From a guy named Howard Marks, haven’t heard of him, but I found this VERY interesting.
Its a question and answer session.
Especially this part:
"What worries you?
Number one, that the economy is highly reliant on the government stimulus programs. What happens when they’re withdrawn? Number two, the economy is reliant on artificially low interest rates. What happens when they rise to normal levels? Number three, there are still a lot of problems to be worked out in commercial real estate, and a lot of banks still hold a lot of commercial mortgages. Number four, the main source of energy in the economy over the prior twenty years has been the consumer, who did his part by spending more money than he made. Where does growth come from in the next five years if the consumer doesn’t go back to doing so?
How big of a problem is commercial real estate?
I believe that something like 60% of all commercial properties changed hands at the top of the bubble, in late 2006 and early 2007. Let’s say the average capitalization rate was 5%. That means the price was 20 times the net operating income. Today, net operating income is down and people won’t pay 20 times that any more; maybe they’ll pay 12 times. So the value of the building is cut in half, and it still has the same mortgage.
A lot of banks have mortgages on their books that they’re going to lose money on. That’s the main reason why the FDIC will see a few hundred more banks go under this year. I think real estate is far from being out of the woods."
What this is saying to me is our economy HAS to change, government policies, business practices HAVE to CHANGE if this economy is to stay afloat. Not sure if this means a “collapse” as Mike’s been saying, but I’m VERY skeptical of the “recovery”. Too many serious problems still remain below the surface.