Guest Post: The Imminent Disinformation Schism

Submitted by Tyler Durden, publisher of Zero Hedge

With articles like this coming out of Time magazine, it is inevitable that in the immediate future, the United States will be split into two partisan camps. However, this will not be the traditional schism of republicans vs. democrats, contrary to Mr. Barney Frank’s attempt to start ideological partisan warfare. The real split will be of naive, easily-manipulated, small-time mom and pop investors, who only care about looking at their daily yahoo finance screens and 401(k) statements, seeing more black than red, and only focusing on what happened in the immediate past, and the forward looking taxpayers, who see the upcoming budget deficit fiasco, the social security ponzi scheme, the Medicare/Medicaid debacle, the ridiculous underfunding in public and corporate pension funds, the rising city and state taxes, the shuttering factories, the rising unemployment, the plummeting American production base, the “seasonally” upward-adjusted economic data coupled with consistently downward revised prior economic releases, the increasing savings rate and the multi trillion discrepancy in consumer purchasing power. The taxpayers are becoming angrier and angrier at the net present value destruction of future opportunities of being a U.S. citizen, while investors cheer every piece of information (whether or not supported by facts) that provides a push to their current net worth, ignorant of what this may mean for the future. There will come a point where this schism reaches a boiling point, in the meantime, the paradox is that so many of the taxpayers are also investors, who are caught in a tug of war with themselves on what the proper response to the crisis should be: happy as a result of bear market rallies, or sad when they put the facts into perspective.

Speaking of facts, Time contributing author Douglas McIntyre may have considered presenting some to justify his thesis that the “the great banking crisis of 2008 is over.” Pointless regurgitation of secondary viewpoints serves no purpose in the mainstream media, especially not in formerly reputable mainstream media such as Time (Zero Hedge’s subscription is running out with no plans for renewal). It is even worse when the MSM represents as “facts” the disinformation by banks, who claim that the downward inflection point has been reached and ignore the full context: a much weaker mark-to-market methodology, the FDIC and SEC aiding and abetting wholesale “pennies on the dollar” blue light specials of bankrupt banks such as Wachovia and Washington Mutual, taxpayer funnels such as AIG being used to pad the top and bottom line, a financial system balance sheet which has over 70% of its assets guaranteed by the Fed and the Treasury, and lastly, a spike in commercial real estate deterioration to unprecedented levels. Mr. McIntyre’s article is childish and unsubstantiated to the point of generating derisive laughter from his readers. Then again, a casual glance of his self-description in Seeking Alpha is enough to put his opinion into perspective: Mr. McIntyre “knows technology cold, has a sharp understanding of what’s priced-in to [sic] stocks, and writes extremely well (as you’d expect).” How a self-ascribed technology specialist (who writes “so well” that he makes grammatical mistakes in the very same sentence making that claim) ends up stating “the financial crisis is over” is beyond Zero Hedge’s meager attempts at comprehension. What Zero Hedge is not beyond, however, is presenting the facts and not perpetuating the disinformation fallacy.

The cold facts – “When you stare into the abyss long enough, the abyss stares back at you.”

Why is everyone so afraid to stare at the proverbial abyss? Readers of Zero Hedge know all too well, about my fascination with the economic fundamentals, and my desire to expose the real abyss in all its deep glory.

I dare anyone: McIntyre, Kudlow, Geithner, Obama, to look at the chart below and tell me we are in a V shaped recession. Yes, ISM may be bottoming (at record low levels which is not indicative of much), and unemployment may soon be bottoming (it has not, yet somehow the market believes it is just a matter of time), however one look at the chart of accelerating commercial real estate delinquencies and what they mean for the multi-trillion commercial real estate market should stop any V-recovery fans dead in their tracks.

I will present some more factual glances of the abyss, courtesy of the good folk at Realpoint.

Through the February 2009 reporting period, the delinquent unpaid balance for CMBS increased by a substantial $1.2 billion, up to a trailing 12-month high of $11.99 billion. Overall, the delinquent unpaid balance grew for the sixth straight month, up over 244% from one-year ago (only $3.48 billion in February 2008) and now over five times the low point of $2.21 billion in March of 2007. While a slight decline was noted in the 30-day and 60-day delinquent loan categories, the distressed 90+-day, Foreclosure and REO categories grew for the 15th straight month – up over 216% in the past year. This increase took place despite another $53.9 million in loan workouts and liquidations reported for February 2009 across 20 loans. Ten of these loans at $19.1 million, however, experienced a loss severity near or below 1%, most likely related to workout fees, while the remaining 10 loans at $34.8 million experienced an average loss severity near 46%. As additional pressures are placed on special servicers to maximize returns in today’s market, loss severities are expected to increase while liquidation activity is expected to slow further as fewer transactions occur. This would be the result of reduced or distressed asset pricing, lower availability of funds, and increased extensions of balloon defaults through the end of 2009 and into 2010.

The total unpaid balance for all CMBS pools under review by Realpoint was $837.78 billion in February 2009, down from $842.8 billion in January. Both the delinquent unpaid balance and delinquency percentage over the trailing twelve months are shown in the chart above and the one below, clearly trending upward for the timeline.

The resultant delinquency ratio for February 2009 increased to 1.431% from 1.281% one month prior. Such ratios above 1% reflect levels not seen in since April 2005. What is more concerning, however, is that the delinquency percentage through February 2009 is more than three times the 0.399% reported one-year prior in February 2008. The increase in both delinquent unpaid balance and delinquency ratio over this time horizon reflects a slow but steady increase from historic lows through mid-2007.

