• Investing
  • Stock
Round Table Thoughts
  • Economy
  • Editor’s Pick
Home Stock Real Problems in Real Estate
Stock

Real Problems in Real Estate

by February 27, 2023
by February 27, 2023 0 comment
Share
1
FacebookTwitterPinterestWhatsapp

The correction in stock prices may be gathering steam, and the potential for a full-blown liquidity crisis seems to be rising. The reason may be that several big players in commercial real estate have recently defaulted on billions of dollars’ worth of loans.

Last week, in this space I wrote: “Something happened to the markets around Valentine’s Day which could reverse the recent uptrend.” Well, the trend is increasingly wobbly, and we are getting new information which may explain at least part of what’s happening.

Real Trouble in Real Estate

The hotter than expected PCE (Personal Consumption Deflator) data grabbed the headlines. But it seems that its arrival on the scene may be more of a catalyst for an already churning dynamic in the market than the cause for the renewed selling on 2/24/23.

Think commercial real estate defaults.

Over the last few weeks, in this space, I’ve reported that several major real estate investors have faced increasing difficulties. I’ve also noted that it is possible that these, along with other commercial property REITs that are having problems with foreclosures, may have been selling U.S. Treasury bonds in order to raise cash to fund operations as their cash flow dries up due to rising vacancies.

I’ve noted that Brookfield’s LA default (highlighted in prior link) has been well reported, while the even bigger Blackstone (BSX) is also having its share of problems along with Starwood (STWD). Brookfield’s (BAM) CEO Bruce Flatt is calling the L.A. default insignificant, while citing demand for premium space around the world, in places like Dubai, as more than enough to offset the L.A. issues for the company.

Nevertheless, the Toronto-based asset manager’s stock is rolling over along with the market for sure.

If there is a worsening of the situation the default, which we may look back upon as the one that broke the camel’s back, is that of Pimco’s $1.7 billion worth of mortgage notes tied to buildings owned by Pimco’s Columbia Property Trust in Los Angeles, Boston, New York and Jersey City, New Jersey.

Together, Pimco and Brookfield have defaulted on nearly $2.5 billion. But there seem to be more on the way, as The Real Deal.com website recently reported the Chetrit Group just defaulted on an $85 million loan in the tony New York City Hudson Yards property. If things don’t improve soon, and margin calls escalate, we could see a complete reversal of the recent rally in stocks.

Just in case, I’ve just added some new select hedges to my model portfolios. You can check them out here with a free trial to my service.

Bond Yields Test Crucial Resistance Levels as Liquidity Woes Continue. REITs are Heading Lower.

As I noted, above the commercial real estate market is facing serious headwinds. Moreover, if things don’t improve fairly quickly, the problems could spread to other areas of the market.

Meanwhile, the U.S. Ten Year note yield (TNX) has stubbornly remained above 3.8% and seems to be mounting an attack on the 4% area. This may be in response to selling by investors, who are having trouble making payments due to an increasingly restrictive Federal Reserve. A move above 4% would be a major negative for stocks, which could trigger very aggressive selling.

The rise in treasury bond yields has spawned a major reversal in mortgage rates, which is likely to dampen or at least slow the potential bottoming of the residential real estate market.

The homebuilder sector (SPHB) has been fairly steady in comparison to other areas of the stock market, but a move above 4% on TNX could send mortgage rates to levels near or above 7%. If that happens, it is likely to kill the housing market. Already, the homebuilder sector (SPHB) is threatening to break below its 50-day moving average.

Even more dire is the situation in commercial real estate, where the Dow Jones Real Estate Index (DJR) has just broken below its 50- and 200-day moving averages and could be headed significantly lower if there is no improvement in the market’s liquidity. Note the close inverse relationship between TNX and DJR and how they both reflect on the S&P 500 (SPX).

For a detailed explanation of how to manage your portfolio during a liquidity crisis, watch this Your Daily Five video.

Test of Key Market Support is Unfolding

The New York Stock Exchange Advance Decline line (NYAD) broke below support at its 20-day moving average last week and is now on its way to a test of its 50-day moving average.

Meanwhile, the S&P 500 (SPX) easily sliced through the 4000 area and is now actively testing the key support band of 3950 and the 200-day moving average.

The Nasdaq 100 Index (NDX) broke below the 12,200 and is now testing the support of the 200-day moving average.

For its part, the CBOE Volatility Index (VIX) is still lagging the current bearish trend due to a larger focus by option traders on contracts which expire in short periods of time, while VIX measures the volatility of longer-term options. Still, VIX is showing signs that it wants to turn up in a hurry.

When VIX rises, stocks tend to fall, as rising put volume is a sign that market makers are selling stock index futures in order to hedge their put sales to the public. A fall in VIX is bullish, as it means less put option buying, and it eventually leads to call buying. This causes market makers to hedge by buying stock index futures, raising the odds of higher stock prices.

Liquidity tried to stabilize on 2/25/23, but the Eurodollar Index (XED) still closed below 95, which had been a reliable support level. Note the market’s most recent rally, off of the October bottom, has corresponded to this flattening out in liquidity. Note how the continuous decline in XED corresponded to the bear trend in 2022 and how the current liquidity reduction has impacted the market negatively.

You can learn more about how to gauge the market’s liquidity in this Your Daily Five video.

To get the latest up-to-date information on options trading, check out Options Trading for Dummies, now in its 4th Edition—Get Your Copy Now! Now also available in Audible audiobook format!

#1 New Release on Options Trading!

