Eagle Hospitality Trust : A Case of Narrative Economics
I recently ordered a book from Book Depository called “ Narrative Economics: How Stories Go Viral and Drive Major Economic Event ” by a Nobel winning economist “Robert Shiller.
Who is Robert Shiller and what is Narrative Economic?
<From Wikipedia.com >
Robert James Shiller (born March 29, 1946) is an American economist (Nobel Laureate in 2013), academic, and best-selling author. Shiller has taught at Yale since 1982 and previously held faculty positions at the Wharton School of the University of Pennsylvania and the University of Minnesota. He has written on economic topics that range from behavioural finance to real estate to risk management and has been the co-organizer of NBER workshops on behavioural finance with Richard Thaler since 1991.
In 1981 Shiller published an article in which he challenged the efficient-market hypothesis, which was the dominant view in the economics profession at the time. Shiller argued that in a rational stock market, investors would base stock prices on the expected receipt of future dividends, discounted to a present value. He examined the performance of the U.S. stock market since the 1920s and considered the kinds of expectations of future dividends and discount rates that could justify the wide range of variation experienced in the stock market. Shiller concluded that the volatility of the stock market was greater than could plausibly be explained by any rational view of the future.
The behavioural finance school gained new credibility following the October 1987 stock market crash. Shiller's work included survey research that asked investors and stock traders what motivated them to make trades; the results further bolstered his hypothesis that these decisions are often driven by emotion instead of rational calculation
In 1991 he formed Case Shiller Weiss with economists Karl Case and Allan Weiss who served as the CEO from inception to the sale to Fiserv. The index was developed by Shiller and Case when Case was studying unsustainable house pricing booms in Boston and Shiller was studying the behavioural aspects of economic bubbles. The repeat-sales index developed by Case and Shiller was later acquired and further developed by Fiserv and Standard & Poor, creating the Case-Shiller index.
His book Irrational Exuberance (2000) – a New York Times bestseller – warned that the stock market had become a bubble in March 2000 (the very height of the market top) which could lead to a sharp decline.
What is “ Narrative Economic” in his new book?
In a world in which internet troll farms attempt to influence foreign elections, can we afford to ignore the power of viral stories to affect economies? Robert Shiller offers a new way to think about the economy and economic change. Using a rich array of historical examples and data, Shiller argues that studying popular stories that affect individual and collective economic behaviour—what he calls "narrative economics"—has the potential to vastly improve our ability to predict, prepare for, and lessen the damage of financial crises, recessions, depressions, and other major economic events.
Spread through the public in the form of popular stories, ideas can go viral and move markets—whether it's the belief that tech stocks can only go up, that housing prices never fall, or that some firms are too big to fail. Whether true or false, stories like these—transmitted by word of mouth, by the news media, and increasingly by social media—drive the economy by driving our decisions about how and where to invest, how much to spend and save, and more. But despite the obvious importance of such stories, most economists have paid little attention to them. Narrative Economics sets out to change that by laying the foundation for a way of understanding how stories help propel economic events that have had led to war, mass unemployment, and increased inequality.
The stories people tell—about economic confidence or panic, housing booms, the American dream, or Bitcoin—affect economic outcomes. Narrative Economics explains how we can begin to take these stories seriously. It may be Robert Shiller's most important book to date.
As a macroeconomist, Shiller is particularly concerned with the phenomenon of contagious narratives which can drive big economic events.
We need to incorporate the contagion of narrative into economic theory. Otherwise, we remain blind to the very real, very palpable, very important mechanism for economic change, as well as a crucial element for economic forecasting… Ultimately narratives are major vectors of rapid change in culture, in the zeitgeist and in economic behaviour.”
If you would like to know more about the “ Narrative Economic”, you may refer to the below link: A working written by Robert Shiller in 2017 before as the basis and foundation for his subsequent book published in 2019.
And also below Video Clip from YouTube:
Why “Narrative Economic” is Important In Stock Market?
We know that in the macro level, stories or events like “inverted yield curve”,” trade war “,” Ray Dalio’s Stock Market Crash theory” or any tweet from President Trump drive economy.