Assumptions based on three-month historical data:

  • Over the past three months, delinquency growth by unpaid balance has averaged roughly $1.65 billion per month, while the outstanding universe of CMBS under review has decreased on average by $3.5 billion per month from pay-down and liquidation activity.
  • If such delinquency average were again increased by an additional 25% growth rate, and then carried through the end of 2009, the delinquent unpaid balance would top $32 billion and reflect a delinquency percentage slightly above 3.8% by December 2009.
  • In addition to this growth scenario, if one adds the potential default of the $3 billion Peter Cooper Village / Stuyvesant Town loan and the $4.1 billion Extended Stay Hotel loan, the delinquent unpaid balance would top $39 billion and reflect a delinquency percentage near 5% by December 2009.

“V-shaped recovery” indeed. But let’s continue:

Special servicing exposure has also been on the rise, having increased for the 10th straight month to $17.11 billion in February 2009 from $14.38 billion in January 2009 and only $12.78 billion in December 2008. The corresponding percentage of loans in special servicing has also increased to 2.04% of all CMBS by unpaid balance, up from only 0.50% in both February 2007 and 0.67% February 2008. The overall trend of special servicing exposure since January 2005, by both unpaid balance and percentage, is presented in Charts 3 and 4 below.

Realpoint’s default risk concerns for the more recent 2005 to 2007 vintage transactions relative to underlying collateral performance and payment ability are more evident on a monthly basis. Both the volume and unpaid balance of CMBS loans transferred to special servicing on a monthly basis continues to raise questions about underlying credit stability in today’s market climate for these deals, as evidenced by attached table. An additional 117 loans at $2.28 billion issued from 2005 through 2007 were transferred to special servicing in February 2009, mostly (but not only) for delinquency. Such figure reflected 71% of the current month’s transfers and 13% of total special servicing exposure in February 2009. Furthermore, over 51% of delinquent unpaid balance through February 2009 came from transactions issued in 2006 and 2007, with over 27% of all delinquency found in 2007 transactions. Extending a review to include the 2005 vintage, an additional 16% of total delinquency is found meaning over 67% of CMBS delinquency comes from the 2005 to 2007 vintage transactions. The chart below shows the increased delinquent unpaid balance relative to these three vintages over the past six months, clearly reflecting the increasing trends highlighted in recent months.

Throughout 2009, it is expected to see high delinquency by unpaid balance for these three vintages due to aggressive lending practices prevalent in such years. Also some loans from the 2008 vintage are expected to show signs of distress and default in cases where pro-forma underwriting assumptions fail to be met at the property level.

Focusing on deals that have seasoned for at least one year, the investigation reveals the following:

  • Deals seasoned at least a year have a total unpaid balance of $822.94 billion, with $11.661 billion delinquent – a 1.42% rate (up from 0.5% six months prior).
  • When agency CMBS deals are removed from the equation, deals seasoned at least a year have a total unpaid balance of $793.3 billion, with $11.656 billion delinquent – a 1.47% rate (up from 0.52% six months prior).
  • Conduit and fusion deals seasoned at least a year have a total unpaid balance of $701.2 billion, with $10.78 billion delinquent – a 1.54% rate (up from 0.54% six months prior).

Other concerns/dynamics within the CMBS deals monitored which may affect the overall delinquency rate in 2009 include:

  • Balloon default risk related to upcoming anticipated repayment dates (ARD’s) or term maturity from highly seasoned transactions for both performing and non-performing loans coming due in the next 12 months that may be unable to secure adequate refinancing due to current credit market conditions, lack of financing availability, or further distressed collateral performance.
  • Refinance and balloon default risk concerns from floating rate transactions, as many large loans secured by un-stabilized or transitional properties reach their final maturity extensions, or fail to meet debt service or cash flow covenants to exercise such extensions.
  • Aggressive pro-forma underwriting on loans with debt service / interest reserve balances declining, more rapidly than originally anticipated, on a monthly basis.
  • Further stress on partial-term interest-only loans that begin to amortize during the year that already have in-place DSCRs hovering around breakeven.
  • The unpaid balance related to loans underwritten in the past three years with DSCRs between 1.10 and 1.25 is very high, and any decline in performance in today’s market could cause an inability to make debt service requirements.
  • A decline in distressed asset sales or liquidations as traditional avenues for securing new financing is becoming less available.
  • Additional stress on both the retail and lodging sectors as consumer spending declines and the U.S. economy weakens.

Monthly CMBS Loan Workouts and Liquidations

The rate at which liquidated or problematic CMBS credits are replenished by newly delinquent loans remains a concern, especially regarding further growth to Foreclosure and REO status (evidence of additional loan workouts and liquidations on the horizon for 2009). Through February 2009, newly reported CMBS delinquency continued to outpace monthly liquidations by a very high ratio, raising concerns for further deterioration in the market.

In February 2009, 10 loans for $34.8 million experienced an average loss severity near 46% – a clear reflection of true loss severity in today’s credit climate. Higher levels of loss severity will be the norm in 2009 for those loans that experience a term default where cash flow from operations is not sufficient to support in-place debt obligations.

