November 2009 - Forecasts & Trends

In my September 29 E-Letter, I wrote extensively about the looming crisis in the commercial real estate sector. Things have not improved since my late September letter, and in fact have gotten even worse, despite the pick-up in the economy in the 3Q. Commercial real estate prices have continued to fall, and foreclosures continue to rise.

The core problem with the commercial real estate (CRE) market is the $3.5 trillion in outstanding mortgage debt. Of that amount, an estimated $1.3-$1.5 trillion of outstanding loans will have to be refinanced in the next 3-4 years alone. Banks are still overloaded with CRE debt; investors have soured on collateralized mortgage securities; and there is not nearly enough money in REITs to buy up all the CRE property that fails.

So, it is a real possibility that we will have yet another credit crisis on our hands over the next few years, which supports my view that this could well be a double-dip recession, with the second downturn sparked by widespread defaults and foreclosures in commercial real estate.

The announcement on October 29 that 3Q GDP surged 3.5% was seen as a confirmation that the recession is over. However, a closer examination of that report reveals that it was still a disappointing quarter for the economy, especially considering how much government spending contributed to the gain... The government reported last week that US worker productivity surged to the highest level in six years in the 3Q. Normally rising productivity is a good thing but this time, much of the increase is due to massive layoffs -- fewer workers are having to do more work -- and many companies are laying off the best and brightest, such as scientists and engineers... The unemployment rate surged to 10.2% in October, the worst in a quarter century.

This week, we will examine all these issues at length, plus I have included a very worrisome analysis from economic forecaster Nouriel Roubini regarding the US dollar and what he sees as the next credit crisis on the horizon. Finally, I have included an article from the Wall Street Journal that lists the most insidious parts of the new healthcare bill that just passed - prepare to get very angry!

Finally, our thoughts and prayers go out to all of the families of the innocent soldiers who were killed and injured in the tragedy at Fort Hood that occurred on November 5.