Stock market is a "fully-fledged epic bubble" and will burst
Discussion
They got bullied by the markets into rising when they didn’t want to…I have hopes they may hold off too much more…it should peak at below 4% in reality.
Housing in much of the country is cost+…but those areas that aren’t will see falls.
To be fair to the lenders, they haven’t overdone it this time…I spoke to a senior resi development banker today and they are feeling chipper about their book and have just passed an FCA review with flying colours.
Commercial property showing some distress now, but lots of money wanting cheap deals showing up to bids will limit falls.
BobToc said:
The one thing that would give me some confidence they'll not massively over-shoot are Broadbent's comments in late October about the implications of a 5%+ base rate.
They’re targeting inflation which is a lagging indicator, and which is showing no signs of abating.The intention is never a soft landing, if it were they’d have changed their clearly flawed mode of operation which has an almost perpetual failure rate.
DonkeyApple said:
loafer123 said:
Hi, D_A
What’s your view on where U.K. base rates will peak…had an interesting conversation earlier, but might be my confirmation bias…!
Hi. Hope all is well. What’s your view on where U.K. base rates will peak…had an interesting conversation earlier, but might be my confirmation bias…!
The impossible Q!!!
The yield curve has come back but my gut feeling is that we have a walking disaster at the helm of the BoE. His track record at the FCA as an abject disaster and he displayed no core ability other than to respond to external instructions. My feeling is that the BoE is just aligned to the FED and will map the actions in the US regardless of any data regarding the U.K. but I don't know the other people and their collective ability to wake him up and get him to say what they want versus just copying an overseas entity. He is not a man who leads or takes any responsibility and if he doesn't screw this up it will down to luck or the aggressive action of subordinates.
That's my bias. The man is an idiot and an incompetent.
. My view is that the people who put him there to do their bidding are no longer in their positions which presents an additional issue of a puppet with no master. The U.K. economy? On some levels it is totally f
ked. The stuff that went into Covid as zombies and could have been killed off back then are still zombies waiting to die but are now going to have to do their dying without the Covid printing presses to help clear the mess up. Other parts of the economy are going great guns but I have no idea which side is going to win. Housing, I genuinely feel we at at a proper risk point where all the things we know have been building for years could get released all at the same time. I hope not and I suspect we'll just have modest and selective declines for a while.
Stock market, probably fine. It's liquid, the components will come and go as sectors win or lose etc. This year it has all been very orderly and looks the healthiest it has done for a very long time in terms of rational behaviour and stock selection.
Most of the inflation is supply driven. Demand must already be dropping as cash is absorbed by utility costs.
My personal view is that rather than using interest rates for a blunt internal demand tool we have the opportunity today to use lending regulation as a surgical means to move spending and behaviour around but don't yet seem to be doing so.
Where will interest rates go?
I don't recall a time they've ever gone up to just the right level done their job and then sensibly come back down? I don't think it's ever happened or would be possible. They always overshoot and cause damage on the other side.
So I guess the question is whether the recent rises are the overshooting or just the start with the overshoot yet to come?
My view is plan for the latter and got and get royally hammered if it weirdly transpires to be the former.
ts & giggles).Suspect that terminal UK rates have some way to go. 4.25 / 4.5% based on inflation data. With a pretty nasty recession in coming, think we might see some back tracking (or takes pressure of QT and the Treasury ponying up 30bn p.a to cover losses).
Fed minutes suggest that they are about to slow up on hikes, but likely still looking at 5%+ next year.
The Fed being the biggest game in town likely having an effect on UK rate setting.
Eurozone, more difficult to call. They probably have bigger issues with the spread of views (and inflation impacts) across their rate setting committee. Not to mention they have 5trillion of sheet to unwind. Suspect we see 50bps in Dec plus noises about unwinding sheet. Plus associated comedy WRT to TPI and the other jokers in their deck. The ECJ just went rogue on AML because checks infringe right to privacy. Doh! Not really rate setting, but they are sure to throw up a curve ball or 2 (Meloni still an unknown).
Where they are better placed than the BoE (who are suck at QE), maturity profile. Looking at the UKs oversize weighting towards linkers, means we have a desperate need to control inflation - but one way or another big bills are going to land.
