Wednesday, February 23, 2011

If you can't spot the sucker in the first half hour at the table, then you ARE the sucker.

From Bloomberg:
Hartford Financial Services Group Inc. Chief Investment Officer Gregory McGreevey, who slashed commercial-property holdings during the market slump, is betting on a rebound by expanding the insurer’s real-estate financing.
“The real-estate market in total has likely bottomed in terms of its price declines,” McGreevey said of commercial property in an interview at Bloomberg headquarters in New York yesterday. “Most of our opportunities are in direct whole-loan investments where we can find good properties at attractive prices.”

So, just to be clear, we sold CMBS bonds to these jokers at the peak - the worst of the worst. If it was a bunch of small balance dentists' offices with their lake house as part of the collateral, The Hartford ate it up. Then they sold at the trough, again, to me, just in a different chair. Now, once prices have recovered (but many think the sector still has a way to go), they're getting long again.

I'm actually going to stop talking and put together a BWIC of overpriced AJs to send their way right now...


Anonymous said...

Do you think it's guys like the Hartford keeping overall spreads tight or do you think it's hedge funds jumping into the space chasing yields in the credit stack not really knowing what they're buying?

"but many think the sector still has a way to go" - which way? prices for CRE are going up or the economy has a ways to go in the recovery before prices will recover?

Also your clairvoyance in calling the market is enviable ;)

Dark Space said...

I think guys like the big insurers are about to drive it tighter just by being back in the game. We're seeing a few billion each week in activity. Some days are a billion a day. The hedge funds were in front of this (buying stuff they didn't understand, but getting in front of the obvious trade) and are now selling to the insurers - they're likely not big buyers of either credit or the 'AAA' stack at these kinds of yields... at least without good leverage.

"but many think the sector still has a way to go" - sorry, the CRE sector still has some pain to be felt. There's nearly $100 billion of loans in the CMBS sector alone that need to either be substantially modified or sold via foreclosure. AND CMBS is just a quarter of the CRE loan market. I looked at bonds today trading above $70 & $80 prices that have a high probability of taking a principal loss inside of 12 months - that is just crazy, right? Am I missing something?

Anonymous said...

no that is crazy - it's just a re-inflated bubble caused by perpetually low interest rates and a perception CRE is now backed by the full faith and credit of the USG. I like to think of it as the Gov't came in and validated S&P's AAA ratings of the shit bonds by throwing together PPIP & Tarp. The core problem is that perception that there is a floor in losses driving those insurers to take on ever more risk.

I agree that many credit bonds in the low 70s+ could see principal losses soon - however the bet would have to be an extension of the collateral scenario rather than an instant liquidation/loss. Not many of the SSs are motivated to liquidate now because many probably still hold the B-pieces from the transaction therefore they're motivated to squeeze as much interest out of the pool as possible before liquidating. they're doing this under the guise that 'it's a terrible time to sell' but since they're all doing it no one is selling and no one knows where prices are.

sorry for the long rant, thx for the response.

Anonymous said...

This post was great. I'm going to start a fund that takes the other side of the lifeco trade.

I think back to that SNL skit about the US was a great sign that the dollar short trade had reached its end. I think the same can be said for HIMCO.

crabsofsteel said...

I thought I was crazy too when I saw zombie bonds offered in the 70s. There's sell-side offering in the high 60s which is already being written down. What happened to the Volcker rule? Did Volcker resign in disgust when he saw it wasn't being seriously applied? Did anyone see the CMBS interview with Lou Ranieri where he said 2011 CMBS are as bad as 2007 CMBS?

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