Author: Roger Staiger

5 June 2018

Announcement: Foundations of Real Estate Financial Modelling, 2^nd Edition, Routledge, 2018, is officially published!!!  Global sales for the 1^st Edition warranted a second edition.  This text will replace the standard Real Estate Finance textbooks covering Real Estate Finance basics as well as advanced concepts and modelling utilizing stochastic processes and optimization.  The text is first to publish Optimization for physical real estate products within a single asset and portfolio (Prof Note: Can you see my pride?!)

While I would love to take all the glory and the pride of my name on the cover is unending, this was a work of many!  The text is 70% larger than the first edition and includes problem sets as well as case studies written by graduate students.  Many tirelessly edited the text over months, accepting no payment, but committed to broadening the world of Real Estate Financial Modelling.

The major outgrowth of both editions is the development of the new financial metric, P(Gain).  This metric, utilizing a normal distribution, z-score, and efficiency, addresses the most fundamental question, and least addressed, in finance, i.e. “What is the probability of Return OF Capital?”.  From this a new company has been formed, P(Gain), LLC, and over the next few months this list-serve will be transitioned to a new email address, i.e. rstaiger@pgainllc.com.  Please note that the list-serve’s purpose, goals, and structure will not change.  The list-serve will continue to provide daily capital market summaries, employment opportunities from participants and readers, and will still be subject to my “Prof Note”, i.e. occasional rant! J)

 Question: What financial metric quantifies the probability of Return OF Capital?

Finance – Pg. 7

• …$10tn market for credit default swaps
• The credit default swap, a financial instrument intimately associated with the losses incurred by the banks during the US subprime mortgage crisis, is most commonly used to either hedge against a company falling into trouble and possibly not paying off its debts, or as a tool of outright speculation over whether a default will occur
• It is the debt equivalent of a controlled explosion: offering a company favourable financing, such as low interest loans, to convince it to intentionally default in a way that will trigger payouts on CDS contracts, but without bringing down the whole company
• When the India-born and Cambridge educated ….
• But experts believe the damage to the market is already done, as the run of trades from GSO have exposed how easy it is for big players to alter outcomes in the very markets they are betting on

Commodities trading booms as new kind of strategy emerges – Pg. 19

• A class of investors who have put tens of billions od dollars into commodities over the past few years do not care whether the prices of oil, wheat, cattle and the rest go up or down
• Risk premia investing, a strategy borrowed from equities markets that weights factors other than price, has caused a boom in trading volumes on exchanges and resuscitated revenue for banks bleary from a sluggish decade in their commodities divisions
• Risk premia strategies have attracted about $20bn to commodities markets over the past two years…
• Instead of trying to predict whether commodities prices will rise or fall, risk premia investors systematically place bets based on so-called factors such as momentum, volatility and a pattern of prices for future delivery
• This stands in contrast to traditional commodities investing, which involves tracking an index such as the S&P GSCI or placing money with hedge fund managers claiming expert knowledge of the commodities they trade
• Risk premia attempts to isolate the factors responsible for outperformance and feed them into an algorithm that selects which commodities to buy or sell. In theory they are more transparent and cheaper than a hedge fund and at least somewhat insulated form indices’ pitfalls
• The strategies differ from “enhanced” strategies, an earlier innovation built to deal with flaws in commodity index investing. Enhanced strategies hold bullish, or long, positions.  Risk premia strategies might instead have long and short positions
• One simple risk premia strategy follows momentum: in a basket of commodity futures, the investor buys the ones that have performed better in the past year and shorts those that have done worse, based on the belief that markets digest new information gradually
• Another might involve liquidity: by purchasing a corn contract for delivery next December and hedging it with the more actively traded spot month contract, a risk premia fund could be paid a premium for its willingness to own a thinly traded contract
• A third might involve buying commodities where the spot price is highest relative to futures
• Risk premia strategies do not rely on counting barrels or bushels, having privileged contacts among physical traders and processsors, or keeping up with geopolitical events – the stock in trade of traditional commodities funds
• (Prof Note: This is precisely why I was/am blessed with an engineering background and finance graduate studies. Never did anyone express the power (read: financial opportunities in trading) of mathematics when I was an engineer.  It was only 10 years into my career when I realized, while MD for a Commodity division, the true blessing(s).  The ability to trade on developed relationships and profit is what makes Western Finance so great!  There are basically no barriers to entry.  With $300 one can open a brokerage account and start trading utilizing their mathematics skills!  We need to stress this in classrooms.  Regressions for the sake of regressions are boring (there, I said it!).  However, a simple univariate regression equation, personally developed in 2007, relating commercial and residential pricing changed my life!  Understanding these products, understanding the mathematics, understanding the markets and how to structure and execute is a blessing!  Math is SEXY!!!)