Since January 2005, over $7.52 billion in CMBS liquidations have been realized, while 44 of the trailing 49 months have reported average loss severities below 40%, including 21 below 30%. While average loss severity increased slightly for the 12 months of 2007 when compared to 2006, monthly loan liquidations by unpaid balance declined significantly in 2007 when compared to 2006 (by 43% year-over-year). Liquidations in 2007 totaled $1.094 billion at an average severity of only 32.8%. Liquidations in 2006 totaled $1.93 billion at an average severity of only 30.2%, while 2005 had $3.097 billion in liquidations at an average severity of 34.2%.

Comparison by property type:

  • The highest loss severities in 2006 were found in healthcare (55%) and industrial (34.5%) collateral; multifamily collateral remained highest by balance before liquidation ($606.7 million), but reported the lowest severity (24.5%).
  • The highest loss severities in 2007 were found in industrial (50%) and healthcare collateral (44%); multifamily collateral was again highest by balance before liquidation ($356 million), but reported the fourth lowest severity (32.5%).
  • The highest loss severities in 2008 were found in mixed-use / other (36%) and multifamily collateral (31%); multifamily collateral was again the highest by balance before liquidation ($576.97 million).

Future Workouts – Delinquency Categories

The total balance of loans in Foreclosure and REO increased for the 16th straight month to $2.696 billion from $2.39 billion in January 2009, despite ongoing liquidation activity. These figures had declined steadily for some time through mid-2007, reflective of expedited loan work outs, but continue to be replenished with new loans due to aggressive special servicing workout plans. The chart below also shows the rapid growth of loans reflecting 30-day delinquency in the later half of 2008, transitioning rapidly into more distressed levels on a monthly basis, thus supporting the use of 30-day defaults as an early indicator of workouts to come in 2009.

Property Type

  • Multifamily loans remained a poor performer in January 2009, with over a 2.5% delinquency rate (up from only 0.9% in January 2008 – over a 177% increase).
  • Multifamily loans also are the greatest contributor to overall CMBS delinquency, at 0.51% of the CMBS universe and over 35% of total CMBS delinquency (but down slightly for the second straight month).
  • By dollar amount, multifamily loan delinquency is now up by an astounding $3.38 billion since a low point of only $903.3 million in July 2007.
  • As shown in Chart 7 below, multifamily, retail, office and hotel collateral loan delinquency as a percentage of the CMBS universe have clearly trended upward since mid-2008.
  • Only seven healthcare loans at 0.017% of the CMBS universe are delinquent, but such delinquent unpaid balance reflects 5.8% all healthcare collateral in CMBS.
  • As a percentage of total unpaid balance, year-over-year delinquencies for all categories increased by triple digits from February 2008 to February 2009.
  • In 2009 retail delinquency will increase substantially as consumer spending suffers from the overall weakness of the U.S. economy. Store closings and retailer bankruptcies will continue throughout the year.
  • In addition, the hotel sector will likely experience an increase in delinquency as both business and leisure travel slows further.


  • The top three states ranked by delinquency exposure through January 2009 changed as California surpassed Michigan in third position. This remained the same through February 2009. Together with Texas and Florida, these three states collectively accounted for 30% of CMBS delinquency.
  • Previously in November 2008, New York had passed Michigan and moved into third place in the rankings, following the reported delinquency of the Riverton Apartments loan at $225 million (CD07CD4). New York is now in the fifth position when ranked by delinquent unpaid balance.
  • The 10 largest states by delinquent unpaid balance reflect 62% of CMBS delinquency, while the 10 largest states by overall CMBS exposure reflect 53% of the CMBS universe.
  • The state of Texas remains a major concern at over 11.5% of CMBS delinquency, concentrated within the Houston and Dallas-Fort Worth, MSAs (almost 9% of CMBS delinquency); however, such MSAs reflect a fairly low percentage of total exposure in their respective MSAs (at less than 3.4%).
  • Four MSAs topped 4% of CMBS delinquency in February 2009 (up from three a month prior).
  • The 10 largest MSAs by delinquent unpaid balance reflect 37% of CMBS delinquency, while the 10 largest MSAs by overall CMBS exposure reflect 34% of the CMBS universe.

…And the facts go on and on and on… yet not one of them is mentioned in McIntyre’s “analysis”.

Commercial real estate is nothing more than a proxy for the intersection of the two historically core driving forces in the U.S. economy: real estate values and business conditions. And as the facts above indicate, the deterioration is only starting to pick up.

But what about all the stimulus programs skeptics will ask? The bail out packages? The constant funneling of taxpayer money into every underperforming segment of economy?

The truth is that the more taxpayer money is dumped to try to fill the abyss, it may become marginally shallower, but only at the expense of it getting wider. At some point soon (if not already), the U.S. economy will be unweenable from the trillions and trillions of taxpayer subsidies all the while it becomes more indebted to both its investors and taxpayers, further exacerbating the abovementioned paradox (presumably not without a motive). As the multi-trillion CRE crash continues to deplete the left side of the financials’ balance sheet with an exponentially growing pace (and I have not even touched on the credit card topic), the banks will be left scratching their heads what accounting rules to bend, which insurance companies to implode and get another AIG-like piggybank, how to break REG-FD more and more creatively with select memo leaks, how to manipulate the market, and how to make the Tsy curve becomes even more upward sloping with the compliments of the Fed and the Treasury. In the meantime the disinformation rift between the American taxpayers and investors will keep growing until inevitably, one day, it will escalate to the point where empty promises on prime time TV by the administration’s photogenic representatives will not suffice, and real actions that benefit future American generations will be demanded… What happens after I have no idea.

Disclaimer: Zero Hedge is currently flat in its SRS exposure, after being long from the $50s and unwinding in the $100s

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  1. Anonymous

    Terrific post.

