Fear Nation

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Well, I'm going to do a short entry to break up the comments. And call me stupid, but as I noted earlier this week, there is a Big Element of Fear to Gee Dub's agenda.

This credit crunch is The Third Big One: First, the Iraq "War". And I always try to use quotes around "War", cuz it was never really a war, but more the annihilation of a country for oil, and a little payback for wanting to kill Daddy Bush, which I can understand.

Second, I group into Katrina Fear, but it's really the fear of natural disasters, Katrina just made it possible.

Third is this credit crisis. And this seems to be The Big One. I've heard such crap as we will be thrown into a Second Great Depression by today, if the Monster Pork Barrel $700bb bailout doesn't pass. THAT is how bad Wall Streeters want this thing.

I guess I don't know what The Bush Doctrine is either, outside of this Rule By Fear Agenda he's got going. Is this what Hitler did? Seriously. This is starting to feel like some sort of whacked dictator is running things.

And contrary to what hbm, Brucey, and Dunc think, I am a Repug that can think for himself. And if I had my druthers, McPain would come in Dead Last in the election, Osama would come in second, and some other Decent Candidate would win. Maybe Ron Paul, or someone. But that ain't gonna happen. It'll be one of these 2 ididots, both of whom are sellouts, and I suppose of the 2, I'd rather have Obama.

So I can think for myself, which is more than I can say for a lot of people. I'm thinking of registering Independent. The Dem's and Repug's are turning into twisted abominations, that aren't even about representing this countries people, but are more about hating each other.

Oy, this Fear Nation Rule has just reached a fever pitch, and there is no precedent for it. At least The "War" had 9/11. The hurricane fears had Katrina. I guess this bailout has...What? Bear Stearns going bust? Lehman? I mean, Who Cares? These things are MEANT to go down, if they have killed themselves.

It starting to feel like we, and I mean the U.S.A. are The Next 800 trillion lb Elephant ready to fail. They are really afraid of something I said well over a year ago to much guffaw, that This Housing Collapse will bring down this country. We're starting to hear that from our "leaders".

Maybe there is precedent. Maybe they do know we are knocking on Death's Door. Maybe this is The Big One, the one from which we will never really recover. Maybe we are, right now, The World's Fannie, Freddie, AIG, WaMu and a whole lot yet to come, All Rolled Into One. We are The World's Too Big To Fail Institution. Maybe the rest of the World wants us saved, because if we go down, so do they.

OK, there's a pretty good piece about the rising vacancy rates in Bend commercial property today. Watch for the "Zingers", the Games People Play That Don't Make Sense.

For businesses, a renters’ market
By Jeff McDonald / The Bulletin

With vacancy rates for Bend’s commercial office space at 13.5 percent — more than double the empty space available early last year and a number that is expected to rise — landlords are offering incentives that range from rent reduction to tenant improvements to handing out cash.

The latest incentive for businesses looking to expand is geared toward helping companies overcome the financial hurdles resulting from the credit crunch; namely, the lack of financing available upfront for overhead costs such as new office computers and other equipment, and tenant improvements, said Brian Fratzke, principal broker for Fratzke Commercial Real Estate in Bend.

“A lot of landlords will take the first tenant with a pulse and a pocketbook,” he said. “But when this thing turns around, they’re going to say, ‘Darn, I’ve just devalued my building.’”

Instead of lowering lease rates, which devalues the building over time, one of Fratzke’s clients, owner of the 2,800-square-foot RedBend Office Building near the Redmond Airport, will give the tenant the first six months of rent free, up to $27,000, Fratzke said.

This is equal to giving a free month’s rent at move-in and one every 12 months thereafter, which is a common incentive, Fratzke said.

“What often happens in rent abatement is tenants will get one month free every 12 months,” Fratzke said. “Over the course of a five-year lease, that adds up to six months free. What we’ve done is offer the six months free upfront, so that the tenant can pay for their move-in and overhead costs.”

Commercial brokers are offering more incentives to get deals done, trying to ease concerns about expanding during tight economic times, said Eric Strobel, business development manager at Economic Development for Central Or-egon, which promotes business growth in the region.

“Anything that can be done on the commercial broker side to alleviate pressure on the company is helpful,” Strobel said. “Any help that can be given on the front end is a huge decision-making factor for the company.”

While tight credit sometimes makes it difficult for a company to expand, that’s a better problem to have than needing more credit to survive, Strobel said.

The slowdown in the commercial office sector has put growing companies in the driver’s seat when it comes to renegotiating lease terms or moving into new buildings, said Darren Powderly, a broker with Compass Commercial Real Estate Services in Bend.

“If a client says to me they will pay the asking price, without tenant improvements, but they want a check for $10,000, we’ll look at that,” Powderly said. “Obviously we want to look at their creditworthiness, and get corporate and personal guarantees (that they will stay for the length of the lease). If they walk a month later, you’re not looking very smart.”

