While the title is expected, even Mr. Schmidt is at a loss to present the REIT “green shoots” that would substantiate his note. Amsuingly, Schmidt quotes favorable restaurant trends to back up the stabilization thesis:

Some positive signs included Dr. Mark Zandi’s (Chief Economist, Moody’s economy.com) citing that restaurants reported stronger same store sales gains than supermarkets in the most recent period, which suggests an increase in consumer confidence. Additionally, retail trends, while still negative, have improved from 4Q08, which were so dramatically negative that retailers were behaving like “deer caught in the headlights.”

Now that people are rushing to Nobu, maxing out their Centurions and hoping, very much like YRC, they can apply for and receive TARP funding, all must be good. The other “solid” positive:

Of the most seriously troubled retail markets (Southern California, Florida, Phoenix and Las Vegas), the only market that seems to have improved somewhat is Southern California. We still hear very distressing things about the other markets.

Nothing like Californians spending with reckless abandon, concurrently with voting down Schwarzenneger’s hail mary proposals to scrape up some semblance of a budget. Next stop: California’s utter fiscal collapse, and Geithner fixing that problem as well, by securitizing all default credit cards through a AAA rated TALF issue. Now, as for that foreclosure moratorium ending in Cali – don’t worry, TurboTaxTim has that covered as well: banks will hold those shadow homes on their books until such time as 10% inflation has set in and debt is worthless, just in time to reflate the next Inland Empire housing bubble. Nothing is f****d here.

Among the bullet points presented by Schmidt, who after all has to maintain some semblance of objectivity, are the following stabiliziation zingers:

• Low attendance at annual ISCS Spring Convention shows pain
• Leasing with already constructed projects are a priority
• Few see recovery to positive NOI until 2010 or later
• Downturn accelerating bifurcation of shopping centers
• Detroit sales finally succumbs to downward pressures
• Asset sales still hard to come by
• Greater emphasis on service tenants
• Thinking outside of the box becomes a necessary skill-set
• Store closing selections may surprise outsiders

So, yes, aside from all these points, retail REITs are certainly on the road to stabilization.

Lastly, and most curiously, is the reported departure of Ross Nussbaum, yet another Bank Of America/ML REIT banker to go to… UBS, which just yesterday had virtually its entire REIT team poached by Bank Of America itself. Is this tango merely normal Wall Street rotations, or is it indicative of something deeper at Bank Of America. People are still scratching their heads over Steve Sakwa’s departure.

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Bob’s World: Mini-May turn?
05/13 10:59:08

Turning to mrkts, some moans 1st:

A – UNEMPLOYMENT – the double digit peaks will happen late next yr. Unemployment is ugly & evil – it MATTERS and impacts ALL of our spending/saving/behaviours. Yet I am shocked at how many ‘commentators’ keep telling me it does not matter, it lags, its all priced in, blah blah blah. It is so sad to hear this nonsense, which is ‘sold’ as credible mrkt thinking.

B – PHONEY MONEY – as absurd is the shrill chorus that is busy spinning that fact that coz central banks are going print-tastic, this means stocks are going higher and higher. Have folks learnt NOTHING!! The events of the last few yrs highlight the difference between ILLUSORY wealth/growth and REAL wealth/growth. The illusion can win out for a while, but ultimately REALITY WILL BITE HARDER the longer the illusion persists. But somehow this shrill chorus is given air-time and column inches – I am stunned by this. Be Warned – reckless central bank printing has NEVER succeeded over any meaningful investment horizon as a means of delivering real grwth and real wealth gains, and it is NOT going to wrk now. In fact, if the REFLATION/NOMINAL GRWTH policy trick does get legs, it will be simply setting up the next even more nasty balance sheet recession, from which the road back to normality will be horrible and much worse than what we have now.

C – GREENSPAN – apparently he made some comments yest. Why does this guy still get airtime – he will, after all, go down in history as one of the worst central bankers of all time.

