December 2018

My, my, what a couple of weeks.  People, don’t you understand that I’m trying to run a business here?  Is a recession on the doorstep or is that a 2022 thing?  Are things really bad, or really good?  How am I supposed to stay dispassionate and analytic when the stock market gyrates and the drumbeat of portentous news never stops?  The worst December in the market since the Depression says The Financial Times!  It’s very annoying and I feel very much put upon.

All of this has got me thinking, are we ignoring Macro?  Are we not seeing what’s actually in front of us?  Not seeing the Big Stuff?  There is surely enough disturbing things out there to get and hold our attention.  The stock market continues to oscillate widely, the 10-year Treasury Rate is now well below 3%, volume is up and every time another headline crosses the ticker, everything changes again.  Is our trade dispute with China existential?  Is Prime Minister May in or out – happy or sad?  Is Boris Johnson having a good hair day?  The Italians are leaping around and gesticulating broadly, outraged now about how France may be getting a pass on budget discipline.  If France starts to cheat (again), can the center hold?  Japan is building an aircraft carrier…think about it.  In China, some young general suggested it might be a good idea to shoot at an American warship in international waters.  There’s a great idea.  The Donald continues to tweet and we almost had a smack down in the oval office between the President, Nancy Pelosi and Chuck Schumer just last week. 
Continue Reading Ignoring Macro…Or Are We as Smart as a Horse?

We have been writing off and on about the restoration to good graces of the commercial real estate CLO since the early days of this current recovery, and it’s important to keep the conversation going.  Hey, if Pete Rose can get into the Hall of Fame (and as MLB is embracing gambling, that cannot but happen, right?), the full restoration of the reputation of the CRE CLO cannot be far behind.

First, let’s just stop and get some definitional clarity here for those of you who actually have a life.  Fundamentally, the CRE CLO is a device that provides match-term leverage for a portfolio lender, though the technology can be used for other purposes.  Loans are pooled, investment-grade securities are sold to investors, and the loans are repaid from debt service payments.  Customarily, the sponsor retains all of the equity and junior debt, creating structural leverage to enhance returns on the dollars invested in the structure.

It’s really a warehouse funded by the capital markets. As such, it provides for an excellent alignment of interests between investors and the sponsor, who holds the bottom of the capital stack.  The sponsor is in it for the long haul, managing financial assets for its benefit and the benefit of the investors alike.
Continue Reading The CRE CLO Is Back…and That’s Good