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spunko

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

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1 hour ago, Chewing Grass said:

Mines on a 999 year lease at a princely sum of £10 per year, I always pay by cheque so it costs the cunt money to process it and ask for a receipt all of which takes the twat time.

The lease has been with the family of the original builder on the female side I believe and he used an agent to collect the monies, originally estate agents but as they went bust (3 of them) it then went to a specialist in Swansea who just collects lease money.

He has now stopped collecting the money i.e. the agent is not collecting it and split the leases into three batches, sold two of them and the other is unsold and mine is one of them.

So no money has been collected for 3 years now as I imagine it would cost more to actually collect annually i.e. he would loose money.

I watch and wait.

true,a lot in the north west and Sheffield are on 999 year leases.They were often built with church money etc and the lease will contain things like must not be used as a brothel,no goats kept in garden etc.The ones on more modern houses are usually 100 or 120 years.Mine was the same.Ground rent £25 a year no increase.However at 75 years marriage value kicks in and the cost to buy shoots up.Its that 75 year mark that causes most of the problems,or if the lease terms double every ten years etc.A lot of my neighbours were offered to buy the freeholds for £500 about a few years before i bought my house,around half turned it down,crazy.Looking at land registry data etc it looks like one in three on my estate are still leasehold,and thats 69 years left now so price will be shooting up each year to buy the freehold.

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3 hours ago, DurhamBorn said:

No,there are too many tensions now.We could go straight to a reflation,with the debt deflation limited,but we are getting a debt deflation and we are getting inflation,the only question is time and length.The Fed are way too tight and have been for two years.They are too far behind the curve.Look at some of the falls in UK stocks and even in US cyclicals.Many stocks are down more than any time in history.My road map said PEs down to 6 to 8 and many stocks are at that now.

Thanks mate

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22 hours ago, Loki said:

I was confused by the long diagonal, was trading suspended or something as HL full chart shows no data between high and low points 

I wondered about the straightness of that long diagonal and thought it couldn't be true. If only all share buying was that easy.

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1 hour ago, Democorruptcy said:

I wondered about the straightness of that long diagonal and thought it couldn't be true. If only all share buying was that easy.

was it diluted or consolidated along the way? rights issues/buybacks etc or consolidation tends to bugger up graphs when the NAV cant be traced back properly because it has fundamentally changed, eg 1 share is now 100 old shares etc. Maybe they just cant draw the graph and have limited data so just joined the limited data with a straight line?

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6 hours ago, DurhamBorn said:

reckon if the government do anything they will make it so you cant sell a freehold on without first offering it to the leaseholder at a set price.Also probably stop ground rents increasing more than inflation.

I thought that this was the case, or is it just for flats where all the residents can form an association to buy it?

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24 minutes ago, MrXxxx said:

I thought that this was the case, or is it just for flats where all the residents can form an association to buy it?

Flats,thats more to do with service charges rather than ground rents.

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8 hours ago, Loki said:

Here's one for you @durhamborn - Do you think there is any chance, no matter how slight, that things could just carry on the way they are, and the money carnival carries on until most of us are dead? (After which, it won't matter to us any way).

 

Debt is lent for specific periods - 10y era commercial, 25 consumer mortgages.

Got to refinance after that period ends.

As far as UK housing goes, less n less epople are taking on debt. Its truely remarkable, and not wholly explained by demographics.

*if* it carries on then people - and banks - have to a serious look at whether the house the debt is secured on is really sellable at anywhere near the price on the books.

UK housing is just too expensive for UK incomes. Theyll fall.

 

 

 

 

 

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7 minutes ago, spygirl said:

Debt is lent for specific periods - 10y era commercial, 25 consumer mortgages.

Got to refinance after that period ends.

As far as UK housing goes, less n less epople are taking on debt. Its truely remarkable, and not wholly explained by demographics.

*if* it carries on then people - and banks - have to a serious look at whether the house the debt is secured on is really sellable at anywhere near the price on the books.

UK housing is just too expensive for UK incomes. Theyll fall.

 

 

 

 

 

Sure will Spy.70% inflation adjusted probably in the south,north much less,but still falls inflation adjusted.Highly likely housing will take most of the pain in the UK as that is where most over investment went.Many new build HTB estates will see massive falls,ones near me only finished a couple of years are falling apart already and look terrible.

