Reasons & Excuses

Business journalists, analysts, business presenters, fund managers, strategists ... all need to have reasons to explain market movements. The reasons had to be somewhat sensible and printable, and coming from the mouths of experts, it sounds more believable.

We sometimes go searching for reasons and excuses when there is really none. We are all brought up to pull out one of maybe twenty or thirty reasons from the basket everytime the market goes up or down excessively. Its like an objective test. The basket could include reasons such as:

a) the Fed is willing/ not willing to loossen

b) the BOJ is staying firm / raising rates

c) the market is overbought

d) the market has discounted the US$90 oil

e) the market is discounting the Turkish situation

etc...

Are we really picking the right reasons? We can only pick what is most plausible. Its a hindsight harry situation - you ask the "experts" after the event, not before the event, hence the "experts" will go through his/her usual bag of tricks (sometimes updated) and pull one or two reasons out of the basket. Chances are, markets sometimes goes up and down just because there are buyers and sellers, no big underlying reason.

Sometimes, markets go up and down based on the most unimportant news or excuses. How about more sellers than buyers? HK and China are down because I read everywhere the "direct train" (allowing Chinese to invest directly into HK shares may be delayed)... Please-lah... the HK market went up because of the disconnect with US monetary policy and USD peg. The China markets all having difficult days probably due to the huge amount of funds being tied up in Petrochina or those wanting to buy Petrochina-A shares in the secondary market, .. and/or huge amount of funds tied up in Alibaba.com IPO in HK.

Isn't that the main reason why Beijing wanted more A-share listings? To soak up liquidity and to offer more choices to mainland investors. Naturally index will go down a few percentage points just to accommodate such a popular and mega listing. Everyone wants to own a piece of Petrochina, its not cheap, the funds has to come from somewhere ...

Sometimes the reason for a swing is not as academic or ingenious. In fact, most of the time, the reasons are simpler. I get tired when the papers, the Bloombergs, the "experts" all tout the same diatribe of reasons ... because they have all been schooled the same way. Stick to people who can really add value, people who can be honest enough to say "I don't know, man"... instead of churning out the same old, same old without much thought or logical argument in their heads.

Beware of "experts" commentary, 99% of them come from the same bag of tricks, the reasons are all the same ... after a while they all learn to deliver each line of reason with much gusto convincingly. The more often you hear the same reasons, the more you believe its probably true, that's propaganda, the convenient truth, but usually not the truth because these group of people are too lazy to think properly or are just not market-savvy enough to understand the nuances of the markets.

People who read markets better are generally: willing to stick their necks out on a prediction; give well argued and well thought out points; not wishy-washy; and the reasons are persuasive and engaging.

Mahler vs Master O'Reilly
Too Young vs Too Long

Its Melbourne Cup again. Since my massive praises for Curlin about a year ago, the horse has gone on and should easily win Horse of The Year 2007 in the US. Having looked at this year's Melbourne Cup, it lacks stars, its an ordinary cup, which automatically puts the top 5 weighted horses out of the race. It will be a win because of handicapping.

My selections: the 3-year old Mahler (right) who have just been beating maiden class in the UK before winning the Ascot convincingly and looks to be the best weighted horse, has speed and will be well placed, has strong grinding quality towards the end. Hard to go past Master O'Reilly (left) as the winner of Caulfield Cup and a bunch of other recent races, sweeps from the back very well and the long track at Flemington will suit. The other maybe is Zipping, which nearly got Danny Nikolic suspended in the Mackinnon last week (not trying hard enough to win). Zipping could be the omen tip because when bad things happen throughout the year, a victory in the Melbourne Cup would be a nice resurgence from adversity - Danny Nikolic had been treated badly in HK this year, given dud rides and getting blamed when horses did not win. Well, Mahler's supposedly too young. Master O'Reilly is untried at 3200m. Zipping looks to be not trying too hard last win so as to not over-stretch the horse ahead of the Cup race. Hmmm!

