DANIEL VAUGHAN: Recession and Commercial Real Estate Implosion Incoming

 April 17, 2023

If you're in the Biden White House, all hands are on deck to explain why we're not headed into a recession. Again. The story is the same; we're experiencing persistent inflation and increasing signals saying the economy is headed for a downturn. In the past, the Biden White House could credibly point to other people saying a recession wasn't coming. Now, the White House is the only group left saying a recession isn't likely.

Everywhere you look, institutions and individual investors are battening down the hatches and preparing for a recession. The Wall Street Journal polled a slate of economists. They said, "With both inflation and interest rates persisting at higher levels than previously expected, economists put the same probability of a recession at some point in the next 12 months at 61%."

Notably, the Federal Reserve is also talking about a likely recession. Factoring in the recent banking crisis, the Federal Reserve is saying a credit crunch is expected. After that, the Fed's staff economists say, "The staff's projection at the time of the March meeting included a mild recession starting later this year, with a recovery over the subsequent two years."

Federal Reserve predicts a recession.

The Federal Reserve joining the chorus of recession calls, put the White House on the defensive this past week. The Fed has moved from inflation isn't a problem, to transitory inflation, to hiking rates at the fastest pace in forty years, to denying recession, and now they're predicting a recession. In defense of the Fed, they say any downturn will be "mild."

My response would be that they've been saying a "soft landing" was likely for the last year. It's hard to believe mild recession predictions from the same models that claimed inflation was transitory.

The commercial real estate sector is feeling the heat already. Morgan Stanley released a note saying that commercial real estate could experience a worse decline than in 2008. Morgan Stanley analysts said commercial real estate could experience a "price decline of as much as 40%, worse than in the Great Financial Crisis ... More than 50% of the $2.9 trillion in commercial mortgages will need to be renegotiated in the next 24 months."

Banks preparing for a recession.

Notably, the largest banks are increasing their credit reserves in preparation for a recession. Believing credit losses are on the horizon, the largest banks are creating a buffer against losses from commercial real estate. Tighter lending standards are likely to follow as the renegotiations take place.

Hedge funds and other shadow banking institutions are preparing to profit from this downturn. Firms like BlackRock are setting aside capital to jump on a collapse in the commercial real estate space.

Yahoo Finance reports, "Shadow lending firms are preparing to push into commercial property financing as regional banks — wounded from the blowup of Silicon Valley Bank — beat a retreat. Among the possible entry points are office properties, especially if values continue falling and banks look to offload the loans. With few buyers willing to wade into those murky waters, lenders with the capital and know-how may find bargains."

Landlords holding commercial real estate are expecting losses. Banks are expecting losses. And the birds or prey, like BlackRock, are already circling above, waiting to jump on office buildings that have lost considerable value.

The recession everyone knows is coming.

This isn't some conspiracy theory. Mainstream finance outlets are reporting what everyone knows. Bank of America and J.P. Morgan, two of the largest banks, predict a recession. They do this while profiting from the investment moves they're making now.

We're headed into one of history's most predicted, foreseen, and known recessions. The only people denying a recession is on the way are partisan hacks. It's one thing to claim a recession is on the way. It's quite another to deploy billions of dollars into investment strategies to profit and survive a recession, which is what the wealthiest are doing now.

Returning to the Wall Street Journal economists, they add that they don't see much economic growth ahead. The economists polled said, "Economists expect stagnant growth this year, forecasting inflation-adjusted gross domestic product to rise just 0.5% in the fourth quarter of 2023 from the fourth quarter of 2022. Growth in 2024 isn't expected to fare much better, at 1.6%."

You can believe the hacks or the direction of cash. Dollars don't lie; they tell the truth. No one believes the White House, and that's been clear for some time.

The economy is not strong. Sectors like tech are in recession, finance is feeling the strain, and commercial real estate is facing a cliff larger than the Great Financial Crisis. Can we navigate this without a massive downturn? Yes. Anything is possible. But it's more likely a hard recession is on the way.

" A free people [claim] their rights, as derived from the laws of nature."
Thomas Jefferson
© 2015 - 2024 Conservative Institute. All Rights Reserved.