First Comes a Big Commercial Real Estate Crash
…and then the Fed Cranks up the Printing Presses!
A Bloomberg Survey discovers widespread expectations of a major commercial real estate crash! We’re looking at nine months of brutal price declines, according to respondents.
Details from Bloomberg’s latest Markets Live Pulse survey:
About two-thirds of the 919 respondents surveyed by Bloomberg believe that the US office market will only rebound after a severe collapse. An even greater majority says that US commercial real estate prices won’t hit bottom until the second half of 2024 or later.
That’s bad news for the $1.5 trillion of commercial real estate debt that according to Morgan Stanley is due before the end of 2025. Refinancing it won’t be easy, particularly the roughly 25% of commercial property that is office buildings.
That will get the Fed to pivot to another round of Quantitative Easing, another name for money printing. When exactly will the Fed pivot? No one knows exactly, but Ronald Reagan had a good line to illustrate what motivates bureaucrats: “When I feel the heat, I see the light!”
We will keep an eye on the Fed as always, and alert you in these spaces for signs of them seeing the light. It is our view as well that the Fed is heavily stacked with statists and bureaucrats who are devoted to the Democrat Party. They will likely juice monetary policy, that is ease monetary conditions, in time to make the economy look stronger in November in support of a Democrat presidential ticket – whether or not that includes Biden.
But it takes a while for changes in monetary policy to kick in. So they don’t have long before they must pivot.
The nation’s banks are up to their eyeballs in commercial real estate loans. If there is one thing we know from historical experience, when the banks start rocking, the Fed starts rolling. Indeed, the Fed was the brainchild of the private banks in the first place, looking for someone to bail them out when they get in trouble. And that is exactly what the Fed has done. And will do it again.
And that is like rocket fuel for the price of gold!
Stated differently, when the banks are profitable, they get to keep their profits. But when the banks suffer losses, like in the 2008 mortgage meltdown, Washington will move heaven and earth to protect them from losses. They will be shifted to the people typically by high inflation.
Be ready!