Buzz Bits: Dow, Nasdaq Slide
Your daily Buzz & Banter highlights.
On the other hoof... - Fil Zucchi - 2:31 PM
Minyans probably know that I am no Pollyanna on anything real estate, residential or commercial, and darkside positions in iShares Real Estate (IYR), CoStar Group (CSGP) and Jones Lang (JLL) remain firmly in place. I also read Prof. Shedlock's piece this morning, and there is little doubt that the concept of risk has been re-introduced to the commercial real estate markets in the form of much wider CMBS spreads (1, 2), as well as the cost of insurance on CRE debt.
However, I'd caution not to go overboard with the negativity yet. We are up to our eyeballs in marketing an institutional class property, which I believe is very indicative of the state of prime properties in large metropolitan markets. Current price indications are actually unchanged to where they were in the early summer. Terms remain without contingencies, i.e. offers are "cash on the nail". The one negative perhaps is that some of the most leveraged players of yesteryear are no longer around, but that does little harm as long as the gorillas are still active.
I think it is worth highlighting again the critical differences between what's happening in residential real estate and the exuberance we have seen in commercial real estate. The residential price bubble was driven by small speculators gambling on the greater fool theory with 100% or more leverage. No "greater fool" and the default is almost inevitable and swift. High CRE prices on the other hand, have been driven by somewhat silly expectations for higher rental rates, as well as further capital gains; if those fail to materialize, buyers will have rather putrid returns (particularly vis-à-vis expectations), but lease renewals at existing or at even lower rental rates would likely be more than sufficient to cover the existing debt service. More often than not CRE properties have not been leveraged up until after the owner secures new bankable leases (typically 10-yr. terms) which can support the increased debt. As a corollary to this, while the cost of insurance of CRE debt has increased, there are still no signs of any meaningful debt defaults outside of what is normal in any credit environment.
So yes, risk levels in commercial real estate have increased, but I believe that is as much a function of where they are increasing from as it is of the current turmoil in the financial markets. But the coming "pain" in this sector will be measured by skimpy "returns on capital" rather than wipeouts in the "returns of capital".
Positions in IYR, JLL and CSGP.
In The Cards Now - Sean Udall - 1:51 PM
The recipe for the Fed to take rates to 4% or lower is well in the cards now.
I'm not sure when the market will reassess the current backdrop but we could be nearing a point where the market rallies on bad news (economy/credit) and is muted or lower on good news. Additionally, many levels of short interest are showing increases again. Many shorts in the market currently are simply index-based shorts on the Q's or Russell 2000, or levered ETFs of those indices. It seems the art of finding truly well-thought-out fundamental based shorting strategies is becoming an art that fewer practitioners utilize.
Meanwhile, some tech names continue to look attractive. Network Appliance (NTAP) and Yahoo (YHOO) have recovered nicely off their morning lows while Ebay (EBAY) continues to struggle as a battle is brewing at the 200 dma. A break of the 200 dma would not be dissuade my view here as I think the online Christmas season may be spectacular relative to the brick and mortar season. A significant drop under the 200-day would be an even better entry point and I'm scaling in accordingly.
Positions in NTAP, YHOO and EBAY.
Lunch Meat! - Todd Harrison - 12:11 PM
- The intraday pattern of higher lows continues to continue in the S&P (don't blink). Given the 3:1 negative breadth, however, I would think that Snapper better step up soon or risk soup status.
- See Apple as it tries to join its beta brethren in Matador City. I'm not involved in these high-fliers as the last gasp can last a lot longer than most expect.
- Like China. Does anyone expect the ascent to last through the Beijing Olympics?
- Trade. Don't hope. The definition of an investment should never be a trade gone awry.
- Keep an eye on crude as well--it's gnawing back to the flat line.
- And deep breaths, Minyans, it's a marathon, not a sprint and we're gonna need some mojo on the back half of this week!
- As always, I hope this finds you well.
Gifts! Gifts! - Adam Katz - 11:28 AM
Last week, IBM (IBM) announced it is going to make acquisitions in security and will ramp its own internal development of security and security related products to $1.5 billion next year. This space is going to outperform next year.
Check Point (CHKP) beats, raises, trades down... Mcafee (MFE) beats raises, trades sideways... Symantec (SYMC) beats guides down by the size of the beat and admits its conservative and gets crushed.
The market gives gifts once in a while... these stocks I believe are trading at such levels.
Positions in SYMC and MFE.
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