Daily Top Ten – October 10, 2016

1. Volatile Action in DB Last Night…Opened Down 4%…Now up over 1%.

Deutsche Bank
Deutsche Bank AG Chief Executive Officer John Cryan failed to reach an agreement with the U.S. Justice Department to resolve a years-long investigation into its mortgage-bond dealings during a meeting in Washington Friday, Germany’s Bild newspaper reported. “The risks in our derivatives book are massively overestimated,” DB Chief Risk Officer Stuart Lewis said. He said 46 trillion euros in derivatives exposure at Deutsche appeared large but reflected only the notional value of the contracts, while the bank’s net exposure to derivatives was far lower, at around 41 billion euros –  DB opened DOWN 4% in Frankfurt, and is now UP 1.6% on the day…

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Daily Top Ten – October 7, 2016

1.British Pound has a 6% Flash Crash Last Night

 The crash was reportedly triggered by a Financial Times articles stating French President Francois Hollande wanted to be hard on Britain in Brexit negotiations. That pushed the pound lower, triggering some algos to automatically sell. Thin trading volumes meant the impact of this was outsized and created a downward spiral as the slump triggered more algos to sell.

Kathleen Brooks, Research Director at City Index, says in an email on Friday morning: “Apparently it was a rogue algorithm that triggered the sell off after it picked up comments made by the French President Francois Hollande, who said if Theresa May and co. want hard Brexit, they will get hard Brexit.

“These days some algos trade on the back of news sites, and even what is trending on social media sites such as Twitter, so a deluge of negative Brexit headlines could have led to an algo taking that as a major sell signal for GBP. Once the pound started moving lower then more technical algos could have followed suit, compounding the short, sharp, selling pressure.”

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“Dream On” Presidential Election and Rate Hike Cycle Threaten the Markets

“I know nobody knows
Where it comes and where it goes

I know it’s everybody sin
You got to lose to know how to win”

— Aerosmith

The next big worries putting pressure on the markets are the presidential election and the inevitable rise in interest rates. Some would argue that these headwinds are ultimately linked by politics. Although Republican nominee Trump may be the most unpredictable wildcard of all-time, we know from past Fortis letters pertaining to short-term volatility that “You got to lose to know how to win…” as legendary Aerosmith lead singer, Steven Tyler, would wail.

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The Apartment Boom Is Ending, Long Live the White Picket Fence

“I recommend that every man own the roof that sheltereth him and his,” Arkad says. “Nor is it beyond the ability of any well-intentioned man to own his home.” Arkad argues that “to own his own domicile and to have it a place he is proud to care for, putteth confidence in his heart and greater effort behind all his endeavors.” — “The Richest Man in Babylon”

Key Takeaways

  • There are nearly 90 million Millennials in the U.S. today. Don’t stereotype them as debt-strapped city dwellers who will never seek the suburban dream.
  • Many members of Gen Y have good incomes and are in the prime years for getting married, starting families and yes, buying suburban homes in good school districts. They just start a little later.
  • Rents have never taken up a larger of the American worker’s paycheck. Would you bet on this trend continuing?
  • We believe strongly in real estate as a long-term investment, particularly in multifamily housing.
  • Private real estate investment generates “alpha” in a tax-efficient manner and is an excellent source of income in a world of near-zero or even negative interest rates.

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