Some of his other points:
- Personal saving is up, borrowing is down. The increase in savings isn't going into investments, it is going into bank reserves. Because there is no incentive for zombie banks to sell assets, the institutions with reserves aren't buying.
- The Dow may be up, but the companies still aren't making profit. So they aren't investing. Companies are still in a "get lean" mode.
- Dhawan thinks the population estimates for Atlanta are off. Based on the drop in sales tax revenue during this recession (higher than it should be), he thinks the next census will show a big difference in population from what is expected. We won't know until 2011, though.
- Expectations for real estate performances are unreasonably high. While junk bonds are getting 9.5% yields, real estate investments are expected to throw off 15%-20% yields. The only way to get these returns is extraordinarily high leverage or essentially "cooked" pro formas with ridiculous assumptions. Real estate investors need to start expecting realistic yields in line with similarly risky assets - probably in the 9% range. (Obviously it depends on the product type, etc.)
- The MBS and CMBS system was flawed because the originators had no incentive to originate high performing loans - they could sell them to investors, make a big bonus, and if the loan went into default it was someone else's problem. He suggested a "skin in the game" requirement/regulation. Penner is very much a free-market guy, and suggested we needed "smart regulation" instead of "more regulation".
Also - wtf, networking events at 7 AM? I had class until 9:45 last night, and got home at 10:15. All the breakfast stuff was nothing but processed carbs, something I avoid after dropping 40 pounds a year ago. So I had like ten cups of coffee on an empty stomach, after getting about five and a half hours of sleep.
All told, it was a thoroughly depressing morning. On the plus side, the event was on the 35th floor of 12th and Midtown, and I got to watch the sun rise over Midtown (Jeopardy answer: "What are signs you have scheduled your event too early?"). I got to have a little moment of zen before all the depressing news started.