Credit deflation and the reflation cycle to come (part 3)

[DurhamBorn]

54 minutes ago, Jesus Wept said:

@DurhamBorn Just an update on my portfolio and plans having followed this thread since March 2020 pre pandemic crash.
 

I’m planning on adding in the telecom sector this week. As at start of supply chain, like fags can just up the prices and inflation will eat their fixed debt (is this thesis correct?).

Appreciate your thoughts.

I am already holding VOD and VZ (Verizon in US). 

Planning to pick up some more VOD, VZ and also look at buying some BT (as telecoms in general haven’t gone anywhere excepting BT which I missed) - ( so laddering down). Any other favourites? Please give ticker - I’m struggling with all the Telefonica’s ?? 

Current holdings - not planning on selling - 10 -20 year ++ holds. (as you can see I’m after value and high dividends), since March 2020 which I have been laddering into:

RDSB 

BP

BATS

IMB

BAe

NG

VOD

MNG

HFEL

REP

GSK

ENB

Then some gold, silver and Bitcoin (miner) exposure. 

PHAG

PHGP

ARB

Massive thanks for the guidance - in particular ENB, REP and HFEL. 

My biggest mistakes were selling and taking profits (30%) far too early in potash: Nutrien, Mosaic and SDF and miner FCX (copper @ 159% today  😬) which I had bought at the lowest of lows and have now after selling seen some do another 100% , and also not getting any miners. Should have just bought and held. Feel I’ve missed the miners? But might buy on this continuing dip?

The OPTIMiSM strategy has been perfect. Wish I’d known how well it was going to do!!

 

 

On Telcos id go for them all the whole sector has a structural undervaluation for me,a huge one.Big boys first,Orange SA ,Telefonica,BT,Vod,then smaller holdings in Telefonica Germany,Telefonica Brasil,TIM Brasil,and id be buying Spark New Zealand and a few others if i had access.

Brokers are mostly at sell or hold on telcos,but they dont understand inflation.60%+ (75% for BT) of incumbent telcos turnover is CPI+ linked.That sets the price for the industry.There is also a chance there are changes to net neutrality see South Korea now with SK telecom and Netflix.If that happens,and some change is certain i think,telcos will likely double or triple.

Of course DYOR as always,and the sector is carrying a lot of debt,and although im not worried about that due to structure,i am worried if the derivative hedges counterparties fail.That is the big risk for telcos for me.

[DurhamBorn]

Just now, Hancock said:

Im not so sure, we've hard 25 years of BTLers filling their boots with 12 years and counting of ZIRP .... and now inflation to wipe out their debts.

BTLers not selling is the main reason there is fuck all on the market.

There is no way this billionaire property owning chancellor will rock the boat.

We need a Corbyn-esq govt to go after this parasite class, instead we've just got a corrupt, crony capitalis, totalitarian govt.

Quite simply Britain is fucked beyond repair.

 

Inflation wont help them,it will be what finishes them i think,its structured different to the 70s etc.Much higher repair costs,tax,regs,rates,but rents falling soon.

[Hancock]

9 minutes ago, DurhamBorn said:

Inflation wont help them,it will be what finishes them i think,its structured different to the 70s etc.Much higher repair costs,tax,regs,rates,but rents falling soon.

Housing Benefit sets the floor, and there is £30 billion of that to donate to landlords on an annual basis.

Been too many false dawns for the death of BTL when since 2008 its just grew and grew. I've no idea what the average BTL mortgage % is, but with 25% down payments we know its an absolute maximum of 75%, and thats just for new/recent entrants.

Interest rate rises is the only hope there is for a HPC.

[JMD]

2 hours ago, Cattle Prod said:

This is how houses hedge inflation. Every brick and pipe inflates with the replacement cost. If the 120k loft conversion sounds like stupid money, well it's just been added onto the price of houses that already have them. I get @DurhamBorns view that housing will take a big hit, but I think it's more specific than that. I think poor quality new builds, and the overpriced land a house is sitting on (the SE) will take a hit, but solid houses that are valued at building cost plus a reasonable amount for the site will continue to hedge inflation.

I realise this is an unpopular view around here, but I've seen it that way for a long time. Once I'd convinced myself that my house wasn't overpriced (by taking a pre 2000 sale price and inflating it by RPI) buying it three years ago on a 10yr fix was a no brainer. I'm in the SE, but just far enough away from London to get away with it I think.

That said, as mortgage service costs haven't increased in decades it's clear that almost all the house price 'bubble' has been driven by interest rates coming down. So prices will have to come down as rates go back up. But if it's a quality house, I think it'll probably stay flat in real terms. If you're on variable, and wages increase with inflation, service costs as a % of income will keep pace.

