Matrix Blog

The annual release by the New York State Office of Comptroller brought upbeat news to the real estate economy in NYC. Wall Street compensation has long accounted for roughly a quarter of personal income but only 5% of employment so the industry remains very important to NYC’s tax revenues. Here are some of the key points:

• The overall bonus pool and bonus per person increased 15.1%.
• The total bonus pool was
• Bonus pool is up 44% in past 2 years.
• Securities employment is down 12.6% from before the 2008 market crash.
• Wall Street accounts for 8.5% of NYC tax revenue and 16% of NYS tax revenue
• Part of the rise was due to payouts of deferred compensation from prior years.

Here are a few charts that layout the bonus trends in NYC. Wall Street is a key economic driver of NYC and therefore important to the health of the NYC housing market.

Wall Street compensation is 5x that of mere mortals (other private employment compensation) and that ratio has stabilized after a modest correction following the 2008 stock market crash.

[click to expand]

Wall Street bonuses rose steadily as a portion of total compensation but after the 2008 stock market correction and financial reform, the market share fell – but not as much as perceived.

[click to expand]

Wall Street employment has fallen since 2008, but not nearly as much as expected. The market share of Wall Street NYC employment has slipped as a result.

[click to expand]

Tags: Wall Street Bonus, NYS Comptroller, Securities Industry, Reuters

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Source: Knight Frank [click chart to expand]

This chart could also be called “Why International Demand for US housing is Elevated” since many European investors are looking for safe places to park their money.

Tags: Europe, Lehman

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Here are the 3 Manhattan luxury housing price indices we provide for the Bloomberg Terminals through 2Q 2013.

MLH AVG Index (Miller Samuel Manhattan Luxury Housing Average Sales Price) [click to expand]

MLH SQFT Index (Miller Samuel Manhattan Luxury Housing Price Per Square Foot) [click to expand]

MLH MED Index (Miller Samuel Manhattan Luxury Housing Median Sales Price) [click to expand]

Tags: Bloomberg News

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I can’t wait for the documentary Money for Nothing to be released. In fact I donated to IndieGoGo.com because I was so impressed that I wanted my own copy.

This documentary is compelling and so are all the cast members. It includes a who’s who list of current and past members of the Federal Reserve as well as economists and Wall Street experts. Cast members include my friend Barry Ritholtz and Gary Shilling who both have been on my podcast. Todd Harrison of the great site Minyanville.com and John Mauldlin who I have always looked to for insights. Jim Grant of Grant’s Interest Rate Observer who called me at the height of the crisis to get a gauge on the Manhattan housing market.

During the housing bubble I often felt like screaming as I saw the financial world through my appraisal glasses thinking I missed an important math class in 8th grade. Fast growing banks with gigantic mortgage volume and many of my appraisal competitors in bed with mortgage brokers were clearly smarter than me – they could make the numbers work and I couldn’t.

In 2003 and 2004 I remember being absolutely confident as a non-economist that the Fed was keeping interest rates too low for too long. I could see it in the loss of lending standards and the lavish incomes enjoyed by those around me who embraced a world of based on moral flexibility. The froth was simply ignored.

Don’t mean to get sentimental on you dear readers, but this movie struck a chord with me. Enjoy the trailer and watch for the release date announcement.

Tags: Barry Ritholtz, documentary, Indiegogo

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In case you have any doubts about the amount of compensation that the securities industry enjoys versus the private sector in NYC, I created the chart above. While the bonus comp results has been released for 2012, the salary data is not out yet so I built this chart from 1985-2011. In 2011, securities industry salaries + bonuses were 7x larger than private industry salaries.

In case you had any doubts about how important the industry is to the NYC, regional and state economy, hopefully you are now – love them or hate them.

Since Wall Street bonuses were announced yesterday and have been talked about and analyzed a lot over the past 24 hours, I thought I’d share the following video which apologizes a lot for compensation levels of the securities industry but breaks down the advantages of the bonus compensation practice on Wall Street.

I was provided with a video from OnlineMBA.com

Three Cents Worth: Have Bonus, Will Buy in Manhattan? [Curbed NY]
In Defense of the Wall Street Bonus [OnlineMBA]
NYC Securities v. Other Private Industry Compensation [Miller Samuel Charts]
Wall Street Bonuses Rose in 2012 [NYS Comptroller]

UPDATE: Bloomberg Television saw this post and made it their “Single Best Chart” of the day.

Tags: Three Cents Worth, bonus, Wall Street Bonus, 3CW

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It’s time to share my Three Cents Worth (3CW) on Curbed NY, at the intersection of neighborhood and real estate in the capital of the world…and I’m here to take measurements.

Check out this week’s 3CW column on @CurbedNY:

Since New York State Comptroller Thomas DiNapoli graciously accommodated our Tuesday Three Cents Worth release date with his report on Wall Street Bonuses, I thought I’d try to come up with a chart that somehow correlates Wall Street cash bonus payments and the Manhattan housing market. Prices don’t correlate well with any form of Wall Street bonus data and employment trends seem to be too macro to equate with annual housing price trends…

[click to expand chart]

Today’s Post: Have Bonus, Will Buy in Manhattan? [Curbed]
Three Cents Worth Archive Curbed NY
Three Cents Worth Archive Curbed DC
Three Cents Worth Archive Curbed Miami

Tags: Three Cents Worth, Curbed NY, Wall Street Bonus, 3CW

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Here are the 3 Manhattan luxury housing price indices we provide for the Bloomberg Terminals.

