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

[leonardratso]

should be ok, clownworld cant go on forever, it might go on longer than me, but even the biggest in the past have come down to zero eventually.

[wherebee]

1 hour ago, Talking Monkey said:

Tesla is just nuts when it implodes it will be remembered for years

Unless Musk develops something insane like workable fusion, or a teleporter. 

In my madder moments I am convinced he is an alien or time traveller sent to fuck about with the 21st century...

[JMD]

15 hours ago, Cattle Prod said:

Wow, so there are practically no professional (in the sense of doing it properly, as a business, ltd company, lots of stock, maintaining them properly) landlords here. Explains the non reaction on propertytribes @JMD

I can't offer you advice on your investment, but I'd look carefully at the yield, and when you are adding in voids, they now need to be a lot bigger. And don't forget that taxes have changed too. Professionals tend to look for an 8% yield min. Leverage is tempting but that supposes things will stay stable for a long time.

Thanks Sancho. That paper...explains a lot. I thought a lot more would have sold up after the tax regime changed. Maybe a lot of them arent paying it anyway 😁

The btl subject is a can or worms with so much entrenched opinion. Not saying you were doing that CP, but having read many posts on propertytribes and for what it's worth I think many landlords 'believe' in property similar to equity investors misplaced belief in stock markets. But understandable I think particularly given many landlords have their whole retirement future riding on their property investment, which explains why, despite popular opinion, why most landlords do look after their tennent's (and despite what the media and various pressure groups would have you think). Not a popular view to express perhaps, but logic should inform most thinking people that the landlord-tennant relationship will always be a fraught one given its roots in feudalism. I wish there was an alternative but are there really any easy solutions? After all it's not for a want of trying. Ie the US has tried its own vast socialised mortgage system (Freddy Mac), and we will shortly embark on a new cycle of mass housing projects. Don't get me wrong - in terms of a functioning community - settled home environments are important, but so are secure jobs, and so to are strong family units... oh well one out of three will have to do for now I suppose.                                                                                                                                                                    You are right about 'vanilla' btl, it isn't profitable enough to be worth the hassle, maybe specialised sectors like holiday let's in the right geographic areas, or providing accomodation to councils for vulnerable people, can be profitable, but again involve much more work.

[JMD]

15 hours ago, Cattle Prod said:

Where did I read that rent controls guarantee urban decay? Looks to be accelerating in NYC. Its a shame, my old man was there in the early 70s and I was there in the mid 90s. He simply couldn't believe what I described to him. Like two different cities. Back to the 70s now I think.

It's strange how the US is characterised as being extreme free market, but it has controlled rents and strictly enforced residential zoning. Away from the topic of housing and I'm reminded of the 1970 'Nixon shock', of course that was to prevent inflation, but still relevant I think to show how interventionist even Uncle Sam can be when it wants.

[JMD]

15 hours ago, Vendetta said:

The rise of the mega-corporations continues. In a 100 years there may only be less than 100 companies in the world....

Maybe we will end up like in the RoboCop film with just one mega corporation running everything, it was called Omni Consumer Products in the film. We do have our very own Google, Amazon, Facebook - with its own thwarted attempt at a crypto currency... But surely the film was just science fiction and such things couldn't happen in real life?

[JMD]

16 hours ago, sancho panza said:

LL's have an aiming marker on their backs politically.Look atnthat Parliamentary paper I psoted.There's only one way thsoe people are going to vote no matter what happens to them.

I fear you're mistaking the LL's complacency for a valid invesment thesis.If you're buying property at these gross yields,possibly exposing your primary residence in any future repossession process,then you need to be careful imho.

I don't know you're financail psotion/proposed LTV, jsut saying you need to be careful having a bet on future interest rates beyond the life of your fixed rate mortgage.I'd aslo look at how long eviction takes for the various scenarios and the costs involved.If you run into the worng tenant ie one who's got a lot of money or one with no money,it could costs years rental income.

https://england.shelter.org.uk/housing_advice/eviction/can_private_tenants_stop_the_bailiffs

https://garner-hancock.co.uk/landlords-legal-service/repossession/

Can I recover costs in possession proceedings?

• Recoverable legal costs fixed by court at a maximum of £292.50[2], but clients will incur hundreds of pounds more in legal fees in attempting to regain possession.

Thanks SP, I plan to tread very carefully and do appreciate that there are very few worthwhile property investments these days.