    An honest, if somewhat simpleminded question – what importance might the April 15th 401k contribution deadline have for the apparent pump & dump job you described in your previous post?

  2. Lucifer

    I think that the disinformation schism is unfortunate but necessary because that is the only way people will lose faith in the old system and move on to something better.

    The ‘black death’ did a lot of damage to the credibility of the church and helped usher in the renaissance. If you have read history, you will know that the church also tried to downplay, mislead and misdirect people but it eventually did not work as the truth of the impotence of the church was just so obvious. The present crisis is doing that to the “guardians” of the faith of our age – financialism. It has to be exposed as the fraud it is.. hopefully through its own failings.

  3. B. Mull

    Great post. The McIntyre article definitely has a “Mission Accomplished” feel to it. Ironically we end up being in agreement (I think?) that PPIP is an unnecessary gift to bankers.

    One question is whether CRE may be another lagging indicator. I know a person could say that about almost anything that doesn’t fit one’s worldview. But I think Main Street right now is looking at the markets to gauge if it might be able to ride this out. When it becomes clear how anemic the market recovery will be, then Main Street is going to really start falling apart. In other words, there may be a lull in the storm.

  4. Brad

    Is Tyler short the IYR and feeling some pain? REIT share prices are already off more than 70% as the market has discounted this data. A more timely review would focus on the question — which of the existing REIT’s will survive and prosper? That would be useful information. Every financial instrument is just a trade, and will probably remain that way for many years to come.

  5. Russ

    That’s quite a depiction of the abyss. I keep waiting to hear, from the chanters of the recovery mantra, an explanation of what they claim will be the real economic basis of this recovery.

    If “recovery” is defined as the restoration of business as usual, “growth” and exponential debt, how is this supposed to be possible now that we know that this ponzi scheme bubble model for civilization is unsustainable.

    Even if it does become possible to prop up zombie banks and a zombie system with another bubble, how can any sane person expect anything but the same result. It seems to me even the boosters are just proposing an ever more vicious cycle of boom-bust, with each iteration more rapid, with the ceilings and floors of economic activity lower each time around.

    And all of this must take place amid the physical fundamentals or oil and other resource depletion.

    As for the Time article, I kept thinking by its tone, “this has to be ironic”. BMull is right – it’s “Mission Accomplished!”

    How anyone could seriously be such a buffoon keeps seeming hard to fathom. (Even if you really believed every word of such drivel, still after everything that’s happened wouldn’t you want to hedge just a little bit, out of prudence? Or maybe he’s angling to become a counter-Roubini/Taleb, if what he said somehow did turn out to look “correct” in the short run.)

    The attitude of the Time piece is a good example of the purely flat earth, short-term outlook selfishness which is at the core of the “stock market” and its followers. One perception which has been new to me during this crisis is how utterly sociopathic the stock market is. Like any crack addict it has its euphorias and crashes only according to its own myopic action and outlook, without reference to any constructive social principle or plan.

    If anything, its activity is often inversely proportional to actions or perceptions based on society’s longer term health. At least throughout this crisis, it has tended to reward any looting practice or proposal, and punish any hint of the people reasserting themselves, or any notion that government may actually not have its heart in the plunder expedition. (It also cheers on what reasonable people would consider bad news, like rising unemployment.) Thus it responded to the initial House rejection of the bailout scheme, or to Geithner’s initial mediocre performance before Congress, with terroristic threats (plunges), while rewarding better corporatist behavior with surges.

    It’s like an antisocial barometer.

  6. Anonymous

    Russ I agree. America is seen as a debtor’s prison, and any efforts of the people to “reassert themselves” is just seen as a debtors’ revolt. Not good for business you know.

    Well I wasn’t born to be “good for business.” That is not my goal.

  7. Anonymous

    Walter 2:12AM…..Unknowingly, you represent the ignorance of the masses. Either you fall prey to happy talk and figures from the government or you can’t discern between the lies and the truth in reporting.

    At least you asked, a step in the right direction. Other folks will need a declared bank holiday to grasp the situation.

  8. alex black

    At least Obama has the good sense not to show up at Time’s main office wearing a flight jacket.

    Maybe this is just Time trying to bump up their sinking ad revenues by getting their advertisers to believe that recovery is nigh – time to place those new, bigger ads to catch the coming wave.

    I shave every morning with Occam’s Razor.

  9. Bert Rustle

    Lucifer April 12, 2009 1:36 AM wrote … The ‘black death’ did a lot of damage to the credibility of the church and helped usher in the renaissance. If you have read history, you will know that the church also tried to downplay, mislead and misdirect people …


  10. Blissex

    The plan is working all right:
    «The 1930s rhetoric was bash business — only a handful of bankers thought that meant them. Now if you say we’re going to smash the big corporations, 60-plus percent of voters say “That’s my retirement you’re messing with. I don’t appreciate that”. And the Democrats have spent 50 years explaining that Republicans will pollute the earth and kill baby seals to get market caps higher. And in 2002, voters said, “We’re sorry about the seals and everything but we really got to get the stock market up.»
    «The growth of the investor class–those 70 per cent of voters who own stock and are more opposed to taxes and regulations on business as a result — is strengthening the conservative movement. More gun owners, fewer labor union members, more homeschoolers, more property owners and a dwindling number of FDR-era Democrats all strengthen the conservative movement versus the Democrats.»