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Love the UK. And Love Ireland. But it’s getting ridiculous. Border Customs posts here have now got fencing up again like there are plans for the diggers and builders to move in. Cannot contain myself with anger at the notion.

Brexit is a 100% disaster for Ireland and might restart the religious Civil War here that the So-Called BBC called The Troubles.

I hope it does not.

...meanwhile we have to listen to people like this tell us it’s good for us. 

https://www.politicshome.com/news/uk/political-parties/labour-party/john-mcdonnell/news/105738/john-mcdonnell-brands-sajid-javid

 

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2 minutes ago, Thorn said:

Love the UK. And Love Ireland. But it’s getting ridiculous. Border Customs posts here have now got fencing up again like there are plans for the diggers and builders to move in. Cannot contain myself with anger at the notion.

Brexit is a 100% disaster for Ireland and might restart the religious Civil War here that the So-Called BBC called The Troubles.

I hope it does not.

...meanwhile we have to listen to people like this tell us it’s good for us. 

https://www.politicshome.com/news/uk/political-parties/labour-party/john-mcdonnell/news/105738/john-mcdonnell-brands-sajid-javid

 

Sorry DB and sorry not meaning to derail thread at all. I know Brexit makes sense for some - it seems less EU taxes will benefit many- but from here it is going to be a complete disaster. The Peace here is so fragile. 

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Just replying to a couple of things off previous thread

@JMD

'Sancho your scs scores are excellent, I find them very helpful, but I don't think they include for factors like long-term-low-interest-debt 'protection' or 'valuable' fixed assets do they? ...how granular to go I guess might be your answer? ...but the reason I ask is because identifying companies with these positive factors (along with good cashflow which I know you do account for) would help find financially sound companies, ones that are better positioned to survive next 10 years.    '

 

No they don't JMD,their purpose is to support spray n pray operations in a sector.So a companies debt profile in terms of duration is ignored but it's total debt isn't.There's an element of 'ceteris paribus' here in that investing across a basket of stocks ,we'll hopefully pick up a nice cross section of corporate detbs across a sector in terms of both duration and debt to equity.

The key aim is to be able to pluck out the clear 'no go's' and focus on the ones that offer the more reliable win.After the inital sift,we might then include other factors such as those you mention as we weight the purchases.

It would also,by implication,allow you to find the companies that are the most leveraged play in the sector by going for the ones with the lowest scores.

 

@Harley 

@sancho panza did you publish the methodology behind these scores?

 

You have to understand that I've developed this system to help with spray n pray operations in various sectors not to assess single companies on their individual merits. Worth noting from the start that all the scores have to be adjusted for the average for the sector.Comparing Telco's with oil services isn't what it's intended for.It serves to pick out the least leveraged,most profitable companies in one sector by comparing companies in one sector with each other.It's based loosely on the Glasgow Coma Scale which is used as an aid in assessing the conciousness of patients.The aim of the Scale is to monitor any change in the neurological state of a patient

 

Glasgow Coma scale scored out of 15(4/5/6)

Eyes:
Open spontaneously 4, open to voice 3, open to pain 2, don't open 1.

Verbal:

Orientated 5, Confused 4, Inappropriate words 3, Inappropriate sounds 2, no response 1.

Motor:

Obey commands 6, Localizes to pain 5, Normal flexion 4, Abnormal flexion 3,  Extension 2, No response 1.

With GCS you get a score between 3 and 15

 

Scores for the Sancho Coma Scale for stocks are worked out a below

            Chart                  Profitability                            Balance sheet                    free cash flow                      Sector

5= very low in chart    Well above average               Very solid                             excellent for the sector     Very good value compared to other sectors

4= below average         Above average                      Above average                    above average                     Good value

3=average                      average                                    average                              average                                   average

2= above average..........and so on.

