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

[sancho panza]

3 hours ago, MrXxxx said:

Ok, UK perspective...

1. Those with the money to afford the luxury student accommodation are SE Asian/Chinese.

2. UK student numbers as a % are dropping and being replaced by 1 above.

3. Call for restrictions on immigration/Brexit.

Factors that will have an impact on the above:

a) SE Aian/Chineae economic downturn will affect 1 above.

b) SE Asia/China are now developing a strong `Home grown` university sector; recruitment of Western academics is high to give the prestige/kudos, once again impacting on 1.

c) Following recent Auger review of FE/HE in UK, student loans/fees are likely to drop by about £2k, so having an impact on 2 above.

d) UK student perception of degree value vs Modern apprenticeships in the workplace (and employability) likely to impact 2.

e) Impact of additional visa requirements and/or permissions to stay for a period post-degree will impact overseas student numbers in 1 and 3 above.

The UK HE business that has been allowed to massively expand in the last 20 years is now going to contract, with several universities amalgamating (read going bankrupt). As the student accommodation was tied to this expansion I would expect a similar contraction...not a good bet in such an illiquid asset. I expect to see some of these developers/developments being bailed out by their conversion to a pressing need, social housing.

I like youre summary MrX.It's hard to see a way out for investors who are often tied to the service provider of the freeholders choice as well-hence they'll be getting hosed for service fees even if they're empty.

Lookat the inner ring of Cov over the last two years,ten cranes I counted at one point,all building student halls.................and it's a pretty average uni ,not bad,not great either.

De Montfort Uni(Leicester's old poly) has  teams of people permannently in China selling degrees here,which as you say,will work until it doens't.

Threats are multiple.

1)Other Euro Uni's.especially if teh Euro gets trashed.Online degrees-my cousin in Singapore in doing one via Uni of Londinium,which is way cheaper than spending £15k a year livning in a place whicjh isn't particualrly safe.

2) as you say,the kids wake up,smell the coffee and realsie a £50k debt isn't necessary for a part time job in b&Q.I've seena significant rise in middle class acqauntances talking apprencticeships with their kids.particualrtly as the older ones leave uni to an average salary.

 

Consolidations are inevitable.I can see whole blocks of student accomodation becoming social hosuing-and so it should.Investors are going to get burned big time.Unfortunately,there's no easy way to short them.

[sancho panza]

hattip high grade luis

DYOR natch

https://www.spglobal.com/marketintelligence/en/news-insights/trending/gooSFE_bbO01Tf9HOKa0KA2

Making a long-term bull case for miners, Bernstein Research analyst Paul Gait said the sector is being valued at a 100-year low.

"Our broad conclusion is that mining has never been cheaper than it is today, hence the current sector weakness represents an ideal entry point for any long-term investor," Gait said in a Sept. 3 note.

Analyzing the sector's cyclically adjusted price to earnings ratio, or CAPE, Gait found that the mining industry trades at 1.4 standard deviations under its long-term average value. This, Gait said, is the lowest recorded data point over the past century.

"The only comparable period in recent history was during the height of the dotcom bubble in the late 1990s, however even during the dotcom bubble the valuation disconnect was not as severe as it is now," Gait said. "Over the four years between 1997 and 2001, the relative valuation averaged about 0.46x relative CAPE, during the period 2015 to present the average has been 0.31x relative CAPE!"

Based on the analysis, Gait doubts the gap will persist, suggesting valuations will eventually revert to more normal historical levels.

Digging into more recent market movements, BMO Capital Markets analyst David Gagliano noted that U.S. metals and mining companies had a rough summer, with equities down about 15% since the end of July. Gagliano sees valuations as low overall, saying miners will likely need an improving economic outlook to recover.

"Against this murky near-term backdrop, in our view the best-positioned producers in the current environment are those where the underlying commodity price has already taken a hit, where the end-market exposure is somewhat more defensive, or where the producer has some surety of profits in the form of volume commitments under fixed price contracts," Gagliano said in a Sept. 5 note.

BMO Capital Markets raised its Arch Coal Inc. rating to "outperform" from "market perform" and lowered the target price on the stock to US$100 from US$105, while dropping Steel Dynamics Inc. to "market perform" from "outperform" with a revised price target of US$30 per share, down from US$40 per share.

In other analyst revisions to target share prices, BMO Capital Markets analyst Andrew Kaip lifted Pretium Resources Inc. to C$24 per share from C$20 per share, noting investors may be increasingly comfortable with the company's performance at the Brucejack gold mine in British Columbia. Also in the gold sector, Haywood Securities analyst Kerry Smith raised his target on Osisko Gold Royalties Ltd. from C$17.00 to C$19.50 per share, noting an expanded silver stream from the Mantos Blancos copper mine in Chile.