    Most Usian voters are property and stock speculators, and they feel fully vested, and everybody else can go f*ck themselves. The American Dream is to MAKE MONEY FAST, and f*ck everybody else, and is alive and well.

  11. Anonymous

    PLEASE go to the Alphaville link posted by Tyler and let McIntyre, the irresponsible on-his-knees with his mouth open jackass, what a douchebag he is.

    Its pretty clear to me, that this is yet more propaganda from the current administration.

    The tragedy is that some Boobus Americanus will believe that BS. Please go over there now and let this idiot know that his article is a piece of crap.

    The fact Time would publish such garbage only proves its an Obama hack.

    Thank you Tyler for the hard work.

  12. Anonymous

    Watch what happens to Norquist's base as the helpless Mom & Pop 'investor' class gets beggared by the managerial parasites of the embezzler class, with their tame executive directors and their compensation consultants and their indentured factotums like Summers and Geithner and Obama and Biden and their predecessors. All the green shoots will be coming in the domestic terror industry.

  13. Anonymous


    An old Italian once told me, to treat women=(voters/population) with two bitters and a sweet, to keep them docile, so does two bush terms followed by Obama’s first, satisfy his argument?

    Skippy…bankers small meats, um um good, with a nice glass of 99 Rosso di Montalcino.

  14. Dan Duncan

    NoName at 7:27 makes a strong claim.

    But…Is this the same NoName I remember from about a week ago who wrote the following in response to another of Tyler’s posts:

    “is zero hedge short Kimco? or did it get caught short? the allocations the blog makes are very aggressive….”

    Stinkin’ anon posters…

    Anyways…if it is the same person, you’ve gone from asking a question about ZeroHedge’s position (albeit, a bit of a rhetorical question) to making an outright claim.

    I share your opinion that you expressed in the earlier post, that the comments here, too often, are an echo chamber…but making unsubstantiated, anonymous claims that strike at the heart of the author’s credibility…while not being an echo are nothing but cacophonous noise. If you are going to make such an allegation, then back it up with some facts…and a name.

  15. Anonymous

    Good article but you have the “two partisan camps” wrong.

    The two partisan camps are the wealthy elite rulers who have gained their power by intentional deception, and, the ruled; the deceived marks who are now engaged in a perpetual war with each other as a result of those intentional deceptions.

    The paradox and tug of war that you speak of here …

    “the paradox is that so many of the taxpayers are also investors, who are caught in a tug of war with themselves on what the proper response to the crisis should be”

    … has been intentionally engineered by the creation of the credit bubble and counterfeit derivative products that have debased the system and serves to pit the prudent against the not so prudent — the scammed against the not scammed. It is meant to fuel the perpetual war in the ruled class.

    That “paradox and tug of war” is also evident in all other intentionally created divisions in society as evidenced by the MSM demonization of not only the ‘not so prudent’ in the current ‘crisis’, but also the demonization of; immigrants, Muslims, gays, etc.

    Just as false pretenses and grand deceptions were used to con the public into submissive silence in the Iraq war, the same false pretenses and deceptions are being used by the same scum bags to decimate the middle class domestically and globally.

    This is the Full Spectrum Dominance Strauss neocon game plan in action.
    People need to realize exactly what “Full Spectrum” means!

    The “proper response” to the ‘crisis’ is to not beat up on each other as the ruling elite would have us do but rather to expose the deceptions and the avowed use of deceptions by the Strauss neocons as a means to effect societal control and a ruler and ruled by the elite world.

    Deception is the strongest political force on the planet.

    i on the ball patriot

  16. Anonymous

    Interesting how many anons attack the writer but ignore all the facts that make up his excellent (imnsho) article. Yves sure knows how to pick ’em, and I will keep coming back for more. I wouldn’t take a Slime mag subscription even if it was free, tho.

    Comrade Short Bucky

  17. Anonymous

    Does he mean the US government would intentionally LIE, does he mean the US government would PLANT stories, does he mean the US government would MANIPULATE the data, does he mean the whole thing is a SCAM?

    Of course it is. The whole job of government is to keep themselves in power, deny that the US is broke and sheer the sheep as long as possible. This is true of ALL governments and is nothing unique.

  18. Anonymous

    Whilst it is clear that market manipulation is going on with Wells Fargo announcing results from only one side of the balance sheet on a quiet day, there is a danger that you are looking at only the other side of the balance sheet with increasingly deteriorating CMBS. The premise that decision makers are being economical with the truth and have somewhat engineering a change in sentiment that does not reflect fundamentals is very clear to most sophisticated market participants, expecting the general populace to get angry about it is stretching too far. Just seeing how the employment figures have been manipulated recently confirms this, but I see little difference between this and the ongoing manipulation of inflation figures, and deficit figures.

    There are significant problems looming for the US not least when current export levels start to catch up with import levels, when the effects of commodity price drops decline and china’s balance of payments goes into reverse, when other countries start to devalue their currencies and not least the affects of recession in other countries affecting the US. Pension and state deficits will be papered over or bailed out, but at some point the bill will come due. The voting public will become angry when it becomes too blatantly obvious that officials are seeing things through a completely different set of spectacles to the rest of us. In sum they become like comical Ali in the Iraq war or CNBC cheerleading.

