Distinguished Speakers Series: Barry Sternlicht

Distinguished Speakers Series: Barry Sternlicht

Distinguished Speakers Series: Barry Sternlicht

Barry Sternlicht was the featured guest at the Distinguished Speakers Series held on Nov. 21 at the Standard Club.  Sternlicht is the Chairman & Chief Executive Officer of Starwood Capital Group, a private investment firm he formed in 1991 focusing on global real estate, hotel management, oil and gas, energy infrastructure, and securities trading.

Using an inordinate number of slides Sternlicht gave a sweeping account of just about everything that related to the global economy.  His remarks covered a range of investment topics including; the domestic housing market, New York City property prices, currencies, quantitative easing, oil prices, global real estate valuations, and the 2015 outlook for the U.S. and global markets.

A subset of Sternlicht’s presentation comments included:

  • The top 1% are getting richer in all markets. This subgroup of the investing population is no longer willing to solely invest in domestic or global markets.  Instead, these investors are now buying up real assets in prime locations – South Americans investing in Miami, Asians investing in New York, Russians investing in London, etc.  These global buyers are pushing higher purchase prices in these ‘world class’ cities.  As a result, buyers looking for reasonably priced real estate will have to look to ‘second tier’ cities.
  • The U.S. government deficit will continue to grow despite the spending bill passed at the start of 2014. Entitlements – Medicare, Medicaid, and Social Security will increase the deficit dramatically over the next decade.  To combat this the retirement age will be raised, and benefits will be reduced.
  • The movement of populations from high tax states to low tax states will accelerate as more baby boomers retire. This will drive real estate growth in those low tax states and provide for slow or even negative growth in high tax states.
  • Growth in retail rents is and will continue to be bifurcated. Luxury retail malls will continue to outperform in terms of high occupancy rates, and growth in rents.  Properties that are not at the A level will likely exhibit slow or flat growth in rents.
  • The Euro zone and Japan will institute their own form of quantitative easing. This will cause the dollar to rise against the Euro and Yen.  The U.S. has promoted a weaker currency over the past several years with lower interest rates and growth in the money supply.  The stagnating economies in Europe and Japan will push policy makers to weaken their own currencies in an attempt to reflate their respective economies with increased exports.  Even so, a greater currency war will be fought over the next several years with many nations fighting to have a weaker currency.
  • The Federal Reserve will keep interest rates lower for a longer period due to a lack of any inflation on the horizon and lower energy prices. In addition U.S. yields are higher than in Europe and Japan, which will cause flows into the U.S. market, keeping the long end of the curve depressed.

Sternlicht ended his presentation by taking questions from the audience and sharing details of his latest hotel and apartment project – the ultra-luxury Baccarat Hotels and Resorts development in midtown Manhattan.  This development underscored several of the points Sternlicht made earlier – premium properties commanding outsized rents, and investing in world-class cities for outsized returns.

CFA Society Chicago Blog Launches

Dear Colleagues,

Today we are excited to announce the launch a new chapter in the history of CFA Society Chicago the – CFA Society Chicago Blog.

The Communications Advisory Group developed this new communication tool, populating it with event news, speaker recaps, society news and more.  As the blog continues to grow, I invite you to submit articles that address current trends and research in the investment industry.  This blog will also be an exciting part of the society’s 90th anniversary celebration, starting in 2015.

Browse the blog and read about our great events. And CFA Chicago members – consider joining the Communications Advisory Group.


Communications Advisory Group

CFA Society Chicago

Distinguished Speaker Series: Jeremy Siegel

Distinguished Speaker Series: Jeremy Siegel

Distinguished Speaker Series: Jeremy Siegel

Are stocks overvalued?  Not according to Chicago native Jeremy Siegel.  The Wharton professor and author often described as a “perma-bull” took a sanguine view towards the equity markets in his CFA Chicago presentation, saying that while stocks are the most volatile asset in the short run, they have proven to be most stable asset in the long run, producing an average real return of 6.7% since 1802.

