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The Commercial Crash...



September 27, 2008 – Comments (4)

Along with the massive over building in housing was the massive over building of commerical space.  Defaults on these loans are still in a much earlier stage then the mortgage market so their effects have only begun to be felt.

CR has a post about declining office rents in New York.  This is going to create fire sales of office buildings that are financed to the limit that was dependent on both good occupancy and more likely increases in rent rather than decreases.  Which in turn will fuel more commerical office problems...


Big picture has an excellent piece that was published in barrons. Here is pdf link to read it.


On another topic, a very serioius question I would ask is how much of a bailout is required to cover the government guarantees of $100,000 per account?  Seems like an awfully big chunk of the federal reserves have been used for a very few number of failures...

4 Comments – Post Your Own

#1) On September 27, 2008 at 3:53 PM, suntzu777 (< 20) wrote:

Dwot, well spoken about commercial realestate, I was just talking with my father a few months ago, pointing out that the commercial colapse will be part 2 of the defauts. The question I have now is the same one I had then. How do I use this knowledge to my financial benifit? Any ideas?

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#2) On September 27, 2008 at 4:46 PM, TDRH (96.53) wrote:

Why do you think it has been delayed?    I shorted RTH some time ago with such conviction and certainty, and yet it has risen.   The REIT's should see a correction, but I have been a little gunshy entering shorts as most have continued to rise.

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#3) On September 27, 2008 at 8:29 PM, dwot (28.86) wrote:


I am sitting on cash and waiting.  It is almost a year.   My thoughts are that the stock market may not be the best place to go.  It is so rigged to work against retail investors and the corruption is incredible.  I also think the dynamics of why this belief that over the long term and it seems it has been looked at for a couple hundred years, are over. 

We've had the most massive population growth in history that has last a few hundred years and so this massive population pyramid seems utterly norma.  The more I think about it the more I am convinced that we will also see some kind of decline due to a grossly declining increase in population. 

We've also had the greatest increases in technology in history which as lead to improvements and there is lots of technology that is at its limits.  In mining machery has reach the mechanical limits of the strength of the materials.  Agriculture is 600% more productive per acre then 100 years ago.  Think 100 years from now it will be another 600% improvement?  I doubt 10% is possible.  Indeed, with global warming and water issues I would suspect some land will become much less efficient.

I think that if you think about it you can come up with many examples that although improvements can be made, the relative gain from the improvement will be small in comparison to historical standards.

So, I don't think the market of the future will follow the several hundred year trend line.  Indeed, there's been an aging population with increased wealth creating an unsustainable increased demand and I think that will see a reversal as they stop putting money in and start taking it out.

The generation below aren't going to be putting inheritances into the market, but onto bills.  I read an excellent piece yesterday that I didn't link, but what the guy said was that for every $100k he earn while sleeping his children's generation picked up an extra $100k of debt burden trying to buy those over priced assets.

I also see generations coming far more cash strapped in their ability to save for retirement, hence they lack the ability to put money into the market.

About a year ago I figured that we'd see a reversal in the size of households in terms of the number of people living in them.  That was an easy call for me because this has been happening for some time in Vancouver.  Latest data does indicate that the trend of few people in households has started.  

One of the investments I've thought about is having a home with a suite, but I do wonder about the ability to provide a rent equitable to the financial investment.  It is tried and "true" but how does it fair when population growth is way down?

I think looking at what the needs of an aging population will be is probably a good place to be looking.


I just didn't understand how come things weren't happening and taking so long when if you looked at the situation it was dire.   I seem to be early rather then incorrect with a number of the things I saw coming.  Knowing that some things are so grossly over valued and have been since I started looking at the markets has left me cautious about betting on the market fairly pricing things.  If anything, the market is insane.

When I looked over the history of the great depression, well, it started with a property bubble that began to unwind a full 3 years prior to the market crash.  Well, Florida's property bubble was the first to burst and that was about 3 years ago.  The market crashed in 29, but didn't bottom until three years later in 32, so the monetary unwind took a full 6 years.

I don't know what the make up of investors was back then or how they compare to today's investors, but I know that many investors here remember a number of crisis and they have a plan for the next one.  I am not so sure they have the level of patience need for correct implementation.  I think there are a lot of people that have been waiting to get in at reduced prices and they had a target based on what the market appeared but I don't think they adjusted the target for the many problems.  I think these people are getting back too early and without proper re-evaluation.  I think there are people who are still trained to buy on the dips.  There are people that want to sell and are waiting for a recovery.  There is just a lot of emotional attachment in the markets.

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#4) On September 27, 2008 at 9:52 PM, FleaBagger (27.54) wrote:

How many times throughout history have we heard that we're at the pinnacle of technological achievement? That's a pretty worn-out line. Mining machinery could get a boost from new alloys or synthetic materials, explosives, or who-knows-what. And farm yields? There's a Malthus in every generation, I always say.

I agree that markets are in for a world of hurt, though.

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