    As for your observations about market neutral equity funds then I am not convinced. My understanding is that market neutral funds go long and short at the same time on two similar portfolios of equity pools. Forced dumping of shares could affect one pool of equity and not the other, but since the decline recently is more steady than a rapid drop then it most probably due to something else. You could argue that it is becoming harder to find pools of equity that have similar properties, as traders differentiate more between individual players in a sector. Since quantitative analysis is used generally to pick the stock by looking at previous price trends you could argue that current accounting is obfuscating true performance or pricing mechanism are changing so quickly that historic data is useless. Looking at Barclays market neutral equity funds shows a different performance to the one you show in the graph which tends to point to this being a mainly US phenomenon or that different strategies are being used. Long Term Capital Managements problems due to its claimed market neutral strategy of betting on convergence of spreads between income sectors comes to mind. What does worry me is that this kind of strategy ought to be blooming in this volatile environment and I don’t see that happening. This also under lines that those dark pools of liquidity used by banks to hide trade for clients and banks from other market participants ought to be making historic data available, so that we can have a clear picture of what is going on.

    In summary I think a lot of what you say is correct, I just am not sure about the consequences or the event triggers you outline.

  19. Anonymous

    Pump-n-Dump in the blogging age can take on a very deceptive role. Always, always, question the motives and sources of all reports. Everybody is talking their book.

    Also all blogs, including this one. Speaking hypothetically, let us suppose someone or a group of someones wanted $500 billion of “bailout”. Perhaps to make their trading counterparties “good”. How much investment in public opinion manipulation would this justify?

    One thousand blogs at $50k each per year (high) is only $50 million. How many here regularly scan even 100 blogs? How do you find them? Google? Or perhaps by clicking the handy links on the side of the page?

    If you think those with vast sums at stake are overlooking this you are very naive. PR agencies regularly scan the net for goings-on of interest to their clients’ vital interests.

  20. Anonymous

    Not just PR agencies. There are actually companies which sell software which monitors all online sources for any mention of selected companies. Check out started by Mike Morgan. Within a week of its coming up, that site is getting sued by Goldman Sachs. It got sniffed out by its internal media dept.

    My point is that it would be naive to believe that information, really useful information, is free. It would be up to the original poster to prove that the disclaimers are actually true. Especially if the original poster is anonymous, how can the proof be reliable?

    If there is anything out of this entire mess that we can learn, it is that retail investors (like me) usually end up as the bagholders of most pump-n-dump schemes. Even the SEC cannot be trusted if the pump-n-dumpers are big names (fill in the blanks here). Why did the SEC ignore Madoff, he was a big guy, a market maker? How many others like him exist, at the least many of them could be front-running poor retail investors. The sheep led to slaughter as it were. Always look at everything with a cynical eye. Let the market operate on fundamentals. That would be the best scenario for all of us retail investors.

  21. Anonymous

    Anon@ 10:39:

    While I really don’t like ‘attack the messenger’ games, and would like to believe what ZeroHedge writes, Anonymous does have a point I was concerned about. The sheer volume of reportage from ZeroHedge. I don’t see how it’s possible he could do all the reading and research and still have time to produce long, detailed reports. It just doesn’t seem possible. Hence, I am forced to conclude the claims of this not actually being one individual writing under the handle Tyler Durden. On the other hand, I happen to agree with what he writes, and even if he’s with a quant fund, as alleged, so what? Maybe it’s a fund worth investing in, since I happen to agree with what he says. IT AIN’T GETTING BETTER. Wait til we get a sovereign default in the next couple months. Then what? The system is compromised and must fall of it’s own weight. I’ll enjoy reading the write-ups by the alleged quant fund ZeroHedge all along the way.

  22. Anonymous

    Another note to follow up to my previous posts. It is easy to distinguish those pump-n-dump emails that one gets, usually about penny stocks, “Hot hot hot, watch XYZ company explode on Monday!” Usually these emails go straight into the spam folder, or even if they do not, 99% of retail investors would trash it. So real pump-n-dump schemes have evolved, couched in reams of data, making a seductively smooth case for subtly reinforcing a particular bias. Judge everything based on fundamentals only.

    Also, it may sound naive, but it is better to trust data from Govt sources. Why do I say this? Yes the Govt data can also be manipulated, but outright fraud by departments still is frowned upon by career govt employees who know they cannot get fired for refusing to twist the data a certain way.

    Also, the freedom of information act can act as a damning expose’ of overtly fraudulent claims. That is why the Fed refused to identify the bailout recipients rather than provide a false list when sued by Bloomberg.

  23. Anonymous

    On the other hand, in the world of disinformation, that other Anonymous calling out ZeroHedge could very well be a PR firm of the Machine trying to convince us all is well, move along. A disinformation campaign to claim ZeroHedge a disinformation campaign. Because that other Anonymous is spending a LOT of time trying to debunk ZeroHedge, both on this site and on ZeroHedge itself, since I can guarantee you it’s the same Anonymous debunker poster on both.

  24. Anonymous

    Anon@12.35, I have not posted on ZeroHedge’s website. Yes, there is no reason to believe I am not affiliated with the shadowy plunge protection team. That is why one should only look at the fundamentals before making a long-term decision. It is primarily traders who are responsible for all this volatility. How many retail investors do you think have the money to move the market 5-10% in a couple of weeks. All of us are scared of being unemployed and hoarding cash in savings accounts. I am 100% in cash, because I do not trust the market. The other 401K’ers I know of are just sitting tight, letting their investments ride.

    So the question is who benefits from this market volatility. The answer is traders. Go short, and spread some fear and doom around, and make money off of the resulting spike. Just like WFC insiders probably letting loose those pumped up fake earnings to make money off of the sunshine bounce.

