Author: Steve Tee
Last Friday everything was looking good as S&P500 and Nasdaq rallied. However, what was not reported in the mainstream media was Blackstone’s continuous problem that they are facing. Blackstone defaults on Nordic mortgage-backed bonds, amounting to 531 million Euros as reported by Reuters. It is stated that Reuters report that Blackstone sought extension from their bondholders to repay the debt but they were voted against it. Their share tumbled 1.6% after Bloomberg reported it. Interest rate increase are really hitting the real estate market and the cracks are starting to show. Investors are constantly losing trust, considering with what is going on with the markets worldwide, especially in the US.
Normally, when investors are anxious and worried about the outlook of the global economies, first things that will likely happen will be cashing out. By withdrawing money out of high-risk investments and portfolios, they are able to stay liquid, reduce losses, and diversify into lesser risk investments. This was not the case for Blackstone as they blocked investor withdrawals from US$71 billion in REITs, reported by Reuters on 2 March 2023. This blockage imposed by Blackstone just goes to show that there is liquidity crisis from within. This is not new as Blackstone has been exercising their rights to block withdrawals since November 2022.
Next FOMC we will see further interest rate hikes done by Jerome Powell of at least 50 basis point and that will put even more pressure on real estate sector. Consumers are already sitting at high debt level and repayments of loans are getting more expensive with every Federal Fund rate announcement. More private equity companies will be shoved with more pain in the coming weeks and months, thanks to Federal Reserve’s relentless efforts to bring inflation down to 2%.