[JMD]

7 hours ago, Sideysid said:

But that’s no longer a Libertarian concept. If you were a anti-globalist, anti-authoritarian, anti-censorship, pro-freedom of speech etc in the 70-80’s you would have been left wing.

Now the world has bee turned on its head and the media narrative leads peoples thinking and views. The same views as above are now right wing traits, and any deviation from the status quo will see you labelled as such.

I think agreement on political definitions today is a difficult enough task, what with everyone having their 'own truth'... but your idea of relating todays thoughts and beliefs back to their 1980's equivalents is I think a truly alarming concept. Do you perhaps work for one of those topsy-turvy media outlets that you criticise?                                      Sideysid, please don't take my remarks too seriously. I think I actually agree with you. Truth being the new heresy and all! But answer me this if you will... As you bought up the 80's, back then I would have supported Dr David Owen's SDP and which at the time would have 'made me' right wing, however today (the SDP are still around) I would be defined as left wing. Does this thought experiment support or contradict your argument? 

[wherebee]

2 minutes ago, JMD said:

I think agreement on political definitions today is a difficult enough task, what with everyone having their 'own truth'... but your idea of relating todays thoughts and beliefs back to their 1980's equivalents is I think a truly alarming concept. Do you perhaps work for one of those topsy-turvy media outlets that you criticise?                                      Sideysid, please don't take my remarks too seriously. I think I actually agree with you. Truth being the new heresy and all! But answer me this if you will... As you bought up the 80's, back then I would have supported Dr David Owen's SDP and which at the time would have 'made me' right wing, however today (the SDP are still around) I would be defined as left wing. Does this thought experiment support or contradict your argument? 

Sideysid is right.

Original, old Labour (unions, NHS) was firmly pro-empire and anti-immigration, and anti-EU.  Left wing, protecting the value of labour against international owners of capital.  hell, as late as mid 2000's we were still seeing riots at the G20 against globalisation!

New Labour and the progressive left went firmly pro-globalism, pro-open borders (mass immigration), anti-native culture for the west big time.  

It's only explainable by having a population that ignores history and a media that will never question sacred idols.  Imagine a journalist reading anti-immigration quotes from the old leaders of the labour party to Keir Starmer and asking him to comment?

[JMD]

43 minutes ago, wherebee said:

Sideysid is right.

Original, old Labour (unions, NHS) was firmly pro-empire and anti-immigration, and anti-EU.  Left wing, protecting the value of labour against international owners of capital.  hell, as late as mid 2000's we were still seeing riots at the G20 against globalisation!

New Labour and the progressive left went firmly pro-globalism, pro-open borders (mass immigration), anti-native culture for the west big time.  

It's only explainable by having a population that ignores history and a media that will never question sacred idols.  Imagine a journalist reading anti-immigration quotes from the old leaders of the labour party to Keir Starmer and asking him to comment?

Danger of thread derailment perhaps...?                                                                                                                                                   But again I think I agree with the points made. Yes the media has a lot to answer for. However I just want to be clear that I have no problem with political parties changing their policies. I think its the voters 'fault' if they continue to blindly vote for the same parties. The lib/lab/con have all done it. That's why I used my favoured libertarianism as it has so few edicts/policies that it doesn't/can't change over time.                                                                                                                               The interesting question for me is why for example did the labour party change tack, away from economic/class socialism to social justice/identity socialism. I guess because the cracks in the economic theory had become all to clear.

[wherebee]

Sorry, yes, we have a whole forum for that stuff.  I'll stop.

[CVG]

Baby steps:

https://www.theargus.co.uk/news/18686884.hydrogen-powered-double-decker-trial-takes-place-crawley/

"WORLD-FIRST trials of a double-decker bus powered by hydrogen have taken place.

Wrightbus trialled its double decker prototype in Crawley on Wednesday in a major step forward in efforts to tackle climate change.

Hydrogen fuel generates no carbon dioxide emissions when burnt, instead producing water.

Wrightbus owner Jo Bamford hopes to bring the buses to Brighton once trials are successful.

Transport for London has already ordered 20 of them"

 

[Noallegiance]

6 hours ago, JMD said:

Maybe we will end up like in the RoboCop film with just one mega corporation running everything, it was called Omni Consumer Products in the film. We do have our very own Google, Amazon, Facebook - with its own thwarted attempt at a crypto currency... But surely the film was just science fiction and such things couldn't happen in real life?

Watch Mr Robot.

We have E Corps.

[Democorruptcy]

23 hours ago, Vendetta said:

The rise of the mega-corporations continues. In a 100 years there may only be less than 100 companies in the world....

