Credit deflation and the reflation cycle to come (part 2)

[DurhamBorn]

@Democorruptcy looks certain another 3 months will be added to the payment holiday.They are simply adding on more pain later of course as interest rates increase later in the cycle and bring closer the date when they have no equity in many cases.A family friend got the holiday,she bought with her hubby in 1991 and never been out of work,he has a good job.Shes a hairdresser,turns out they couldnt manage without her wage.They bought a new build about 6 years ago.Her daughter has just complete on a 3 bed detached on the same estate for £168k,shes 21 and is an assistant in a hairdressers and her boyfriend drives a van.HTB.Nuts.

[Democorruptcy]

1 minute ago, DurhamBorn said:

@Democorruptcy looks certain another 3 months will be added to the payment holiday.They are simply adding on more pain later of course as interest rates increase later in the cycle and bring closer the date when they have no equity in many cases.A family friend got the holiday,she bought with her hubby in 1991 and never been out of work,he has a good job.Shes a hairdresser,turns out they couldnt manage without her wage.They bought a new build about 6 years ago.Her daughter has just complete on a 3 bed detached on the same estate for £168k,shes 21 and is an assistant in a hairdressers and her boyfriend drives a van.HTB.Nuts.

I think it will run at least a year. It's win win for banks by adding interest/extending mortgage terms on existing mortgages. The MMR enabled them to do that with new mortgages. The other win for them is that avoiding repos helps to prevent price discovery and so protects the value of their other mortgages. Re HTB the governbankment will be loathe to allow banks to repossess because they know they are on the hook for 20% or 40% in London. First tranche was £12bn, second was £10bn, not sure how much they added on the most recent extension. Avoid repos and push more mortgages into more years at higher rates, what's not to like? All under the guise of "helping" the mortgagees who will be lumbered with more years of debt at higher rates.

[Don Coglione]

4 minutes ago, DurhamBorn said:

@Democorruptcy looks certain another 3 months will be added to the payment holiday.They are simply adding on more pain later of course as interest rates increase later in the cycle and bring closer the date when they have no equity in many cases.A family friend got the holiday,she bought with her hubby in 1991 and never been out of work,he has a good job.Shes a hairdresser,turns out they couldnt manage without her wage.They bought a new build about 6 years ago.Her daughter has just complete on a 3 bed detached on the same estate for £168k,shes 21 and is an assistant in a hairdressers and her boyfriend drives a van.HTB.Nuts.

DB,

Feel for the kids down south - and not even in London or the Home Counties.

My hairdresser (early 20s) is trying to buy with her boyfriend (a mechanic). They were looking at shitty new-builds that were put up in January from £275k to £300k, so they were itching to jump in with HTB before prices went up again...Every time I drive past that estate, I want to commit murder. The houses look like are falling apart, before anyone has even moved in.

I (along with a lot of her older clients, it appeared) screamed at her to do the sums; it is astonishing that so few people understand the long-term implications of buying at these levels, with interest rates where they are and with the added albatross that is HTB.

Fortunately, they decided to rent. 

There is going to be so much financial dislocation to come for those who jumped in blind. just as you have always posited.

[spygirl]

35 minutes ago, DurhamBorn said:

North is interesting and i think there will be differences.Crap terraces i think will go back down to £40k everywhere,or below.4 bed detached type around the £230k mark will come down 20% as you say,i think thats probably about right.The nice 3 bed semis that are in the £130k,£140k range i think will drop 10% and maybe staight back up.They might even increase slightly.

I think most of the pain in the north will be on the new build estates.They really are terrible.The 3 bed that have been going for £140k on HTB will probably come down to £80k.One estate in Darlington i go to is still being built but mostly finished.The first part has zero grass,trees,open space,none,zip.Its already looking poor,the local housing association took 15% of them and moved in benefit class already and its sinking.The HTB houses nearly all have an Audi and a Mini etc on the drive,obvious younger people up to their necks.The thing is on those though,i wouldnt buy them at any price lower than a 15% yield on rent.

15k-20k. They are going at 40k as thats the sweet spot for mortgage//benefits/LLs.

Changes to IRs and/or benefits will see these terraces go back to 15k-20k, where they were selling in the late 80s. 40 years and no nominal increase.

