FROM THE DESK OF PORTER STANSBERRY
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All I’m saying is, go for it... But please, please , dear god, have an ironclad exit plan in place that is not based on emotion. AMY: What exactly does that exit plan look like? PORTER: Well, here’s the thing... Timing the bottom of a market is a much more forgiving task than timing the top of a market. And even though I’ve nailed the timing on many calls over the years, I’m by no means an expert on timing markets... But as the founder of MarketWise, which is the parent company of Stansberry Research, Investor Place, Alta Research, Chaikin Analytics, Altimetry Research, and more... I’m no longer simply looking out for the readers of my letter. I’m now looking out for over 5 million subscribers who all have subscriptions to dozens of different analysts who might not share my view of where the market is going. And that’s OK. Independent thinking is the lifeblood of our business. But I feel a responsibility to each one of you, no matter which MarketWise business you have a relationship, or whose publication you might subscribe to. Because there are big reasons to be worried right now. Remember mortgage-backed securities? AMY: Yes, they were what caused the great financial crisis right? PORTER: Exactly. Well, Amy, have you heard of CLO’s? Or “Collateralized Loan Obligations?” AMY: No, I haven’t. PORTER: Well, Amy, you will. This is the financial vehicle that private equity companies have used to turn all their commercial real estate into a type of security that they could sell to investors.
Well over the past 2 years, as rates rose, the distress rate for CLO’s has risen from just 1% to nearly 10%... That’s because of buildings like 1407 Broadway in New York City. The value of this building has plunged in value from $510 million in 2019 to $136 million today.
The owner is almost certainly going to default on the $1 billion in debt it holds on to the building, including a $350 million loan from Barclays Bank. What the government may not have realized when it sent everyone home from work during COVID is that they weren’t coming back... And this is just one example. There are a million commercial real estate buildings like this all across America. Buildings with tons of bad debt just like 1407 Broadway that nobody has marked down to the current value. And it is our banks that lent all this money. Now, I can’t tell you that the bad debt in commercial real estate will be the nail in the coffin for this bull market... I’m sure the government will continue to bail banks out, just as it did with Silvergate and Silicon Valley.
But remember, every bail out, every deficit dollar, every government boondoggle is just adding fuel to a forest that should have burned years ago. So, this is important. I can’t tell you exactly what is going to be the pin in this latest bubble.
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