Whilst all the talking is about Base rates, there is another dynamic in play, banks pricing. We've seen banks really back off taking deposits / cash over the last few years because the regulatory costs are so high. Reserves look thin, so they might have to become aggressive on inflows. Particularly around regulatory buffer observation points. If you don't mind bank risk and duration, you could see some decent rates...
Re Bailey. He's no Carney, but the MPC isn't exactly made up of rocket scientists. Rishi's addition seems away with the fairies. But should we heap all the blame on the BoE and ignore the elected wallies? We have a pretty unstable political landscape, the 80 seat majority means little when they are still fighting internal Brexit battles and not getting on with the job of (fiscal) governance.
Edited by jamiedimonBTClover on Thursday 24th November 19:21
Well, Bayes Business School CRE Lending report recently came out, and they reported that around £150bn loans (CRE) will be refinanced in the next 5 years. And there could be funding gap between £27bn-£37bn, due to possible low valuations.
On the others ide, I've seen a few central London office developments got "Green Loans" from overseas lenders. One of them was around £100m. Another thing, "flexible office" providers (not landlord),and their valuations are different. One of them was acquired by Blackstone in London.
Mr Whippy said:
BobToc said:
The one thing that would give me some confidence they'll not massively over-shoot are Broadbent's comments in late October about the implications of a 5%+ base rate.
They’re targeting inflation which is a lagging indicator, and which is showing no signs of abating.The intention is never a soft landing, if it were they’d have changed their clearly flawed mode of operation which has an almost perpetual failure rate.
jamiedimonBTClover said:
Fed minutes suggest that they are about to slow up on hikes, but likely still looking at 5%+ next year.
The front-running optimism makes the FRBs job harder, and this kind of bounce in positivity is going to fuel inflation, and make slower tightening unlikely.Edited by jamiedimonBTClover on Thursday 24th November 19:21
And FRB is still tightening its balance sheet, which is more likely to impact asset markets which is what we’re taking about more here any way.
It won’t be over until people are hiding under their bed sheets wondering if it’s safe to come out… not playing this like a game of buy back in “to the moon”, btfd like attitude which has got us where we are in the first place.
loafer123 said:
They got bullied by the markets into rising when they didn’t want to…I have hopes they may hold off too much more…it should peak at below 4% in reality.
Housing in much of the country is cost+…but those areas that aren’t will see falls.
To be fair to the lenders, they haven’t overdone it this time…I spoke to a senior resi development banker today and they are feeling chipper about their book and have just passed an FCA review with flying colours.
Commercial property showing some distress now, but lots of money wanting cheap deals showing up to bids will limit falls.
Yup. My core concern re resi property risk isn't interest rates per se but rental defaults now that so many rentals are private sector. Govt support for utility bills is almost support for private landlords?Housing in much of the country is cost+…but those areas that aren’t will see falls.
To be fair to the lenders, they haven’t overdone it this time…I spoke to a senior resi development banker today and they are feeling chipper about their book and have just passed an FCA review with flying colours.
Commercial property showing some distress now, but lots of money wanting cheap deals showing up to bids will limit falls.
sideways sid said:
gotoPzero said:
VIX trying to push down through 20. I think the next 2-4 weeks might be interesting.
Doesn't VIX falling suggest the opposite? Uninteresting markets not moving around much? If it pushes through and stays below 20 we are good.
If it bounces off 20 the next stop is probably 30+
Mr Whippy said:
The front-running optimism makes the FRBs job harder, and this kind of bounce in positivity is going to fuel inflation, and make slower tightening unlikely.
And FRB is still tightening its balance sheet, which is more likely to impact asset markets which is what we’re taking about more here any way.
It won’t be over until people are hiding under their bed sheets wondering if it’s safe to come out… not playing this like a game of buy back in “to the moon”, btfd like attitude which has got us where we are in the first place.
Moons are for the crypto loons. The Fed has a really tricky problem, it's not just inflation now; but another near trillion of cash backed up in savings that might get released. Not just the 2+ trillion in their RRP. And FRB is still tightening its balance sheet, which is more likely to impact asset markets which is what we’re taking about more here any way.
It won’t be over until people are hiding under their bed sheets wondering if it’s safe to come out… not playing this like a game of buy back in “to the moon”, btfd like attitude which has got us where we are in the first place.
The way people save has undergone a huge change of recent years. Drip or salary sacrifice into funds will fuel risk on sentiment (otherwise why save). These are new dynamics to manage. The push for a pivot is massive. That might mean bigger losses to come, but duration could balance that....
