Commercial real estate feels like Wile E. Coyote running off a cliff and not falling because he hasn't looked down yet.

I think there is still a pathway to things calming down, especially if FRB can other verticalized regional banks can make it over the next few weeks.

I suspect if things do go, it will be in CMBS. I don’t think office assets are being fairly marked-to-market right now and I want to better understand mortgage performance on office real estate. Subsequent derivatives likely explode this risk and how they are intertwined across private money is unclear.

I am also generally worried about normcore middle market, the diesel engine repair franchise, regional fast casual chain, etc…they are really getting squeezed from several angles. Best guess, the rapid reduction in fuel prices bought a temporary reprieve but that things are coming.

As others have said here, the failure mode will probably be novel but seek leverage to find the arming switch.

> Banks are not overleveraged.

Banks are holding $600+ billion in currently worthless bonds.

https://www.google.com/search?q=620+billion+dollar+bonds+ban...

No, the bonds are worth something, and the losses can narrow by a lot if they're allowed to hold to maturity, deposit interest rates rise slowly enough and if broad interest rates drop some time on the future. The risk that they can't narrow is indeed real and whether to backstop that is a source of contention here.

Unfortunately we are stuck living in the present where the bonds are worthless and not the future.

"slightly less valuable than expected" is not "worthless"! The hyperbole bubble is getting exhausting. People really want to talk a crisis into existence. Are they bored?

If you happen to be holding any "worthless" Treasury bonds, I would be happy to take them off your hands for $0.10 on the dollar.

I bet the banks would jump at the chance to turn a $600 billion hole into a $540 billion hole.

I understand that that's a scary number, but definitions are important.

There is no $600B of worthless bonds. There is $600B of unrealized losses. The bonds are worth something.

Moreover, unrealized losses are not leverage. Banks in 2008 were levered 30-to-1. No such thing now.

Some of them are even holding bags of rocks.[0]

[0] https://www.wsj.com/livecoverage/stock-market-news-today-03-...

I don't understand how residential housing isn't a big bubble. That has to have second order effects yet to be fully felt.

I guess maybe it could look like even more inflation? If inflation goes up enough and wages mostly keep up, housing could become relatively reasonably priced again.

Increased housing prices definitely and directly cause inflation. Housing is in the neigborhood of 40% of the CPI basket, and even more of core CPI.

> I don't understand how residential housing isn't a big bubble.

It’s not inherently a bubble because it’s driven by demand far outstripping supply. It may prove to be bubble-like if:

A) Some significant % of homeowners see salaries reduced enough they can’t keep up on payments.

B) We suddenly start building massive amounts of additional housing units so a larger % of the population can own/rent a home and the price drops to match the lowest income that still outcompetes the rest of the non-homeowners / non-renters / uncomfortably sharing renters.

I'm hoping we go all-in on option B.

>Banks are not overleveraged

But the people are, consumer debt is out the wazoo

> consumer debt is out the wazoo

No, its not, compared to 2007, when the all time peak of consumer debt (as a share of GDP) was reached, at 98.4%. The recent local peak was 80% in early 2021, and by September 2022 (the most recent number I can find) it had dropped to 75.2%.