A 2 part program from 3 years ago about big technology firms.

The Secrets of Silicon Valley

[Bricks & Mortar]

Judy Shelton, (Fed board nominee, awaiting Senate approval), tweeted this morning.  she doesn't tweet often.  Just a link to this story:

I'm thinking, Powell spelled it out last week.  But it's going to take a short while for large institutions to have board meetings, discuss the implications, and change their investment strategies.  That process is probably on the agenda this week for many of them.   Items like this are reinforcement for the less financally literate board members.

https://www.wsj.com/articles/a-flexible-fed-means-higher-inflation-11598796001?mod=hp_lista_pos1
 

[DoINeedOne]

Been a few posts about property 

Property had been something i would like to get involved in but that changed over the years of sky high prices i have friends and family who all want to get into property developing etc.. but whilst i was a carpenter the dream to buy and sell houses is pretty much dead to me

When i think of the headaches landlords that i know have and some of them are no longer involved in property due to this headaches, fee's, empty flats, damage, silly tenants, complaints, maintenance etc...

 

I just keep thinking back to a post i made a year or so ago here from a book

 

 

 

Then i look at this and think yes gold and silver have bad years but its just seems easier

 

 

 

 

 

 

Now one of my friends says he wants $1 million of property in a few years such a nice round figure more for the show and status i suspect, i just say oh nice but and think i just want investments that i can sell easily from a laptop in minutes and the only property i want is a nice family home to work on

[wherebee]

Just now, DoINeedOne said:

Been a few post about property 

Property had been something i would like to get involved in but that change over the year of sky high prices i have friends and family who all want to get into property developing etc.. but whilst i was a carpenter the dream to buy and sell houses is pretty much dead to me

When i think of the headaches landlords that i know have and some of them no longer involved in property due to this headaches, fee's, empty flats, damage, silly tenants, complaints, maintenance etc...

 

 

Now one of my friends says he wants $1 million of property in a few years, i just say oh nice but i just want investments that i can sell easily from a laptop in minutes and the only property i want is a nice family home to work on

I think the anglo obsession with property is partially the fact that in the UK (and Australia) nobody white in over 1000 years had faced an invasion in which they lost their house and land with no right to recourse.

The American South has that memory.  As does most of Europe.  As does a lot of Asia.  Hence the recognition that wealth needs to include easily transportable/liquid forms to actual mean something when bad things happen.

It's also the fact that until pretty recently (Thatcher), share owning was the domain of the rich.  My father was the first person in his family own shares that he knew of.

[jamtomorrow]

2 minutes ago, wherebee said:

I think the anglo obsession with property is partially the fact that in the UK (and Australia) nobody white in over 1000 years had faced an invasion in which they lost their house and land with no right to recourse.

The American South has that memory.  As does most of Europe.  As does a lot of Asia.  Hence the recognition that wealth needs to include easily transportable/liquid forms to actual mean something when bad things happen.

It's also the fact that until pretty recently (Thatcher), share owning was the domain of the rich.  My father was the first person in his family own shares that he knew of.

This on steroids. Putting your wealth into anything other than cash or property pretty much makes you a contrarian in the UK by default.

I've given up talking about wealth preservation with family/friends - eyes glaze over as soon as you stray a yard from the familiar comfort zones. God knows what they'd make of this our shining citadel of contrarianism.

[Hardhat]

59 minutes ago, jamtomorrow said:

This on steroids. Putting your wealth into anything other than cash or property pretty much makes you a contrarian in the UK by default.

I've given up talking about wealth preservation with family/friends - eyes glaze over as soon as you stray a yard from the familiar comfort zones. God knows what they'd make of this our shining citadel of contrarianism.

The interesting thing for me is that people I know are willing to completely fuck themselves over financially just to own property - props,  govt schemes, bank of M&D, etc etc. 

These people would never, in a million years, think about making a leveraged investment in any other asset class, or borrowing money to be able to do so. They would think "I can't afford this,  it's too risky"

But property only goes up...

[DurhamBorn]

58 minutes ago, jamtomorrow said:

This on steroids. Putting your wealth into anything other than cash or property pretty much makes you a contrarian in the UK by default.

I've given up talking about wealth preservation with family/friends - eyes glaze over as soon as you stray a yard from the familiar comfort zones. God knows what they'd make of this our shining citadel of contrarianism.

