This is a constant discussion that I have been doing with people around me, People admire real estate and they are still the firm believer that real estate give better returns than any other asset class.
Here am breaking the myth with few examples and facts although the message was forwarded to me on a WhatsApp group and it really make sense:
Film actor Rajesh Khanna bought a bungalow in iconic Carter Road in Mumbai for Rs.3.5 lakhs in 1970. His heirs sold it recently for Rs.85 crores. The property has multiplied by 2428 times or an annualized return of 19.38% over 44 years. Continue reading “Equity Vs Real Estate”
Recalling 4 years back , the world’s largest banks have been up in arms over threats by regulators to increase their (equity) capital requirements. Making banks hold more capital, they argue, will force them to reduce lending and will increase their cost of funding, making credit more expensive throughout the economy. One of the chief defenders of the mega banks has been Josef Ackermann, CEO of Deutsche Bank until last year and also chair of the Institute of International Finance, which claimed that higher capital requirements would reduce economic output by a whopping 3.2 percent.
Was going through the new book by Anat Admati and Martin Hellwig The Banker’s New Clothes they have been tirelessly debunking the myth that higher capital levels will force banks to curtail lending and torpedo the global economy,. Some of the arguments against higher capital requirements are simply incoherent, like the idea that banks would be forced to set aside capital instead of lending it. Continue reading “The Definition for Cost of Capital and The Banks”
There are a lot of things you can read about the Brown-Vitter bill recently, though it’s a really nice day out and you probably shouldn’t. It’s not … it’s not like a real thing is it? When the text of the bill, which would raise the equity capital requirements on big banks to ~15% on a non-risk-weighted basis and forbid U.S. regulators from implementing Basel rules, first leaked, I sort of assumed it was a temper tantrum not intended to become law, and the fact that its official title is the “Terminating Bailouts for Taxpayer Fairness (TBTF) (Get It?) (GET IT?) Act of 2013″ doesn’t exactly change my mind.
Continue reading “The Brown Vitter bill : Make banking boaring might be kind of fun”
All valuation classes teach the equity market correlation method so it would be interesting to hear your views.
Equity exists in many forms. In securitization, equity is the tranche that takes the first loss and controls the deal. In a mutual insurer/bank/thrift, etc., the book equity is held by the dividend-receiving policyholders. The real equity is held by management, who actually control the place, because the dividend-receiving policyholders will not vote them out. In a credit tenant lease, there is the guy that owns the property, and typically he puts up a teensy amount of equity, because there is a “credit tenant,” one that has an investment grade rating, and the mortgage is secured by: Continue reading “Theory of Asset Pricing”
Continuing with our last blog, today we will discuss in detail about “Equity-Linked Swap” under Structured derivative class.
Meaning: A swap for which payments on one or both sides are linked to the performance of equities or an equity index. Sometimes used to avoid withholding taxes, obtain leverage, or enjoy the returns from ownership without actually owning equity.
Definition: An equity swap is a financial derivative contract (a swap) where a set of future cash flows are agreed to be exchanged between two counterparties at set dates in the future. Continue reading “Equity-Linked Swap: School-To-College”