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<ul class="summary-list"><li>The US stock market won't find a bottom until there's a "large panic-induced drop," The <keyword id="14376016" type="UNKNOWN" weightage="60" keywordseo="kobeissi-letter" source="Orion">Kobeissi Letter</keyword> told investors on Tuesday. </li><li>There's never been a bear-market bottom without the <keyword id="11895855" type="UNKNOWN" weightage="60" keywordseo="vix" source="Orion">VIX</keyword> reaching 45+, the capital <keyword id="11893875" type="UNKNOWN" weightage="100" keywordseo="markets" source="Orion">markets</keyword> newsletter told investors. </li></ul>The bleeding in the <a href="https://markets.businessinsider.com/index/s&amp;p_500?utm_source=markets&amp;utm_medium=ingest?utm_source=markets&amp;utm_medium=ingest">S&amp;P 500</a> this year is unlikely to stop until there's a frenzied level of selling in the stock market, one financial newsletter told investors on Tuesday. The <keyword id="11898248" type="UNKNOWN" weightage="60" keywordseo="sp-500" source="Orion">S&amp;P 500</keyword> dropped Tuesday, with nine of its 11 sectors in the red. The index has lost 22% from the all-time high of 4,818.62 it reached six months ago. "This market will not bottom until we see a large panic-induced drop," <a href="https://twitter.com/KobeissiLetter/status/1544321402207092736">The Kobeissi Letter said in a message on Twitter.</a>"We are well into <keyword id="12211354" type="UNKNOWN" weightage="60" keywordseo="bear-market" source="Orion">bear market</keyword> territory but panic selling has yet to begin. No bear market in history has bottomed without $VIX at 45+," the newsletter focusing on global capital markets said, referring to the <a href="https://markets.businessinsider.com/index/vix?utm_source=markets&amp;utm_medium=ingest">Cboe volatility index</a>.The VIX, known as Wall Street's <keyword id="14376014" type="UNKNOWN" weightage="60" keywordseo="fear-gauge" source="Orion">fear gauge</keyword>, was just above 28 on Tuesday, and the index would need to rise by about 61% to hit 45. So far this year, it had already gained 65%. "This market will not bottom until we see a large panic-induced drop," the newsletter said. Investors have slammed equities lower as they foresee a recession on the horizon with the Federal Reserve ramping up borrowing costs to cool down scorching inflation. Rising energy prices contributed to US consumer price <a href="https://www.businessinsider.com/inflation-report-cpi-may-gas-prices-federal-reserve-rate-hikes-2022-6">inflation accelerating to 8.6% in May</a>, the fastest pace since December 1981. The Federal Open Market Committee this year has pushed up the fed funds rate to a range of 1.5% to 1.75% from the ultra-low range of 0% to 0.25%.Investors are waiting to see if the central bank at its July 26-27 meeting will raise the rate range by another 50 basis points or by another 75 basis points. "We are seeing widespread liquidation of everything. <keyword id="11893878" type="UNKNOWN" weightage="60" keywordseo="stocks" source="Orion">Stocks</keyword>, commodities, treasury yields, and crypto are all down together," The Kobeissi Letter said in a <a href="https://twitter.com/KobeissiLetter/status/1544340125735419911">separate tweet on Tuesday</a>. "This is what happens when you raise rates into a recession. Everyone wants cash," it said.<div type="image" title="A chart shows the VIX's 2022 performance through July 5." height="934" width="1142" msid="92685576" hostid="261" sizebytes="31386"></div>

The stock market's fear gauge needs to spike up significantly before the bear market bottoms out

