It’s Not Just a Flesh Wound

I’ve been back from CREFC’s and RER’s annual meetings for a week or so, mulling what those confabs meant.  There’s been plenty of reportage on the events, the panels, the parties, the to-ing and fro-ing, but what I want to do is step back and reflect on the gestalt; the subtext, the hidden codex.  What just happened?

It’s capitulation.

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Contagion

What I know about cryptocurrency can be inscribed on a head of pin with a jackhammer.  But I know it’s a thing; I know it’s a big thing and getting bigger.  So, these past few weeks I have been reading with interest (interest, to be clear in this context, is the emotion one experiences watching a NASCAR pileup, whilst not being in one of the cars) the breathtaking collapse of Terra’s stablecoin. Having previously been entirely bereft of any knowledge of the topic, I read with considerable interest that the Terra coin was pegged to the dollar and backed by “algorithms.”  Algorithms?  The Terra peg was protected, theoretically (let’s emphasize that theoretical part) by allowing Terra’s owners to “burn” coins and buy another cryptocurrency which was designed not as something pegged to the dollar but as a repository of value which would rise and fall on market sentiment (backed by those marvelous algorithms again).  A shock absorber to protect the peg.  The companion cryptocurrency in this case was called Luna.  As Terra lost its peg, you would burn Terra and buy Luna.  And if Luna went down, you would burn Luna and buy Terra.  Apparently, this all worked as long as everyone firmly believed it worked.  Now, apparently, they don’t and it doesn’t.  Terra tanked to fractions of pennies on the dollar, as did Luna.  How’s that for a hedge?  Ouch! Continue Reading

It’s the Inflation, Stupid

We certainly have an abundance of bad bits and bobs out there right now, don’t we?  War, pestilence, chubby dictators with rockets, buff dictators without souls, miscellaneous threats to world peace.  It’s everywhere.  Nonetheless, my take remains (see my prior blog, Prognosticator’s Regret) that, at least for our economy, all that doesn’t matter so much (how stupid does that sound?).  It’s only through the transmission mechanism of monetary change that our economy is really impacted and regrettably, we’ve got that in full right now in the form of rapid, material inflation.

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SOFR:  The Face That Launched a Thousand Ships Was Photoshopped!

Why I’m bothering to write about SOFR transition at this point is a bit of a mystery.  Hasn’t this topic now finally exhausted both our energy and interest?  Oh, and a European war is being fought as I write which, to say the least, renders the kerfuffle over LIBOR somewhat less than consequential.  But irrelevancy has not stopped me before.

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The Coming Regulatory Deluge (With Apologies to Louis XV):  Smells Like Opportunity to Me

Events keep happening that really do make it clear that we are about to enter a period of enhanced regulatory intrusion into the financial services space.  Shocking!  And entirely unexpected, right?  (You’re winning, sir)  While that is in many respects troubling, it’s also the stuff of opportunity for the creative and nimble.  I’ll explain.

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Ahhh… Miami! Sun, Sand and Commercial Real Estate

CREFC January 2022 – it was supposed to be the comeback conference. Everyone was pumped to spend a few days down south, getting together with their safely vaccinated clients, colleagues and friends. Meetings, mingling and mild mayhem were on the Miami menu. But days before the conference, the dreaded COVID, or more specifically Omicron, continued to rear its ugly head and put a damper on the plans of many. Emails with “Are you still going to CREFC???” were flying as the days counted down to January 9. Although many conference attendees chose to attend virtually, hundreds took a chance and made it down to Miami to enjoy the conference in person. Luckily CREFC is now well-versed in how to put on a virtual show, and those who were unable to attend in person were able to enjoy the panels from their office (or couch…or bed…).

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Prognosticators’ Regret

Just a few weeks back, I penned a sunny and optimistic piece about the growth of the CRE CLO market in 2022 and by implication, the general amicable economic conditions on which the growth of that technology would depend.  Being your basic risk-adverse type, I, of course, conditioned and limited my happy talk by excluding bad things that might proceed from disease, dictators and the Fed.

While I’m sticking by my predictions, my carve-outs seemed both more than a tad fainthearted and capacious enough to eat the proposition.…The Green Bay Packers will win the Super Bowl (by the way they will), assuming they get to the game and score more points than the other team.  Not really helpful, is it?
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The CRE CLO Unleashed

Our fine little CRE CLO business has exploded over the past couple of years, hasn’t it?  Last year, around this time, I recklessly predicted for my friends at Commercial Mortgage Alert that we might hit $30 billion of issuance in 2021.   I was the outlier…by a lot.  Well, it looks like we’ll finish the year closer to $45 billion and it’s clear that in the first quarter of 2022 we will be on fire.  Now, of course, I also thought that we’d have a fantastic year in early 2020 and then that pesky little bug changed our lives, so please consider my on-fire prediction subject to caveats, limitations and restrictions including, but not limited to, disease, dictators and the possibility that the Fed is making a colossal mistake.

All else being equal, the CRE CLO business will continue to grow and I don’t really see the appetite for this technology receding any time soon.  Could it?  Sure.  Annoying black swans aside, if the curve radically changes shape and creates outsized demand for fixed rate product, the CRE CLO business, as it has grown up in the past couple of years, will see challenges.  But more on this later.

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2021 Golden Turkeys

Welcome, dear reader, to our annual Golden Turkey Awards.  But for my commitment to absolute fairness and concern over the appearance of impropriety, I would have awarded the first Golden Turkey Award to Dechert for actually getting the Golden Turkey Awards done this year.  What a crazy year end.  The market is insane.

On the other hand, while time is short, there’s plenty to bloviate about.  I remember last year we were absolutely ready for the end of the Trump administration because the Biden administration promised a “dull is cool” vibe.  Well, dull has been a failure.  The farrago of lingering Covid, a return to something which is clearly not normalcy, but something new and with a pond full of black swans flopping around, it is not dull.  So, how’s that working out for you?  The follies of 2021 at least make writing this column easier.  So, we went digging for inanity for the purpose of making gentle fun of things that broadly annoy us and, shockingly, we found things to talk about.  So, here we are once again.

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