Yes and for 40 years they have been right to do so.I think a lot of the problem in the UK is the fact we are now more socialist than Soviet Russia ever was.The amount of benefits is incredible and benefits are means tested against everything but a house.The problem is they simply have no memory now of inflation and even rising rates.House prices are now at such extreme levels that inflation wont help them.

The things i remember most,and i always remind myself of are the two truths of macro strategy.

Number 1,the cost of money is the most important thing in a western style economy,everything else is cross market, (US long bond mostly)

Number 2,the market always hurts the most people possible in time.Its never linear,but always a truth.

Given we are nearly at the start of a rising rate cycle,and the UK public have an unbroken belief in house prices (and their pensions in 60/40 passive funds) then both are going to slam them hard.

[Harley]

2 hours ago, DoINeedOne said:

Been a few posts about property 

Property had been something i would like to get involved in but that changed over the years of sky high prices i have friends and family who all want to get into property developing etc.. but whilst i was a carpenter the dream to buy and sell houses is pretty much dead to me

When i think of the headaches landlords that i know have and some of them are no longer involved in property due to this headaches, fee's, empty flats, damage, silly tenants, complaints, maintenance etc...

I just keep thinking back to a post i made a year or so ago here from a book

......

Then i look at this and think yes gold and silver have bad years but its just seems easier

.....

Now one of my friends says he wants $1 million of property in a few years such a nice round figure more for the show and status i suspect, i just say oh nice but and think i just want investments that i can sell easily from a laptop in minutes and the only property i want is a nice family home to work on

Spot on!  Especially in these times.

And to drive your point home, this (what people like to look at)....

....becomes this when valued in gold.....

....which is as much about the fall in GBP as the rise in gold as shown here...

...where house prices were falling in gold before the gold price started to rise.

[Harley]

40 minutes ago, DurhamBorn said:

....and their pensions in 60/40 passive funds....

Interesting how many "proper" commentators are now mentioning how bad such an allocation could be.

[Harley]

2 hours ago, DoINeedOne said:

Versus:

 

Just running the numbers, if you had invested the £160,000 2005 average house price in liquid gold instead, it would now be worth:

As opposed to the current £220,000 average house price.  Sure, a few tidy ups such as loss of interest, storage costs, rent, etc but trivial.

I also accept some propertee types are shite hot on account of them driving Range Rovers!

PS:  BTW, that £160,000 at a compounded 5% inflation rate would now be worth £70,420!

[Loki]

BP selling London HQ

[sancho panza]

On 30/08/2020 at 09:48, Cattle Prod said:

Wow, so there are practically no professional (in the sense of doing it properly, as a business, ltd company, lots of stock, maintaining them properly) landlords here. Explains the non reaction on propertytribes @JMD

I can't offer you advice on your investment, but I'd look carefully at the yield, and when you are adding in voids, they now need to be a lot bigger. And don't forget that taxes have changed too. Professionals tend to look for an 8% yield min. Leverage is tempting but that supposes things will stay stable for a long time.

Thanks Sancho. That paper...explains a lot. I thought a lot more would have sold up after the tax regime changed. Maybe a lot of them arent paying it anyway 😁

Without banging on too much CP,there are some interesting nuances that lie in the detail deep down the paper.In terms of market structure,it highlights significant structural issues that people looking at issues pertaining to debt deflations and their effect on our already highly leveraged banking system shoudl consider.

 

Long story short,there are possibly going to be a lot of people trying to get through the exit at the same time.

Apologies for the mish mash of graphs etc.I've learned a lot going through ti again.

Key facts

Median average gross rental income-£15,000

Median average length of time as a landlord-11.5 years

Median average landlord age-57

Average rental income=42% of gross LL income

Median value of loans=£180,000

Median equity value of portfolios=£220,000

43% of LL's with 3 years or less had no loans on their properties.

 

 

Key structural issues

1) LL's with a BTL loan more likely to own multiple properties and have bigger loans.I find it surprising that so many recent arrivals in the market have bought with cash.40% of LL's have no loans which means there are some players carrying a disproportionate amount of the debts.This hints at LL's majorly overstating their equity to the compilers of teh report if median average loan sits at £180,000.Roughly 56% of LL's are declaring LTV's above 50%,20% above 70% LTV.Allowing for a little delusion on LTV's and declared equity,we can roughly say 40% of the market in a psot covid world is looking at a huge hole in their balance sheet.

2) A lot of more recent LL's  ie under 3 years have bougth for cash at very low yields.

3) LL's who've been letting longer have bigger portfolio's and bigger loans,more likely to struggle remortgaging in a credit event.