    Retail investors, stay in cash for the rest of the year. Let these pump-n-dumpers fight it out with each other.

  25. Oregon Guy

    I don’t know what the source of the ZeroHedge postings is, but I think the first paragraph is a brilliant distillation of the current zeitgeist.

    Is it going to be “yeah, that was scary, but everything is better now, let’s go on as before” or “we need serious reform of the FIRE sector of the economy and policies that encourage sustainable growth of industries that provide middle-class jobs.”

    My suspicion is that Summers, Geithner, and Bernancke will recommend cosmetic tinkering with the status quo. The result will be even larger speculative disruptions in our future. Bernancke is a Friedman monetarist, Summers is a neoliberal Keynesian, and Geithner is, well, who knows what Geithner is, other than a tool of Wall Street.

    We need a crash Government project to re-animate Minsky.

  26. Anonymous

    Appears to be a compromise in reinstating the up-tick rule (whenever they get around to it ie 90 days….duh!) in return for subterfuge accounting esp. for banks.

    Inverse funds are not to be held, say, more than a month in fact you should have traded them 4 times in that monthly period instead.

    Robotic software scanning sites can be countered manually or with anti-software to disallow access to a site.

    With 90% of trades initiated by black box trading programs the only trends not affected are the long term trends.

    Mathematically the system can not support itself. All the counter-party payouts from bailout monies is sitting on the sidelines waiting as further debt outstanding collapses the regular markets in another meltdown anywhere between June and October ’09 then a bubble reappears (commodities?).

  27. Stephen

    Good post, I like the Vintages data.

    Being a mortgage lender early in my career I know those delibqency numbers are high, but then again that was based on normal spreads (normal costs and normal interest rates) Some of these loans have low costs and HIGH returns so some expansion in deliquency rates is expected. Nonetheless, these are high numbers.

    Question is, are we now looking at the “pig in the python” as it moves through the system. I tak some comfort, small comfort, that the 30 and 60 day numbers look like they have levelled off. That would incate a lessening of the problem, perhaps temporarily.

    At some point, assuming a jobless spiral doesnt continue, the delinquency rate stabilizes and starts to improve. Whether that is a signal of a recovery or just one of many percursors of a recovery is the question.

    Once again, I am no pollyanna these numbers are terrible. I just know that it cont be great forever and it cant be terrible forever.

    Great post though, great data. thanks for posting.

  28. doc holiday

    Re: ” Mr. McIntyre’s article is childish and unsubstantiated to the point of generating derisive laughter from his readers.”


    McIntyre represents bottomline stupidity in the mainstream press and this is the problem, i.e, we do not have accountability in the watchdog press, instead we have idiots that are helping distort corruption and add to chaos.

    We need a new era of journalism with greater cutting edge objectivity!

    Also see: Pulitzer Prize-winning investigative journalist Seymour Hersh stirred up a hornets nest last month during a presentation in Minnesota he said the Bush administration ran an “executive assassination ring” that reported directly to Vice President Dick Cheney. “Under President Bush’s authority, they’ve been going into countries, not talking to the ambassador or to the CIA station chief, and finding people on a list and executing them and leaving,” Hersh again reiterated during a TV news cast while being questioned by Amy Goodman.

    We have had atleast 10 years of corruption in government and now Obama carries on that tradition!

  29. Bruce

    I think Yves earlier post is correct, the level of comments on this blog is getting worse. But, I’ve noticed the same dynamics on other blogs also.

    Just remember what got us into this mess: a blind and rigid ideology. It seems the same is happening now: banksters; evil this; evil that… And everyone is on the bandwagon now.

    The problem is, this mess probably won’t play out as your ideology predicts. Life is uncertain. If you’re a prisoner of your own ideology you wont be able to assimilate new information – and that is what commenting should serve.

  30. Anonymous

    Well, there are actually two writers at Zero Hedge – Tyler Durden and Cornelius. Do you think it is multiple people posting under two accounts?

  31. Blissex

    «Watch what happens to Norquist's base as the helpless Mom & Pop 'investor' class gets beggared by the managerial parasites of the embezzler class,»

    Well, a large part of the ‘investor’ class will still cling to their properties as validating their superior ability as winners; and those who will have the courage to realize that they have been suckered will hate themselves.

    Because they cannot hate the “managerial parasites of the embezzler class” because they wanted to be like them. They wanted to beggar everybody else too.

    In other words the Norquist base are largely delusional or self-hating losers, people who got themselves corrupted by the same greed of those who beggared them; they were beggared not because their good faith was taken advantage of, but because their bad faith was.

    The flippers and momentum investors were trying to be insiders in what they though was a scam being setup for their benefit, they were as a rule nowhere like innocent victims.

    The innocent victims have been the bitter renters, the hopeless savers, the outsourced workers, all those who did not join into the “f*ck” you! I am fully vested” scramble.

  32. russell1200

    Re: The Black Death and the Church.

    It’s first major occurrence was well before the Renaissance, and its last major occurrence (Marseilles in the 19th century) well after.

    I lean toward the Protestant reformation being a number of very small events that self reinforced to turn into an avalanche. Although the Catholic Church had its problems it is not really clear that those problems where that much different in magnitude than those faced before.