Answer: P(Gain)

4 June 2018

List-Serve Comment: I received a huge response to the 2Jun18 50 most common regrets people have in their 50s.  One common theme that was replied to me as a surprise it was not in the list was, ‘Not asking for assistance when it was needed or in times of struggle.’  As commentary to this reply (which I agree 100.0%), I want to add that at the beginning of my 5-year legal battle which began with the killing of by my namesakes, i.e. Roger I and Roger II, and forged estate documents, I sought assistance from many people.  Everyone I asked provided assistance in the form they could.  From Bob R checking in every few weeks, “Roger, are you ok?” to clients and organizations providing more work to allow me to finance the Dream Team for Estate Cases from cash flow rather than savings.  One person I would like to call out at this moment was “Shirley”.  Her son was murdered by his wife and his estate documents forged.  Shirley spent her life savings fighting for justice for her son and eventually the former wife and witnesses wore orange to the ball.  I found Shirley on the internet as she is an avid blogger and asked for help.  Help she did!  She guided me through the process, understanding the emotion, understanding the lies I was being told by some lawyers (YES, LIES!), guiding me to not take the poor advice by my local counsel.  Shirley accepted no payment, all she wants(ed) was/is justice in the world and, of course, her son back.  The point of the list-serve, which I 100.0% support, ask for assistance when you need it.  Life is hard enough, there are people that want to assist!  I want to assist!!!

A suggested book from a list-serve member whom I greatly respect is below.  I have not read the book but value this persons opinion highly.

“Roger, suggested reading for those who are unhappy with their life.  The Subtle Art Of Not Giving A Fuck by Mark Manson.  This follows my own experience of Not Giving A Fuck and find life more fulfilling.”

Question: According to BestLife on MSN, What does one wish they had known prior to cheating on their spouse?

Genetic test can spare breast cancer sufferers the trauma of chemotherapy – Pg. 1

• Hundreds of thousands of women with early-stage breast cancer are set to be spared chemotherapy, following the publication of a groundbreaking study showing that they derive no benefit from the grueling treatment
• They can be treated solely with a milder hormone therapy
• The breakthrough is the latest example of how “precision medicine” is transforming the treatment of cancer, as doctors use sophisticated genetic testing to match patients with the appropriate drugs tor to spare them the pain of unpleasant therapies altogether

Stanford to add ethics to its technology teaching – Pg. 4

• Stanford alumni have created some of the world’s most powerful technology companies, such as Google, Cisco and Sun Microsystems, many of which are founded and still operate from near its campus in Palo Alto, CA
• While university courses including medicine and business offer ethics as part of their curricula, engineering and computer science remain focused on technical issues

China’s surge into London property slows to a trickle – Pg. 13

• Chinese investment into central London real estate has dropped to its lowest level in two and a half years as an influx of cash from mainland China and Hong Kong slows to a trickle
• “Trophy” office-building acquisition in the UK were among those in Chinese regulators’ sights, ….which predicted that investment volumes form the country into the UK would halve in 2018 compared with last year

Answer: (1) You have to get married for the right reasons; (2) Staying for the kids doesn’t help anyone; (3) The longer you wait to confess, the worst things get; (4) Cheating doesn’t necessarily break up the family; (5) It’s better to leave before anyone gets hurt

1 June 2018

Question: According to “BestLife” on MSN, what is the biggest regret in life most people have?

Deutsche’s woes mount as US unit is added to federal list of ‘problem banks’ – Pg. 1

• …weaknesses serious enough to threaten their survival, a black mark that threatens efforts by its new chief executive to turn around the struggling German lender
• The FDIC’s “problem banks” are those with financial, managerial or operational weaknesses that endanger their financial viability.
• Germany’s largest bank has struggled to recover from an aggressive expansion just before the global financial crisis, as a combination of tougher regulation and a legacy of crisis-era scandals have made its core business uneconomic

Volcker change promises trading boost – Pg. 12

• Big Wall Street banks will be given a change to rebuild their trading arsenals under a softened version of the “Volcker rule” on risk-taking, but they are expected to stop short of the kind of buccaneering bets they routinely made a decade ago
• The new approach would replace a regime under which the burden of proof is on banks to demonstrate that they are not engaged in proprietary trading, which is banned, and are only facilitating client trading as market makers
• The banks with the biggest inventories of assets held for trading are JPMorgan Chase, BoA, Morgan Stanley, Citigroup and Goldman Sachs, …
• Many banks have spent much of the post-crisis period winnowing down their holdings of stocks, bonds and derivatives, partly because they feared that regulators would take a dim view of any position that appeared to represent a proprietary bet on the direction of prices. There is contested evidence that their decisions have contributed to a drop in market liquidity

Answer: 76% of participatns in the survey said it was not fulfilling their ideal self.