Commercial Real Estate Finance

Posts Tagged ‘PBOC’

I have it on good authority that a major global financial titan read my last blog entry -  you know, the one warning about decreasing dollar liquidity – and I can only assume he told his friends.  After reading my keen observation about rising USD interbank rates, major central banks throughout the world made a coordinated effort to dramatically increase USD liquidity.

At least in the near term, it worked like a charm!  Asset markets screamed higher on the news, along with Eurodollar futures; or maybe because Eurodollar futures rallied.

Red/Green is front Eurodollar futures contract. Blue/Purple is front S&P 500 mini futures contract.

My sense is the money markets are leading this dance.  After all, it was news about bank funding that moved the markets, not a surprise earning announcement.  Of course, it also proves asset prices are more a function of global monetary policy than any company “fundamentals”. Read the rest of this entry »

There’s a lot going on, so I’ll quickly go through a couple different things. But, not before some grandiose references to antiquity.

Egypt:

As I write this note, the talking heads of western media seem to generally agree that Mubarak’s speech is not going to cut it. Read the rest of this entry »

When I look at the Senate Race map, I see why there’s suddenly a renewed focus on Chinese currency policy.  At its core, this focus on the relative value of the Yuan is about a couple contiguous states: Illinois, Indiana, Ohio, and Pennsylvania.  According to the latest polls they are all either toss-ups or leaning Republican and Obama knows how important they will be in 2012.  Never mind that China is providing trillions of dollars of liquidity to the US – and therefore a major player in the US housing market – the Dems are in trouble in key “battleground” states, so pull out the “currency manipulator” playbook and grab a megaphone.

Aggressive policy toward China is tempting because it sounds populist, but it can really hurt residential real estate values and all the related businesses. Have a look at the following charts for Pulte Homes (PHM) and the USD/CNY exchange rate: Read the rest of this entry »

While my associate David Weinstein chose to discuss how the appreciation of the Yuan is a drain on global liquidity, I’d like to take a more optimistic approach, and mention how commercial real estate, more specifically the hospitality industry, stands to gain from this change.  For the past 23 months the Yuan had been pegged to the Dollar, and attracting a lot of criticism for being under valued.  Now, at long last, the People’s Bank of China (PBOC) has decided to sever its dependency on the Dollar’s exchange rate, and institute new policies to make the Yuan’s value more flexible and market-driven.  The PBOC forecasts the Yuan’s value will climb to 6.7 per dollar by the end of the year.  While this will certainly have some negative repercussions on us Westerners, aka having to pay more for our Nikes, we stand to gain from an influx of Chinese tourists. Read the rest of this entry »

China’s decision to let the Yuan appreciate is a drain on global liquidity.While various legislative elements and the treasury have aggressively pushed China to revalue the Yuan, the Federal reserve has indicated that rates will stay low for a while.Unfortunately these policy goals are at odds and it leads to some confusion in the market place.

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Answer: LIBOR

Wikipedia’s definition of LIBOR: “The London Interbank Offered Rate (or LIBOR, pronounced /ˈlaɪbɔr/) is a daily reference rate based on the interest rates at which banks borrow unsecured funds from other banks in the London wholesale money market (or interbank market).”

That’s pretty good for one sentence.  I’ll just add that it is calculated using a survey of banks at 11AM in London.  How, people often ask, is a daily survey of banks in London connected to funding for garden apartments in Orlando? The connection is the global demand for dollars. Read the rest of this entry »

There is, actually, an interesting ‘etymology’ to that idiom; if you like to believe what they say on Wikipedia anyway.  One of the versions is, “What’s that got to do with the price of tea in China?”  If the subject at hand is US interest  rates, the answer is ‘everything’.

Singapore revalued it’s currency earlier this week.  This effects the price of money across the globe and it will, eventually (if not sooner), mean higher rates in the US.  Most, if not all, Asian currencies have rallied on the news, except the Chinese Yuan.  Needless to say, this puts even more pressure on the PBOC to let the Yuan appreciate and it will be happening soon.
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Three articles and three mini blogs:

1) “Public Pension Funds Are Adding Risk to Raise Returns”

Uh, What?!  Raising risk to raise returns!?  That’s like losing at the $25 black-jack table and then trying to make your money back buying lottery tickets.  Or, in real estate terms, trying to make back losses on a core deal, by speculating in vacant land.  The only thing you get with more risk is more risk!

This sort of ridiculous thinking, of course, rests on an equally ridiculous assumption: stocks, in the “long run” will always go up.   You would think the people who are trying to make up for losses in stocks, might think twice about the inevitability of equity gains.  Alas, no such luck for the policy holders.

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It’s been four full business days since the Fed announced a 25bps hike in the discount rate.  After a knee-jerk down, equities seemed to have basically yawned, until yesterday.  Interestingly, 10 year treasury yields rose after the announcement, held for a day, and they came way down today.

I think Bernanke was trying to get long term rates lower, and he knows it could mean a sustained bear market for equities.   He also knows he doesn’t really have a choice.  What it means for commercial real estate, however, remains a tough question; but, we’ll get to that later.

To start, I’m going to focus on why the fed chose to make a ‘surprise’ inter-meeting announcement.  The answer is best revealed in a time line: Read the rest of this entry »