For those who Fed watch, the Banking crisis seems to be ready for a resurgence. Failing Commercial Real Estate Loans are a massive problem on bank balance sheets and the sound of jingling keys sent in by mail is getting louder. Building owners with high vacancy rates spawned by stay at home employees are seeing valuations plummet as rents lead the way down, so just walking away is becoming the preferred choice.
Though the Fed may have some plan up their sleeve to again bail out some these troubled balance sheet banks, it will likely be a consolidation wherein the bigger banks absorb the smaller ones and those that survive become if not already pet projects for Powel's press.
Interest rates on needed refis will be at higher rates so this trend will accelerate. Adding to these woes is the bond debacle and that facility is nearing its end. A reprieve is likely if not a full stay of execution in tandem with the CRE crisis.
Are these events important to main streeters? Absolutely because it will result in a credit tightening where even good risks will have trouble accessing needed capital. Credit crunches are not good for growth and portend contraction…Recession still looms in this writer's opinion. When is a judgement call but I say within 2024 in spite of the tradition Presidential election friendly fed.
It's a good time closely monitor debt and the cost to carry it. If you have refi in your future, expect higher rates for longer. If it gets ugly and too damn punishing to keep a loan going, them mailing in the keys is an option. It would not surprise me at all if some forgive the loans scheme is floated. Why not. With all the market manipulation the fed does, what's one more distortion in this hunchback of federal reserve tale.
Stay alert!
Best,
Donn Marier