Other trends include significantly cutting the rates on the first two years of a lease deal, Powderly said.

“Ironically, the tight credit market is helping leasing,” he said. “Even if the company thinks they’re in a great position to buy, they can’t get a mortgage. There’s no other option but to lease. It’s added some activity that would otherwise go toward purchasing.”

Bill Moseley, president of GL Suite, a software development company in north Bend, had planned to construct a new building in the NorthWest Crossing industrial area and move there when his lease expires in April.

But the slowdown in the commercial office market, along with higher costs of construction, has made it more expensive to put up a new building than to buy an existing one, Moseley said.

That, coupled with shrinking demand for space from real estate-related firms and several new, still-vacant buildings that have come online this year, makes leasing a no-brainer, Moseley said.

“It’s been bad for everyone else, but if you’re someone leasing or considering buying a building, there’s no better time.”

The Bulletin, Always Selling RE. Just can't help it.

Vacancies rising? Hell, that's Great News!

Vacancies falling? Hell, that's Great News!

I like how giving 6 months Free Rent at an inflated rent rate makes the building More Valuable. Here's a pic of a Realtor & his reading material, who believes such tripe:

Please, don't drop your monthly rate, just give 6 free months rent instead! That doesn't hurt property values! Now I have to go read something important that's been confusing me...

Another good piece this week is by Fleckenstein.

What's next, a ban on stock sales?

Prices aren't to the government's liking, so it's changing the rules on the fly, and no one knows where or when new lines eventually will be drawn.
By Bill Fleckenstein

The Securities and Exchange Commission has a list, and it's checking it twice. It's a compendium of nearly 1,000 companies the so-called watchdog has now pronounced off-limits to short-selling.

If this do-not-short list weren't such a travesty, it would be hilarious. Among the companies the SEC wants to "protect" are the ones -- Moody's (MCO, news, msgs) and McGraw-Hill (MHP, news, msgs), to name just two -- that did such a horrendous job rating the mortgage paper that helped cause this debacle in the first place.

The Cox virus unleashed

In the end, SEC Chairman Chris Cox and friends will discover that this will turn out to be an epic example of the law of unintended consequences. They've probably just succeeded in blowing up a tremendous number of quantitative-oriented money managers and hedge funds. In essence, this targets anyone who runs a long-short fund or arbitrage fund of any kind, and anyone who manages any sort of stock basket.

To distill those gory details down to their essence, what the SEC has done is guarantee that less liquidity will be available for markets.

I suppose that if this doesn't work, the next step will be to just outlaw selling altogether. After all, that does seem to be the government's response to prices it doesn't like. There was a witch hunt for speculators in commodities on the long side when oil (and various food items) went higher over the summer. Obviously, we've seen that lower stock prices have also precipitated a government response.

So when the bond market eventually revolts -- because of the cumulative effect of the Federal Reserve’s monetizing any and all pieces of paper the Treasury buys -- is the government then going to ban the short-selling of government bonds? Will it eventually say you can't sell dollars? How is any rational person supposed to plan for where the government may draw the line as to what sort of "manipulation" it may condone?

Meanwhile, one item you'll likely never see on the SEC's to-do list: leading the charge on reforming financial statements. Scrutiny of IBM (IBM, news, msgs) would be a perfect start, as the company has shown itself to be a financial engineer of the first order. Nevertheless, IBM last Tuesday begged its way onto the do-not-short list.

This happened even as IBM has been borrowing money to buy back its own shares while it crows about what good shape it's in. The stock is off only about 15% from the highest price it's ever traded at. And it sports a short interest of 10 million shares -- not that much more than IBM trades on any given day and microscopic relative to the 1.354 billion shares it has outstanding.

Any real, untroubled company would be completely embarrassed to be on that list. Thus, in my opinion, IBM's actions are perfectly fitting with how it operates.

The on-closer-inspection rejection

Of course, anyone with any knowledge of history and an IQ above room temperature knows that many of the financial institutions now in trouble have themselves, not the short sellers, to thank for their plights. I'd like to offer the following example, via a recent Bloomberg story headlined "Ten days changed Wall Street as Bernanke saw 'massive failures'":

"The storm in the markets began with a long-deferred nod to reality by Lehman. The 158-year-old, New York-based firm had possible acquirers inspecting its books. They discovered that Lehman hadn't yet written down its portfolio of subprime mortgages . . . as aggressively as some other Wall Street firms."

So, in all likelihood, what the short sellers are being blamed for is the harsh reality that Lehman shareholders would just as soon not take "ownership" of. That is not to say there wasn't any short-selling, but rather that short interest in Lehman was never large. In fact, short-selling was rather modest. As of the last reading, it had dropped to just less than 28 million shares from almost 54 million in June. (For reference, the company had 689 million shares outstanding.)