Lowest score you can get is 5,highest 25.Obviously,subjective,eg having the whole PM mining sector graded as a 5 increases the chances of a score of 17(17 is,aside from company specific issues,my buying point).In a way though,that's it's purpose.It's hopefully gets you running with the bull, as a key feature of stock picking is picking the right sector that has upside potential

Chart score:I have a long term chart set up I like and use as Harley and other chartist will admit,there's a good degree of latitude in reading charts.My score is my view of how much upside there is.5 means lots of upside potential,1 means it's historically high

Obviously,there's a degree of subjectivity in the comparisons of balance sheet,FCF,profitability as for instance, there are some sectors where intangibles will include assets such as intellectual property that likely have a value whereas one might not feel an estate agent would not.

It is what it is but it's a plank of how we're investing at the minute

 

 

To give a flavour of what I do here is my assessment of OIH ETF -oil services

SLB 43334=17

HAL 44134=16

FTI 31414=13

MOR 41124=12

BHGE 42434=17

TS 45434=20

NOV 41434=16

CLB 44144=17

ESV 51324=15

PTEN 41444=17

RIG 51234=15

OII 42345=16

APY 33334=16

HP 34544=20

DRQ 32524=16

NBR 51114=12

RPC 43554=21

DO 52324=16

CJ 42434=17

NE 51224=14

OIS 42434=17

SPN 51114=

Edited by sancho panza

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On 30/08/2019 at 16:53, DurhamBorn said:

An apt time to continue part 2.

Might be worth @sancho panza adding on his scores on the doors from different sectors on the first few pages of the thread.They are an excellent way to look at the sectors most of interest going forward.Reference of course not investment advice.

When I have some time,I'll stick up the sectors I've been through.Got my Dad over at the mo and so my evenings and days are going to be busy.Only four side of psots to catch up on.

If I can we'll be doing first ladders in oil services/potash/Nat Gas and XOP, this week.

@spunko I donate to a few sites I frequent regularly eg Wolf Ricther and would be grateful to have the chance to offer some support given how frequently I dwell in the basement and how much I appreciate the discussion.Thanks as ever for your efforts and time.

Edited by sancho panza

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9 hours ago, DurhamBorn said:

No,there are too many tensions now.We could go straight to a reflation,with the debt deflation limited,but we are getting a debt deflation and we are getting inflation,the only question is time and length.The Fed are way too tight and have been for two years.They are too far behind the curve.Look at some of the falls in UK stocks and even in US cyclicals.Many stocks are down more than any time in history.My road map said PEs down to 6 to 8 and many stocks are at that now.

Hey DB, seen many U.K. stocks have been hammered, yet the index is still relatively close to all time highs. Which sectors are keeping it afloat?

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5 hours ago, leonardratso said:

was it diluted or consolidated along the way? rights issues/buybacks etc or consolidation tends to bugger up graphs when the NAV cant be traced back properly because it has fundamentally changed, eg 1 share is now 100 old shares etc. Maybe they just cant draw the graph and have limited data so just joined the limited data with a straight line?

Does anybody know if (and if so, where) you can find graphs of market cap over time? The number of shares in issue of many companies are constantly changing and I feel that simply looking at the share price doesn't always give a true reflection of value. Would also be nice to then plot the debt of the company in a bar chart behind the market cap line.

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3 hours ago, sancho panza said:

@JMD

'Sancho your scs scores are excellent, I find them very helpful, but I don't think they include for factors like long-term-low-interest-debt 'protection' or 'valuable' fixed assets do they? ...how granular to go I guess might be your answer? ...but the reason I ask is because identifying companies with these positive factors (along with good cashflow which I know you do account for) would help find financially sound companies, ones that are better positioned to survive next 10 years.    '

No they don't JMD,their purpose is to support spray n pray operations in a sector.So a companies debt profile in terms of duration is ignored but it's total debt isn't.There's an element of 'ceteris paribus' here in that investing across a basket of stocks ,we'll hopefully pick up a nice cross section of corporate detbs across a sector in terms of both duration and debt to equity.

The key aim is to be able to pluck out the clear 'no go's' and focus on the ones that offer the more reliable win.After the inital sift,we might then include other factors such as those you mention as we weight the purchases.

It would also,by implication,allow you to find the companies that are the most leveraged play in the sector by going for the ones with the lowest scores.

SP, to be fair to you, I think that you previously described your scs system perfectly well, when you introduced it some weeks back. But I guess its important to remind us of the rationale for using the scs scores, i.e. that you can use this method to help identify a selection of good/potential stocks within specific (reflation) sectors.