MLH AVG Index (Miller Samuel Manhattan Luxury Housing Average Sales Price)
[click to expand]

MLH SQFT Index (Miller Samuel Manhattan Luxury Housing Price Per Square Foot)
[click to expand]

MLH MED Index (Miller Samuel Manhattan Luxury Housing Median Sales Price)
[click to expand]

Tags: Bloomberg News

2 Comments

I really enjoyed this “Charlie Rose”-like interview by late night TV host Conan O’Brien and statistician Nate Silver on his “Serious Jibber-Jabber” series. I recently bought Nate’s book “The Signal and the Noise: Why Most Predictions Fail but Some Don’t” and it’s next on my reading list (actually I bought 2 copies because I forgot I had pre-ordered on Amazon for Kindle and ordered again from Apple iBooks, Doh!).

What I found intriguing about the discussion is how much effort it takes to filter out the noise and get the to meat of the issue as well as getting outside of your self-made insulated bubble to be able to make an informed decision – aka neutrality.

Real estate, like politics, is a spin laden industry whose health is very difficult to gauge if you rely on people and institutions who have a vested interest in the outcome. i.e. Wall Street, rating agencies, government, banks, real estate agents etc.

Some interesting points made:

• During the bubble, for every $1 in mortgages, Wall Street was making $50 in side bets.
• Many people during the housing boom saw it was a bubble but didn’t want to miss out. They would see the green arrows pointing up on CNBC screen and it became very hard to be contrarian and be left behind.

The current “happy housing news” that is all the rage seems to draw a parallel with the pundits who got the election outcome all wrong yet all were experienced in politics. The housing herd is disconnecting from what the data is showing.

Tags: Nate Silver, CNBC, Appraisal Management Companies, AMC

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Tags: Barry Ritholtz

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Podcast: Play in new window | Download

Tags: Barry Ritholtz, Bailout Nation

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[Click top expand]

Last year I got an email from a Matrix reader, Ben Tanen, a former VC now running his own investment partnership that invests in public companies, with an interesting take on the buying power of gold as it relates to Manhattan apartments.

Like many things in my life, I let this “nugget” (sorry) slip through the cracks last year. He recently updated it with our new numbers in the recent release and it’s quite compelling.

The value of gold has risen sharply in recent years during the wobbling of the global financial markets – investors see precious metals like gold as a way of preserving purchasing power over the long run. In fact, in 2011, gold had more purchasing power relative to Manhattan real estate than at anytime during the past 22 years (the limit of our publicly released data).

It would take 908 ounces of gold to purchase the average Manhattan apartment versus the 1996 low point of 1,030 ounces, a point where many think our asset bubble problems began (stocks, then housing).

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Robert Moses, the Master Builder of New York, famously uttered these words at the groundbreaking of Lincoln Center in NYC.

You cannot make an omelet without breaking eggs.

I highly recommend The Power Broker by Robert Caro (and his LBJ trilogy) that chronicles Moses’ life but make sure you dedicate a lot of time – it’s a long read.

Amid the scrambled (sorry) state of financial reform going on in Washington right now is the underlying newly realized immovable object and the likely outcome for Wall Street:

Lower Risk = Lower Compensation

Ok, eggs not a great analogy but I needed to squeeze one of my favorite quotes of all time in somehow. Lower leverage is in the future of Wall Street. Take lower risks and there are lower returns to firms eventually translating into lower compensation, translating into tempered housing demand.

This Monday federal regulators finalized guidance on a hot topic as of late: executive compensation:

The final guidance is similar to what the central bank proposed in October, but would now apply to the entire banking industry. Previously, its efforts targeted only holding companies and state-member banks…

The final guidance did not change the three initial goals of the Fed’s proposal: providing incentives that appropriately balance risk and financial results and discourage risk taking; matching “effective controls and risk management”; and supporting corporate governance.

Risk, risk, risk

Senior Economist David Belkin of NYC’s Independent Budget Office received a flurry of media coverage for his post titled “Wall Street Wages: A Rough Ride on Easy Street:”

Much has been made in recent months of last year’s record profits on Wall Street, the myriad ways (near-zero interest rates, bailouts, accounting rules changes) that government policy boosted those profits, and the seven or eight figure bonus packages that some Wall Street executives awarded themselves from those profits. There has been less said, however, about what happened to aggregate wages and salaries across the securities industry in New York City in 2009. Not only did wages fall, but the fall was the steepest in modern history—including the Great Depression.

Adjusted for inflation, average wages in the securities industry plummeted 21.5 percent in 2009 and 24.6 percent over two years.

A key economic engine in the New York City metro area that provides 25% of personal income and 5% of the employment and creates 2.5 private sector jobs for each securities job, this should also be a concern for sustainability of the current level of housing demand.

Ironically Wall Street has been telling us this for years: past performance does not guaranty future returns.

Tags: Wall Street Bonus

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