The Influence of VolatilityOctober 1, 2019
SteveHagenbuckle
Volatility Here To
Stay?
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The Internet Has Democratized Information
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50%
55%
60%
65%
70%
75%
80%
85%
90%
95%
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% OF U.S. ADULTS WHO USE THE INTERNET
90%
Source: PEW RESEARCH CENTER, Surveys conducted 2000-2019. Data for each year based on a pooled analysis of all surveys conducted during that year. https://www.pewinternet.org/fact-sheet/internet-broadband/ https://www.internetlivestats.com/total-number-of-websites/
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10
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60
70
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
26
35
52
61
56 55
5149 48.5 49
5254.5
51.5
HIGH FREQUENCY TRADING% of US equity average daily share volume traded
High Frequency Trading:
Half of US Stock Market Trading Volume for Past Decade
Source: Tabb Group estimate. There is no assurance that any estimate, forecast or projection will be realized.
The first tweet was posted by Jack Dorsey (creator) at 12:50 PM PST on March 21, 2006 and read "just setting up my twttr".
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Volatile Markets: Are High-Frequency Traders (HFTs) to Blame?
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Algorithms don’t typically consider long-term
company fundamentals when making trades1
Algorithmic trades are usually based on their expectation of how other market participants will react to news feeds1 or momentum triggers
On November 17, 2016, The Commodity Futures Trading Association concluded that HFTs do not improve liquidity in markets and amplify price volatility.2
1) https://www.cftc.gov/PressRoom/PressReleases/pr7486-162) Stephen Dover, “Volatile Markets: Are High-Frequency Traders to Blame?”, Franklin Templeton Investments, 2019
Algorithmic trades are said to contribute vital liquidity to markets…
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Sentiment reflected in news stories impacts pricing
IBM Announces HR Services Agreement with Unilever in Latin America
IBM Corporation Not Bidding For Satyam Computer
IBM Corporation Not Interested in Sun Microsystems
IBM Corporation introduces Products and Services to Combat New Security Threats
IBM Corporation Approves 10% Increase in Quarterly Cash Dividend
IBM Corporation Raises FY 2009 EPS Guidance
Case Study for IBM: Analysis of Senti_Impact
1500
1000
500
0
-500
-1000
-1500
-2000
senti_impact
Source: Daniel Lam, Sentiment impact on stock prices of news with selected topic codes: Part One, Bloomberg L.P., February 2018
Source: Robert Giannini, “Twitter: An Investigation of the Impact of Network Communication”, University of Georgia, August 2011
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SEC Says Social Media OK for Company Announcements if Investors Are Alerted
Washington, D.C., April 2, 2013 —
The Securities and Exchange Commission today issued a
report that makes clear that companies can use social
media outlets like Facebook and Twitter to announce key
information in compliance with Regulation Fair Disclosure
(Regulation FD) so long as investors have been alerted
about which social media will be used to disseminate
such information.
Source: https://www.sec.gov/news/press-release/2013-2013-51htm
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S.E.C. Press Release
#Bloomberg April 04, 2013 | Bloomberg Integrates Live Twitter Feeds With Financial Platform
July 18, 2018 | Bloomberg Launches a Twitter Feed Optimized for Trading
• Bloomberg and Twitter expand relationship to provide clients with a feed of financially relevant Tweets, designed for algorithmic tradingSource: Bloomberg.com
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Alternative Investments
Cryptocurrency Timberlands Infrastructure
Private Equity Hedge FundsPrivate Real
Estate
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Equities Allocation reduced from 60% to 40%
Alternatives increased from 7% to 26%
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Equities Bonds Alternatives/Other Cash
Historical Income
6.10%5.50%
3.90%
2.00% 1.80%
CRE PUBLIC REITS BONDS CASH EQUITIES
AVERAGE ANNUAL INCOME RETURNS20 YEARS ENDED DECEMBER 31, 2018
Commercial real estate has historically delivered higher income returns than other major asset classes
For 20 years, more than 70% of the total returns from commercial real estate were comprised of current income Source: Bloomberg, NCREIF, and NAREIT
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CRE Correlation: Low Compared to Other Assets
20 Years Ended December 31, 2018
CRE Equities Bonds Public REITs
CRE 1.00 0.15 -0.16 0.17
Equities 1.00 -0.40 0.63
Bonds 1.00 0.06
Public REITs 1.00
Commercial Real Estate has exhibited historically low or negative correlation to equities, bonds, and public REITs.