In the coal space, B. Riley FBR analyst Lucas Pipes lowered his price target on Peabody Energy Corp. from US$29 to US$27 per share. Pipes pointed to expectations for a weak third quarter as well as lower met coal prices. However, Pipes said the guidance did not have a material impact on the company's long-term outlook.

In the battery metals sector, Morgans modestly dropped its price target on lithium miner Orocobre Ltd. from A$5.05 to A$4.97 per share. Morgans analyst Chris Brown underscored the impact of lower lithium prices yet said the company would continue to profit.

"But don't expect the share price to respond until the lithium carbonate equivalent price trend firms up," Brown said.

[JMD]

3 hours ago, sancho panza said:

I can see whole blocks of student accomodation becoming social hosuing-and so it should. Investors are going to get burned big time. Unfortunately, there's no easy way to short them.

Agree SP, 'Burned'... perhaps maybe even total 'Scorched Earth' policy if the below project is anything to go by. Not sure if its down to dodgy developers/oversupply/stud. acc. (and pointless degree) bubble finally popping?

Its one of those high end offerings, but shocking example of what people will invest in. It reminds me of those fanciful hotel room lease investments from about 20 years ago, I suppose people never learn (or perhaps more to the point - human nature never changes).

Anyway would be interested to hear ideas on how to short this, if there are any.

"Investors in the scheme paid between £50,000 and £75,000 for 250-year leases on the student rooms."

"Only just over half of the 2,000-plus student rooms across the scheme’s 19 buildings — at sites including Bradford, Huddersfield, Leicester, Loughborough, Preston and Stoke — were occupied in February, according to one person familiar with the situation."

https://www.ft.com/content/1db98d5c-98c5-11e9-9573-ee5cbb98ed36

[dgul]

18 minutes ago, JMD said:

Agree SP, 'Burned'... perhaps maybe even total 'Scorched Earth' policy if the below project is anything to go by. Not sure if its down to dodgy developers/oversupply/stud. acc. (and pointless degree) bubble finally popping?

Its one of those high end offerings, but shocking example of what people will invest in. It reminds me of those fanciful hotel room lease investments from about 20 years ago, I suppose people never learn (or perhaps more to the point - human nature never changes).

Anyway would be interested to hear ideas on how to short this, if there are any.

"Investors in the scheme paid between £50,000 and £75,000 for 250-year leases on the student rooms."

"Only just over half of the 2,000-plus student rooms across the scheme’s 19 buildings — at sites including Bradford, Huddersfield, Leicester, Loughborough, Preston and Stoke — were occupied in February, according to one person familiar with the situation."

https://www.ft.com/content/1db98d5c-98c5-11e9-9573-ee5cbb98ed36

It is odd though -- the investors have got leases on the rooms -- yet the administrators are aiming to 'provide investors with returns in the future' -- what is it to them?  You'd have thought the bankrupt property company was not merely the freeholder and the leaseholders could go on their merry way and let out the rooms if they could.

See, I think they've not got leases at all -- I think they actually bought a call on future rents.  In which case it isn't clear that they've actually got anything.

[DoINeedOne]

Sold half of my Harmony (HMY) this morning was at around 120% ROI around a week or two back and set a rule that if it drops near 100% ROI I would sell half and let the rest run 

 

[Agent ZigZag]

1 hour ago, DoINeedOne said:

Sold half of my Harmony (HMY) this morning was at around 120% ROI around a week or two back and set a rule that if it drops near 100% ROI I would sell half and let the rest run 

 

Profit is a profit It would appear the sell off is an attempt to shake out week hands. I am going to hold my miners for now and see where it takes us.

[kibuc]

4 hours ago, sancho panza said:

hattip high grade luis

DYOR natch

https://www.spglobal.com/marketintelligence/en/news-insights/trending/gooSFE_bbO01Tf9HOKa0KA2

Making a long-term bull case for miners, Bernstein Research analyst Paul Gait said the sector is being valued at a 100-year low.

I don't know about "100-year low" but the sentiment is still pretty terrible, in particular in juniors. Every dip in the underlying translates to immediate and violent falls in shares, while analogical moves up in precious metals don't generate anywhere near as much upside.

EDR is at CAD 3.30, the same price as in early April when silver was under $15.

WDO is the same price it was in July, when Gold was at $1400.

No negative news, no nothing, in fact Wesdome has been killing it, it's just metal price volatility slowly eroding SP.

