Commercial Real Estate Is About to Cause a Milder 2008

Editor's note: In today's Empire Financial Daily, we're sharing another essay from our friends at our corporate affiliate Altimetry. In it, Rob Spivey – Altimetry's director of research – shares a key reason why he believes it's time to be cautious in the markets... Kyle Bass got 2008 exactly right... Bass is the founder and […] Not rendering correctly? View this e-mail as a web page [here](. [Empire Financial Daily] Editor's note: In today's Empire Financial Daily, we're sharing another essay from our friends at our corporate affiliate Altimetry. In it, Rob Spivey – Altimetry's director of research – shares a key reason why he believes it's time to be cautious in the markets... --------------------------------------------------------------- Commercial Real Estate Is About to Cause a Milder 2008 By Rob Spivey --------------------------------------------------------------- [This guy Is in for a BIG surprise... and so are YOU!]( The guy behind me doesn’t realize that the money he’s pulling out of the bank is radically different from the money he pulled out last month. That’s because the Fed recently implemented the most radical upgrade to the dollar in decades. And most people don’t even know it happened! But with $73 trillion now up for grabs, the opportunity for investors today is enormous. [Click here for all the details about this radical new dollar upgrade... including my No. 1 moonshot pick of the year](. --------------------------------------------------------------- Kyle Bass got 2008 exactly right... Bass is the founder and chief investment officer of Hayman Capital Management. He's known for his successful bet against subprime mortgages before the 2008 financial crisis. All in all, his company's main fund returned more than 200% as the subprime mortgage market collapsed. Recently, Bass issued a dire warning for the banking sector... He says that banks are going to lose between $200 billion and $250 billion in equity due to high interest rates, tighter lending conditions, and – most significantly – the office market. In this case, "equity" refers to how much exposure banks have to various investments and loans. And commercial real estate ("CRE") is poised to be a major source of losses for banks... Banks reportedly have about $3.6 trillion in exposure to CRE – and there's fear that a lot of that exposure is going to sour soon. Office space, in particular, is performing poorly. Many office-building owners are already mailing back their keys. We've seen how bad a real estate downturn can hurt the economy... And because banks hold so much equity in this corner of the market, a decline in CRE values would be a massive hit. This could have a ripple effect on many different sectors of the economy. And today, I'll discuss how this might be yet another sign that banks are going to start backpedaling on lending soon... --------------------------------------------------------------- Recommended Link: [[RECAP] This Week's Crash Warning]( If you're holding stocks – you need to see this. A dangerous 'recession' signal just flashed – the same signal that appeared before the Great Depression and the 2008 Financial Crisis. It means we could soon see a massive downturn in stocks over the next 24 months. That's why forensic accountant Joel Litman is now going all-in on a radically different strategy – one that can deliver double-digit income... PLUS huge capital gains... without touching a single stock. [Click here for the full story](. --------------------------------------------------------------- The U.S. economy is in a period of extreme volatility... In fact, it has been one of the most turbulent years since the onset of the pandemic. And office real estate is among the sectors that have been hit the hardest... This is mostly due to the fact that people – and businesses – have embraced remote work. According to the New York Times, about 68% of employers now allow work from home. And Forbes estimates that about 22% of the workforce will be fully remote by 2025. This trend is only expected to continue, which means less and less demand for office space... Last quarter, office vacancy rates hit a 30-year high of 18.2%, weighing heavily on the broader commercial real estate market. And that's a huge problem for banks which, remember, have $3.6 trillion in CRE exposure. In total, that's equivalent to about 20% of their deposits. If more office buildings start closing their doors, banks are going to struggle. Cash flows will dry up. And they'll be left with a huge inventory of office buildings and nobody to sell them to. This is much like what happened in 2008 with the housing crisis, though it won't be as severe as the Great Recession... That's because banks have stronger capital buffers today. While they're expected to lose about $200 billion to $250 billion in equity, they have about $2 trillion in total equity. That would be about a 10% hit to the U.S. banking sector. That's a big deal, but it's not likely to cause a systemic financial crisis. [As my colleague Joel Litman mentioned yesterday]( the U.S. Federal Reserve is pushing for banks to []raise their capital requirements, so they should be better prepared to handle such losses. Nonetheless, a $250 billion blow to equity is bound to scare banks into tightening their lending standards further. And when banks start actually losing money on their loans, they'll lend even less in order to rebuild their financial reserves. This means that businesses and consumers will have less access to credit... all while their cash balances are declining to multiyear lows. Without access to loans, many folks will struggle to make ends meet, triggering economic instability and waves of defaults. It's time to be cautious... A recession is right around the corner. High interest rates are weighing on the economy. Household and business financials are taking a hit. And it's driving loan delinquency rates up. At the same time, banks have every reason to keep tightening their lending standards. As Joel said yesterday, it's creating a massive credit crunch that investors aren't ready for. And folks who have big expectations for the stock market need to be cautious... Even if banks don't collapse like they did in 2008, a 10% drawdown to their equity will lead to sell-offs in the rest of the market. Regards, Rob Spivey Editor's note: In a special event earlier this week, Joel shared all the details about what he says is one of the lowest-risk moneymaking strategies of all time... According to Joel, this strategy is ideal in a crisis like the one he and his colleagues at Altimetry expect for the credit markets. Plus, it's the only strategy that many of the world's most successful billionaires care about. Watch the replay of Joel's special event – while it's still available online – [right here](. --------------------------------------------------------------- If someone forwarded you this e-mail and you would like to be added to the Empire Financial Daily e-mail list to receive e-mails like this every weekday, simply [sign up here](. © 2023 Empire Financial Research. All rights reserved. Any reproduction, copying, or redistribution, in whole or in part, is prohibited without written permission from Empire Financial Research, 1125 N. 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