Public REITs are more highly correlated to equities than commercial real estate by 4x.
Source: Bloomberg, NCREIF, and NAREIT
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Real Asset Value not Reflected in Public REIT Pricing
Valuations of Physical Assets
Comparable Sales
Replacement Value
Income Approach
Valuations of Public REITS
Largely influenced by Sentiment
Public Market Momentum
Value influenced by Public Information – Not Long Term Leases
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Long Term Leases Backed by Contract Law
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Cost of Construction Continues to Climb
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95
100
105
110
115
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125
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POURED CONCRETE INDEX
90
100
110
120
130
140
Jan
-05
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PRICE INDEXES OF NEW SINGLE-FAMILY HOUSES UNDER CONSTRUCTION
Laspeyres (Fixed) Fisher (Deflator)
Source: U.S. Bureau of Labor Statistics, PPI - New nonresidential building
construction, Poured concrete foundation and structure contractors,
https://data.bls.gov/timeseries/PCU236400236400224
Source: Census Bureau, January 2005 – Aug 2019,
https://www.census.gov/construction/cpi/
Rent Gap Holds Off Speculative Multi-Tenant Supply
New Construction Existing Supply
$42/PSF $26/PSF
Comparable Office Space in Atlanta, GA
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Which States Do or Don’t Have Rent ControlCalifornia has just followed Oregon in enacting statewide rent control.
No rent control; state assent needed
No rent control; but local option
Rent control in some places
StatewideSource: https://www.nytimes.com/2019/09/11/business/economy/california-rent-control.html
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Following Population
-1,197,600
-761,837
-710,393
402,389
314,775
321,782
362,015
1,019,434
1,160,387
205,405
NY
IL
CA
NC
SC
CO
AZ
TX
FL
GA
-1,500,000 -1,000,000 -500,000 0 500,000 1,000,000 1,500,000
Domestic Migration by State: 2010 - 2018
0.02%
0.33%
1.03%
1.26%
1.40%
1.60%1.55%
1.93%
2.04%
2.18%
2.66%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
NY IL US TN VA CA NC GA CO TX FL
Compound Annual Growth Rate: 1970 - 2017
CA
IL
NY
Source: U.S. Census Bureau, 2017
TerraCap Areas of Focus shown in green
Source: U.S. Census Bureau, Population Division, 2017
TerraCap Areas of Focus shown in green
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Domestic Migration by State: 1995-2017
AZ+1.3M
NC+1.3M
CA-2.4M
TX+1.7M FL
+2.4M
Source: U.S. Census Bureau, Dec. 2017 American Community Survey
NY-3.5M
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Millennials Looking To 18-Hour Cities for Growth:Talent and Economic Diversity
Sources: U.S. Census Bureau. Penske Truck Rental’s list of Top Moving Destinations 2017. U.S. Department of Labor. Site Selector/Conway Projects Database. VisitOrlando.com. AtlantaAirport Source: Airports Council International
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Millennials Return to Suburbs
4th Consecutive Year That Big Cities Saw Population of Young Adults Shrink.
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Source: Adamy, Janet, “Millennials Continue Their Exodus From Big U.S. Cities”, The Wall Street Journal, Sept. 26, 2019
Cost of Living Index Comparison
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Primary Gateway Market 18-Hour City
Source: 2009-2019 Numbeo, https://www.numbeo.com/cost-of-living/region_rankings.jsp?title=2018®ion=021
100.0097.84
88.04 87.05 86.0182.30
80.1677.31 77.01 76.63 76.53 75.35 74.97
65.94
New York SanFrancisco
Seattle Boston Miami LosAngeles
Chicago Denver San Diego Orlando Tampa Charlotte Atlanta Dallas
U.S. Commercial Real Estate:A Mainstream Alternative.
Has historically delivered higher income returns
Low correlation to other asset classes
Continued job & population growth demand drivers in select markets
Limited development financing leads to reduction in new supply
CRE continues to experience positive occupancy and rent growth
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