3br semis - 90k-120k, location depending. Simple 25k + 10k earnings minus 10k spend =  max 4 x 25k = ~100k mortgage.

HTB builds will be unsalable in a few years.

The only exit for anyone who's gone HTB, north or south,  is bankruptcy. They are going to be ~50-60% down.

[AWW]

Anyone else finding it very hard to contain their emotions in this crazy market?  My holding in PetroTal halved last week, but having sworn to follow the "buy more or sell" mantra after my brush with CNA, I didn't do anything and am sitting here kicking myself.  I knew it was a knee-jerk spike down, I knew I should have doubled my holding at half price, but the fear gripped me and I missed out on  £500 of upside.

[Democorruptcy]

On 12/03/2020 at 14:59, headrow said:

Look at Standard Life Aberdeen SLA , goes ex div at 14p in 3 weeks time. You can buy it today at 208p. Capitulation.

Cheers 

Got the £286 divi today on the 2,000 I bought that day and made more than that on the buy/sell

[JMD]

10 hours ago, DurhamBorn said:

Looking at silver on the long term roadmap i think the cycle high could be when around 1000oz buys the median house if we see the liquidity injection carry on.So if house prices stayed the same silver should 17 x in price from here.

If we take a minimum 25% off house prices then silver would need to 12x in price,so we should be looking at around $214 oz,i think that is a very good target for the cycle,likely it will go over,but perhaps a target to at least hold some silver miners to.

Cross market work to watch that could signal the road map turns earlier could be a Dow/gold ratio of 1.5,Positive real interest rates over a sustained period,gold/silver ratio under 20.

DurhamBorn, did your roadmap produce that silver/house ratio?

Reason I ask is Mike Maloney has stated a similar metric based on US house prices, I saw interviews with him talking about this shortly after the GFC, so approx. 2010. That is to say, if you guys have arrived at a similar ratio (given UK house prices are higher, I guess your house/silver ratio is broadly similar to Maloney's) then that's a pretty powerful prediction/indicator to use?

Mike Maloney's metric is to sell pm's when US median house price = 500oz Silver or 40oz gold. Current US median house cost is 230k.

[DurhamBorn]

20 minutes ago, spygirl said:

15k-20k. They are going at 40k as thats the sweet spot for mortgage//benefits/LLs.

Changes to IRs and/or benefits will see these terraces go back to 15k-20k, where they were selling in the late 80s. 40 years and no nominal increase.

3br semis - 90k-120k, location depending. Simple 25k + 10k earnings minus 10k spend =  max 4 x 25k = ~100k mortgage.

HTB builds will be unsalable in a few years.

The only exit for anyone who's gone HTB, north or south,  is bankruptcy. They are going to be ~50-60% down.

I think thats right on the 3 bed semis spy in the north,the decent to good will be between £100k and £130k,HTB is stuffed,massive losses there and like you say only way out is live there forever or go bankrupt for most people.Im have zero sympathy for people who bought them and id line their parents up against a wall who didnt try to talk them out of it.Insane.£20k could be right on the crap terraces,maybe the nicer ones hold the £40k to £50k area down from the £80k.

Il never understand how HTB ever came in,and il never understand the crazy regs that force so many houses on plots.Its a disaster in every area.My daughters friend bought a 4 bed in Darlo last year and the estate is already getting flooded with bennies from the housing association,those prices are going to get hammered.Likely almost all HTB has no equity by the time the fixed rates end,they are all going onto SVR,unless the government bails them even more.

[Alex]

29 minutes ago, AWW said:

Anyone else finding it very hard to contain their emotions in this crazy market?  My holding in PetroTal halved last week, but having sworn to follow the "buy more or sell" mantra after my brush with CNA, I didn't do anything and am sitting here kicking myself.  I knew it was a knee-jerk spike down, I knew I should have doubled my holding at half price, but the fear gripped me and I missed out on  £500 of upside.

Learning experience. Emotion is the enemy of investing. If you can learn from this experience then the knowledge will earn you a lot more than the £500 you lost paying for the lesson.