Further validation checks, including for example company debt profile, (ceo psychopathy!), etc., is entirely driven by the level of scrutiny/risk of individual before deciding to buy or not.  

         

Edited by JMD

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9 hours ago, DurhamBorn said:

Sure will Spy.70% inflation adjusted probably in the south,north much less,but still falls inflation adjusted.Highly likely housing will take most of the pain in the UK as that is where most over investment went.Many new build HTB estates will see massive falls,ones near me only finished a couple of years are falling apart already and look terrible.

Ive mentioned my observations  on southern earnrigns./housing on multiple threads.

From ~1983 -> ~2008 southern employment was dominated by fincsec, puhsing up all other wages.

Post 2008 those jobs have been decimated inthe true meaning of the word.

I look at towns where the unemployment rate must be ~50%. Its all hidden by TCs and low IRs.

You go to places where everyone 55+ has been laid off with a full pension, just ticking over doing waitrose deliveries.

Everyone under ~40 is on 15h TCs.

There was no plan B.

The best parallel is boro post 1982.

You are not seeing the massive fall out as benefits are so lucrative and IRs are so low.

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9 hours ago, Solzhenitsyn said:

Hey DB, seen many U.K. stocks have been hammered, yet the index is still relatively close to all time highs. Which sectors are keeping it afloat?

Astrazeneca,the big miners still high,the big FTSE srocks like Shell only down 12% the same as the index.The FTSE 100 has most market cap in the top few companies.

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1 hour ago, spygirl said:

Ive mentioned my observations  on southern earnrigns./housing on multiple threads.

From ~1983 -> ~2008 southern employment was dominated by fincsec, puhsing up all other wages.

Post 2008 those jobs have been decimated inthe true meaning of the word.

I look at towns where the unemployment rate must be ~50%. Its all hidden by TCs and low IRs.

You go to places where everyone 55+ has been laid off with a full pension, just ticking over doing waitrose deliveries.

Everyone under ~40 is on 15h TCs.

There was no plan B.

The best parallel is boro post 1982.

You are not seeing the massive fall out as benefits are so lucrative and IRs are so low.

My local town has a Facebook group.Someone moving to the town asked advice on schools as her two children had "special needs" ie benefit jackpot.The amount of people replying saying theirs also has ADHD etc was staggering.In context i work in the best paid factory in the area,by a long long way (better paid than JaguarLandrover,almost double Nissan wages) and these people will have a higher,or matching income from doing nothing,or 16 hours.My local town economy is 74% state wages,pensions and benefits.

Europeans are here doing the jobs the above people should be doing.The welfare system is a huge problem,the governments answer seems to keep moving the pension age back instead of tackling the real problems.Most of these people will be hit hard from around 45/50 years old as single person benefits are tiny,its children,children classed as "special" and PIP/DLA where the big money is.

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11 hours ago, DurhamBorn said:

Sure will Spy.70% inflation adjusted probably in the south,north much less,but still falls inflation adjusted.Highly likely housing will take most of the pain in the UK as that is where most over investment went.Many new build HTB estates will see massive falls,ones near me only finished a couple of years are falling apart already and look terrible.

Any idea on timescales for this? I think previously you have said over the next decade or so? Are you expecting a slow grind down, a big event in the next year or two, or a combination of the two?

I get into regular arguments with my parents about house buying - they just don't seem to get the difficulty of committing to a lifetime of debt. Articles like this by the So-Called BBC, which go through the relative cost of housing over the last few decades don't help as the idea that "houses only ever go up" is so engrained. Hopefully the old adage that the market hurts the most people will ring true in housing. I am seeing so many house flips and BTL buyers in my area at the moment, preventing people who actually want to use housing for a family, and it is boiling my blood. Not to mention the amount of people who believe it is their right to have kids, but forget about their responsibility to pay for the kids. The culture of having children despite not being financially equipped to pay for them is infuriating.

The fact that a huge crash, that I know will bring about a lot of pain, is the only solution I see to bring about the cultural change needed says it all. I don't want a crash, but I think a crash is less damaging than the continuation of all this bullshit.

Edited by Durabo

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