CP, I think what you say is correct. My thoughts are that the SE is overpriced - however elsewhere in UK property value can be found by seeking out cheap square footage, or large garden plot, or say how easy it is to upgrade the heating/insulating, etc. Would be interested in what others also consider as being examples of potential 'value-adds'... Location might be the obvious top one, but I'm thinking more along the lines of the structural.                                                                                                                                                                   Plus, just to add why I think a residential property crash (after inflation that is) won't happen... Let's not forget that the 'mortgage (financial medium) is the message'! And I think Government will regulate for 'green mortgage' products, say 120% LTV for those willing to buy+upgrade/insulate old houses. Part of the regulations will be that you have to use approved contractors, much like those schemes that are already in existence. Lots of energy is wasted through poor insulation so will help with those pesky - and increasingly illusive - carbon targets, and jobs are created, so win-win. (Still think that those buyers who cant/won't participate will become tennant's of the banks/insurance companies who'll move in and buy up swathes of this countries erstwhile  'unproductive housing assets').

[RJT1979]

1 hour ago, Cattle Prod said:

Sure, I get that, in terms of adding value etc. But the build cost is effectively a floor, and it inflates. 

This is simply not true. Prices can go way below build cost for 2nd hand prices. 

300k for a dilapidated dick angel chateau is way below build cost for instance. Inflation adjusted.

Prices are what someone is willing and able to pay. 

 

[Hancock]

3 hours ago, Cattle Prod said:

I realise this is an unpopular view around here, but I've seen it that way for a long time. Once I'd convinced myself that my house wasn't overpriced (by taking a pre 2000 sale price and inflating it by RPI) buying it three years ago on a 10yr fix was a no brainer. I'm in the SE, but just far enough away from London to get away with it I think.

Surely a house should be affordable to whatever the average wage is in the locality + the Mrs working part time ..... so Mr and Mrs average then have money to spend in the local economy.

We're so far from that at the moment even with interest rates on the floor.

 

[spygirl]

7 hours ago, Seacrest said:

We are at a real cross roads I believe,  in 40 years of manufacturing/procurement I have never experienced the like.

Lean manufacturing and just in time supply chains are decimated, its now buy at any cost to keep going, that is not sustainable.

Energy costs have more than doubled since summer, that is consumed costs only the industry levvies have increased as well, that adds 35% to the bill,  CO2 is up 500% and restricted supplies Argon has a 28% premium currently, cobalt up £17k per ton, steel costs ... the list goes on and on and on  these are not phased they are immediate.

The lag to the consumer is shorter, industry has absorbed all it can in margin reductions. I think that is why consumers have reduced spending most people know someone in manufacturing and bad news travels further than good.   

   

I dont think they are, not the proper Jap way of Jit/lean.

Jit was about reducing suppliers to a small number, ensuring you were never at the mercy of one. Then working with those suppliers so both companies move forward. Working on process, product, blurting the lines between there sales channel and your inventory.

Western manufacturer esp US car makers followed the now v discredited Welsch way of fucking over suppliers and, frankly, dumping on them.

That's fine along as a supplier cannot go elsewhere - until the supplier goes bust, which happens.

Whats happened is that semi have made up more more of cars, becoming the critical component.

If carcos had a grown up, professional relationship with semifabs then they have kept their production option open, maybe asking for some leeway, which would have been ok.

Instead they cancelled everything, withdrawing from their production production capacity quotas, so semifab, which are far far better run than carcos, sold that capacity.

 

 

[Axeman123]

17 minutes ago, RJT1979 said:

This is simply not true. Prices can go way below build cost for 2nd hand prices. 

300k for a dilapidated dick angel chateau is way below build cost for instance. Inflation adjusted.

Prices are what someone is willing and able to pay. 

 

I can remember reading somewhere (maybe on here) about an era where people would buy up derelict terraces, and dismantle them for the salvage value of materials like bricks and slates. They would then abandon the land (and whatever unsellable debris or holes in the ground resulted) having already made their money. People have massive recency bias in assessing value. 

[JMD]

1 hour ago, DurhamBorn said:

On Telcos id go for them all the whole sector has a structural undervaluation for me,a huge one.Big boys first,Orange SA ,Telefonica,BT,Vod,then smaller holdings in Telefonica Germany,Telefonica Brasil,TIM Brasil,and id be buying Spark New Zealand and a few others if i had access.

Brokers are mostly at sell or hold on telcos,but they dont understand inflation.60%+ (75% for BT) of incumbent telcos turnover is CPI+ linked.That sets the price for the industry.There is also a chance there are changes to net neutrality see South Korea now with SK telecom and Netflix.If that happens,and some change is certain i think,telcos will likely double or triple.