[DurhamBorn]

2 minutes ago, JMD said:

DurhamBorn, did your roadmap produce that silver/house ratio?

Reason I ask is Mike Maloney has stated a similar metric based on US house prices, I saw interviews with him talking about this shortly after the GFC, so approx. 2010. That is to say, if you guys have arrived at a similar ratio (given UK house prices are higher, I guess your house/silver ratio is broadly similar to Maloney's) then that's a pretty powerful prediction/indicator to use?

Mike Maloney's metric is to sell pm's when US median house price = 500oz Silver or 40oz gold. Current US median house cost is 230k.

I based in on all past silver bull markets and house price falls,it actually came out at 900 times,but i rounded it up 10% for the way UK housing tends to over price even when crashed.Its part of the silver road map,but the interesting thing is the liquidity to silver tracker i use also comes out at between $200 and $300oz.I think we have a very good chance of seeing those prices and im going to stick to the roadmap on at least some of my silver miners.Il sell some on the way up though,i even took a few profits in one yesterday (20% of holding) and put into potash.Il juggle all the reflation sectors a bit if some move a lot quicker than others.

[spygirl]

11 minutes ago, DurhamBorn said:

I think thats right on the 3 bed semis spy in the north,the decent to good will be between £100k and £130k,HTB is stuffed,massive losses there and like you say only way out is live there forever or go bankrupt for most people.Im have zero sympathy for people who bought them and id line their parents up against a wall who didnt try to talk them out of it.Insane.£20k could be right on the crap terraces,maybe the nicer ones hold the £40k to £50k area down from the £80k.

Il never understand how HTB ever came in,and il never understand the crazy regs that force so many houses on plots.Its a disaster in every area.My daughters friend bought a 4 bed in Darlo last year and the estate is already getting flooded with bennies from the housing association,those prices are going to get hammered.Likely almost all HTB has no equity by the time the fixed rates end,they are all going onto SVR,unless the government bails them even more.

https://www.economicshelp.org/blog/5709/housing/market/

Mortgages sold/houses bought fell off the cliff in 2007 and remained at the lowest rates in modern time (since 1970s) for 6 years.

 

[M S E Refugee]

A question for DurhamBorn, what do you think of the Oil,Gas pipeline and transportation companies?

I have bought Oneok,Magellan Midstream Partners,Kinder Morgan,Omv and Valero.

They all have done very well in a short space of time and pay decent dividends,Oneok is up 20% since I bought it and pays a 10% dividend.

 

[The Idiocrat]

31 minutes ago, DurhamBorn said:

I think thats right on the 3 bed semis spy in the north,the decent to good will be between £100k and £130k,HTB is stuffed,massive losses there and like you say only way out is live there forever or go bankrupt for most people.Im have zero sympathy for people who bought them and id line their parents up against a wall who didnt try to talk them out of it.Insane.£20k could be right on the crap terraces,maybe the nicer ones hold the £40k to £50k area down from the £80k.

Il never understand how HTB ever came in,and il never understand the crazy regs that force so many houses on plots.Its a disaster in every area.My daughters friend bought a 4 bed in Darlo last year and the estate is already getting flooded with bennies from the housing association,those prices are going to get hammered.Likely almost all HTB has no equity by the time the fixed rates end,they are all going onto SVR,unless the government bails them even more.

I'd quite like to see a misselling case brought against the Government itself! (Yes, I know people who signed up to HTB are idiots/naive kids and shouldn't be bailed out by the rest of us, but that seems to apply to pretty much all previous misselling scandals). Help to Bribe was/is purely to help the builders and banks and as usual is throwing youngsters on the bonfire.

[Castlevania]

24 minutes ago, M S E Refugee said:

A question for DurhamBorn, what do you think of the Oil,Gas pipeline and transportation companies?

I have bought Oneok,Magellan Midstream Partners,Kinder Morgan,Omv and Valero.

They all have done very well in a short space of time and pay decent dividends,Oneok is up 20% since I bought it and pays a 10% dividend.

 

Careful with the Partnerships. I looked into it after being forewarned by @sancho panza

There are A) tax implications if you’re not an American citizen and B) as far as I could gather (and I could be wrong here so erred on the side of caution) they’re unlimited liability I.e. you could lose more than you’re investment.

