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Commercial break

The warnings have been coming since the Fed started its aggressive rate-hiking cycle two years ago, but worries are piling up about the health of commercial real estate properties and the bank loans that support them. According to the St. Louis Fed, two-thirds of CRE loans are held by community or regional banks, meaning if things go sour, the sector can fall under immense pressure. As a result, financial regulators are keeping a close eye on the industry, but as in the case of Silicon Valley Bank (OTC:SIVBQ), it may be hard to take "sufficient steps" in time despite many supervisory warnings.

Quote: "I do have a concern about commercial real estate," Treasury Secretary Janet Yellen said in her testimony before the House Financial Services Committee. "I believe it's manageable although there may be some institutions that are quite stressed by this problem. The higher interest rate environment, and in some cases, particularly the case in office building shifts due to the pandemic, coupled with many commercial real estate loans coming due and needing to be refinanced in a context where vacancy rates in some cities are quite high, is going to put a lot of stress on the owners of these properties. And so the banking agencies are very focused on the banks managing through these situations. They're, in some cases, working to make sure that loan loss reserves are built up to cover losses, that dividend policies are appropriate, that liquidity is adequate."

Industry players are also taking notice. Moody's Investors Services downgraded New York Community Bancorp's (NYCB) credit rating to "junk" late Tuesday (just after Yellen's testimony), citing "financial, risk-management and governance challenges." Shares of the lender, which has been in the spotlight, plunged 16.7% to $3.50 in AH trading after tanking 22.2% during the regular session. It was only a week ago that the stock was changing hands near the $10 level, but a surprise quarterly loss and provisions for credit losses set off alarm bells, while commercial real estate worries didn't help the situation.

Whatever it takes? There are those that are concerned about broader stability or systematic risks, especially if disruptions spread to financial markets and the real economy. Interest rates are also likely to remain high with the Fed taking a March cut off the table, while the long inversion of the yield curve isn't helpful for banks that borrow short to lend long. A full contagion and CRE crisis could see thousands of banks fail under a worst-case scenario, according to SA Investing Group Leader Avi Gilburt, who explores non–owner–occupied property loans, office building vacancies and default rates in a recent Seeking Alpha article. (12 comments)

New sports app

Walt Disney (DIS), Fox (FOX) and Warner Bros. Discovery (WBD) are teaming up on a joint venture to produce a streaming platform that would share sports assets. The companies would each own a third of the platform, which would combine their interests and provide scale negotiating power as the price of sports rights continues to arc ever higher. Shares of Fox and Warner Bros. continued to rise in premarket trading on the news, climbing 5.2% and 3%, respectively, while Disney slipped 1.1%. Activist investor Nelson Peltz was reportedly planning to push for bundling ESPN+ with a larger streaming player, perhaps Netflix (NFLX). (77 comments)


Adam Neumann, who co-founded WeWork (OTC:WEWKQ) and was ousted when its planned IPO flopped in 2019, is teaming up with capital providers in an attempt to buy the co-working space provider out of bankruptcy. Dan Loeb's Third Point and Neumann have been seeking information from WeWork since December to put together a bid for the company. "We continue to believe that the work we are currently doing - addressing our unsustainable rent expenses and restructuring our business - will ensure WeWork is best positioned as an independent, valuable, financially strong and sustainable company long into the future," WeWork said in a statement, adding that it receives expressions of interest "on a regular basis." (1 comment)

That was quick

Less than a month into the recommendation, traders at J.P. Morgan have issued a mea culpa on their cautious call on U.S. stocks, with the trade desk now saying it is "tactically bullish." That stands in contrast to the global strategy team, headed by Marko Kolanovic, which has consistently warned about stretched valuations in tech names and the all-in attitude of the market on a U.S. soft landing. The trade desk team says the big change is megacap tech earnings decoupling from bond yields. If investors are also looking to go beyond Overweight on a group, now may be the time to do that with the Magnificent 7 and some hedges. (6 comments)

Today's Markets

In Asia, Japan -0.1%. Hong Kong -0.3%. China +1.4%. India -0.1%.
In Europe, at midday, London -0.4%. Paris -0.2%. Frankfurt -0.3%.
Futures at 7:00, Dow -0.1%. S&P -0.1%. Nasdaq +0.1%. Crude +0.8% to $73.88. Gold -0.1% to $2,049.60. Bitcoin +0.4% to $42,915.
Ten-year Treasury Yield +4 bps to 4.13%.

Today's Economic Calendar

7:00 MBA Mortgage Applications
8:30 International Trade in Goods and Services
10:30 EIA Petroleum Inventories
11:00 Fed's Kugler Speech
11:30 Fed's Collins Speech
12:00 PM Fed's Barkin Speech
1:00 PM Results of $42B, 10-Year Note Auction
2:00 PM Fed's Bowman Speech
3:00 PM Consumer Credit

Companies reporting earnings today »

What else is happening...

Snap (SNAP) slides 30% as revenue shortfall overshadows user growth.

Boeing 737 Max was missing bolts in Alaska Airlines (ALKmidair blowout.

Higher traffic at Chipotle (CMG) drives comparable sales, margin beat.

Increase in credit card delinquencies signal 'financial stress' - New York Fed.

$250M deal: Spotify (SPOT) prefers to lose money over losing Joe Rogan.

Buffett's Berkshire (BRK.Bsnaps up more Occidental Petroleum (OXY).

Cannabis stocks on watch ahead of decision on rescheduling marijuana.

Better-than-expected Q4 profit at BP (BP) and more stock buybacks.

Woodside (WDS), Santos end talks to create $52B Australian LNG giant.

Four- and five-star rated 'Dividend Aristocrat' stocks for 2024 by CFRA.

Known to most as Uranium Pinto Beans, Jason has more than 15 years under his belt of trading stocks, options and currencies. His expertise primarily lies in chart analysis, and he has a strong eye for undervalued stock. Because he’s got the ability to identify great risk/reward trades he usually enjoys taking the path less traveled and reaping the benefits from the adventure.

He is a co-founder of Option Millionaires, and he is best known for his weekly webinars with Scott, as well as his high level training webinars and charts found in the forums.

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