4) It appears to me that a lot of the longer term players in the market have sold up to newer psot 2006 entrants.This concurs with my circle of acqauintance.They've been replaced by people who are more leveraged than them.Median time in teh market of 11.5 years points to that.

5) LL's income is highly dependent on the them getting paid.42% of gross income wa retnal income

6) average LL age at 57 hints of major selling pressure if other sources of pension income fail.

 

 

The average (median) gross rental income (before tax andother deductions) is £15,000.Three in five (61%) landlords had gross rental income of less than £20,000, while a further quarter (26%) reported between £20,000 and £49,999.

it was calculated that landlords received 42% of their total gross income from rental property.

Landlords with a Buy to Let mortgage were more likely than landlords withanother kind of loan, or withno debt or borrowing,to own multiple rental properties14. About a third (37%)of landlords with a Buy to Let mortgage owned one property, with two thirds(63%)owning two or more properties.Of landlords with another kind of loan,the proportion with one property alone increased to half (51%), whilehalf (49%)owned two or more properties.

Landlordswho had been letting for longer tended to have larger portfolios. Oflandlords with11 or more years’ experience, 70%had two or more properties,compared with 48% of those who had been lettingfor four to 10yearsand 22% of those who had been a landlord for three years or less

Landlords were, on average (median), 57yearsold. This is older than the general population. At the time of the 2011 Census, the median age for the population of England and Wales was 39 years15.

Compared with longer standing landlords, recent landlords were more likely to have bought their first rental property to live in themselvesand less likely to have bought it with the intention of letting it. Over a third (37%) of landlords that had been a landlord for three years or less bought their first property to live inthemselves,compared with28% of those who had been a landlord for 11 or more years. On the other hand, half (49%) of those who had been a landlord for three years or less bought their first rental property with the intention of letting it out, compared to two thirds (58%) of those who had been a landlord for 11or more years, Annex Table 1.14.

Landlords were asked for their total gross income (excluding rental income) over the previous 12 months. The average (median)non-rental income was £25,000per annum19.About two fifths (39%)reported agross income of less than £20,000and a similar proportion(38%) reportedbetween £20,000 and £49,999

The average (median)rental income was £15,000. Three in five (61%) landlords had gross rental income of less than £20,000, while afurther quarter (26%) reportedbetween £20,000 and £49,999.Thirteen percentreporteda gross rental income of £50,000 or more,

Taking the two measuresof income (non-rental and rental)together, on average(mean),landlords receivedtwo fifths(42%)of their total gross income

22| English Private Landlord Survey(including rental income) from rental property.

The average(mean)estimated value per rental property for all landlords was £261,900,Annex Table 1.3022. As a comparison, theaverage house price in England inApril 2018 was £243,60023

The average (median)value of loans or borrowing was £180,000. One in three(29%)landlords using borrowinghad loans of less than £100,000, with a further 38% havingloans of between £100,000 and £300,000. The remainingthird (33%)had loans of £300,000 or more, Annex Table 1.31.

The longer a landlord had been lettingthe higher the value of their loans or borrowing. Only 3% of landlords who had been letting for three years or less had borrowingof £500,000 or more. This rose to 12% for those who had been letting for between four to 10years and to 27% for those who hadbeen lettingfor more than 10years, Annex Table 1.31.1.37The median equity or net value of landlord rental portfolios was £220,000, calculated from the median value of landlord rental portfoliosminus median value of loans or borrowing.

Landlords wereasked which, if any, types of loans or borrowing theycurrently have to fundtheir rental property. Over half (55%)of landlords had aBuyto Let mortgage, representing 61% of tenancies. More than a third (39%) oflandlords had no debt or borrowing, representing 30% of tenancies. Smaller proportionshad a commercial loan(4%)or aloan from family or friends(3%), Figure 1.12.

Landlords who had been letting for longer were more likely to have a Buy to Let mortgage. Of landlords who had been a landlord for three or less years,almost half (49%)had a Buy to Let mortgage. This increased to 58% of those who had been lettingfor between four and 10years, and 54% for thoselettingfor11 or more years

Of recent landlords (three years or less), 43% had no loans or borrowing to fundtheir rental property, compared to 34% for those who had been a landlord for between four and 10years and 42% for those landlords who had been letting for more than 10years, Annex Table 1.33.

[sancho panza]

23 hours ago, AWW said:

Not at all, appreciate the info. Didn't realise that recoverable legal costs were capped.

I'd double check it,but would explain why so few LL's evict.