At $1500 gold / $18 silver, some of those miners are basically printing money.

And don't get even get me started on juniors that actually had some troubles.

 

[Don Coglione]

9 minutes ago, kibuc said:

I don't know about "100-year low" but the sentiment is still pretty terrible, in particular in juniors. Every dip in the underlying translates to immediate and violent falls in shares, while analogical moves up in precious metals don't generate anywhere near as much upside.

EDR is at CAD 3.30, the same price as in early April when silver was under $15.

WDO is the same price it was in July, when Gold was at $1400.

No negative news, no nothing, in fact Wesdome has been killing it, it's just metal price volatility slowly eroding SP.

At $1500 gold / $18 silver, some of those miners are basically printing money.

And don't get even get me started on juniors that actually had some troubles.

 

Even Barrick has been remorselessly whacked in the last few days. I suppose in fairness it did fairly soar in the 6 weeks prior.

[Bear Hug]

58 minutes ago, kibuc said:

I don't know about "100-year low" but the sentiment is still pretty terrible, in particular in juniors. Every dip in the underlying translates to immediate and violent falls in shares, while analogical moves up in precious metals don't generate anywhere near as much upside.

EDR is at CAD 3.30, the same price as in early April when silver was under $15.

WDO is the same price it was in July, when Gold was at $1400.

No negative news, no nothing, in fact Wesdome has been killing it, it's just metal price volatility slowly eroding SP.

At $1500 gold / $18 silver, some of those miners are basically printing money.

And don't get even get me started on juniors that actually had some troubles.

 

 

45 minutes ago, Ponty Mython said:

Even Barrick has been remorselessly whacked in the last few days. I suppose in fairness it did fairly soar in the 6 weeks prior.

I guess the lesson is that when @DurhamBorn is selling, we should be selling! 

[Gordie Lastchance]

An announcement on Hargreaves Lansdown's news page today of continental telecoms infrastructure spending, as per Dosbods' own sage, @DurhamBorn.

It says, "In corporate news, German telecoms firm 1+1 Drillisch continued to rack up gains on news that the nation's government signed a pact to build 1,400 mobile phone masts nationwide in order to close up white spots."

Source:  https://www.hl.co.uk/shares/stock-market-news/market-reports/europe-open-markets-mixed-as-investors-eye-ecb-meeting

Unfortunately, no figures were given on the deal.

For noting, the Drillisch share price today sits at a tad over 30 Euros (on August 15 it was just over 22 Euros, its 12-month low point). It peaked at over 70 Euros in January, 2018.

[MrXxxx]

4 hours ago, JMD said:

Anyway would be interested to hear ideas on how to short this, if there are any

There are a couple of major companies that do these student accommodations (Unite (UTG) is one), surely you could short these?

[DurhamBorn]

1 hour ago, Gordie Lastchance said:

An announcement on Hargreaves Lansdown's news page today of continental telecoms infrastructure spending, as per Dosbods' own sage, @DurhamBorn.

It says, "In corporate news, German telecoms firm 1+1 Drillisch continued to rack up gains on news that the nation's government signed a pact to build 1,400 mobile phone masts nationwide in order to close up white spots."

Source:  https://www.hl.co.uk/shares/stock-market-news/market-reports/europe-open-markets-mixed-as-investors-eye-ecb-meeting

Unfortunately, no figures were given on the deal.

For noting, the Drillisch share price today sits at a tad over 30 Euros (on August 15 it was just over 22 Euros, its 12-month low point). It peaked at over 70 Euros in January, 2018.

Exactly,and just the start,governments will give these companies a much better deal going forward.I mean when your economy is crashing what does a mobile bill going from £18 a month to £25 matter if the telcos pump a few billion into the economy?.Apart from tripling free cash flow probably.

The reflation stocks i have been buying were nearly all up again today,some are up 15% already (Cargotec).Highly likely they get pulled down in a whack to the markets though.Market is expecting a QE sugar rush,but its way too late already to have much affect.

 

 

 

[sancho panza]

1 hour ago, MrXxxx said:

There are a couple of major companies that do these student accommodations (Unite (UTG) is one), surely you could short these?

Ta MrX.I thought they were a private company.Do you know any others that are listed?

Marekt cap £2.98bn revenue £200mn.

Strangely,net income is higher than revenue.

Worth noting they value their assets on a 5% gross yield.

Looks like they're building and offloading as well as running some under fracnhise style arrangements

http://www.unite-group.co.uk/sites/default/files/2019-03/Annual-Report-2018.pdf

Because of this, almost two-thirds of our estate

is now let under nomination agreements with

more than 45 of the UK’s best institutions.