[Loki]

1 hour ago, AWW said:

Anyone else finding it very hard to contain their emotions in this crazy market?  My holding in PetroTal halved last week, but having sworn to follow the "buy more or sell" mantra after my brush with CNA, I didn't do anything and am sitting here kicking myself.  I knew it was a knee-jerk spike down, I knew I should have doubled my holding at half price, but the fear gripped me and I missed out on  £500 of upside.

Today's 'emotions'

Look at HOC go, should have bought more

Look at AFC go, now it's only -35%

Look at CNA, now it's oh never mind. 

We need blinkers for hindsight.  No point kicking yourself unless you forgot to use your crystal ball

[JMD]

2 hours ago, Democorruptcy said:

I wouldn't put much store in the 3 month mortgage holidays expiring any time soon. Even before the furlough scheme was extended the FCA were suggesting mortgage holidays would be extended. An article in The Times suggested a year. Got to protect those mortgagees banks.

Democorruptcy, I think your right and I'm looking out for what happens to mortgages as I think it will be a key indicator for future government interventionist policy, etc.

e.g. I've heard of the creation of 'Bad' Banks (to 'soak up' so called 'non-performing' debt), but how about a 'Bad' Building Society? ...government 'blue sky thinking' could include 100 year inter-generational mortgages (a la Japan); or house-equity-buyout-relief (it sounds so good i'm already convinced Boris is chumping at the bit to announce it!) where gov. buys 50% of your house.

...a new parlour game perhaps, what other wonder schemes can others think up?

[Yellow_Reduced_Sticker]

FROM: moneyweek

"A warning from history about the return of inflation"

Frisby mentions a book: Dying of Money

he says ONLY 1,000 copies were ever printed and they go for $600 a pop!

 

you can get it of amazon for around $150... BUT ...save ya moolah!

 

AS...I got ya's covered with a YRS FREE copy of course!

 

Grab the PDF here:

http://s000.tinyupload.com/?file_id=00280129011341445312

 

anyways enjoy the read, i haven't read it yet...i'm sure its @DurhamBorn's cup of tea...CAN'T hang around here got to get cracking on the spare room, gotta rent a room out now that house PRICES are CRASHING! (only way to soften the blow, when ya buy near the TOP!)

 

[DurhamBorn]

39 minutes ago, M S E Refugee said:

A question for DurhamBorn, what do you think of the Oil,Gas pipeline and transportation companies?

I have bought Oneok,Magellan Midstream Partners,Kinder Morgan,Omv and Valero.

They all have done very well in a short space of time and pay decent dividends,Oneok is up 20% since I bought it and pays a 10% dividend.

 

I decided not to buy any and sold the couple i had for small profits,the tax implication on the income are difficult for none US citizens and they also seem to have unlimited liability.Im not 100% but i dont like the sound of that.I decided there was no need to own them given the amount of other stocks in energy etc.Its up to an individual of course,but for me id be taking the lovely profit and spreading it among other reflation areas.

[Castlevania]

They’ll just jack up Housing Benefit to “help” all those “hard working” tenants

Labour’s roll out of LHA was what saved the London housing market after the GFC. House prices were falling, rents were falling, it was all good then suddenly LHA gets rolled out. Rents shouldn’t soar by 20-30% in a year in the middle of a recession. 

[Democorruptcy]

Windfall taxes anyone?

Monday was an up day for the markets but such as Ocado, Tesco & Morrisons lagged. Presumably because of an FT article over the weekend. It was a small sample size though!

Quote

 

Majority of UK public supports windfall taxes

More than half of the UK public would welcome a windfall tax on companies such as food retailers that have thrived during the coronavirus crisis, according to an opinion poll. The survey of 1,682 people by YouGov also found that 61 per cent would approve of a wealth tax for those with assets of over £750,000.

https://www.ft.com/content/b7441bee-6bf7-46c2-ab75-916fec31f521

 

 

Severn Trent upped it's divi today

Quote

 

The FTSE 100 company increased its final dividend by 7.2% to 60.05p a share taking the annual payout to 100.08p a share, up from 93.37p a year earlier. Severn Trent said the increase was in line with its policy of increasing the dividend by at least retail price inflation plus 4%.

https://www.hl.co.uk/shares/shares-search-results/s/severn-trent-plc-ordinary-97-1719p/share-news

 

Anybody think utilities be a target?