<ul class="summary-list"><li>The US government has spent some $28 trillion since 2020, causing its debt to surge to a record of almost $33 trillion.</li><li>The spending binge has created a "mind-blowing hole" in the nation's public finances, according to Larry McDonald. </li></ul>US government debt almost <a href="https://www.statista.com/statistics/273294/public-debt-of-the-united-states-by-month/#:~:text=In%20July%202023%2C%20the%20public,around%2030.6%20trillion%20U.S.%20dollars." target="_blank" rel="noopener">doubled in the past decade</a> to a record level of almost $33 trillion, or 122% of the nation's GDP.And that's got experts concerned. Fiscal spending has skyrocketed since the pandemic and shows little sign of slowing — and this has created a "mind-blowing hole" in the nation's finances, according to markets guru Larry McDonald. <a href="https://www.thebeartrapsreport.com/blog/" target="_blank" rel="noopener">In a blog post on Wednesday</a>, the author and former strategist cited data from <a href="https://twitter.com/KobeissiLetter/status/1694055758873141403?ref_src=twsrc%5Etfw" target="_blank" rel="noopener">the Kobeissi Letter</a> to illustrate his worries.Federal spending during the 2020-2023 period has amounted to a staggering $28 trillion, <a href="https://twitter.com/Convertbond/status/1694503294880670190" target="_blank" rel="noopener">he pointed out in an X post on the same day.</a>"There is a price to pay...It's NOT free," he added.McDonald isn't the only commentator who has voiced worry about America's ballooning debt burden in recent months. Billionaire investor Ray Dalio warned in June that the US is at the start of a "classic late, big cycle debt crisis" characterized by the nation facing a shortage of buyers for its bills and bonds. Veteran economist Nouriel Roubini also has <a href="https://markets.businessinsider.com/news/stocks/nouriel-roubini-economy-recession-inflation-debt-market-crash-dr-doom-2023-3?utm_medium=ingest&amp;utm_source=markets">expressed similar concerns</a>.Fitch Ratings <a href="https://www.businessinsider.com/fitch-downgrades-us-credit-rating-deficit-debt-ceiling-2023-8?r=US&amp;IR=T">downgraded the US's long-term credit rating</a> earlier this month, citing a "steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters."Worries about the strain on public finances is also rising as sharply higher interest rates lead to a jump in the cost of federal borrowings. The market rate on 10-year Treasury bonds has surged to about 4.25% from as low as 0.32% in early 2020 — that's a 13-fold increase in a little over three years — as the Federal Reserve jacked up interest rates to combat inflation.McDonald, founder of the Bear Traps Report, also discussed potential ways to reduce debt — including austerity, drastic currency reform, and through inflation."Another way to improve debt to GDP ratios is through hidden debt reduction i.e. inflation. It is an old truism that inflation is a tax, and that raising taxes outright is considered an unpalatable risk politically," he wrote in the blog. "Financial repression means to keep the return to savers below the inflation rate. This is what the US and the UK did after WWII.""The US government's financial repression is a back door way of lowering government debt thereby improving the debt-to-GDP ratio to a sustainable level," he wrote. "Politicians are loath to outright raise taxes on the middle class, so they tax everybody via inflation."

'Mind-blowing' US debt binge amid high interest rates is threatening financial stability, Larry McDonald says

