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Oh Lord

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About Oh Lord

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  1. Incorrect, you do not. When you short or go long an index you do so at the forward price at your chosen maturity. In order to make money from shorting the index the contract you buy needs to fall further than the forward price you bought it against at inception. The HHPI derivative curve is currently implying a peak to trough of circa -45%. With the trough sometime in 2011, prob Q3/4.
  2. Hedging is about efficient portfolio/risk management, you give away upside in order to protect downside. It is an investment made to limit loss. Hedging when the market has already collapsed or is priced to collapse is not particularly bright - unless you hold 'apocalyptic' type views on the future. You're right in saying that the 'best bet' (if you believe the forwards are correctly priced) would be to sell out, hold cash and buy back in x yrs time - however this is not feasible or possible when you're running a commercial or residential property fund for well documented reasons.
  3. You 'sell' the index on the expectation that it's going to fall further than the current implied pricing. If it does you make money on your position - however the underlying also goes down in line with the index (assuming no basis risk) and you lose money on that but if your hedge ratio is correct you're left neutral. If the index does not fall further than the current implied pricing you lose money on your position but you're long the underlying (hence hedge as opposed to speculation) so you shouldn't care too much, relatively speaking. More cost effective to exercise via options, but even less liquidity.
  4. They are equilibrium levels/prices - derived from expressed views of the buyers & sellers of the forward contracts. The buyers & sellers of the contracts will use every mathematically analysis tool they can in order to convince themselves that their view is correct - they will then express this by buying or selling exposure to the index over their chosen maturity. It's gets more complicated than this though as hedge funds start using HHPI as a relative value trade against RPI swaps, commodities residential REIT's etc etc. The forward 'maths' is pretty simple though, if the 2-way 10yr price is 95/105:- Long Position Payout:- (HHPI Dec18 / HPI Dec 08) * 100 - 105 Investor makes a profit if the index increases by more than 5% Investor makes a loss if the index increases by less than 5% Short Position Payout 95 - (HPI Dec 18 / Dec 08) * 100 Investor makes a profit if the index decreases by more than 5% Investor makes a loss if the index decreases by less than 5%
  5. What if? What else more like - not many speculators going long in this market, hence the liquidity problems. More sellers than buyers will clearly have the effect of driving the forwards down - but ultimatly the price is driven by the actual return of HHPI. The market is inefficient though becuase if you're long say 1bn GBP of residential and you want to hedge 25% you'll need to sell 250m GBP which you cannout execute without moving the market against you and destroying the economics of the trade. Banks will not take the other side to these trades these days and therefore require counterparties - which is nr on impossible.
  6. HHPI Derivative Forwards.......... UK HHPI - All Property, Non Seasonally Adjusted Maturity Compounded Growth Yr 2008 -18.89% 1 Dec '09 -35.11% 2 Dec '10 -43.33% 3 Dec '11 -46.00% 4 Dec '12 -45.40% 5 Dec '13 -40.30% 6 Dec '14 -40.16% 7 Dec '15 -33.76% 8 Dec '16 -30.87% 9 Dec '17 -25.91% 10 Dec '18 -17.86% 11 Dec '19 -13.16% 12 Dec '20 -8.39% 13 Dec '21 -3.54% 14 Dec '22 1.37% 15 Dec '23 6.34% 16 Dec '24 9.71% 17 Dec '25 13.10% 18 Dec '26 16.50% 19 Dec '27 19.92% 20 Dec '28 23.34%
  7. Bloodbath yesterday for Commercial Real Estate, €2.7bn was wiped of EPRA. Hammerson -9.3% Land Secs -8.5% Great Portland -8.4% Unite -14% Warner -12.8% Segro -18.4% Brixton -28.4% Whole sector having to turn to investors to raise extra funds, starting to look very ugly indeed.
  8. He wasn't the only one, HMSO 'short' positions:- - Maverick Capital 2.31% - Blue Ridge 1.84% - Calypso Capital 1.05% - Tiger Global Mgt 0.86% - Morton Holdings 0.8% - Glenview Capita 0.49% - Jonathan Hunt 0.45% - Chilton Inv. Co. 0.34% - Steadfast Capital Mgt 0.31% Short disclosure is required if short position greater than 0.25% at the close of trade on the day a rights issue announced -which HMSO did on Monday. Their rights issue was very dilutive at 7 new shares for each 5 existing shares and at £1.50 is at a 62% discount to the pre-announcement share price. British Land PLC announced a similar rights issue this morning looking for £740m to shore up their balance sheet. It is issuing 340.9m new shares at 225p each, which is more than half its share price and reflects a 69% discount to its 31 December net asset value of 718p a share. Short disclosure on BL's stock needs to be made by 3.30pm tomorrow if their position is >0.25%. There's currently 14.5% of their stock on loan................... The entire commercial property industry requires recapitalisation.
  9. Morgan Stanley: negative equity on property loans worsens The volume of commercial property loans in negative equity and at risk from the need to refinance has climbed sharply from £2.6bn to £8.2bn because of gloomier expectations for the sector, says Morgan Stanley. The broker today updated its August analysis of negative equity on property loans because the outlook for falls in commercial property values had increased significantly since then. "A simple re-run of our analysis, allowing for the deterioration in the total return swap market's expectations for falls in the value of UK commercial property to the end of 2009, shows an increase in total negative equity from £13bn to £41bn, and an increase in the amount of negative equity at risk from the need to refinance rising sharply from £2.6bn to £8.2bn," analyst Martin Allen said. "However, since August, the total return swap market's expectations for capital growth in 2010 have turned negative, increasing the total expected downside in capital values, and extending the period over which we have to consider the impact of debt refinancings by a year. "Consequently, we have extended our modelling period to end-2010." Allen said this 12 month extension resulted in an increase in the amount of loans in negative equity to £54bn from £41bn. It also meant the amount of negative equity that is vulnerable owing to debt refinancing doubles to £16bn. (Nathan Cross 10/12/2008)
  10. I think I'm right that British Land are the 2nd most 'shorted' stock in the FTSE at the moment, with alomst 12% of their stock on loan............
  11. If the commercial derivatives market (IPD swaps) is correct, and it has been the best indicator of commercial real estate prices, then it looks like EVERY listed property company in the UK will be bust by December 2010. Current commercial forward capital growth prices for 09 are -23% and -9% in 2010. 2007 was -7% and 2008 will be -23%. Taking into account the income return from commercial property (rents) the peak (May 07) to trough (Dec 10) is circa 51%. Be afraid.
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