The amount of money in the system is sooooooo massive it's very difficult to make an absolute determination. Unwinding CB balance sheet to the scale required cannot come without unintended consequences. It's never been done before.
Risk on attitude, based on an absolute wall of cash will likely push comedy valuations. Not because the fundamentals are correct, but gravity. IMHO (which might be wrong but I'm not offended if people disagree).
Edited by jamiedimonBTClover on Thursday 24th November 21:22
DonkeyApple said:
loafer123 said:
They got bullied by the markets into rising when they didn’t want to…I have hopes they may hold off too much more…it should peak at below 4% in reality.
Housing in much of the country is cost+…but those areas that aren’t will see falls.
To be fair to the lenders, they haven’t overdone it this time…I spoke to a senior resi development banker today and they are feeling chipper about their book and have just passed an FCA review with flying colours.
Commercial property showing some distress now, but lots of money wanting cheap deals showing up to bids will limit falls.
Yup. My core concern re resi property risk isn't interest rates per se but rental defaults now that so many rentals are private sector. Govt support for utility bills is almost support for private landlords?Housing in much of the country is cost+…but those areas that aren’t will see falls.
To be fair to the lenders, they haven’t overdone it this time…I spoke to a senior resi development banker today and they are feeling chipper about their book and have just passed an FCA review with flying colours.
Commercial property showing some distress now, but lots of money wanting cheap deals showing up to bids will limit falls.
ooid said:
DonkeyApple said:
loafer123 said:
They got bullied by the markets into rising when they didn’t want to…I have hopes they may hold off too much more…it should peak at below 4% in reality.
Housing in much of the country is cost+…but those areas that aren’t will see falls.
To be fair to the lenders, they haven’t overdone it this time…I spoke to a senior resi development banker today and they are feeling chipper about their book and have just passed an FCA review with flying colours.
Commercial property showing some distress now, but lots of money wanting cheap deals showing up to bids will limit falls.
Yup. My core concern re resi property risk isn't interest rates per se but rental defaults now that so many rentals are private sector. Govt support for utility bills is almost support for private landlords?Housing in much of the country is cost+…but those areas that aren’t will see falls.
To be fair to the lenders, they haven’t overdone it this time…I spoke to a senior resi development banker today and they are feeling chipper about their book and have just passed an FCA review with flying colours.
Commercial property showing some distress now, but lots of money wanting cheap deals showing up to bids will limit falls.
The reason rates have increased is that, in a falling market, mezz loans can rapidly become out of the money equity.
What sort of leverage and rates are they?
ooid said:
Do you both think, there might be possibility of tax cuts on CRE investments with high leverage? I've recently done a cash-flow model for a possible investment, West London office, quite strong tenancy. The mezzanine loans rates are just total madness, comparing to a year ago.
I honestly don't know. May have a better perspective after the weekend as it's the annual boys Christmas lash up and half the attendees are senior partners at the big surveyors. They'll be sure to be laying out their commercial pitch upon request. Monday morning I'm near guaranteed to be either depressed that my personal investment strategy is wrong, or depressed that it's right.
loafer123 said:
ooid said:
loafer123 said:
What sort of leverage and rates are they?
Sit tight please... 
%65 Senior + 15% Mezzanine (%20 Equity).Mezzanine Rate = 18%-19% (fully let, no vacancy)
f
king ought to be at those rates. Digga said:
loafer123 said:
ooid said:
loafer123 said:
What sort of leverage and rates are they?
Sit tight please... %65 Senior + 15% Mezzanine (%20 Equity).Mezzanine Rate = 18%-19% (fully let, no vacancy)
f
king ought to be at those rates. Digga said:
ever used mezzanine debt, am I right in assuming it’s effectively unsecured?
fking ought to be at those rates.
It's quite common in US but not in Europe. But some debt funds have been doing it in here. The most common here, "Stretched Senior Loan". In Mezzanine, one advantage for the lender is "equity kicker" (where they can get a good piece of the borrower's interest) and ofcourse interest payments are tax deductable for the borrower. Loafer probably would sum up nicely, I'm novice on the practicalities too. But in theory, on a prime asset with strong borrower and legit lender, everyone wins when the cost of debt is quite cheap f
king ought to be at those rates. 
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