Global Macro Trading Journal

Long-term a diversified portfolio of stocks+bonds+gold+other assets (REITs, Corp bonds, etc). Is likely to produce something like 4-6% real with drawdowns of 20-30% max. I got a hypothesis, and it is that prime pieces of real estate (say good, well located/designed buildings in Manhattan, London, Sidney, Beijing etc) are likely to produce something similar.
I'm not referring to right now, right now prime real estate has very low cap rates (2-3% in Manhattan IIRC) but that is because returns on everything (stocks, bonds, etc) are likely to be muted due financial repression and that is being arbed into assets everywhere.

But long-term I doubt there is much difference in running a core well balanced portfolio and buying prime real estate (in terms of return/risk, so CAGR/Max DD). I will explore that hypothesis by researching how prime pieces of property are doing in Greece, that should serve as a resonable estimate of the Max DD figures this strategy is likely to produce.
 
What about Japan? Thats actually a great scenario to this strategy, a buyer is expecting those predictable decent real returns 4-6% but sometimes the investor will get lucky and catch a bubble. The returns will be large and he can cash out at a good profit and move to another global market. As a matter of fact, diversifying and buying several prime properties (or good REITs) from many different continents (say 4 or 5 continents) should make this strategy bullet proof
 
I mentioned I bought a new stock recently, it is NYRT
http://seekingalpha.com/article/402...ercentminus-50-percent-upside-likely-downside

I put 3.5% there. Its a liquidation play with estimated return values of $11-$12 (from $9.5 now) but the real reason I like it is because the CEO and CFO were removed this month and new ones were put in place. The previous ones were destroying the company (which is why it is being liquidated). Now that the wolves are gone, this thing has a chance to be liquidated properly or to go back to being a good REIT
 
The United States is great, a stability haven, a resilient economy, strong rule of law (except in cases like GM secured bonds and the GSEs networth sweep), stable institutions, deep liquid and broad financial markets. The culture is also fantastic, the movies, the TV shows, etc. Only thing that sucks big time (and why I would be reluctant to live there) is that its a police state/big brother. Now it looks like Trump was wiretaped, so if a presidential candidate right before winning can be wiretaped who can't? Everyone is monitored and observed and if the government catches you doing anything, a career seeking prosecutor can threaten you with the ridiculous huge US sentences. He's got all the cards, a lot of people get bullied into plea bargains and spend years in jail to avoid rolling the dice (with the problematic jury/grand jury system) on a 40 year sentence
Its a shame, it would be indeed the greatest country on earth if it didn't had this problem
 
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http://www.eurobankpropertyservices.gr/Uploads/MarketResearch/ANNUAL_REPORTS/Annual Real Estate Report 2016 fv.pdf

So looking at this report, it appears the for prime Greek offices, rents are down around ~30% since 2007. Rental yields were 6.25% in 2007 now they are 8.5%. I made a very rough estimate and estimated this means that prices are down 50%. But the owners got paid rents in those periods. The avg rental yield was 7.8% but since occupancy probably dropped a fair amount (althoght probably less than non-prime buildings), the realized rental yield is probably something like 5.25%. That for 10 years. So the price decline of 50% is offset by the rental gain of ~5% for 10 years (assuming no compounding). The only loss is due to inflation, which in the period from 2007 to 2016 took the price level up around 13%. So a rough conservative measure for the total return to investors of prime offices in Greece seems to be a real loss of -10% to -20%. Maybe more or less depending on the location.

That compared to a giant loss in stocks and bonds. They both are still underwater by more than -50%. And even a typical Ray Dalio portfolio loses -15%-25% every few decades
Prime real estate is quite a safe haven and it seems that their performance mimicks well balanced portfolios (and by well balanced, I mean with global diversification in it)
 
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And "Prime office spaces have exhibited small increases in prices and rents due to their limited availability". So they are already perking up. Prime real estate also will keep paying rents (although a bit lower amounts) during times where cash is king, so one can reinvest (perhaps in other prime properties that come in the market) and take advantage of the disruption. Buying random properties in a real estate market is like picking a stock and trying to beat the index, high risk high reward. Buying prime real estate is like buying an index fund. Except that stock index fund also comes with 'hedges' in place that limit drawdowns
Its like owning a piece of the GDP pie but with extra protections
 
I guess it shouldn't be a surprise to see that they can withstand big shocks, if GDP is down 1/3, there is still 2/3 of GDP left. There is still lots of business being done. Good locations will still have quite a bit of value. The owner of that property is extracting an implicit service fee on that GDP.
And if markets ever go into a bubble, you make an windfall gain
 
Some folks get in trouble in these prime properties when they lever up, and that's the risk. From what I have read, the good prime properties are rarely on the market. Unless one of the owners got in trouble with bank debt and they are forced to sell.

From the numbers I'm seeing, the US commercial market dropped 40% after 2007 peak. With the rental income, the drawdown was probably around 30-35%. And that was all properties, the prime ones probably dropped more like 20-30%. And that was after a bubble market. The risk in this stuff is quite low, that's why I'm thinking this mimicks a balanced portfolio (medium sized returns that are resistant to inflation and deflation). And if there is this 'balanced portfolio' like investment, I wonder how many other ways there are to mimick this
 
Lost in this short-termism of the media about 'Trump wont be able to pass this and this will delay that' is the fact that you get paid an expected 5% a year even if nothing happens
 
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