 

During 2018, we opened 3,074 new beds, added

331 beds to our portfolio through acquisition

and sold 3,436 beds. Taking into account these

activities, together with valuation movements,

the value of our investment portfolio (including

our share of USAF and LSAV) is £2.7 billion as at

31 December 2018 (2017: £2.4 billion

 

The valuation of our

portfolio increased as a result of an inward yield

movement of 15 basis points on a like-for-like

basis and the portfolio is valued at an average

portfolio yield of 5.0% (2017: 5.2%).

[Funn3r]

19 hours ago, sancho panza said:

Sorry to spam WOlf St

I am quite uncomfortable reading wolfstreet stories. I was on Wolf's mailing list for a while but then felt guilty not donating to his "beer money" as he requests therefore I unsubscribed from the list and explained to him why I quit.  It's not the money and I would be quite happy to chuck him a few quid here and there but the problem is he requires PayPal. I loathe PayPal and would never voluntarily use it. There are so many better alternatives to PayPal and people should at least think about switching rather than going along with them purely because inertia.

Anyway I don't really like reading his stuff for free and it would be nice if you could see your way to putting a wolfstreet link and leaving it at that, rather than pasting the actual text. 

[sancho panza]

3 hours ago, kibuc said:

I don't know about "100-year low" but the sentiment is still pretty terrible, in particular in juniors. Every dip in the underlying translates to immediate and violent falls in shares, while analogical moves up in precious metals don't generate anywhere near as much upside.

EDR is at CAD 3.30, the same price as in early April when silver was under $15.

WDO is the same price it was in July, when Gold was at $1400.

No negative news, no nothing, in fact Wesdome has been killing it, it's just metal price volatility slowly eroding SP.

At $1500 gold / $18 silver, some of those miners are basically printing money.

And don't get even get me started on juniors that actually had some troubles.

 

Some are up,some are down.Bull/bear markets always feature pullbacks,which is one of the reasons I took the opportunity last week to offload some shares I'm no longer that fond of in favour of better value elsewhere.

Spent some of the takings on a little Sandstorm,Oceana,Hochschild,Fresnillo,IAM.But held some back and still have a fair chunk of budget left for more at the right price.

AS you say,there's a real arbitrage here between the underlying and the shares when you use historical metrics.I thought the 100 year refrence was out there but the miners are cheap for how good the bull in PM's is looking.Fresnillo is a prime example of the value that's out there.Decl-we hold.

 

When we first started buying goldies in 2017,it was around $17USD.Since then Fres and the price of the underlying have diverged

 

Fres in the meantime ahs gone from £17 to £7

As yet the instituaional money is nowhere to be seen,if it was we'd be sat here having a different conversation.

Meantime some of the royalty cos are flying.

For us,we'll be using the next few weeks to continue reshaping probably selling Hecla/Coeur(break even),Fortuna/Teranga/Dundee(up) and looking to refocus around the tier 2 producers with some smaller players eg Rio2,Guyana,Integra,Superior,Gold resource,Integra,Pan African running off the side.

This really feels like a value trap as we're buying into selling but experience has taught to attack clear arbitrage opportunities as they present themselves.

 

I'm aslo hoping that Sib/HMY/KGC get back within range so we can move up to my intended full allotment which we never got near before.Time will tell if this sell off has the legs for that.

[sancho panza]

21 minutes ago, Funn3r said:

I am quite uncomfortable reading wolfstreet stories. I was on Wolf's mailing list for a while but then felt guilty not donating to his "beer money" as he requests therefore I unsubscribed from the list and explained to him why I quit.  It's not the money and I would be quite happy to chuck him a few quid here and there but the problem is he requires PayPal. I loathe PayPal and would never voluntarily use it. There are so many better alternatives to PayPal and people should at least think about switching rather than going along with them purely because inertia.

Anyway I don't really like reading his stuff for free and it would be nice if you could see your way to putting a wolfstreet link and leaving it at that, rather than pasting the actual text. 

I donate beer money to Wolf monthly.

I post the text because I don't like random links without the relevant text so that I have to click through and read.

If you want to click through to the link then feel free,if you don't,tehn don't.

[spunko]

29 minutes ago, Funn3r said:

I am quite uncomfortable reading wolfstreet stories. I was on Wolf's mailing list for a while but then felt guilty not donating to his "beer money" as he requests therefore I unsubscribed from the list and explained to him why I quit.  It's not the money and I would be quite happy to chuck him a few quid here and there but the problem is he requires PayPal. I loathe PayPal and would never voluntarily use it. There are so many better alternatives to PayPal and people should at least think about switching rather than going along with them purely because inertia.

