HFF Research Update for September 9, 2016: Caught a Bug

Friday, September 9, 2016

Weekly insights on current research in the commercial real estate industry from HFF Managing Director of Research Jimmy Hinton. View Daily Rates on the HFF website or access the HFF Daily Rates App in iTunes.

On this day in 1946, Grace Hopper coined a phrase describing the bane of all technology. Working at Harvard’s computer lab on the Mark II and Mark III computer systems for the Navy, Hopper worked to trace the source of an error. She located a moth trapped in a relay, removed it and taped it to her notepad. “First actual case of bug being found,” reads the entry.

Source:  U.S. Navy

Seventy years later, the bugs we face are of a different variety but they bother us nonetheless, and, today, the bugs are in the markets.

Across the globe, markets are weaker today. It is rare to see both equity and bond markets experience concurrent reductions in value – it is far easier to say investors are in favor of one at the expense of the other. But Friday, September 9, is not one of those days. As of this writing, the DJI is down 1.25 percent, while the S&P and NASDAQ are each down approximately 1.5 percent, but the trajectory might result in deeper losses through the end of the trading day.

What is happening?

On Thursday morning, former Dallas Federal Reserve President Richard Fisher visited CNBC’s "Squawk Box" and shared the same mantra he and other Fed officials have espoused for several years: Fiscal policy around the globe has not aligned with an accommodative monetary policy provided by central banks.

“There's very little incentive, together with the pincer movement of regulatory excess, for people to go out there and lend into job-creating enterprises. It's a joint strangle on what moves our economy forward.” – Fischer

Earlier this morning, Mario Draghi, president of the European Central Bank, announced a plan to study the impact of his organization’s quantitative easing program and stopped short of promising further investment in the Euro-region’s sovereign and corporate bond markets.

Suddenly it would appear central banks are less interested in providing the support their counterparts in political houses are sluggish to commit to. In perfect irony, European leaders are in Slovakia today urging Greece politicians to accept further reforms in order to receive more bailout proceeds – yet they resist.

As central banks enter a spate of existential hand-wringing, the markets’ willingness to remain complacent is very suddenly, if softly, taking notice. Emerging markets will be the regions suffering the deepest cuts – just look at Brazilian equities down nearly three percent today. Still, when stable economies suffer volatile swings in bond and equity values it can wreak havoc in terms of both investor sentiment and risk-free spreads.

Maintain a watchful eye. For now, credit spreads are flat. But a protracted period of volatility could see them widen.

About Jimmy Hinton

Jimmy Hinton serves as Managing Director of HFF, responsible for the firm’s national research efforts. Mr. Hinton works with the executive management team to assist in investor relations and to inform both HFF staff and firm clients with in-depth analysis of economic, property and capital market trends. He is also responsible for providing extensive market reports, client presentations and deal-specific analysis for debt placement and investment sales assignments. Mr. Hinton’s responsibilities include substantial interaction with pension funds, life insurance companies, regional and CMBS lenders, REITs, foreign investors and private equity funds.

During his tenure at HFF, Mr. Hinton has supported the execution of more than 150 commercial real estate transactions totaling more than $4.5 billion in 20 states. Mr. Hinton has experience in fixed- and adjustable-rate debt, mezzanine debt, construction loans and joint venture executions on behalf of clients engaged in the acquisition, development and recapitalization of property types including multi-housing, industrial, office, retail, medical office and storage properties.

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