Of course DYOR as always,and the sector is carrying a lot of debt,and although im not worried about that due to structure,i am worried if the derivative hedges counterparties fail.That is the big risk for telcos for me.

Can't recall DB, but haven't you written before about Orange being best one for African market exposure? I wonder, is there an international telecom with similar good exposure to Asian markets, earning increasing revenue from the region?                                                                                                                                                         That 'net neutrality' thing you mention i'm hoping will become a watershed for the industry (particularly for the owners of the stock)... though as you specifically mention the recent S Korea/sk telecom/Netflix debacle, is it just me or was Squid Game a load of boll****! Most popular Netflix ever apparently, I think gotta be a millennial to appreciate it!?

[Axeman123]

1 hour ago, DurhamBorn said:

Inflation wont help them,it will be what finishes them i think,its structured different to the 70s etc.Much higher repair costs,tax,regs,rates,but rents falling soon.

I would imagine the biggie would be if housing allowance is deliberately lagging behind real inflation.

Going back to our previous conversation about rate of change vs nominal values for interest rates, would I be right in thinking that the proposed +.15% Nov/+.25% Dec would therefore be the steepest rate rise in history? (at 5x in a little over a month). Should we expect a dramatic market response almost instantly? Or does proximity to the lower bound perhaps mitigate this effect somewhat?

We are of course in uncharted territory, even the CBs are probably waiting with baited breath to find out. 

[Hancock]

9 minutes ago, Axeman123 said:

I can remember reading somewhere (maybe on here) about an era where people would buy up derelict terraces, and dismantle them for the salvage value of materials like bricks and slates. They would then abandon the land (and whatever unsellable debris or holes in the ground resulted) having already made their money. People have massive recency bias in assessing value. 

When they go on about the UK property market currently being worth £x trillion, the higher the trillions is the more money that doesn't go into the actual economy.

Less is more when it comes to property.

[working woman]

Info for the person who said they are finding it hard to obtain info on service charges on leasehold flats.

I am in the process of selling my flat. I have had to pay the managing agent £350 for a sales pack, it provides lots of info, including the accounts for the last three years. This then gets passed onto the buyer via the solicitors.

Most Estate Agents sales literature for flats should show Lease years left, annual ground rent and service charge.

I guess before you make an offer, you could ask to see 3 years of past accounts, and the lease with the part that shows the ground rent.

To give you an idea of costs, for my two bed flat, no lift, I pay £1200 a year. Some nice older flats with swimming pools, tennis courts etc in my town pay £2,000 as it costs more to maintain. Ultra posh flats in good areas can be £3,000.

I am a member of the residents management company which sets the budget , requests work and approves the  quotes and we are all keen to keep costs down, aiming for value for money. 

[DurhamBorn]

1 hour ago, Hancock said:

Housing Benefit sets the floor, and there is £30 billion of that to donate to lndlords on an annual basis.

Been too many false dawns for the death of BTL when since 2008 its just grew and grew. I've no idea what the average BTL mortgage % is, but with 25% down payments we know its an absolute maximum of 75%, and thats just for new/recent entrants.

Interest rate rises is the only hope there is for a HPC.

Housing benefit is the big one yes,shocking really and madness.Like the whole welfare system it destroys the lives of the taxpayers paying for it by pushing up the prices of the things their tax is paying for.Its difficult to reform though unless you fund mass social housing and limit most to shared accommodation.

[eek]

29 minutes ago, DurhamBorn said:

Housing benefit is the big one yes,shocking really and madness.Like the whole welfare system it destroys the lives of the taxpayers paying for it by pushing up the prices of the things their tax is paying for.Its difficult to reform though unless you fund mass social housing and limit most to shared accommodation.

Would be a hell of an incentive to get off Universal Credit though. 

As soon as your children have left home, this shared house is all you will get via benefits...

[Shamone]

41 minutes ago, working woman said:

Info for the person who said they are finding it hard to obtain info on service charges on leasehold flats.

I am in the process of selling my flat. I have had to pay the managing agent £350 for a sales pack, it provides lots of info, including the accounts for the last three years. This then gets passed onto the buyer via the solicitors.

Most Estate Agents sales literature for flats should show Lease years left, annual ground rent and service charge.

I guess before you make an offer, you could ask to see 3 years of past accounts, and the lease with the part that shows the ground rent.

To give you an idea of costs, for my two bed flat, no lift, I pay £1200 a year. Some nice older flats with swimming pools, tennis courts etc in my town pay £2,000 as it costs more to maintain. Ultra posh flats in good areas can be £3,000.