When Dr. Siegel delivered his keynote address to the CFA Chicago Society’s annual dinner in 2011, he described stocks as “undervalued”.  Since then, the S&P 500 has returned nearly 63%.  Slightly less prescient was his prognostication regarding bonds, which he believed to be overvalued at the time.  In his booming, enthusiastic style, Siegel spoke highly of stocks, saying that “In every country in the world, stocks have slaughtered fixed income over the long run”.

One of the most interesting anecdotes Siegel told was around his tenuous media relationship with fallen bond titan Bill Gross.  In Gross’s August 2012 Investment Outlook piece, the former PIMCO portfolio manager wrote that “the cult of equity is dying” and identified Dr. Siegel as the leader of that cult.  “I’ve had my differences with Bill Gross over the years,” Siegel lamented to chuckles in the audience, noting that Gross’s ill-timed call preceded a massive run-up in equity prices.

Turning his attention towards the subject of valuation, Dr. Siegel used the price to earnings multiple over a long time horizon to show that the current market valuation isn’t very far from the norm.  Taking the analysis a step further, Siegel stated that removing high interest rate periods from the PE calculation would indicate an even higher average multiple, suggesting that the market could potentially be undervalued even after nearly doubling from the March 2009 low.  Dr. Siegel then issued a rebuttal to his friend Robert Shiller’s popular Cyclically Adjusted Price to Earnings (CAPE) ratio, stating that in 392 months out of 396 months from 1981 to 2013, the actual 10 year real market returns have exceeded CAPE forecasts.  The CAPE ratio even characterized the S&P 500 as overvalued in May of 2009 when the Dow was at roughly half of its current value.  FASB accounting rulings also affect firm earnings (and thus PE ratios) by requiring firms to write down, but never “write up” investments.  This phenomenon was observed in 2002 due to the acquisition of AOL by Time Warner where the subsequent $99 billion write down produced the largest loss in corporate history, further distorting reported S&P 500 earnings.

Lastly, Dr. Siegel addressed the way the Standard and Poor’s aggregates S&P 500 earnings, saying that the earnings number they report can be wildly distorted due to the firm not cap-weighting each company’s share of profits and losses.  Instead, Dr. Siegel offered National Income and Product Accounts (NIPA) as an alternative earnings measure.  When NIPA earnings are used in the Shiller CAPE ratio, the market shows no overvaluation at all.  Attendees were left with plenty of food for thought around markets and valuation, and Dr. Siegel again delivered an excellent talk.

CFA Chicago Members Support 1 City, 1 Food Drive

CFA Society Chicago invites all members to support the Greater Chicago Food Depository by participating in the 1 City, 1 Food Drive campaign by donating one bag of food.

We invite you to drop off one bag of non-perishable food donations at our office now through Thurs., Dec. 11. Drop off location: 134 N. LaSalle Street Lobby or our office in suite 1740.

CFA Chicago’s mission is to lead the investment profession by promoting the highest standards of ethics, education, and professional excellence; to shape an investment industry that serves the greater good; and to serve as the premier local resource for Chartered Financial Analyst designees, candidates, other investment professionals and our communities. CFA Society Chicago, the world’s first investment analysts’ society, is committed to working with our members and the investment community to achieve our mission by expanding our investment culture to serve the interests of investors and society.

Progressive Networking Luncheon @ Petterino’s

CFA Chicago's Progressive Networking Lunch

CFA Chicago’s Progressive Networking Lunch

More than 50 investment professionals gathered at Chicago’s Petterino’s restaurant for a progressive networking lunch on Nov. 12, 2014. The idea is simple: Guests are given name tags listing a separate table for each of the meals’ three courses. The ability to “mix things up” by moving to a new table with new contacts kept the networking lively.

Conversation ranged from family office dynamics to Chicago architecture to the fate of our local sports teams. The venue provided a relaxed atmosphere and the opportunity to make meaningful connections.