Result	Win	Place
6 Efficient	$22.60	$7.40
12 Purple Moon		$1.80
24 Mahler 9 Zipping		$3.30

Now That's An Invention!

As reported in SMH: How do you like to have your existing internet connection boosted 100x with no additional charge? Talk about a revolutionary idea. Well, its no longer just an idea. This could change absolutely the communications and networks platform for everybody. An Australian researcher is on the road to riches after discovering a way to make broadband connections up to 100 times faster.

University of Melbourne research fellow Dr John Papandriopoulos is in the throes of moving to Silicon Valley after developing an algorithm to reduce the electromagnetic interference that slows down ADSL connections.Most ADSL services around the world are effectively limited to speeds between 1 to 20Mbps, but if Dr Papandriopoulos's technology is successfully commercialised that speed ceiling would be closer to 100Mbps.

Stanford University engineering professor John Cioffi, known by some as the "father of DSL", was one of the external experts reviewing the research, which made up Dr Papandriopoulos's PhD thesis. Professor Cioffi, who developed the computer chips inside the first DSL modems, was so impressed he offered the 29-year-old a job at his Silicon Valley start-up company, ASSIA, which is developing ways to optimise the performance of DSL networks.

Dr Papandriopoulos, whose efforts also earned him the University of Melbourne's Chancellor's Prize for Excellence, said he would leave for the US in about two weeks. He has already applied for two patents relating to his discovery.Melbourne Ventures, the University of Melbourne's commercialisation company, is now shopping the technology around to vendors of DSL equipment and modems. The vendors would then sell the supporting equipment to internet providers worldwide for placement in their exchanges.

Richard Day, commercialisation associate at Melbourne Ventures, was optimistic about the technology's licensing prospects but said it was too early to tell how lucrative it would be. "That's a question which is impossible to answer, simply because we don't yet have a feeling for the extent to which it could be adopted ... [but] it has the potential to be adopted worldwide in any country that has a copper network," he said.

"Many years ago people used to pick up the phone and make a phone call and you'd be able to hear a faint or distant telephone conversation taking place, and that's called cross-talk," Dr Papandriopoulos said when attempting to explain how his algorithm worked. "That is not an issue for voice calls these days but it becomes a problem when you're trying to wring more bandwidth out of these existing copper telephone wires [which power ADSL broadband connections]. This cross-talk in current day DSL networks effectively produces noise onto other lines, and this noise reduces the speed of your connection." Dr Papandriopoulos said his algorithm served to minimise that interference and thus maximise the line speed.

Final Words On Petrochina

waited for nirvana, came and gone... people now trying to do bottom fishing do so at their peril .... the fat is gone, its a normal trading stock now, not the chosen one anymore

take yr time to pick up cnooc, buy on weakness, but should start accumulating

petro-h shares whacked and disfigured as many punted on the h-shares ... expect h-shares to regain at least some of the discount back end of the day and tomorrow

shenhua, a similar industry leader now trades at 60% of A-share, petrochin-h is now only at 45%, expect it to at least go to 55%, you do the math, so trade on your own risk threshold

After Merrill Lynch, Citigroup's CEO "Resigns"

The surprising downfall of Stan O'Neal at Merrill Lynch & Co. has caused the CEOs of Wall Street's biggest banks to start updating their resume, or spruce up the holiday home in South of France for an extended break coming up. We are seeing the remnants of CDOs mess finally catching up with the big guys. O'Neal became the first chief executive to be shown the door after leading the world's largest brokerage to a US$2.24 billion third-quarter loss — and he is unlikely to be the last. Chuck-eeze Price finally calls it quit. The funny thing was that O'Neal was a respected figure within Merrill Lynch but most employees really do not like Prince at Citigroup. Hence popularity is not a factor. Following Prince should be Bear Stearns Cos.' James Cayne, but could be saved by the swift deal with Citic Securities as the board there feels they will need some follow through with the joint venture.

