Thoughts From Joe – September 21, 2012September 21, 2012 Posted by: Joe Morgan, CFA
The views expressed in this column are solely those of the author and do not reflect the views of SVB Financial Group, or Silicon Valley Bank, or any of its affiliates.
Private Equity firms are buying European real estate. By purchasing stressed properties and loans, these investors are looking to give liquidity in the near term in exchange for a significant payoff in the long term. The article compares this strategy to the Resolution Trust Corporation which was a government agency created to buy up bad loans and real estate in the U.S. during the bust of the early 90s. Though met with much criticism, the experiment worked and the economy (including real estate values) quickly corrected. When this was brought up in 2008, critics claimed it would never work because the scale was simply too large. I’ll be watching this new experiment closely to see if clearing out these “bad loans” helps capital begin to flow again in Europe.
Without warning, the Bank of Japan eases again. After the ECB’s promise to “Do whatever it takes” was followed by open ended QE by the Fed, Japan has now stepped into the easing mix. Do these moves neutralize each other? To the extent exchange rates are involved, yes. The more important question is: do they provide any value even in a vacuum? I don’t believe so. For a concise view similar to mine, but more eloquently explained by a voting member of the Fed, see Richmond Fed President Lacker’s recent comments.
QE3 to boost stocks, but likely not housing. Liquidity flows first to liquid assets, which in this case means stocks – but also gold, oil, and other financial goods. The Fed says they are targeting consumers by purchasing mortgages to lower rates, but as I said last week mortgage originations are not being held up by higher interest rates.
Housing starts, builder permits, home builder confidence, and existing home sales all increased according to data releases this week. The stabilization in this sector continues, but none of these or any other housing related, measures have truly broken out to the upside. ...Read More