D – BERNANKE – made some cmmts abt how important, useful and beneficial the Stress tests were. Who are you trying to kid Ben?? History will judge these tests – in my view the judgement will be scathing.

I could go on with my whinge-athon but for now, I want to repeat and clarify some key views:

1 – The longer term, multi-mth/mult-qtr view remains UNCH as it has been all year. Since Jan Kevin and I have both felt that H1 09 would be a positive surprise in terms of data and mrkts, setting the scene for a nasty H2.. This view is fleshed out a bit more below and remains UNCH. Over the next 2mths or so, which overall will be a bullish time for risk (subject to ’2′ below), supported by less bad data, I fully expect positioning, sentiment, valuations and expectations to FULLY price in the ‘V’. When folks realise that we have a multi-yr U or even, in some places, an L ahead of us, the re-price of risk, esp. equities but also credit, EM and risk currencies, will be savage. I am looking for new lows in equities late this yr, new wides in HY spreads, and moves back to the wides in IG corps & EM spreads. And I am looking for 10-yr Bund yields down in the mid/low 2s. Deep deflation is ahead of us – it is real already in asset prices, but will become very obvious in the official ‘inflation’ data in H2

2 – Shorter tem, I continue to see a 10/15% correction lower in equities in May, which as I have said for some weeks now (see below) would begin near/just above 900 S&P at which point the iTraxx XO index would be sub-800 and the 10-yr Bund yield would be up at 3.3% We have seen S&P peak recently intra-day at around 930, below BOTH the Jan high and the 200-day MOVAVE, we saw the XO index gap down to low 700s late last week, and the 10-yr Bund yield peaked up in the 3.40s.

3 – I THINK the mini-May sell-off is underway – albeit the real action may not be seen until next week – and as such I am happy to position NOW – on a trading basis – for a move down in S&P to 800/780, for a move higher in credit spreads with the XO index up in the high 800s/low 900s, and for a move down to 3.20s in the 10-yr Bund yield. I would stop myself out if S&P rallied and closed above the 200-day MOVAVE for 4 consecutive days..

4 – Note however that the mini-May sell-off call is only a medium conviction tactical call for a pull back from overbought conditions in stks. Any May sell-off will likely only last a few weeks and will I think suck in bears just ahead of another June/July assault on the Jan highs and the 200-day MOVAVE. It is this rally leg that will have folks FULLY pricing in the V and which will consign the green shoots to the bin, to be replaced by ‘the V is here, its real, and its time to get fully invested’ shrill call from all those same folks who got you long and wrong into 2007. AT THIS POINT, and subject to what the data and our indicators are telling us (rather than what we WANT to believe), I will likely want to get UBER BEARISH risk assets across the board (bullet point 1 above). I maintain my view that, from current levels, we can see global stks off by 30/40% in H2 09, with a 550 S&P target.

Q4 08, and the spill over to Jan/early Feb 09, was an all-time historically bad time for the global economy. Its trends could NOT persist and we were ALWAYS going to see a slowdown in the pace of decent. Of course the masses who are now calling the recovery were wrong all of 07 and 08, and only just caught up in Q1 09 with the reality. Q2 09 and some of Q3 09 was ALWAYS going to be the period where 1st the shrts covered and then 2nd where the masses go on to extrapolate a shorter term slowdown in the pace of decent into a V shaped recovery. We are in this zone now but there are still too many bears for my liking, so hence why June and July shud be good for risk assets. In Q3 09 the masses will be fully positioned for a V, valuations will be fully pricing in a perfect V, and expectations and sentiment will (secretly) be even more bullish, all aided and abetted by policymakers, spin-meisters and alike. This will be similar to the time leading up to and into Q3 07. IF we are right on our H2 call for grwth/earnings/defaults, then the back end of 09 will be far more nasty than the back end of 07, and may even in some cases approach the levels of nastiness seen in late 08. Plse be careful abt getting too long in what can turn very quickly into very illiquid risk assets shud our H2 09 call be right. For avoidance of doubt, this specifically refers to corporate bonds and EM.