The scale of the write downs is no joke. Write-downs across Wall Street have wiped US$25 billion from the income statements of investment banks. But analysts have begun to speculate that more pain is left — and that Merrill Lynch might have to write-off another US$4 billion after a US$7.9 billion third-quarter charge. The big banks had been delaying biting the bullet as the top guys busily lobbied for Paulson to step in to create a US$100 billion Superfund to bail out the current credit mess. Well, at least the Fed and Paulson did not do a LTCM bailout this time. You reap the profits and took the fees, now thre is a slashing of asset values of the paper you hold, you cry like a baby asking to be rescued - you are a big bank now, in fact they are among the biggest in the world, so take your medicine and be quiet.

Don't think that these CEOs are like the Japanese CEOs who would perform corporate seppuku should they find themselves in similar financial straits. No, no ... these CEOs went straight into action when the credit problem exploded, and started ascribing blame and chopping heads, to offer to the "gods" as "offerings" to save their own jobs. Bear Stearns Chairman and CEO Cayne dump Warren Spector, who ran two hedge funds that imploded from subprime losses. At Citigroup, investment banking head Thomas Maheras was cut. And, O'Neal swiftly showed the door to fixed-income head Osman Semerci. Ken Lewis, CEO of Bank of America Corp., also swung the axe. He slashed 3,000 investment banking jobs, fired a number of top executives, and stopped offering home mortgages through brokers. Sometimes, even the "gods" are not easily swayed. Ok, let's rearrange the chairs, and put the music on again.

Before anyone starts to feel sorry for the CEOs, let me remind you that Stanley O'Neal got US$160 million as his severance package. Prince should get a similar sum. The Citigroup board was highly likely to name Robert Rubin, the former Treasury secretary and an influential adviser to its embattled leader, as its interim chairman at an emergency meeting yesterday. Gawd, now Goldman Sachs really, really controls Wall Street & the world (Rubin and Paulson were ex-Goldman Sachs clones).

What pulled the trigger for Citigroup was a SELL report by Meredith Whitney from CIBC World Markets (ranked #2 stockpicker in 2007 Forbes survey). The report said that Citigroup needed to raise US$30 billion to resore its cash cushion for payments to investors. Citigroup' share price lost about US$3.00 or 7% of its share value following the report.

Petrochina Reaches Nirvana

After hyping and broadcasting about Petrochina for the past 4 months, this baby has finally been delivered by the golden stork as planned. Its the chosen one because there is only one Petrochina. China investors have accorded a much higher premium for A-shares of companies that are top in their industry. How do you value, what pricing for Petrochina? It is not only top of its industry, its valuation would put it firmly to be the second biggest company in the world, and pretty soon the biggest. It is also in the most explosive sector possible - oil.

Despite the unsuccessful funds being returned to investors in China, many have not reinvested back into Shanghai or Shenzhen stocks with gusto, the word on the street is that most want to buy and keep some Petrochina shares. The average estimate by market players is 40 yuan which would give its H-shares a 50% discount. Methinks its possible for the share to run up to 46-50 yuan. Bearing that in mind, and keeping the 50% discount, the H-shares should close firmer today (closer to HK$21) and may trade between HK$21-HK$23 on Monday and Tuesday. Anyone holding Petrochina covered warrants on the H-shares should be happy to hold on because I doubt very much that Petrochina A-share will ever dip below 40 yuan from here on judging from the amount of potential buying available for the shares. If it won't fall below 40 yuan, it shouldn't fall below HK$20.50.

As if all the news about the share is not positive enough, Beijing decided to raise gasoline and diesel prices by 10% yesterday to stop the erosion of refiner's margins and to guarantee the supply of fuel amid public discontent over shortages. Car owners now have to pay 0.4 yuan (5 US cents) more per liter of gasoline. This will increase the operating cost for rail cargo, public transportation and aviation immediately. The increase will boost the prospects of the already bleeding pure refiners such as Sinopec.

