David Bianco, of the esteemed firm BAML, head of US Equity Strategy, informed us this morning (on our ride in on Bloomberg Radio, in between their primary programming that consists primarily of advertisements and PSAs urging us not to collect fire wood) that we're just in a Pessimism Bubble, and everything is really much better than you think. Get all-in on Equities or you're going to miss the boat.
On CRE, the interviewer (Tom Keene I think) asked "what are you seeing in CRE that all the pessimists are missing" (paraphrasing a bit). Bianco, "investors are willing to pay a dear price for income producing properties... even given the negative rent outlook, people are capitalizing income producing properties at very low cap rates... this is supportive of the loan book the big banks have of their big properties...", or something like that.
When cap rates get as low as they were, investors aren't valuing income, they're valuing speculation. I agree regarding the investment dollars chasing deals - you can't buy CRE in any form today without overpaying.
His entire interview made me more pessimistic on everything from equities to CMBS. I'd short BAC in response, but their "earnings" improved, mostly due to the Merrill acquisitions - ugh, I threw up in my mouth a little bit just now.
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