5 ms·

The vibes are similar to early 2008. But the financial structure is different. Banks are not overleveraged. Housing is not all adjustable rate. That being said

The vibes are similar to early 2008. But the financial structure is different. Banks are not overleveraged. Housing is not all adjustable rate. That being said, easy to see weakness. Commercial real estate is a big one. I'm somewhat concerned about non-bank Financials. Some large foreign banks (CS(dead) , DB, HSBC) I'm skeptical of. And a recession feels imminent (felt to me this way even before SVB). To sum up, I don't think this is over. There's no telling how bad it might get - we might get off fairly easily, might be bad. One thing that concerns me is that there is much less room for fiscal/monetary action given where inflation is.

humanrebar 4y ago
I don't understand how residential housing isn't a big bubble. That has to have second order effects yet to be fully felt. I guess maybe it could look like even more inflation? If inflation goes up enough and wages mostly keep up, housing could become relatively reasonably priced again.
- scott00 4y ago
  Increased housing prices definitely and directly cause inflation. Housing is in the neigborhood of 40% of the CPI basket, and even more of core CPI.
- runnerup 4y ago
  > I don't understand how residential housing isn't a big bubble. It’s not inherently a bubble because it’s driven by demand far outstripping supply. It may prove to be bubble-like if: A) Some significant % of homeowners see salaries reduced enough they can’t keep up on payments. B) We suddenly start building massive amounts of additional housing units so a larger % of the population can own/rent a home and the price drops to match the lowest income that still outcompetes the rest of the non-homeowners / non-renters / uncomfortably sharing renters.
  - BeFlatXIII 4y ago
    I'm hoping we go all-in on option B.
xnx 4y ago
Commercial real estate feels like Wile E. Coyote running off a cliff and not falling because he hasn't looked down yet.
sklargh 4y ago
I think there is still a pathway to things calming down, especially if FRB and other verticalized regional banks can make it over the next few weeks. I suspect if things do go, it will be in CMBS. I don’t think office assets are being fairly marked-to-market right now and I want to better understand mortgage performance on office real estate. Subsequent derivatives likely explode this risk and how they are intertwined across private money is unclear. I am also generally worried about normcore middle market, the diesel engine repair franchise, regional fast casual chain, etc…they are really getting squeezed from several angles. Best guess, the rapid reduction in fuel prices bought a temporary reprieve but that things are coming. As others have said here, the failure mode will probably be novel but seek leverage to find the arming switch.
WalterSear 4y ago
> Banks are not overleveraged. Banks are holding $600+ billion in currently worthless bonds. https://www.google.com/search?q=620+billion+dollar+bonds+bank https://www.google.com/search?q=620+billion+dollar+bonds+ban...
- dchftcs 4y ago
  No, the bonds are worth something, and the losses can narrow by a lot if they're allowed to hold to maturity, deposit interest rates rise slowly enough and if broad interest rates drop some time on the future. The risk that they can't narrow is indeed real and whether to backstop that is a source of contention here.
  - yeahsure22 4y ago
    Unfortunately we are stuck living in the present where the bonds are worthless and not the future.
    - pjc50 4y ago
      "slightly less valuable than expected" is not "worthless"! The hyperbole bubble is getting exhausting. People really want to talk a crisis into existence. Are they bored?
      - WalterSear 4y ago
        https://www.cnbc.com/2023/03/19/sp-cuts-first-republic-deeper-into-junk-says-30-billion-infusion-may-not-solve-problems.html https://www.cnbc.com/2023/03/19/sp-cuts-first-republic-deepe...
    - jmillikin 4y ago
      If you happen to be holding any "worthless" Treasury bonds, I would be happy to take them off your hands for $0.10 on the dollar.
      - 4y ago
antibasilisk 4y ago
>Banks are not overleveraged But the people are, consumer debt is out the wazoo
- dragonwriter 4y ago
  > consumer debt is out the wazoo No, its not, compared to 2007, when the all time peak of consumer debt (as a share of GDP) was reached, at 98.4%. The recent local peak was 80% in early 2021, and by September 2022 (the most recent number I can find) it had dropped to 75.2%.

humanrebar 4y ago

I don't understand how residential housing isn't a big bubble. That has to have second order effects yet to be fully felt. I guess maybe it could look like even more inflation? If inflation goes up enough and wages mostly keep up, housing could become relatively reasonably priced again.

scott00 4y ago
Increased housing prices definitely and directly cause inflation. Housing is in the neigborhood of 40% of the CPI basket, and even more of core CPI.
runnerup 4y ago
> I don't understand how residential housing isn't a big bubble. It’s not inherently a bubble because it’s driven by demand far outstripping supply. It may prove to be bubble-like if: A) Some significant % of homeowners see salaries reduced enough they can’t keep up on payments. B) We suddenly start building massive amounts of additional housing units so a larger % of the population can own/rent a home and the price drops to match the lowest income that still outcompetes the rest of the non-homeowners / non-renters / uncomfortably sharing renters.
- BeFlatXIII 4y ago
  I'm hoping we go all-in on option B.

xnx 4y ago

Commercial real estate feels like Wile E. Coyote running off a cliff and not falling because he hasn't looked down yet.

sklargh 4y ago

I think there is still a pathway to things calming down, especially if FRB and other verticalized regional banks can make it over the next few weeks. I suspect if things do go, it will be in CMBS. I don’t think office assets are being fairly marked-to-market right now and I want to better understand mortgage performance on office real estate. Subsequent derivatives likely explode this risk and how they are intertwined across private money is unclear. I am also generally worried about normcore middle market, the diesel engine repair franchise, regional fast casual chain, etc…they are really getting squeezed from several angles. Best guess, the rapid reduction in fuel prices bought a temporary reprieve but that things are coming. As others have said here, the failure mode will probably be novel but seek leverage to find the arming switch.

WalterSear 4y ago

> Banks are not overleveraged. Banks are holding $600+ billion in currently worthless bonds. https://www.google.com/search?q=620+billion+dollar+bonds+bank https://www.google.com/search?q=620+billion+dollar+bonds+ban...

dchftcs 4y ago
No, the bonds are worth something, and the losses can narrow by a lot if they're allowed to hold to maturity, deposit interest rates rise slowly enough and if broad interest rates drop some time on the future. The risk that they can't narrow is indeed real and whether to backstop that is a source of contention here.
- yeahsure22 4y ago
  Unfortunately we are stuck living in the present where the bonds are worthless and not the future.
  - pjc50 4y ago
    "slightly less valuable than expected" is not "worthless"! The hyperbole bubble is getting exhausting. People really want to talk a crisis into existence. Are they bored?
    - WalterSear 4y ago
      https://www.cnbc.com/2023/03/19/sp-cuts-first-republic-deeper-into-junk-says-30-billion-infusion-may-not-solve-problems.html https://www.cnbc.com/2023/03/19/sp-cuts-first-republic-deepe...
  - jmillikin 4y ago
    If you happen to be holding any "worthless" Treasury bonds, I would be happy to take them off your hands for $0.10 on the dollar.
    - 4y ago

antibasilisk 4y ago

>Banks are not overleveraged But the people are, consumer debt is out the wazoo

dragonwriter 4y ago
> consumer debt is out the wazoo No, its not, compared to 2007, when the all time peak of consumer debt (as a share of GDP) was reached, at 98.4%. The recent local peak was 80% in early 2021, and by September 2022 (the most recent number I can find) it had dropped to 75.2%.