The hike in gasoline and diesel prices in China have checked the stock prices in China a bit - however, I think people are reading too much into the hike. Soaring food prices have caused inflation to jump this year, although the increase in the benchmark consumer-price index slowed to 6.2% in September from 6.5% in August. Underlining official caution about inflation, the government issued an estimate shortly after revealing the fuel-price increase, saying it will have a limited impact on inflation, likely adding only 0.05 percentage point to the consumer-price index. The share price weakness in China yesterday and today are not really due to "inflationary scares" or "fuel/gasoline price hikes" - it is because almost all investors are cashed up to ready themselves to buy Petrochina A-share come Monday - I know this sounds like a sidewalk Chinese medicine oil salesman, but go and do a survey by phone in Beijing, Shanghai, Tianjin, etc... you get the same response.

There are concerns that these could have a ripple-on effect across other industries and could halt the uptrend of China's stock markets. Everyone would always slip in a question as to how and when the China stock market bubble will end. I have heard the Shanghai being called a bubble (including by me) since it was 4,000. A re-examination and study of Beijing' persuasions have led me to be a bull a again (even though a cautious one). I agree it is bubblish but its not extremely over valued. As for any super bull (and this IS definitely one), the momentum, liquidity, fundamentals all are converging. Year on year profit growth is still in the 20%-30% range, though there should be some concern still that some 30% of all profits are from investment income (stock market investments and holdings). Shanghai is trading at 38x forward earnings - frothy, yes... bubble, yes ... more upside, also yes... If we all examine super bulls of the past such as Nasdaq in 1989 or the HK market back in 1973 - they all went as high as 50x -60 x forward PER before crashing. If we were to use that as a guide, the Shanghai markets still has another 35% upside from here before we really should call the cops on ourselves.

Oil Prices & Ramifications

Even though we saw US$93.80 for oil, in real terms, the price is not an all time high as its still below its all-time inflation-adjusted high of US$101.70 back in April 1980. However, Crude has climbed 47.3% over the past 52 weeks, and since 2001, it is up 511%, from US$18 to US$93. We have examined the reasons why & potential ramifications, here's a repeat:

a) Increasing Global Demand: Booming growth in China and most of Asia-Pacific. Add India, Korea, Russia, Brazil, and Australia to the equation as well. Even old E.U. is moving in the right direction.

b) Correcting U.S. Dollar: The dollar is at 15 year lows versus a basket of currencies. The Fed is engineering a cheaper US stocks scenario amidst credit problems in the US. The correction in USD is reflecting itself in oil prices.

c) Under Invested: We are reaping the consequences as many big oil companies and state controlled firms have under invested to replenish natural production declines.

d) Money Supply Growth: What we are seeing is not just oil prices but almost every single commodity. The growth machinery cited above coupled with aggressive money supply growth policies undertaken by most developed nations over the last 5 - 7 years have resulted in a load of liquidity swishing in the system.

e) Shift In Balance of Power: Due to the dependence on oil and their record prices, the producers have minted a lot of surplus cash. Russia has used its proceeds wisely, effectively bankrupt in 1998, now Russia has more than US$450bn in reserves. Russia is also using petro money to "control" the surrounding small countries via joint ventures and questionable deals. China, realising its vulnerability has deliberately courted African countries with proven oil and gas reserves.

f) USA May React: USA being USA will be facing untold problems if oil prices stay at US$100 for a prolonged period (say a few years). Politicians will work feverishly to control the consequences of living with US$100 oil. Push comes to shove, USA may fight certain wars for the oil - if you know what I mean.

g) Petrodollars Balance Sheet: Used to be 100% in US Treasuries - this way the US can continue to consume as the petrodollars were recycled back to lend to the US via Treasuries. Over the last 2 years,many countries with hefty trade surpluses have started huge sovereign funds to invests in foreign companies. These companies are a mask to move funds away from buying Treasuries. I don't see this trend reversing, hence I see further downside for USD.

