All Forum Posts by: J Scott

Quote from @James Hamling:

See this itself is a Perceptual/Conceptual value basis: Future Earnings. 

Future Earnings are not a factual thing, it's a "thing" of perception. Given XYZ factors one "perceives" that future earnings "will be" xyz. And than a butterfly flaps it's wings in the Brazilian rain-forest and that perception flips. 

So, you wouldn't value real estate using DCF or any methods derived by DCF, as those require future earnings?

How would you recommend valuing commercial real estate if you have to ignore future earnings?

Quote from @James Hamling:

 In a way yes. Stocks are a perceptual concept of value, evidence of this is reflected in the daily movements in the stock market itself. 

Let's take AT&T for an example. Recently there was a massive drop in the stock price, dropping more than 20% in a very short period of time. There was no significant change in the business itself, no significant change in revenues, no significant changes what so ever. This is only possible due to the fact of it's standing as a perceptual value.    

Using that rationale, I assume you believe that real estate is also only a "perceptual concept concept of value?"

The same principles apply -- while my property may have absolutely no change in income/expenses, values can change wildly over short periods of time.  In the single family space, value changes based on other similar properties that sell.  In the commercial space, value changes based on fluctuating cap rates and interest rates.

So, again, using your definition, I assume you agree that real estate is the same?

Quote from @Carlos Ptriawan:

Yes DCF if you count as "theoretical price" only, but in actual reality, the price is more determined by the macro economy and supply/demand of particular stock, if it's just DCF value the stock price only moves by one to three dollar.

That's simply not true.  Look at the historical P/E ratios for any major index, and you'll see that for the vast majority of the history of that index, the ratio is within one standard deviation of the mean.

That would indicate that earnings is the primary driver of equity prices.  (And it wouldn't be hard to do a regression analysis to prove it.)

Do you have any data that indicates that equity values are tied to something other than future earnings expectations?

Quote from @Carlos Ptriawan:

 so the question is who and what decides the best to protect the $25T economy, right.

No, that's not a question.  For the past 100+ years, we've known exactly who makes these decisions and how.

People may not like the answer (and I don't particularly like the answer), but it's most certainly not a question.

Quote from @Carlos Ptriawan:

Quote from @J Scott:

Quote from @James Hamling:

Owning a stock, that's perceptual. There is no actual value there, it's an idea, a concept of a thing, and it only holds value as long as that concept holds value.

Huh?  Stock is equity in a physical company.  Are you saying that companies have "no actual value" and are just a "concept?" 

 James is right, stock company valuation is an arbitrary number only for that given time. When Tesla stock is $1,000 or $100 ,its opex/capex doesnt change although forward earnings may be different.

Arbitrary number? 

For the vast majority of companies, the value of their equity is directly related to the discounted cash flow of their future earnings.

This is literally the premise of how equity is valued, regardless of whether you're talking about stocks, cash flowing real estate, or any other cash flowing asset.

Tesla, like many emerging tech companies, doesn't have well-defined future earnings, and there is additional value built into the equity for potential innovation.  But, choosing an outlier like that doesn't change the literal premise of equities markets.

Quote from @Carlos Ptriawan:

The connection between gov. policy and bank runs occurred in any country to this is nothing new.

Today we blame SVB, tomorrow we will talk Ally, FRB, Credit Suisse , the difference would be the circumstances.

I'm not arguing that.  I'm simply saying that it's irrelevant.

The total long-term bond holdings across all banks in the US is between $3-6T.  Assuming all those bonds were purchased back when rates were 0%, and assuming they were all sold today, the loss would be between $500M and $1.5T.

While that's a lot of money, it's literally less than half of annual GDP.  The purpose of the Fed is to protect the economy at large, which is worth $25T.

The Fed shouldn't be making policy decisions based on the potential for an absolute worst-case scenario of a trillion dollars when their charter is to protect the $25T.

Just my $.02...

Quote from @James Hamling:

Owning a stock, that's perceptual. There is no actual value there, it's an idea, a concept of a thing, and it only holds value as long as that concept holds value.

Huh?  Stock is equity in a physical company.  Are you saying that companies have "no actual value" and are just a "concept?" 

Quote from @Carlos Ptriawan:

As powell increases the rate he doesn't care the consequences personally because nobody questions his authority. He just needs to convince the Pres. that what he does his right, but it's right not is in a different debacle.

Aka the government is working in reactionary mode and more like in authoritarian ruling.

The Fed (not just Powell) increasing rates is irrelevant to this conversation.  Every move by the government -- including the Fed -- is likely to have unintended, and unpredictable, consequences. 

You don't make policy around the edge-cases.  We could argue that any decision that the government ever makes is going to hurt someone or some thing, in some way.  But, that doesn't make it bad policy or legislation.  Tell me what you think is the absolute best piece of legislation on the planet, and I'll tell you how it hurt somebody in a way that wasn't good.  Doesn't make it bad legislation.

What happened with SVB wasn't a balance sheet issue.  It was a liquidity issue.  Even with the bond losses, SVB had a balance sheet that would have covered all deposits long-term; and just like any business with liquidity issues, there were several options available (debt, additional equity infusion, etc) that would have allowed the bank to continue operating just fine.

The issue was the run on the bank.  There isn't a single bank in the country that can handle 25% of their depositors pulling out in one day.

I'm not saying that SVB did everything right -- they didn't.  But, what they did -- putting too many assets into their HTM portfolio and not marking them to market -- was no different than what every other bank in this country does. 

Bond losses are a sucky situation, but had SVB had more diversity of depositors, and had their deposits not dropped considerably over the past year, they would have let their HTM holdings mature, not take any losses, and we wouldn't be having this conversation.  They made some sub-optimal decisions, which cost them.  

But, I don't see how any of this is the Fed's fault for doing what the Fed is chartered to do.
 

For anybody who suggests that companies should simply spread out their money across multiple banks to ensure that they have only $250,000 per bank, I'm going to guess that they've never run even a larger mom and pop sized business.

A small, 30-person company can easily have bi-weekly payroll that exceeds $250,000.  And I've yet to find a payroll company that will withdraw payroll across multiple accounts.

How big do you think payroll is for a typical 100 person company? Thousand person company? Now guess what payroll is for a company like Microsoft or Google?

And that's just payroll. There are hundreds of other scenarios where it's simply infeasible to not keep large amounts of cash in a single banking entity.

As long as you're managing properties that you own personally, you don't need to be a licensed PM company or real estate agent.

If you want to manage other people's properties, then your state rules will apply.