Category: Financial Times Summaries

7 June 2018

Question: According to USA Today, what are 5 tips to keep Alexa from peering into your life?

Investors shed Eurozone debt as bloc’s economy bolsters case for ending QE – Pg. 1

• European markets took a fresh hit after top policymakers delivered confident remarks on the Eurozone economy, bolstering expectations that the ECB will halt its bond-buying programme this year
• Many in the markets expect government debt yields to continue to gyrate in the coming weeks,…
• The ECB is likely to end quantitative easing as planned in December despite the increased uncertainly in Italy, but investors will be watching data on Italian business and consumer confidence, in particular, for many signs of weakness

India lifts interest rate to curb price pressures – Pg. 4

• The Reserve Bank of India raised its benchmark interest rate yesterday for the first time in four and a half years, citing growing inflationary pressures stemming from rising oil prices and global financial turmoil
• The central bank’s monetary policy committee voted unanimously to raise its benchmark repo rate by 25bps to 6.25%, saying “inflation has hardened sharply” and been persistently sticky in the last six months
• The rupee has depreciated by 3% in the same period, making it one of Asia’s worst performing currencies

Millennial moment – Pg. 7

• …millennials as the 73m Americans aged between 22 and 37, who will next year overtake boomers in number
• The coming of age of the world’s 2bn millennials is not only a generational shift: it is one of ethnicity and nationality. Forty three percent of US millennials are non-white, and millennials in Asia vastly outnumber those in Europe and the US.  Despite China’s former one-child policy, it has 400m millennials, more than five times the US figures (and more than the entire US population) while Morgan Stanley estimates that India’s 410m millennials will spend $330bn annually by 2020
• Millennials have reached what the bank calls “the most important age range for economic activity”, when households are formed, babies are born and money is spent not just on going out but on settling down
• …it is placing immense strain on institutions that once thrived on mass marketing through television advertising
• In the US and Europe, many millennials are disenchanted with their lot as they attain maturity
• They are highly educated: 39% of British 25 to 39-year-olds are graduates, compared with 23% of those between 55 and 64. But their sophistication and ambition is not matched by security
• This is largely an accident of history. Older millennials entered the workforce in the mid-2000s, and many lost jobs after the 2008 crisis.  They were also caught by rapid inflation in house prices as interest rates fell and remained low.  The milestones of leaving home, getting a job, marrying and having children have been delayed – 45% of 18 to 34-year-old Americans had done all four in 1975, but only 24% had in 2015
• …2014 study…only 19% of millennials believed that others could be trusted, compared with 40% of boomers and 31% of the generation Xers born between 1965 and 1980
• Millennial faith in institutions is also low (Prof Note: As is mine…hence, “Do the hustle!”)

Answer: (1) Change your wake word.  You’re not married to Alexa; (2) Say no to contacts; (3) Turn it off; (4) No voice purchases; (5) Don’t drop in

6 June 2018

Question: According to MSN:Lifestyle, what are 11 signs someone is lying to you?

Barbados braced for tough measures to clear debt burden – Pg. 3

• Barbados faces a painful journey back to financial and economic health under radical plans to tackle the world’s fourth-biggest debt burden,…
• The Caribbean island has been told by Mia Mottley, the prime minister, of previously undisclosed liabilities that lifted overall debt from 137% of GDP to more than 175% – the highest debt-to-GDP ratio after Japan, Greece and Sudan
• With central bank reserves down to $220m, or seven weeks of imports, debt payments due this month and the hurricane season approaching (Prof Note: The hurricane season is a real concern in the island. We have crews working 7 days a week to finish projects as a caution to weather.)
• Barbados is the latest Caribbean statelet to suffer financial distress. Since 2010 St Kitts and Nevis, Antigua and Barbuda, Belize, Grenada and Jamaica – twice – have had to default on an restructure debts, in what Moody’s in 2016 called a “silent debt crisis”.
• Its slide into insolvency has been a long time coming. Barbados was long one of the better-run countries in the region, helping per capita GDP rise to about $17,000 in 2016. But fiscal discipline started eroding after the global financial crisis, when the economy was hit by a tourism drought (Prof Note: Yes!  The world woke to the beautify of Nevis and the rum on St. Kitts!)
• Annual economic output is about $5bn, which means Barbado’s overall bonds, loans and other liabilities stand at almost $9bn. More than two-thirds is owed to local investors and banks, raising concerns a tough package could imperil the domestic financial system
• …means that much of the debt relief Barbados is seeking will have to come out of international creditors, which would also slow the drain of dollars from central bank coffers
• State payments to SOEs, subsidies and on retirement benefits have been rising despite an austerity programme, and last year reached almost $600m in a country of 280,000 people (Prof Note: Nevis (12,000 people + ME); St. Kitts (42,000 people))

Designer Spade found dead in her apartment – Pg. 12

• Kate Valentine, the designer behind the namesake Kate Spade fashion line, aged 55, was found dead in her Manhattan apartment yesterday morning
• (Prof Note: Apparently she committed suicide. One of my dreams for Cat Ghaut, catghaut.com, is that it be a retreat for those in recovery.  One of the many beauties of Nevis is that the world is “away”.  When you are on island you are “on island”.  I have no mental health background and my personality still tracks that of an engineer.  However, if I can assist anyone, I will.  Life can have low moments but each day the sun will always rise from the East.  Each evening, it sets in the West and if you are lucky, you can watch the Green Flash.  While not easy, please consider a life do-over as the extreme solution.  Rather than leave the world, perhaps consider a re-birth with a new identity and life.  Just my thought(s)….but I truly believe everyone has something to offer and that the world is better off with great people!  I/we want to help!)

Ructions in emerging markets and Europe put Fed under pressure – Pg. 19

• The US Federal Reserve is often buffeted by cross-currents but investors caution that balancing the strong domestic economy and increasingly choppy waters in emerging markets – and now Europe – will require a particularly adept hand at the tiller this year
• …US economy continues to expand at a robust clip, exemplified by unemployment numbers and manufacturing data released Friday. That double dose of strong data prompted traders to lift Treasury yields higher again to end the week – and it improved the odds of the Fed staying on its path of monetary tightening this year
• The implied probability of the Fed raising rates only once more this year, after the March increase, jumped from 13% on May 22 to almost 40% at the peak of Italy’s turmoil but has since slid back below 20%
• The Treasury market has also see-sawed with the 10-year Treasury yield bounding from a low of 2.76% on May 29 to 2.92% on Monday
• The Fed itself has indicated it plans to raise rates twice more this year
• The 10-year “break-even” rate, a market measure of investors’ inflation expectations, remains above the Fed’s target 2% at 2.07%, despite recent declines, and inflation is expected to continue to accelerate into the summer

Answer: (1) They change their head position quickly; (2) Their breathing changes; (3) They stand very still; (4) They repeat words or phrases; (5) They provide too much information; (6) They touch or cover their mouth; (7) They instinctively cover vulnerable body parts; (8) They shuffle their feet; (9) It becomes difficult for them to speak; (10) They stare at you without blinking much; (11) They tend to point a lot

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)