the long-anticipated Chapter 11 filing intact, but could emerge as a much smaller company after distressed sales of assets. The filing marked the unhappy end of a months-long effort to restructure an impossible $27B debt load, and will leave equity investors with nothing. Expect more giants like this to fall.

3) Walking around San Francisco's financial district the other day, I couldn't help but notice the colorful, but huge 'for lease' and 'space available' signs wrapped around whole buildings. The San Francisco Chronicle produced some current market figures for the wasteland that is now the commercial real estate market. Rents have crashed 24% in a year, with Class 'A' office space plunging from $50.92 to $38.80 a square foot, the biggest drop since the dot com bust in 2001. Tenants are downsizing, consolidating, or disappearing altogether.  Macy's and Charles Schwab together are vacating 500,000 square feet this year, with more than half of all Bay Area companies expected to shed staff in the next six months. Purchases of office building have ground to a complete halt because of the absence of financing. Not helping are the city's notoriously high operating costs, labor rules that would make Bolsheviks blush, and a tax rate that is about to jump from 8.75% to 9.75% to help bail out the state. It's a lot to pay for a great view. Will the last one leaving please turn out the lights?

Forlease12364460001k84Ve.jpg picture by sbronte


4) I went to www.foreclosureradar.com to see which of my neighbors were about to lose their houses. One bank auction is listed at Cassandra Court. Well, duhhh. You'd think if someone were at risk of losing their home, they wouldn't buy on Cassandra Court. Cassandra was the Trojan princess condemned by Apollo to a lifetime of predicting a dire future which no one would ever believe.

Foreclosure1190182708a3v6pi.jpg picture by sbronte


5) Because of the crash in asset prices last year the government is considering renaming 401k's to 201k's. ?



QUOTE OF THE DAY

'When I was on the reviewing stand at the Presidential inauguration, I suddenly was visited by the ghosts of every female activist on whose shoulders I now stand, from Susan B. Anthony onward. They said '˜Now we have a seat at the table.' Then they left,' said House Speaker Nancy Pelosi.