Recession domino theories in abundance
As 2008 appears on the horizon, the "recession domino theory" has reached consensus with many economy pundits, particularly over the past week:
Commercial real estate dominoes collapse - Minyanville, Dec. 26
Once one key player backs out of a commercial development, they all do. As big anchors like Lowe's and Home Depot retrench, other retailers like Target follow suit and halt commercial development across the country, which in turn creates fewer jobs and more unemployment.
Credit downturn hits the malls - WSJ, Dec. 26
Anchor chain stores dropping out of developments aren't the only deal killers. The inability to refinance short term and mezzanine debt (that looked like sure bets one year ago) also kill projects.
"Credit was so plentiful when Mr. Macklowe purchased his Manhattan office buildings from Blackstone, he only needed to put in $50 million of equity to secure $7.1 billion in debt, which included a bridge loan and the senior mortgage, people familiar with the deal say. He is now looking for an equity partner."Credit card domino - CBS News, Dec. 23
Simply put, credit cards credit lines are simply non-collateralized, easy to get debt instruments that are now being used to pay mortgages in arrears.... another domino tranche.
(updated) Subprime crisis brings down an airline - Bigger Pockets, Dec. 26
Another domino story - hint: airlines always need operating credit lines and fuel.
The Global Economy's inevitable hard landing - Roubini RGE Monitor, Dec. 25
Monetary injections by the global central banks don't really help the economy when financial institutions no longer trust each other based on high perceived solvency and default risks. Roubini points out: [during December's central bank rate cutting actions] "Central banks should have announced a coordinated 50 basis-point reduction to signal their seriousness about avoiding a global hard landing."
If the central banks coordinate their rate cutting efforts, the dollar doesn't have to crash as badly.
And from my Christmas family dinner table, I heard the simple consumer reason loud and clear why a weak dollar will hurt the economy. My cousin owns a retail store that sells higher end products predominantly made in Asia, and she says her revenues slipped dramatically this summer during the credit crunch. Now she is concerned about the prospect of raising retail prices due to the rising Chinese yuan and further dampening her lackluster sales.
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