[JMD]

1 hour ago, DurhamBorn said:

I based in on all past silver bull markets and house price falls,it actually came out at 900 times,but i rounded it up 10% for the way UK housing tends to over price even when crashed.Its part of the silver road map,but the interesting thing is the liquidity to silver tracker i use also comes out at between $200 and $300oz.I think we have a very good chance of seeing those prices and im going to stick to the roadmap on at least some of my silver miners.Il sell some on the way up though,i even took a few profits in one yesterday (20% of holding) and put into potash.Il juggle all the reflation sectors a bit if some move a lot quicker than others.

DB, that is fascinating to me. Also think it is great practical information - not for guiding my pm investment I hasten to add ('I did my own research' as the mantra dictates, in fact now have most of my pm's) - Instead, I feel more comfortable having an exit value. I bang on(?) about my risk/reward thing a lot, and having an approx. target helps my overall investment strategy. As said on here before, knowing when to buy is difficult decision, but knowing when to sell is equally as important. (...then again, Eisenhower said 'plans are useless, but planning is indispensable', so what do I know!)    

[JMD]

3 hours ago, DurhamBorn said:

North is interesting and i think there will be differences.Crap terraces i think will go back down to £40k everywhere,or below.4 bed detached type around the £230k mark will come down 20% as you say,i think thats probably about right.The nice 3 bed semis that are in the £130k,£140k range i think will drop 10% and maybe staight back up.They might even increase slightly.

I think most of the pain in the north will be on the new build estates.They really are terrible.The 3 bed that have been going for £140k on HTB will probably come down to £80k.One estate in Darlington i go to is still being built but mostly finished.The first part has zero grass,trees,open space,none,zip.Its already looking poor,the local housing association took 15% of them and moved in benefit class already and its sinking.The HTB houses nearly all have an Audi and a Mini etc on the drive,obvious younger people up to their necks.The thing is on those though, i wouldnt buy them at any price lower than a 15% yield on rent.

I think that will become the 'go-to yield' for most landlords in terms of their expected returns in future. Falling prop. prices allied with increasing inflation, plus higher int. rates, not too mention lots more added prop. regulations, will make it unattractive at any lower return. It used to be 20% returns before the days of easy BTL finance. 

[DurhamBorn]

30 minutes ago, Democorruptcy said:

Windfall taxes anyone?

Monday was an up day for the markets but such as Ocado, Tesco & Morrisons lagged. Presumably because of an FT article over the weekend. It was a small sample size though!

 

Severn Trent upped it's divi today

Anybody think utilities be a target?

This country is nuts.Wanting to tax companies that have done very well handling a crisis.Id tax the teachers sat at home and give it to Morrisons.

[JMD]

1 hour ago, The Idiocrat said:

I'd quite like to see a misselling case brought against the Government itself! (Yes, I know people who signed up to HTB are idiots/naive kids and shouldn't be bailed out by the rest of us, but that seems to apply to pretty much all previous misselling scandals). Help to Bribe was/is purely to help the builders and banks and as usual is throwing youngsters on the bonfire.

Isn't it more to do with the attraction of the 'shiny and the new'? I don't think you can look at one sector, its more depressing and much more endemic than that. For example, 2nd hand prams are not good enough for the children of many/most aspiring young parents. The west has lived beyond it means for decades. Debt, consumerism, advertising, political leadership, etc, etc, its all a house of sand.

 

[The Idiocrat]

38 minutes ago, JMD said:

Isn't it more to do with the attraction of the 'shiny and the new'? I don't think you can look at one sector, its more depressing and much more endemic than that. For example, 2nd hand prams are not good enough for the children of many/most aspiring young parents. The west has lived beyond it means for decades. Debt, consumerism, advertising, political leadership, etc, etc, its all a house of sand.

 

I'd agree a little but HTB is only for new builds I believe, so it's not really to help FTB's, but to help builders, and new builds are always at least 10% overvalued due to that "shininess".