<ul class="summary-list"><li>Elon Musk has sounded the alarm on mortgages and commercial real estate.</li><li>The Tesla chief warned that banks could be hit by a surge in defaults and lower asset prices.</li></ul>The <a href="https://www.businessinsider.com/a-banking-crisis-is-unfolding-worldwide-how-bad-is-it-2023-3">turmoil</a> in the banking sector could spread to the housing and commercial real estate markets, Elon Musk has warned."This is by far the most serious looming issue," he <a href="https://twitter.com/elonmusk/status/1640186770858864642" target="_blank" rel="noopener">tweeted</a> on Saturday. "Mortgages too."The Tesla, Twitter, and SpaceX CEO was responding to The Kobeissi Letter, after it <a href="https://twitter.com/KobeissiLetter/status/1640100477537857538" target="_blank" rel="noopener">outlined</a> that a record $2.5 trillion in commercial real estate debt will mature over the next five years.Many borrowers could default on those loans in the face of sharply higher interest rates, depressed occupancy levels, tighter financing, and pressure on asset prices as recession fears grow. Around 70% of CRE debt in the US is held by smaller banks, exposing them to major losses if those defaults occur, the markets commentary said.In the same vein, Genevieve Roch-Decter <a href="https://twitter.com/GRDecter/status/1638901807027044356" target="_blank" rel="noopener">tweeted</a> a few days earlier that the <a href="https://www.businessinsider.com/silicon-valley-bank-failure-what-happened-bank-run-explained-2023-3">collapse of Silicon Valley Bank</a> was "just a blip" — and there was a "much larger timebomb" in the form of CRE loans on banks' balance sheets.The finance guru cautioned that loan defaults could spike due to higher borrowing costs, and real estate prices could fall due to softer demand. Banks' CRE portfolios could slump in value as a result, putting pressure on lenders to raise fresh capital to shore up their finances. That's what spooked SVB's depositors, sparked a run on the bank, and spurred the federal government to take control of the lender."This is the real problem," Musk <a href="https://twitter.com/elonmusk/status/1639142071629156353" target="_blank" rel="noopener">responded</a>. "Many cities have high office vacancy rates. Mortgage portfolios are at risk too if housing prices drop significantly."The tech billionaire seems worried that banks' commercial real estate loans and mortgages could tank in value. He appears concerned that higher rates, tighter lending standards, a looming recession, and the remote-working trend might weigh on demand for certain properties, pull down prices, cause a wave of defaults, and deal a heavy blow to the institutions that hold those loans.Bill Ackman recently <a href="https://markets.businessinsider.com/news/stocks/ackman-banking-crisis-economy-fed-rates-musk-dimon-inflation-blockchain-2023-3">underscored</a> the key role that smaller lenders play in the construction and real estate sectors. The billionaire investor and Pershing Square chief warned that if depositors pull their money out of those banks, that could hamper lending to those industries and cause a meaningful economic slowdown.Two Wall Street titans have also <a href="https://markets.businessinsider.com/news/stocks/commercial-real-estate-debt-regional-banks-risk-stock-market-cre-2023-3">sounded the alarm</a> in recent days. Bank of America said CRE could be the "next shoe to drop" for markets and the economy, while JPMorgan suggested a surge in loan defaults could fuel $38 billion of losses in the banking sector.It's worth noting that Musk has been <a href="https://markets.businessinsider.com/news/stocks/elon-musk-fed-interest-rates-banking-crisis-inflation-recession-ackman-2023-3">complaining</a> about higher interest rates for a while. The Tesla chief has bemoaned that they effectively raise the price of vehicles, as they increase the monthly cost of car-loan payments. As a result, automakers have to cut prices just to maintain demand, he said.

Elon Musk sounds the alarm on real estate, warning a spike in defaults on mortgages and commercial loans could hammer banks