LONGER TERM policymakers, led by the US and UK, either have or soon will use up all fiscal room for manoeuvre, and thus will be forced to further abuse their monetary channels. This means QE, monetisation and currency debasement. Why? Because none of our leaders are willing to understand and accept that monetary inflation is at least as evil, if not more so, than a multi-yr period of austerity and deflation. The end result will be that the USD is the biggest long term tail risk out there – I have said it before but the risk will I think get bigger and bigger (assuming we are right) that at some point in the next 12/24mths we see a 30/40% USD devaluation.Which also means that longer term (2/4yr basis) I want to own GOLD and CRUDE, and if I have to own currency I prefer the EURO. I trust Mr Weber with my cash. I cannot say the same for other central banks, not least because they are all (most of them) now tools of government and exist only now to serve the agendas of their masters, with the number 1 agenda item clearly being to carry on with the hopeless policy of PRINT/BORROW/SPEND/BUY MORE RUBBISH/DELAY THE TROUBLES TO ANOTHER YEAR for as long as is possible. Sad. But hey, at least we have a EURO to park cash in – for now anyway.

Cheers

Bob Janjuah

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PS – One of these days I need to find a corporate sponsor who is willing to underwrite the overallotment option. Would ML’s REIT team be interested?

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Below, I present a summary of the most notable REIT follow on offerings done in the past 2 months: as one can see the amount raised is staggering, and the main lead underwriter (sole or joint) by a vast margin is Merrill Lynch.

The two immediate take home messages here are that despite an average 24% dilution for REITs which have undergone the ML Cohen and Steers treatment, they have still outperformed the general REIT universe in price appreciation (P/FFO) by a factor of almost 300% (8.4x to 9.6x for broad universe compared to 11.7x to 14.4x for the diluted names). Odd you say?

And while the chart above shows not only the ridiculous prominence of ML in the pantheon of busy little underwriters, it also demonstrates just how much capital REITs have raised to date. The reason of course is the imminent maturity schedule for the vast majority of these. The chart below shows the 2009-2011 maturity schedule for the bulk of the major REITs split by category. One can see that based on just these main 15 companies, there is almost $20 billion in upcoming debt maturities over the next 3 years, which explains why any and all REITs will take advantage of every single orchestrated market bubble from now until they ultimately follow in the shoes of GGP, to sell the pieces of paper better known as common stock.

In other words, mother Merrill will likely not stop (and the market squeeze will likely not loosen) until there is at least another $10 billion in additional dilution from the remaining usual REIT suspects (and until ML has pocketed at least another $100 million in underwriting fees). Even so, I have not disclosed the 2012-onward maturities, where things really start to get interesting. But by then, as everyone knows, we will either have hyperinflation, and all the REITs’ exiting debt would be payable down with one mere $1 trillion bill, or the S&P will be at 6.66, in either case current investors will long be gone, having sold to whatever hot potato holders are the most fervent believers in Jim Cramer’s economic “fundamental analysis.”

hat tip IMA5U

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Now taking bets on who will succeed the mega quants as market liquidity provider once they are made redundant.

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An outbreak of swine flu is wreaking havoc in Mexico right now. Mexican assets are threatened as concerns surrounding the deadly flu surface. The Mexican peso has been especially hard hit in currency trading on the FX market.

Indeed, the peso has sunk more than any other currency in forex trading. With concerns over tourism, stocks and other problems, swine flu is causing a mass exit from Mexican assets. 

Until this outbreak of swine flu, the peso had been starting to make up ground. Risk appetite — thanks to an improvement in the global equity markets — was returning to the FX market, and emerging market currencies like the peso were benefitting. Now, though, risk is back, and Mexico is especially troubled.

See Also

• Mexican Peso in Currency Trading
  Emerging market currencies in forex trading

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