Anyway I don't really like reading his stuff for free and it would be nice if you could see your way to putting a wolfstreet link and leaving it at that, rather than pasting the actual text. 

I tend to agree, PayPal are evil. A good one that I wish more people would use is https://ko-fi.com/

[dgul]

1 hour ago, sancho panza said:

...

When we first started buying goldies in 2017,it was around $17USD.Since then Fres and the price of the underlying have diverged

 

Fres in the meantime ahs gone from £17 to £7

As yet the instituaional money is nowhere to be seen,if it was we'd be sat here having a different conversation.

 

The trouble with Fres is geopolitical risk.  I do hold quite a few, but it is a holding with a decent stop-loss ...

[Don Coglione]

8 minutes ago, dgul said:

The trouble with Fres is geopolitical risk.  I do hold quite a few, but it is a holding with a decent stop-loss ...

Sure, the risk is there, but I would rather be digging holes in Mexico than some tin-pot African basket-case!

[Starsend]

3 hours ago, Funn3r said:

I am quite uncomfortable reading wolfstreet stories. I was on Wolf's mailing list for a while but then felt guilty not donating to his "beer money" as he requests therefore I unsubscribed from the list and explained to him why I quit.  It's not the money and I would be quite happy to chuck him a few quid here and there but the problem is he requires PayPal. I loathe PayPal and would never voluntarily use it. There are so many better alternatives to PayPal and people should at least think about switching rather than going along with them purely because inertia.

Anyway I don't really like reading his stuff for free and it would be nice if you could see your way to putting a wolfstreet link and leaving it at that, rather than pasting the actual text. 

I like him pasting the text

[Talking Monkey]

5 hours ago, DurhamBorn said:

Exactly,and just the start,governments will give these companies a much better deal going forward.I mean when your economy is crashing what does a mobile bill going from £18 a month to £25 matter if the telcos pump a few billion into the economy?.Apart from tripling free cash flow probably.

The reflation stocks i have been buying were nearly all up again today,some are up 15% already (Cargotec).Highly likely they get pulled down in a whack to the markets though.Market is expecting a QE sugar rush,but its way too late already to have much affect.

 

 

 

Do you see less chance of a meltup DB from the coming rate cuts etc

[DurhamBorn]

4 hours ago, Talking Monkey said:

Do you see less chance of a meltup DB from the coming rate cuts etc

Already happening,the reflation stocks iv been buying all running higher,some quite hard.Overvalued sectors exposed now though.

[Democorruptcy]

On 09/09/2019 at 00:39, sancho panza said:

 

Thus, even as supply of high-end student housing is increasing, the supply of students, so to speak, is declining.

I've always thought a lot of student housing would finish up as retirement housing but maybe 50+ not actual retirement age. Other countries have more options for 50+ where as we seem to be largely stuck with McCarthy & Stone which is aimed at higher ages. When it starts happening their share price will drop. It will probably be some sort of governbankment scheme (bailout) to free up larger houses for families.

 

[leonardratso]

UKOG seems to be trending a bit last few days, I believe they bought a new box of matches to add to the company balance sheet as an asset, still, as a punt for a minnow, it might be worth a bitcoin type punt.

[Agent ZigZag]

On 05/09/2019 at 19:41, Cattle Prod said:

An important point to discuss I think. Houses are, to me, a long term inflation hedge, because along with the repairs you mention, the bricks and mortar ;-) themselves along with all the other building materials also inflate. I agree you have to maintain it, but if you can do this sensibly (like replace you boiler now while its cheap and make sure your roof and windows are tip top) it won't stay below replacement cost for long.

I'd say that interest rates dropping for the last 40 years are more responsible for house price rises in a low inflation environment than anything else.

Absent that crutch, I'd say house prices naturally inflate at the cost of the materials to build one (assuming land prices are more or less static). A few % a year. Thoughts?

A rule of thumb was that if the cost to buy the house was less than the build cost  then the house was undervalued. However due to low interest rates and job growth in the south this has distorted this rule especially against houses in the North of England. I wonder if housing is a long term inflation hedge within a government led economic cycle. Looking into the future I am seeing it as a potential burden unless your home provides a yield to cover the cost of taxation against it. With this in mind my current house that I bought a while back was a very large probate sale. I rewired it so that it was zoned  at ground, first and second floors in order that it can be easily converted it into three flats for rental and build a bungalow in the rear garden for my family thereby still enjoying where I live and covering the cost of council tax. If I was starting again I would buy the best house in the best area in the lowest council tax band. I still may do this instead