Wagering against the economy

Another gambling post? Yep, you better believe it! For some reason I have been fixated on gambling and the whole thought process behind the bets and wagers that people make. It really is an interesting topic to explore if you have any free time, or you could just watch professional poker on ESPN. Either way, it is a fun thing to observe and learn about. I mean, who doesn't want to see someone go all in, bluffing with a 7-2 unsuited hand, and win it all? There is a great deal of psychology behind it, but I'm not an expert, so I won't try to pretend that I am. However, I will say that betting against the odds is something that definitely sparks my interest. Luckily, for me, this is exactly what is currently happening with several Wall Street banks.

According to Bloomberg.com, “Wall Street banks are marketing about $3.7 billion of bonds tied to property loans, wagering investor demand for the debt will withstand mounting concerns that the U.S. economic recovery is stalling and the European crisis is spreading.”

Now I'm not saying that this is a bad thing, but it is kind of like betting on the date that someone will come out of a coma. The odds are against you. However, the hope that the economy will turn around is strong, even though recent signs show that it is not doing as well as we all had hoped.

Bloomberg.com stated that, “Goldman Sachs Group Inc. (GS) and Citigroup Inc. (C) are offering $1.5 billion in bonds, while Wells Fargo & Co. and Royal Bank of Scotland Group Plc (RBS) are selling $1.48 billion of securities, according to people with knowledge of the sales. Deutsche Bank AG (DBK) is marketing $685 million of notes tied to hotel mortgages.”

“Banks are preparing as much as $10 billion in new sales of commercial-mortgage bonds in the third quarter, according to a July 8 report from JPMorgan Chase & Co.”

“Even as the pipeline has grown in the $700 billion market for debt tied to hotels, offices and shopping centers, the U.S. unemployment rate has increased to the highest level this year and credit markets have been roiled by speculation that Europe's debt crisis may engulf Italy.”

So, if you believe that the current economic situation and the debt problems in Europe are not insurmountable, then maybe this is an investment opportunity for you. If not, well, then I guess you can wait until the economy rights itself, but who knows how long that will take.

Do you think these Wall Street banks are making a good wager?

Source article by Sarah Mulholland from Bloomberg.com

#CRE #economy #finance