Wile E Coyote is under copyright, so here is an AI generated image of a realistic coyote falling off a cliff.
No actual coyotes were harmed.

Is the economy about to fall off the financial cliff? And is commercial real estate about to collapse banks?

Remember Saturday mornings, watching cartoons? Every Saturday the coyote would chase the roadrunner around a desert landscape and every Saturday he would get tricked into running off a cliff. But for a moment, he would hang in the air before realizing he's about to hear the penny whistle and fall to the bottom of the canyon. He would hold up a sign, and down he would go.

Friends, our economy feels like Saturday morning right now. Normal laws of physics don't seem to apply to anything we see going on in the markets. It's all cartoon economics, with stocks jumping on bad news. Unsustainable debt piled on unsustainable debt.

Consider:

• 65% of consumers live paycheck to paycheck
• Auto Loan delinquencies are rising
• Credit card debt is up 10% year over year and, delinquencies are rising
• 60% of consumers can't afford an emergency expense of $400
• Major retailers are closing stores; Walmart (WMT), Bed Bath and Beyond (BBBY), CVS (CVS), Best Buy (BBY), Macy's (M) and more
• Bankruptcies have surged 18%
• Amazon (AMZN), UPS (UPS) and Fedex (FDX) laying off tens of thousands of workers

And yet, going by the mainstream financial news, you'd think everything was great.

Dig a little deeper and you can see the economy is about to fall off the cliff.

Commercial real estate could be the gravity that's about to kick in, by drowning the banking system in losses. It is estimated that banks are holding up to $2.2 TRILLION in unrealized losses due to high interest rates.

Remember the collapse of Silicon Valley Bank last March? It was looking like the contagion was going to spread, until the Fed created an emergency lending program to shore up troubled banks - the Bank Term Funding Program (BTFP) We didn’t hear about bank collapses for awhile. Guess what. That program is about to expire.

Small and regional banks hold about 80% of commercial real estate debt and may not be able to handle the potential coming losses without the BTFP. We could see many more banks begin to collapse very soon.

Pension funds, hedge funds and mutual funds that have deep exposure to commercial real estate could be facing a nightmare of losses and write downs. Think mortgage-backed securities, but commercial. How many portfolio managers bought these up when they looked solid and they desperately needed returns? How much exposure does YOUR portfolio really have, if you dig deep? Many pension funds have more than half of their assets in commercial real estate.

We will continue to keep an eye on commercial real estate in the coming months.

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