<ul class="summary-list"><li>Fears are on the rise that commercial real-estate could be where the next economic shock could emanate from.</li><li>A combination of high interest rates, work-from-home trends and tighter credit conditions could hit commercial property owners, and their lenders, top voices have said. </li></ul>The past year's surge in US interest rates has already triggered the biggest banking turmoil since the 2008 financial crisis.From top economists to Wall Street banks, a growing chorus of experts is warning that commercial real estate could be where the next cracks appear.High borrowing costs and tighter credit conditions caused by the banking jitters could raise hurdles for big property owners as they seek to refinance a pile of loans. Nearly $450 billion in commercial real-estate debt is due to mature in 2023 - meaning a final payment on those loans are due, per data cited from Trepp by JPMorgan.The Federal Reserve has raised benchmark interest rates to 5% currently from almost zero 12 months ago - that's the steepest jump in US borrowing costs since the 1980s.What's making things worse is the fact that <a href="https://www.businessinsider.com/remote-work-gutted-city-downtowns-office-real-estate-apocalypse-2022-12?utm_medium=ingest&amp;utm_source=markets" rel="">occupancy rates in offices across the country are still far from pre-pandemic levels</a> thanks to remote work trends - and that's weighing on property valuations. Against that backdrop, odds are on the rise that commercial property owners could default on their debt. It could be the perfect storm for the already-embattled US regional banks, given their large loan exposure to the sector. Such lenders hold almost 70% of outstanding commercial property debt, according to BofA. Here's what seven top voices and banks have to say about the $2 trillion US commercial real-estate market. <h3>Elon Musk, Tesla and SpaceX CEO </h3>"This is by far the most serious looming issue," the tech guru <a href="https://twitter.com/elonmusk/status/1640186770858864642" target="_blank" rel="noopener">tweeted</a> on Saturday. "Mortgages too."The Tesla, Twitter, and SpaceX CEO was responding to The Kobeissi Letter, after it <a href="https://twitter.com/KobeissiLetter/status/1640100477537857538" target="_blank" rel="noopener">highlighted</a> that a record $2.5 trillion in commercial real-estate debt will expire over the next five years."This is the real problem," Musk <a href="https://twitter.com/elonmusk/status/1639142071629156353" target="_blank" rel="noopener">responded</a>. "Many cities have high office vacancy rates. Mortgage portfolios are at risk too if housing prices drop significantly."<h3>Bill Ackman, Pershing Square CEO </h3>"A lot of the construction lending and real-estate lending and small business lending is done by these smaller banks. Commercial real estate is a major part of our economy. If these banks lose all their capital and deposits, that will cause a meaningful slowdown," <a href="https://markets.businessinsider.com/news/stocks/ackman-banking-crisis-economy-fed-rates-musk-dimon-inflation-blockchain-2023-3?utm_medium=ingest&amp;utm_source=markets" target="_blank" rel="noopener">Ackman said</a> during an episode of the 20VC podcast. <h3>Jim Chanos, famed short-seller and Chanos &amp; Co. boss </h3>"Commercial real estate was really an attractive asset on the way up," Chanos said. "It becomes in bad markets, poor credit markets, a really bad asset — and everybody forgets that," the short-seller and Chanos &amp; Company boss said. "There are so many moving parts now that are below that surface that will impact valuations that you might not be aware of," he added. <h3>Bank of America</h3>"Commercial real estate [is] widely seen as next shoe to drop as lending standards for CRE loans to tighten further," Bank of America's Michael Hartnett <a href="https://markets.businessinsider.com/news/stocks/commercial-real-estate-debt-regional-banks-risk-stock-market-cre-2023-3">said in a note</a>. <h3>JPMorgan </h3>"We expect about 21% of commercial mortgage-backed securities outstanding office loans to default eventually, with a loss severity assumption of 41% and forward cumulative losses of 8.6%... Applying the 8.6% loss rate to office exposure, it would imply about $38 billion in losses for the banking sector," <a href="https://markets.businessinsider.com/stocks/jpm-stock?utm_medium=ingest&amp;utm_source=markets">JPMorgan</a> said."Furthermore, regional banks are a lot more stressed which reduces their ability to amend and consent to loan modifications given the pressure on the liability side of the balance sheet," the bank added. <h3>Scott Rechler, CEO of NYC-based real estate company RXR Realty</h3>"There is $1.5 trillion in commercial real estate debt maturing in the next 3 years. The bulk of this debt was financed when base interest rates were near zero. This debt needs to be refinanced in an environment where rates are higher, values are lower, &amp; in a market with less liquidity," Rechler <a href="https://twitter.com/ScottRechler/status/1638534824808923136" target="_blank" rel="noopener">said in a tweet this week.</a>"I have joined @TheRERoundtable in calling for a program that provides lenders the leeway and the flexibility from regulators to work with borrowers to develop responsible, constructive refinancing plans... If we fail to act, we risk a systemic crisis with our banking system &amp; particularly the regional banks," Rechler said.<h3>Adam Posen, American economist and president of the Peterson Institute for International Economics</h3>"I expect a major correction in commercial real estate is already under way," said Adam Posen, president of the Peterson Institute for International Economics, <a href="https://www.marketwatch.com/story/there-is-going-to-be-a-real-mess-in-commercial-real-estate-but-maybe-not-a-financial-disaster-economists-says-bc548ab" target="_blank" rel="noopener">in an interview with MarketWatch</a>, adding that the commercial property sector is heading for a "real mess." "We haven't seen smooth repricing or terribly transparent repricing of the mortgages and commercial-real-estate lending that is held in nonbank financial intermediaries," Posen said.

You Searched For "kobeissi letter" and got 4 results

The stock market's fear gauge needs to spike up significantly before the bear market bottoms out

Carla Mozée

'Mind-blowing' US debt binge amid high interest rates is threatening financial stability, Larry McDonald says

Joseph Wilkins

Elon Musk sounds the alarm on real estate, warning a spike in defaults on mortgages and commercial loans could hammer banks

Theron Mohamed

Commercial real estate could be where the next economic shock comes from. Here's what Elon Musk, Bill Ackman, and 5 others have predicted.

Zahra Tayeb

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