Andrew Lahde on CMBS: Look Out Below!
By: HousingWire staff
March 6, 2008 8:06 AM CST
Andrew Lahde of the aptly-named Lahde Capital is one of the rock stars of the current market — one of his hedge funds returned an astounding 870 percent last year by shorting the ABX indices.
That fund has now wound up its positions; not because residential real estate and subprime debt don’t have further to fall — they do — but because he felt it was getting too expensive to bet on a continued downturn. (In other words, everyone’s sort of figured out by now that subprime stinks, and that this real estate thing is likely to suck for some time).
But another of his funds is actively shorting commercial real estate via the CMBX indices. In an investor letter published over at the FT Alphaville blog, Lahde’s comments are worth reading:
I’d like to use an analogy from Peter Schiff’s book. If the commercial real estate market was a beach ball, picture my arm holding the ball. If I take my arm away, everyone knows that ball will fall to the ground. However, many foolishly believe that somehow if you take cheap financing (my arm) away, the ball will remain afloat. Risk premiums for this type of debt have skyrocketed as exhibited by the CMBX. If you dramatically increase the risk premium for an asset class, especially one that is so heavily financed, the value of that asset class must fall. End of story.
The losses will materialize. Admittedly I don’t have a clue how severe the losses will be. I don’t have a model that can correctly predict all the variables. Luckily no one else on the planet has such a model either. I gave up on the ability of models to correctly predict the value of securitizations a few years ago. I do know one thing though. It is safe to assume a market is dead when deal volume falls to zero, as was the case with CMBS issuance during January 2008.
Beyond the indescribable joy we get from hearing about a hedge fund manager essentially sticking it to the quants — who needs models if everyone’s taking the same bath? — that last sentence should stun anyone in the capital markets.
No CMBS deals in January. None. Nada. Zip. Zilch. Zero. Nunca.
Lahde-dah, indeed.
Print This Article
-
October 20th, 2008 3:09 pm by Lahde, Idiots, and Hedge Fund Trades : HousingWire
[...] make stuff like this up — we’d covered the rousing success of fund manager Andrew Lahde in March, and that story recently popped up as the most-searched story on HousingWire. Which led us to [...]
Get your HW Fix
Join nearly 10,000 bold subscribers who already get our daily email delivered to their inbox -- it's free, and a great way to ensure you don't miss something.
Events
2009 Jul 09 -- 2009 Jul 10
USFN Legal Issues in Mortgage Servicing Seminar
Geared towards in-house counsel, designed to discuss current legal issues in the mortgage servicing industry and real estate finance. Closed event in Chicago, Ill.; for more information, visit www.usfn.org.
2009 Oct 04 -- 2009 Oct 05
IMN's 15th Annual ABS East
Hosted at the Foutainebleau Resort Miami Beach in Miami, FL, the theme of this year's event is "Navigating a Path to Recovery" and alludes to decisive actions by the government and industry leaders to set a course that will hopefully lead to a revived and robust US securitization market. For more information, visit www.img.org.
2009 Oct 20 -- 2009 Oct 21
RMBS: Assessing Value and Risk
This two-day course in Washington, DC will equip market participants with the knowledge and skills to evaluate prime, Alt-A and subprime RMBS portfolios in order to assess their value and understand inherent risks. For more information, visit www.fitchratings.com.
Got something to say?
Remarks by first-time commenters will not appear immediately, and must be approved before they will appear. All comments are subject to HousingWire's usage policy.