Archives for November 11, 2014

Chart: The Reason You Never Get Anything Done

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This highly scientific chart shows why many of us are so inefficient. I’m definitely guilty of this one.

efficiency

Another insightful comic from XKCD, via Abnormal Returns.

REITs and Rising Interest Rates

“The editorial content on this page is not provided by any of the companies mentioned, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are author's alone.”

risingqSince March 2009, the FTSE NAREIT All Equity index of US real estate stocks has has nearly quadrupled. When will the party end? Mathematically, we know that bond values will go down in general if interest rates rise. But how would rising interest rates affect future REIT performance?

Here are some articles that examine historical REIT performance relative to interest rates: A Wealth of Common Sense, AllianceBernstein Blog, and Altegris Whitepaper ].

The TL;DR version is that based on historical data, an increase in interest rates will not necessarily hurt REIT prices. Sometimes it did, sometimes it didn’t. Out of the seven past periods of rising interest rates, REIT performance was positive in four of them and sometimes they kicked butt. The average statistical correlation between REITs and bonds is very low. On top of that, the actual correlation oscillates from positive to negative. Sometimes REITs and rates move in the same direction, and sometimes they move in opposite directions.

Using predictions of future interest rates to further make predictions of future REIT performance seems doubly silly.

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