Is Red Here to Stay?

commercial real estate problemsAfter a pretty solid week of green trading, this week opened up on the red side, having the Dow close down 41 points today. We have seen blips in this rally before and, at times, looks pointing to a turn around, only to result in a continuing rally in the markets. Can today be the beginning of this long, overdue turn around? It might be, as there are plenty of burdens weighing heavily on the economy. However, I am still on guard against further ruthless buying.

Even though today marks a red closing, volume remains significantly low. In order to bring a full turn around to this market, it will be driven by forced selling and much larger volume. Most likely, it will take a spark, such as a large corporate bankruptcy, or some very discouraging economic data to initiate the crest, which can happen on any given day. One thing stands true, that is commercial real estate is a real problem heading directly for this battered economy and as times goes on, this problem is coming more and more into the light.

It is estimated that over $3 trillion is in need for the deficiency of refinancing of commercial properties that come due in the next 5 years. Landlords are pulling their hair out with nerves wondering where this extra capital is going to come from. In the last recession, it was the CMBS that helped push out capital. However, that market has gone away.

So where do landlords look to fill this gap in capital? Well, where everyone else has looked thus far, Uncle Sam. Like the children book title says, "If You Give a Mouse a Cookie, He'll Want a Glass of Milk." By opening the door with bailouts of the banking and auto industries, that gives other sectors the want of a bailout of their own. The government has made it clear of its intentions to be "getting out" of the bailout business, as this last round of TALF funds goes dry. However, commercial real estate owners are pleading with banks and the government, to make one more exception. In the end, something will need to be worked out, for truly, such a gap in capital to hit this market would send many banks spiraling down.

So, as of now, we can celebrate the Dow nearing 10,000, but I'm saving the champagne, because I feel we are far from over. Of course, certain sectors will perform differently throughout this recession, but large economic influencing sectors have yet to fully crater in this economy, commercial real estate being a big one. I expect to see a turn around in Wall Street very shortly and feel we are very long overdue. Happy Trading.



    It looks reall ugly out their.