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alstry (< 20)

The Big Freeze



August 23, 2008 – Comments (2)

It is bad enough that tax revenues are evaporating to our local, state, and Federal governments.  Programs are being cut and jobs lost.  The same trend is occuring in businesses accross the country forcing millions of layoffs and cutbacks.

Compounding the contracting revenues is a decrease in valuation of investments held by our governments, businesses, pension plans, and retirement accounts.  Where do you think a big chunk of penion fund investments go????  AAA securities and real estate loans.  This past year CALPERs lost over $1 Billion dollars on the land source deal alone.  AAA rated debt is at the highest spread in decades and lower rated debt is trading for a fraction of par.

As stated before, most of hte savings of our country is invested in debt.....and if debt is not sound than there is no equity.

The country and the world is beginning to realize this problem.  Fewer and fewer people are showing up for real estate auctions and those that do are paying less and less.  Now this is migrating into the commercial space as well.

Try selling a shopping center, piece of development land, or office building.  Few are willing to step up to the plate and even contemplate an offer. 

The markets are starting to freeze up!!!!!!!!.....even at the highest levels.

Let's see if Lehman is able to sell its prized money mangement business or $40 Billion RE portfolio.  All the big boys are raising money and saying we are going to start looking in December....once December rolls around watch em push it to June.

Remember, we were supposed to be starting the second half recovery right now.

Each day asset values fall, the deficits grow.  Pension funds had HUGE deficits going into 2008....where do you think they sit now.  As asset values fall, it stimulates more defaults causing more distress in the markets.

Until defaults stabilize, the contraction will only get worse.  Until we bring revnues and debt into balance, the defaults will increase.  As more and more see this trend, the desire for investors to bid will chill and valuation will implode.

In the end it comes down to one simple question:

How do you pay off 30 years of Trillions of dollars of accumulated debt when there is simply not enough revenues to meet the obligation?????


2 Comments – Post Your Own

#1) On August 23, 2008 at 8:42 AM, alstry (< 20) wrote:

The increasing rates of banks shutting down is the perfect reflection of the problem.

Banks loaned out trillions to borrowers.  Now borrowers don't have the revenues to maintain their payment coverage.  As savings are spent down the borrowers default.  We are now starting to see the default rates, especially on commercial RE go parabolic. 

 Commercial real estate delinquencies are rising rapidly, and are at the highest rate since Q1 '95 (as delinquency rates declined following the S&L crisis).

 When enough borrowers default, the bank shuts down.  We are still at the infancy of the bank defaults.  On Tuesday, the FDIC updates its troubled bank list.  At last count it was 90, however, some of the recent defaults didn't even make the list before being shut down.

In the past, the banks were generally able to recoup most of their loans by liquidating the collateral....but in today's imploding asset value environment.....the banks are recovering less and less as time passes.

As Paul Volker states:  We face the "mother of all financial crisis."  Truer words couldn't be stated as markets are now starting to seize up with fewer buyers willing to step up to the plate and pay much for anyting.

Some gloat about being able to buy assets at $0.20 on the dollar and reselling it for a profit.   The problem is if more America's assets sells for $0.20 on the dollar, than all of us have basically nothing.

The banks are broke, our cites and states are broke, our businesses are broke, our scholl districts are broke, and our pension funds will expire in a few years.

Strange times indeed until we bring debt and revenues into balance.

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#2) On August 23, 2008 at 9:43 AM, alstry (< 20) wrote:


Managed payout funds show flaws

But just four months after Vanguard's funds launched, their performance reveals one very big problem with how such funds are structured: to meet their payout obligations, the funds are dipping into principal.

Seventy-seven percent of the payouts from Distribution Focus Fund that figure is 71%, while 63% of distributions from Growth Focus Fund  have been taken from capital. "People are getting their money back as a distribution," said Dan Wiener, editor of The Independent Adviser for Vanguard Investors.

"These aren't coming from dividends or interest from holdings, or even short-term capital gains. These funds just haven't been making money."  

Losing value

According to Vanguard, the net asset value (NAV) of a share of Distribution Focus has dropped from $20.22 at launch in May to $17.99 as of Tuesday, the most recent payout date. The NAVs of Growth and Distribution have also dropped, from $20.27 to $17.99 and Growth Focus is down from $20.33 to $17.85. that seems like a good someone to give you your money back.

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