American Baby

The indicative timing of events leading up to the listing of and quotation for the GOOGLE SW on the Call Warrants Board of Bursa Securities is set out as follows:-

Price fixing date
29 October 2007
Opening of the Offering 30 October 2007
Closing of the Offering at 3.30 p.m.
31 October 2007
Allotment of the SW to placees
9 November 2007
Listing of the SW on the Call Warrants Board of Bursa Securities
14 November 2007


Issue Size : Up to 90,000,000 SW
Entitlement Ratio : Three thousand (3,000) SW shall initially be entitled to one (1) GOOGLE Share
Reference Currency : United States Dollar (USD)
Settlement Currency : Ringgit Malaysia (RM)
Issue Price : RM0.11, being 14.59% of the Reference Price divided by 3,000 x exchange rate of USD/RM 3.3400, rounded up to the nearest sen
Exercise Price : USD680.00, being 100.4% of the Reference Price

As of yesterday's price of US$694, the premium is 12% for the call warrant at 11 sen. At 14 sen, the premium goes to 18%. Gearing would be 5.4x. I would expect a lot of over-eager buyers. Don't chase above 15 sen or when premium breaches 20%. At the current price level of close to US$700, a lot of things has to go right every quarter, even then we may not see US$750 within 6 months. So, beware.

Best Plantation Play

Hap Seng Plantations Holdings Bhd's (HSP) initial public offering (IPO) of 300 million shares is expected to raise up to RM800 million - the biggest sale of shares in Malaysia this year so far. HSP's new shares are offered at RM2.65 per share, while the institutions side appears to be priced with a 50 sen premium on top of the IPO price. HSP forecasts a 56 per cent jump in net profit to RM157.7 million in the year ending January 31 2008. The IPO closes on November 2, with the shares targeted to be listed on the stock exchange on November 16. On 800m shares, the EPS would come in at 19.7 sen. Assuming 2009's net profit rises by 20%, net EPS would come to 23.6 sen. This will be the respective 2009 PER for Hap Seng Plantations market price on listing:

RM3.30 14x

RM3.50 14.8x

RM4.00 17x

But Hap Seng Plantations is not my pick, its IJM Plantations. Coincidentally, the EPS for March 2008 is 20 sen and for March 2009 EPS is slated to rise to 22 sen. That it, both companies EPS comes in at roughly the same level. Going forward, Hap Seng Plantations has probably sold forward 50% of production, while IJM Plantations has done negligible selling. The current rally in CPO prices would see IJM Plantations as a strong candidate for major re-rating. The fact that smaller plantations companies trade at a 20%-25% discount to larger counterparts, coupled with the fact that IJM Plantations' earnings was affected severely by the January floods - all bring about a positive glow for IJM Plantations share price. Added to that, the yields at IJM Plantations is a lot better. At the minimum, IJM Plantations share price should more than match Hap Seng Plantations shares price on listing day.

Best Poker Movies

Since its a pretty dull day for business, thought I should recommend something for the holidays. Readers who have read my profile will know that I am a fan of poker, well, Texas Holdem to be exact. The game has been growing in popularity over the last 5 years thanks to the World Series of Poker tournaments. The subject matter is so simple yet complex that I am surprised not more movies has been made. There was a very well made series called Tilt, which is available on DVD, that was a blast. Rounders used tobe a cult classic among poker players. Now I am happy to say a better poker movie is available. It stars Drew Barrymore, Eric Bana, Debra Messing and Robert Duvall - it looks at what drives a fanatic poker player and how the game affects everyone around a die hard player. A side note, there are at least 10 big real poker stars in the movie Lucky You as well. Lucky You probably won't be a smash hit but will be thoroughly enjoyed by poker aficionados. Good movies fleshes out the characters well, you feel for them and you understand their motivations, Lucky You does that very well.