Good news! I’ve made my NYAD-Complexity – Chaos chart (featured on my YD5 videos) and a few other favorites public. You can find them here.

Joe Duarte

In The Money Options

Joe Duarte is a former money manager, an active trader, and a widely recognized independent stock market analyst since 1987. He is author of eight investment books, including the best-selling Trading Options for Dummies, rated a TOP Options Book for 2018 by Benzinga.com and now in its third edition, plus The Everything Investing in Your 20s and 30s Book and six other trading books.

The Everything Investing in Your 20s and 30s Book is available at Amazon and Barnes and Noble. It has also been recommended as a Washington Post Color of Money Book of the Month.

To receive Joe’s exclusive stock, option and ETF recommendations, in your mailbox every week visit https://joeduarteinthemoneyoptions.com/secure/order_email.asp.

You Might Also Like
  • Your Selling Methodology is Your Paramedic to Profits
  • VIX SPIKES! Is a Market Correction Coming?
  • A Strong Week: Stocks, Gold, and Crypto’s Robust Performance
  • LUV Stock: Will Tailwinds Make the Stock Soar?
Share
1
FacebookTwitterPinterestWhatsapp

previous post
Let The Charts Do The Talking
next post
Sen. Tim Scott eyes possible 2024 bid with positive message, claims Dems selling ‘drug of victimhood’

You may also like

Sector Spotlight: Two Sectors Hitting New All-Time Closing High

July 4, 2023

“No Landing” — Sugarcoated Words for Stagflation?

February 22, 2023

NVIDIA’s Stock Split and Potential Correction

June 7, 2024

Soaring Semiconductors Carry NASDAQ To Key High; A Solid Trade...

November 12, 2023

These Three Strong Financial Stocks Look Ready To Surge Higher

May 9, 2024

My Durable Advantage as an Investor is My Experience: Here...

May 23, 2025

Everyone Suddenly Hates U.S. T-Bonds: What that Means and Why...

October 16, 2023

Bearish at the Bottom; Institutions Wrong on Oil

June 21, 2023

Stock Market Hinges on the Ten Year Interest Rate

November 1, 2023

Could U.S. Stocks Crash In October?

September 27, 2024

    Stay updated with the latest news, exclusive offers, and special promotions. Sign up now and be the first to know! As a member, you'll receive curated content, insider tips, and invitations to exclusive events. Don't miss out on being part of something special.


    By opting in you agree to receive emails from us and our affiliates. Your information is secure and your privacy is protected.

    Recent Posts

    • Week Ahead: NIFTY Stays In A Defined Range; Moving Past This Level Crucial For Resumption Of Upmove

      May 31, 2025
    • Breakouts, Momentum & Moving Averages: 10 Must-See Stock Charts Right Now

      May 31, 2025
    • Leadership Rotation Could Confirm Corrective Phase

      May 30, 2025
    • Run Your Stock Portfolio Like a Pro Sports Team

      May 30, 2025
    • U.S. foreign tax bill sends jitters across Wall Street

      May 30, 2025

    Popular Posts

    • 1

      Trump-era China sanctions ended by Biden may be...

      June 27, 2024 2,765 views
    • 2

      Walz’s honeymoon with China gets fresh scrutiny as...

      August 9, 2024 2,472 views
    • 3

      Biden appointee played key role in recruiting Chinese...

      June 25, 2024 2,451 views
    • 4

      Shein’s global ambitions leaves some cybersecurity experts fearful...

      July 10, 2024 2,432 views
    • 5

      Harris VP pick spent years promoting research facility...

      August 29, 2024 2,308 views

    Categories

    • Economy (7,009)
    • Editor's Pick (2,106)
    • Investing (538)
    • Stock (2,582)

    Popular Posts

    • 1

      Trump-era China sanctions ended by Biden may be revived under new House GOP bill

      June 27, 2024
    • 2

      Walz’s honeymoon with China gets fresh scrutiny as Harris camp blasts ‘lying’ critics

      August 9, 2024
    • 3

      Biden appointee played key role in recruiting Chinese businesses to Delaware: ‘Longtime friends’

      June 25, 2024
    • 4

      Shein’s global ambitions leaves some cybersecurity experts fearful of Chinese spy threats

      July 10, 2024
    • 5

      Harris VP pick spent years promoting research facility that collaborated with ‘Chinese military company’

      August 29, 2024

    Latest News

    • Week Ahead: NIFTY Stays In A Defined Range; Moving Past...

      May 31, 2025
    • Breakouts, Momentum & Moving Averages: 10 Must-See Stock Charts Right...

      May 31, 2025
    • Leadership Rotation Could Confirm Corrective Phase

      May 30, 2025

    Categories

    • Economy (7,009)
    • Editor's Pick (2,106)
    • Investing (538)
    • Stock (2,582)

    Disclaimer: RoundTableThoughts.com, its managers, its employees, and assigns (collectively “The Company”) do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice. The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

    Copyright © 2024 RoundTableThoughts.com. All Rights Reserved.

    Round Table Thoughts
    • Investing
    • Stock
    Round Table Thoughts
    • Economy
    • Editor’s Pick

    Read alsox

    Energy Stocks in the Spotlight: A...

    September 6, 2023

    This Breadth Indicator Points to More...

    August 2, 2024

    A Nasdaq 100 Stock Showing Relative...

    August 19, 2023
    Sign In

    Keep me signed in until I sign out

    Forgot your password?

    Password Recovery

    A new password will be emailed to you.

    Have received a new password? Login here