Narratives drive our lives. Human beings think in stories, understand the world through stories, make plans and decisions in stories and organize their lives in stories. Leaders in politics, government and business use stories to explain what is happening and to inspire change. Although stories drive our decisions about how and where to invest, how much to spend and save, and help propel major economic events and policies, economists have systematically neglected the role of narrative.
Kids like stories, investors like stories and the stock market is full of “storyteller “. I have written a blog about “Investing and Storytelling “ in 2016 ( Here )
What is the “Story“ of Eagle Hospitality Trust
EHT ( Eagle Hospitality Trust ) was listed on SGX in May 2019 and the share price keep dropping from the day it got listed.
Eagle Hospitality Trust's IPO falls 6.4% on debut <source : businesstime.com>
As we all know that one of the reasons for lacklustre debut and continuously dropping share price after the listing was due to investors’ concern about future and “structure repair” for RMS Queen Mary ( one of the asset included in EHT ).
|image credit to traveller.com.au|
Needless for me to explain more about the “ story “ of The Queen Mary Hotel which been discussed and debated extensively by the analyst or among bloggers.
The story of The Queen Mary Hotel like an epidemic that infected the stock since listed and continuous to be the “main character” in shaping movement of the stock’s share prices, day by day and week by week.
You may see from the below chart that the story/narrative of this ship hotel continue to “haunt” the share price like the “haunted ship” since May 2019 and share price dropped by more than -17% since listed till 24th Oct 2019, and in total it drops almost -30% after the news broke out.
The epidemic exploded on 25th Oct when we saw another -15% dropped in share price on that day because of news reported by The Edge on 23rd Oct which leads to a trading halt and “voluntary suspension” by the company to SGX on next trading day:
Eagle Hospitality Trust could get wings clipped as a key asset The Queen Mary sinks into disrepair < source: TheEdgeSingapore.com>
Like what Robert Shiller explained in his new book, the narrative of a certain event may cause "epidemic like" catastrophic to the economy which may lead to a recession eventually. He used the Ebola outbreak as an example where by the epidemic may have a certain pattern and achieve the “peak” or tipping point to some extent.
I am not sure if the price drops on 25th Oct was the “peak “ of this epidemic but at least for me, it seems to be one of the “peak” and of course may continue to have multiple “smaller peak” before it tapering off eventually.
As you know, I am not good in stocks analysis and figures, but I guess buying at 30% discount was a great bargain and offer a higher “margin of safety “, especially for REITs/Biz Trust that’s backed by a physical asset and have a consistent cash flow. I have no crystal ball to tell when and what will be the “bottom” and there is a possibility that share price may fall by another 10% if more and more peoples (investors) start to react and play a part in this story. Remember the “ butterfly effect “ in chaos theory, a small change in one of the variable can lead to huge impact or “catastrophe “ to another unforeseen event. Meantime, we should not expect the price to rebound strongly like V-shape type of recovery while the scene of the story continues to unfold.
The butterfly effect that turned HK upside down <source: chinadaily.com>
Like any other “haunted story”, this story of RMS Queen Marry may continue to “haunt” us (investors) and the depressed the share price may continue to fall till the epidemic hit the next “peak”…..
"why major shareholders are selling? what happens to EHT if UC default the lease?what is the ultimate liability of EHT if UC default the lease? what is the role play by City of Long Beach and the surveyor ? is the structure damage really serious that affecting the operation and survivor of the ship? what is the cost of UC to lease the ship from City of Long Beach vs asset value in EHT? what happens to EHT if it would have to write off the value of Queen Mary? DPU /NAV? any EFR to reduce the gearing eventually?
The story goes on and on……. sit back and relax !!
Link: Further reading on Eagle Hospitality Trust written by other famous bloggers:
Price Meltdown For Eagle Hospitality Trust- The Curse Of Queen Mary <source:dividendpassiveincome>
RnR Weekly 261019: Eagle Hospitality Trust Selloff, CMT & CRCT Earnings<source:risknreturns.com>
Eagle Hospitality Trust: Buying Opportunity after the 13% drop? <source:financialhorse.com>