While perhaps akin to stories of sixteen foot gators in the New York sewer system, I have heard that there is a physiological basis for suppressing the more painful memories of childbirth which is the species’ way of ensuring that couples have more than one child. Perhaps a similar thing is affecting investors and market participants to allow animal spirits to be rekindled this January.

Oh, I think it’s fair to say that there were precious few animal spirits in January ’08 and ’09 and we were all a bit fluttery at the beginning of 2010, but I think we’ve put the worst memories of the last 3 years’ unpleasantness behind us and appear intent on enjoying the delightful frisson of booming times once again.
 

Before we do, though, I thought it might be instructive to look back a bit at the headlines of 2010 so that while we embrace exuberance again, we at least have some context to measure its irrationality.

With some nod to chronological order, here is a snapshot of the year’s Headlines:

• The Last Lingering Marquee Names of the Late Lamented Boom Finally Go!
• All the Marquee Names from the Late Boom are Rehired in Droves
• The Street Resumes Lending, Conduits Begin are Back
• Legacy CMBS Spreads Tighten
• Special Servicing Cohorts Reach New High Watermark
• Big Lifeco’s Step Up on the Biggest and Best Class A Deals
• GGP, GGP, ESH, StyTown, Hilton, Stations Crossing, etc., etc.
• Hope Note Workouts Panned
• Chinese Banks Enter Market
• Chinese Banks Enter Market
• Chinese Banks Enter Market
• Chinese Banks Enter Market
• The Repo Market Returns
• Elliot, H2 and Others
• New B Buyers Gear Up, Some Old Friends Return
• Dodd-Frank, Reg AB, 17(b)-5, FDIC Securitization Safe Harbor, Risk Retention, etc.
• It’s Finally Fall and the Crap Conduit Pipelines of the Spring Begin to Get Real
• Major Banks Return to the Fray
• The Street Begins to Buddy Up for Conduit CMBS Deals: Goldman, Citi, JP Morgan, Deutsche, Wells, BofA, UBS
• JPM Tops Lender and Bookrunner Rankings
• The Republican Congress Finally Sits Down

There is my, admittedly, idiosyncratic snapshot of a year’s worth of headlines in our little corner of the capital markets. Market pros are back in seats and have been given balance sheets to lend. Investors will buy bonds at prices that incent borrowers to borrow. There’s appetite in the investment grade and there’s appetite in the B-note sector. With interest rates benign and borrower refi needs growing, the first loan and mezzanine lending businesses are off and running. Most of the usual suspects are back in the game. The last few will join early in 2011, but, boy oh boy, watch out for China. After the year’s worth of breathlessly dramatic, often buried and awfully unthoughtful (and bone headedly insensitive to collateral damage), regulatory action, we are still in business. With a Republican Congress, there’s some hope that some of the more addled regulatory output brought to us by a panicky political class certain that we were circling the toilet bowl of the apocalypse can be ameliorated.

Notwithstanding all of the noise, the CMBS structure performed pretty well in the crucible of enormous financial strain resulting from real estate values in free fall. It will serve as a robust basis for capital formation in 2011. The warehouse financing market is back and back in a big way, with sufficient volume to meet the needs of asset accumulators. Once again, the memories of the pain of borrowing short and lending long will be suppressed. See above.

Living through 2010, it seemed pretty choppy. Looking back, it seems easier, somehow, to compose a narrative of a market well along the way to repair. You know, on reflection, I can barely remember how awful 2007 through 2009 really felt. I’m so over that. Thankfully, those who forget the past are condemned to repeat it. Otherwise, markets and we humans would have died out years ago. Let’s hear it for animal spirits in 2011.
 

By Rick Jones