Poker is intoxicating as you are playing against others and yourself. Its a lot of ego, self believe and math. Best lesson from the poker table, we all get what we deserve but only the successful will admit it.

IPO Froth In Asia

Not since the internet bubble have we seen oversubscription for IPOs like these. One of the touted genuine internet China plays, Alibaba.com, has locked up about HK$450 billion, closing its retail book on Friday with the tranche 250 times oversubscribed. Its international allotment has attracted US$180 billion (HK$1.4 trillion) worth of orders. Sources said the IPO shares will be set at HK$13.50 apiece - the top end of the indicative range. Market watchers believe the shares will jump 50 percent above the offer price on their trading debut next month. Alibaba.com is more than just a flimsy internet play, we are not talking about 2000 anyway. The company has proven itself as an adequate player in the biggest potential internet market - thus explaining the enthusiastic response from international fund managers.

During the dotcom frenzy in 2000, Tom.com, owned by Cheung Kong was 669 times oversubscribed and locked up HK$51 billion. The stock closed at HK$7.75 on debut, or 3.35 times the HK$1.78 offer price, resulting in investors gaining about HK$12,200 from a board lot of 2,000 shares. Tom.com, now traded as Tom Group, closed last Friday at HK$0.73. Another moverick during the internet boom time was Sunevision owned by Sun Hung Kai Properties, was 217 times oversubscribed and locked up HK$70 billion. It closed at HK$17.35 on debut, 45 percent above its HK$10.38 offer price. Sunevision closed at HK$1.16 last Friday.

What about the Petrochina juggernaut? Well, PetroChina attracted about 3.3 trillion yuan (US$440 billion) in subscriptions to its Shanghai IPO, a record for a domestic stock offer. It is offering up to 4 billion A shares to raise as much as US$8.92 billion in the offer, which is expected to be the world's biggest IPO so far this year. Well thats an over-subscription rate of 49x. The drain of funds to the huge offer sent short-term Chinese money market rates soaring to multi-year highs this week and pushed down the stock market. Liquidity in the markets is expected to improve dramatically on Tuesday and Wednesday, when funds frozen by the IPO are returned to unsuccessful applicants.

Humour 101

This is largely a repost (with some updates) of some smart-ass definition for financial jargon. Had to do it for the benefit of newer readers of the blog. Some of them are copied and some courtesy of my twisted sense of humour.

EBITDA
Earnings Before I Tricked the Dumb Auditor

EBIT
Earnings Before Irregularities and Tempering

Top-Down Investing
People with a bit of economics knowledge but scared shitless about accounting

Bottom-Up Investing
People who knows a bit about accounting but hates fiction

Unusual Market Activity
Something the management and directors always know NOTHING about

Averaging Down Investing
When you totally ignore the fact that you were wrong in the first instance

Doubling Up Investing
Making doubly sure that you are more than fully-invested when the stock eventually tanks

CEO
Chief Embezzlement Officer

CFO
Chief Fraud Officer

Second Board
What Second Board???

Margin Account
Shorter rope, tighter noose

Hedge Funds
"Institutionalised" margin accounts

NAV
Normal Andersen Valuation

NPAT
Never Pay Any Tax

EPS
Eventual Prison Sentence

Federal Reserve Board
Bank of Japan on Prozac

Equity Research
As useful as yesterday's newspaper

Equity Analysts
Hopes no one discovers how average they are

Fund Managers
Sponges off the brains of analysts and strategists and call it their own

Unit Trusts & Mutual Funds
People who hope & pray that investors don't realize that more than 90% of them cannot outperform their respective indices

Chartists & Quants With Trading Programs
People who have given up trying to understand the stock markets

Short Term Investor
Someone who is in-and-out within 3 days or less

Long Term Investor
A short term investor who cannot get out profitably after 3 days

