Randall Zisler of Zisler Capital Partners warns of a "crisis of unprecedented proportions" looming in commercial real estate. His report was picked up in California Controller John Chiang's November review of state finances, as well as by news services Dow Jones and Bloomberg, and Wall Street pundit Art Cashin (of UBS). Zisler's words: "Of the $3 trillion of outstanding mortgage debt, $1.4 trillion is scheduled to mature in four years. We estimate another $500 billion to $750 billion of unscheduled maturities (e.g. defaults). Unfortunately, traditional lenders of consequence are practically out of the market and massive amounts of maturing debt will not easily find refinancing." Much of the debt is worth 50% of par, and many regional and community banks will become insolvent, says Zisler.
Cashin points out that state tax collections dropped 16.6% in the second quarter, the second straight quarter in which revenues fell more sharply than during any previous time on record. A full 49 states saw total tax revenue decline in the most recent quarter, and 36 had double-digit (10% or more) drops.
The Journal's lead sub-headline Tuesday morning was "Cheap Money Sends Shares to 2009 High" -- a stark warning that liquidity is buoying various markets, not reality. The Federal Reserve promises to keep interest rates around zero for the indefinite future. This emboldens investors to gamble. Wall Streeters sell the dollar and buy everything else -- stocks, bonds, commodities and non-dollar currencies. Almost on an hour by hour basis, stocks rise as the dollar drops, and vice versa. But when everybody is on one side of the boat -- watch out.