  33. Anonymous

    These posts above declaring that the most important or “real” information is not free are just a libertarian wet dream. In reality, the best and most important information is always free and if it is not, it becomes free fairly quickly. Please take a look at science if you do not believe me, its interesting to note that there is no Galileo Incorporated, est. 1600, which charges the world for their mysterious ability to give accurate astronomical information. You never saw Einstein, LLC selling their subscription newsletter to nuclear research labs. Maybe some are so blind to money they cannot comprehend that for many people in the information production field, information itself is the end result, not the cash value of it.

  34. Brad

    Ref Zero Hedge Disclaimer: “Zero Hedge is currently flat in its SRS exposure, after being long from the $50s and unwinding in the

    Being flat would inicate no significant bias for either the IYR or SRS. What then, is the point of the article? If they truly believe the CMBS market was headed for further collapse wouldn’t they still be long SRS? Consider this choice morsal, I quote them… “And as the facts above indicate, the deterioration is only starting to pick up.”

    “…only starting to pick up” and they are not long SRS?

    Since they are not long SRS, does that mean REIT’s are currently fairly priced?

    Am I missing something here?

  35. Anonymous

    Brad, youre kind of a douche. REITs have rallied massively off the lows, which after the spectacular decline in sentiment/global stock markets SHOULD HAVE BEEN EXPECTED. Any decent trader knows that, and shorting into this rally is foolish. It has nothing to do with being fairly priced.

  36. Steve

    The government’s approach to the crisis amounts to attempting price-fixing on a colossal scale, while pretending to rely on the mechanisms of free markets. Good luck with subsidizing prices for years with borrowed funds, Mr. Summers.

  37. Anonymous

    Russ- Great comment about the stock
    market. Of course it’s sociopathic-
    Wall St. is one vast criminal enterprise. The Wall St. Crime Syndicate won’t stop the looting of
    America until there is nothing left.

  38. Leo Kolivakis


    Excellent post, even though it was condensed with a bit too much info at times and some paragraphs I needed to read twice.

    But I agree that CRE will be the next big shoe to drop. Funny thing is when I tell that to economists I know, they tell me that CRE is a lagging indicator so don't worry about it.

    They completely do not understand how pension plans that need to sell illiquid stakes in CRE and PE will force prices even lower.

    As for the banks, they will tell us they made tons of profits but I know it's all smoke & mirrors.

    If they were as solid as they claim to be, they would be lending a lot more than they are doing now.



  39. Yves Smith

    I find it more than a bit peculiar that various Anons have incorrectly asserted that Tyler must, simply MUSt have a position, otherwise why would he give away ideas for free, when every other writer on this blog does so to.

    Did it occur to you that someone could watch a sector closely and not be in it? He disclosed that he is flat index plays here, and yet the conspiracy theorists must find an angle.

    Any future unfounded author disparaging comments will be deleted. They are ad hominem attacks and as I said earlier, are NOT permitted.

  40. Anonymous

    Sounds like the “Ministry of Truth” has been busy…

    Russ, good points. As a shrink, I agree that it meets the diagnostic criteria for drug addiction, psychopathy, and even bipolar disorder. But I’m afraid it’s too sick to treat – we’ll just have to take it to the woods and shoot it…

    On an unrelated note, and to lighten up the sour mood here, remember everybody, that it’s already April 13. You only have 2 days left to send in your checks to Uncle Sam to avoid interest and penalties… So, have a happy rest of the year… chumps!…LOL

    Vinny GOLDberg

  41. LeeAnne

    From Philip Roth’s The Plot Against America:
    '… "History," harmless history, where everything unexpected in its own time is chronicled on the page as inevitable. The terror of the unforeseen is what the science of history hides, turning a disaster into an epic.'

    Some of us would like to see this disaster averted/redirected if at all possible.

    Good free information, insiders, and analysts, visionaries and patriots are needed to counter traitor state/finance propaganda, secrecy, and misinformation.

    The president, who is defending the power to tap without a warrant and to deny rights to captives out of the country and who has made bad choices over the financial disaster, as we speak, is seeking the dictatorial power to shut down and 'halt' the Internet 'during a state of emergency,' definitions left to the president.

    You may enjoy this bit of history:

    Part 1

    pt. 2

    pt. 3


  42. Anonymous

    Mr. Durden, I might have read the article, except it contained this laugher in the first paragraph:

    Mr. Barney Frank’s attempt to start ideological partisan warfare.

    WTF kind of doublethink is this? The Republicans have been blaming the financial crisis on Barney Frank (and the poor, and Bill Clinton, etc.) for over six months. Finally, the chairman got good and p–sed and spent an hour on the floor explaining how the Republicans are and have been lying to the American people.

    I watched him, I know the basic facts and know he was right, and it was a d–n fine kick in the a– to a Republican Party that needs many more of them.

    Charles of MercuryRising

  43. K Ackermann

    SRS moves toward zero on volatility. It's a lousy thing to hold in this market.

    I don't understand all the wild-eyed paranoia. Do you really think this site is being used for a pump and dump? Jesus, Mary, and Joseph.

    First of all, anyone suseptible to pump and dump should not be in the market. Either get solid inside information, or do the research, just like everybody else.

    As far as bots trolling sites like this, they would probably have better luck just matching font size and frequency of company names out of the big commercial aggregators such as LexusNexus.

    Anyone might scan out of curiosity, but what would a propriatary desk learn that they couldn't learn by hollering down the hall to the investment banking division, or the M&A department?

    Deals don't start on blogs. If I was running a scam of any kind, the last place I'd run it would be through a blog, because bloggers sniff out deception, and all it takes is one, and you are toast.

    Sorry if this was not readable. I'm very sleepy.

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