Bull Market
A random market movement causing an investor to mistake himself for a financial genius

Bear Market
A 6 to 18 month period when the kids get no allowance, the wife gets no jewellery, and the husband gets no sex

Off Balance Sheet Items
More important than items in the balance sheet, and represent things that really should be in the balance sheet

Momentum Investing
The fine art of buying high and selling low with the crowd

Value Investing
The art of buying low and selling lower

P/E ratio
The percentage of investors wetting their pants as the Market keeps crashing

Remisier
Someone who should have kept their previous job

Investor Protection
Padded walls in broking halls

Market Correction
The day after you buy stocks

Cash Flow
The movement your money makes as it disappears down the toilet

Institutional Investor
Past year investor who is now locked up in a nuthouse

Economist
Someone who tells you why their predictions went wrong after every quarter, and proceeds to give a confident prediction for the next 3 quarters

Bursa Pursuit
Honing the art of trading warrants with less than 10 days to expiry

Bursa, Lion & Berjaya
Average but lucky buggers

China A-Shares
"A" for astronomical & absurd

HK H-shares
"H" for hapless & hibernating

Chinese Covered Warrants
Only type of China dolls approved by the wives

CDOs
Things you didn't know or understood 6 months ago

Super Link Houses
Things that didn't exist a year ago

Smart & Smarter

Probably the most astute property guy in the world - Sam Zell, main owner of Equity Office Properties Trust. Sam's parents escaped Poland weeks before Nazi invasion; Sam born in Chicago 4 months after family's arrival in America. Built real estate empire with frat brother Robert Lurie; bought up cheap real estate throughout U.S. from distressed owners, kept buying when values recovered and boomed. EOPT's first fund scored with Mexican homebuilder Homex up 1,200%. Second fund targeted Brazil. The deal of the decade, Sam sold EOPT to Blackstone Group in February this year. Details below.

Bloomberg / NYT - American REITs are now forecast to suffer their worst decline in almost ten years and could drop up to 20% within the next year, according to Bloomberg. Economists cited by the New York Times estimate that problems in the mortgage markets could ultimately cost financial firms and investors up to US$400 billion. REIT stocks have outperformed the S&P 500 every year since 2000, but are expected to suffer as higher borrowing costs put the brakes on takeovers and slash property values. "REITs are overvalued by 25-40% relative to stocks and bonds, and cash flow yields are too low," said University of California economist Kenneth Rosen. Investors are steering clear of bonds backed by subprime and commercial mortgages, and their reluctance to lend is affecting the value of trusts that own commercial properties, apartment complexes, hotels, shopping centers and mortgages. The Bloomberg REIT Index has fallen 16.5% since the Blackstone Group bought EOPT for US$39 billion including debt. Bloomberg notes that the last time the Index sank more than 10% was in 1998, when investors were pouring money into Internet stocks. The only segment of the Index not to lose value this year is warehouse and industrial, which rose 11.5%. Public storage REITs suffered most with a 19% decline. "

Blackstone Group, which completed its purchase of Equity Office in February this year, has sold so much of its office property portfolio in recent months that it has covered 70% of the deal's US$39 billion cost.
Blackstone, riding a booming U.S. commercial real-estate market, has shed at least 62 million square feet out of about 102 million square feet of office space once held by Equity Office. It even managed to sell several properties at record prices. Still Blackstone is left with quite a bit of property on their books, but at least they have a decent buffer. However, the correction over the last three months would have wiped a lot of smiles from Blackstone staffers. So, who is smarter? It would have been very difficult to dispose the entire EOPT by Sam himself. He also needed to have the foresight and guts to sell at the right time. It probably was very difficult for Sam to disassociate himself from EOPT, after having build the company up so successfully. Well, Mr. Zell took the cash and can take his time now to start rebuilding a new REIT with his cash.

Sam Zell was worth US$4.5bn as at end 2006. Following the deal he is now worth US$6bn.