Security says, 'Remove your shoes -- and your shorts'

Nonetheless, despite any and all facts to the contrary, the SEC and the government have resolved to pursue their idiotic "solution" in terms of banning short-selling of certain stocks for the time being. They also have demonstrated that rules don't mean anything, because they are willing to change them whenever it suits their purposes, no matter how disruptive or foolhardy those changes may be.

A friend summed up the situation by commenting that we're in an environment where "short sellers . . . are risking private money betting against badly run businesses and governments are risking public money betting in favor of badly run businesses. You don't need a Ph.D. in finance to know which group of folks believe in truth and free markets. . . . You can expect to see all foreign banks move their toxic waste to their U.S. subsidiaries for delivery to Henry's Helpful Handouts."

One wouldn't have to be too cynical to conclude that we now know the real reason Treasury chief Hank Paulson decided he needed a $700 billion bazooka. I don't mind him helping out old friends at Goldman Sachs (GS, news, msgs), and I would prefer that the financial system not implode. But I find this bailout bill completely outrageous. Though I won't hold my breath, I hope it doesn't get enacted as currently proposed.

The silver lining: Halting a money-fund run

If I were to try to find the piece of last week's actions that was least objectionable, I would say it was putting a halt to the run on the money market funds. I know that places at a disadvantage all the people who prudently owned government-only paper, like many of my readers. But just as, when push came to shove, American International Group (AIG, news, msgs) had to be bailed out, a run on the money market funds would have been devastating to too many innocent bystanders.

The bottom line is that the government has decided it doesn't like where the prices of houses are, where the prices of mortgage-related debt securities are, where the prices of commodities are and where certain stock prices are, so it has elected to change them all by fiat. It won't work, and one of these days, the bond market will be absolutely shattered.

If Congress manages to agree on a bailout bill, the financial crisis will probably be over (but I'll reserve judgment until I see the action in all markets in the wake of the legislation).To that extent, the government's actions will keep the economy from getting "extra-worse" on the back of a stock market crash and a run on the money funds.

Having said that, when folks discover just how weak the economy is, especially now that we've blown out all kinds of participants in the stock market, we may still get some sort of a crash or serious sleigh ride south, though it's really hard to draw conclusions at the moment.

We obviously have been close to a crash in the stock market and a seizing up of the financial system. But regardless of what the "experts" say (most of them, after all, saw none of these problems coming), my fear is that the worst is still in front of us.

Keep the plates spinning. Fear Nation. If we don't keep the plates spinning.... What? We'll all have to actually... My God.... Live Within Our Means? Guns, butter, beans, and Gallo?

I don't think we'll collapse into a New Stone Age. We'll simply have to spend what we make, and Stop. And that's it. But to The New Corporate Government, that is Armaggedon. That's The End of the World. There's no point in even surviving such a disaster.

I see the markets are cratering this morning. Citi going to take over Wachovia. Wachovia hasn't opened yet, but pre-market, it is indicated down 90%, from $10 to 90 cents per share.

I really hate saying I told you so, but... well, let's say I was part of a small cadre of people who said this thing would end catastrohically early on. Over a year and a half ago. I said the US would, as a country, actually become Second Fiddle. We would become a has-been. You are watching The Fall of a Civilization. There are a lot of people for whom it will not be apparent until it is over, but it is apparent to me that it is inevitable. It's happening right now. We are bearing witness to a country destroying itself.

It's why I disagreed with BEM & Buster about "doing something" to Save Bend. Bend cannot be saved, it is Far Worse Off than the rest of the country. This country will tear itself to pieces trying to save itself, like a wolverine in a burlap sack thrown into a river. Nothing will help. Nothing will save Bend either.

I've also said that I hoped to position myself Delta Negative for this thing. Hell, that's like standing on the last point of the Titantic to go down. I'm probably only doing well with respect to those that are already in the water. This thing will take us all down.

There's nothing to do about this thing. It's like the tsunami of ~3 yrs ago: It's an unstoppable force. It'll wipe clean everything in it's way. And right now, we are in it's way. This bailout is like building a 1ft tall wall of sandbags against an unstoppable tsunami, 100% futile. It makes The Bulletin's attempts to revive Bend RE pretty laughable. Remind me of yet another recent Fleckstein piece:

Whatever we do, it will be wrong

It's time to start thinking about digging out from this crumbled financial house of cards. With heaps of blame to go around, it's clear that past policies won't help.
By Bill Fleckenstein

Tread lightly and thoughtfully
Events continue to move at a fast and furious pace. I don't think we've seen the last of startling actions. As for the investment ramifications of all of this action and potential future action, I think folks need to understand that amid the crosscurrents and head fakes, the potential to make mistakes is going to be extremely high. Probably the fewer decisions made right now, the better.

However, all decisions should be made with the expectation that the economic and financial environment will get far worse. For those of us who are professionals, a friend suggested that Henry Kissinger's comments about the Balkans should be kept in mind: "Whatever you do will be wrong, including nothing." That seems an appropriate warning.