I am a member of the residents management company which sets the budget , requests work and approves the  quotes and we are all keen to keep costs down, aiming for value for money. 

They have all been freehold houses so far. Literally cannot get the info from the developers.

[sleepwello'nights]

47 minutes ago, working woman said:

Info for the person who said they are finding it hard to obtain info on service charges on leasehold flats.

 

I am a member of the residents management company which sets the budget , requests work and approves the  quotes and we are all keen to keep costs down, aiming for value for money. 

I am puzzled if you are doing most of the work administering the maintenance charges why you are using a managing agent. The only work the agent has to do is raising the service charge demands and handling receipts and payments. Relatively simple routine administration

How much do they charge and how many apartments in your building?

[DurhamBorn]

46 minutes ago, JMD said:

Can't recall DB, but haven't you written before about Orange being best one for African market exposure? I wonder, is there an international telecom with similar good exposure to Asian markets, earning increasing revenue from the region?                                                                                                                                        That 'net neutrality' thing you mention i'm hoping will become a watershed for the industry (particularly for the owners of the stock)... though as you specifically mention the recent S Korea/sk telecom/Netflix debacle, is it just me or was Squid Game a load of boll****! Most popular Netflix ever apparently, I think gotta be a millennial to appreciate it!?

Orange SA and VOD the best plays on Africa,and likely carve up the payments business there as well.Asia would be Singtel i think,if you can get the shares.

[sleepwello'nights]

5 hours ago, Shamone said:

I’ve tried, and you cannot get an estate agent or the developer to give you an answer as to the ongoing management charges or if they are capped. I believe it will be the next big scandal.

Any work done must be justified and charges reasonable. If you want to challenge them then you can apply to a First tier tribunal. Their decisions are published. https://www.gov.uk/residential-property-tribunal-decisions

[Shamone]

2 minutes ago, sleepwello'nights said:

Any work done must be justified and charges reasonable. If you want to challenge them then you can apply to a First tier tribunal. Their decisions are published. https://www.gov.uk/residential-property-tribunal-decisions

But why can’t they just tell me?

[TNS]

Couple in Surrey I know just had a 6 x 4m shell extension with bifolds, 60k. Absolutely mental given it was 15k 20 years ago. Sound a little like house prices, but low interest rates and high material costs seem to be underpinning atm.

[Hancock]

6 minutes ago, TheNickos said:

Couple in Surrey I know just had a 6 x 4m shell extension with bifolds, 60k. Absolutely mental given it was 15k 20 years ago. Sound a little like house prices, but low interest rates and high material costs seem to be underpinning atm.

Or just some chancer builders putting in a high price, and they've accepted it.

Whilst the costs of materials have gone up, its still just some wood and bricks that will be a fraction of that £60,000.

[sleepwello'nights]

40 minutes ago, Shamone said:

But why can’t they just tell me?

On the development I manage all owners are obliged to become members of the Management Company. If enough become dissatisfied with the way it is maintained or the service charge costs then they can dismiss the agent and appoint someone of their choosing. 

Your title documents will give you the information you need on the structure of the method the developer have chosen to maintain the development. This has to be agreed as a condition of planning consent. I would have thought a budget is an elementary management step.

I prepare a budget each year and this is provided in the sellers pack when a sale is commenced. Why they wont tell you is down to them, there should be no reason why they cannot.

 

[TNS]

9 minutes ago, Hancock said:

Or just some chancer builders putting in a high price, and they've accepted it.

Whilst the costs of materials have gone up, its still just some wood and bricks that will be a fraction of that £60,000.

If only, that was the best of 3 quotes. Another family in Hampshire currently having a small front extension, 40k. Prices have rocketed in the SE and that’s if you can find a builder!

[Bobthebuilder]

5 hours ago, Majorpain said:

Furlough at the minimum looks completely off the table, I very much doubt people are going to willingly sit in the dark with no income for weeks on end this time around!

It is off the table for good and never coming back.

I cannot stress enough how many people got no help at all through the lockdown. I would estimate 40% of working people just carried on working as they had no choice. The MSM will paint a picture of everyone sat at home, clapping, happy as Larry. One of my wifes friends was considering going on the game as she had to pay the bills, my wife got her a job at her place a scrapyard. They worked all the way through, no help, no masks, no sanitizer, no tests, nothing just kept working. (emptying council bins).

[Bobthebuilder]

29 minutes ago, Hancock said:

Or just some chancer builders putting in a high price, and they've accepted it.

Whilst the costs of materials have gone up, its still just some wood and bricks that will be a fraction of that £60,000.

Its probably right. I had a quote for 2.5 meter concertina bifold extension doors recently, £24,000 fitted, I had to do the building prep work.