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Credit deflation and the reflation cycle to come.


DurhamBorn

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Just now, kibuc said:

I'd say Tahoe was rather unique - a world-class asset with sunday-league management but very little debt. The potential upside was immense. As I said before, I expected it to double just on restarting Escobal alone. I don't know if you can find another silver miner in a similar position, but if you do - please share :)

In the gold space, New Gold shows some resemblance, although Rainy River still needs to prove its worth, and debt is a major concern. Still, I'm upping my stake just in case.

Yes in a silver bull with the right management an easy 5 bagger id expect so a good deal for Pan American.I dont get into the merits mostly of the companies on my rubber band list,i just buy a spread of them.Its a shame Tahoe have been taken out really at this stage,but shows Pan America have a board that knows when to strike.They can wait as long as it takes with a quality asset now.

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3 hours ago, DurhamBorn said:

 

They invested to survive.Consumption companies were rewarded.They found a cheap source of products in China and started with 140% margins.Those margins are now about 10% and falling and anyone indebted high is probably already in negative cashflow.

 

 

This.

In my particualr area, which includes a lot of electronic production chains and test (still), I weent from seeing NO chinese input i nthe early 90s, to a handful in the mid 90s, to almost 90% by 2015ish.

In that time, laboru cost went from virtually zero - they wrere doing it for free, to more than the equivalent wage in the UK/US.

Ive seen some sruveys which say that CHinese labour costs have risen 100x in the last 20 years.

The qeqivalent UK wage have gone up 30%.

Any compnay that bet the farm on cheap Chinese laboru is fucked now. And that goes for non electronic stuff.

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1 minute ago, Castlevania said:

There’s a further 70 cents contingent on Escobal re-opening. So $4.10 in total. 86% premium. Nice.

It's now +45% pre-market, which leaves about 30% on top of that. I have no doubt that Escobal will restart mid 2019 at the latest so it's tempting, but nowhere near what might have been.

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And thats kist labour.

Whne you get into QA and accotubaility or initive - you are fucked.

If you are working on stuff theat is secutiry sensitve - you are fucked.

If you are exporting finished products to the US now - you are fcuked.

 

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13 hours ago, Cattle Prod said:

My information doesn't come from my company folks, and the HBOS analogy is apt. My company is totally stupid with their hedges, and is as liable to go bankrupt as prosper. As I said at the outset, don't invest in oil unless its a divi supermajor. I do my own analysis on global supplies, as I've been trained in how oil fields behave. All the data is public. I don't discuss this in work, everyone is too well paid, fat and happy to be interested.

 

I had friends who were relatively high up in RBS,how they laughed when I said I thought it might go under.

Strange you say that in bold.I ran my slide rule over BP yesterday for teh first time in ages.Looks like going down medium term as with other majors.

13 hours ago, Cattle Prod said:

I'm afraid that's not true, even in the supermajors. I hear Bob Dudley for example spouting second hand shite all the time. Most people running oil companies are from a financial background, and don't really understand how reserves work, or decline. Which is why you see stoiip numbers being misquoted for recoverable resources etc., inadequate hedging, and reactionary strategy (buy shale!!). I could go on, but ask a good reservoir engineer or geologist if you want to know whats going on. And very few of those take a global view.

Agreed a lot of higher ups are more concerned with levering up and cutting costs rather than growing a business sensibly.

13 hours ago, Admiral Pepe said:

Can you not tell from my posts? Or how I'm prodding and challenging you guys all the time ;). I think you might want to ask yourself that, same as CP.

Both to you and SP. I am not referring to your specific company or industry. Nor am I referring to a CEO about the top of a food chain. Don't take things too literally. I'm talking much bigger forces at play. You can look at data and charts all you like, crap in crap out.

I know you are.I think it's what I love about this thread and what makes it addictive is the presence of so many questioning minds all with differing views based on differing logics.

 

3 hours ago, DurhamBorn said:

 

Most of my biggest mistakes have been selling,not buying.In the tech boom i sold a company i doubled my money on,within a week my friend phoned me at work with the words you lucky bastard have you seen Staffware.They had gone from £5 to about £45.I felt sick.Selling a week early cost me about £60k.Rolls Royce bought at 80p and sold at £1.40,only to go over £10,Whitbread bought at about £5 and sold half my stake at £8 (kept the rest until last year).

What iv learned since starting investing at 14 is step back and be patient.Before you understand a company,understand a cycle.Where are we?,more ,where are we going?.Politics and macro conditions go in cycles.The irony is,the longer a cycle lasts,the more people expect it to last,to the point most dont even consider it a cycle.This dis-inflation has been long,very long.1982.People now dont even consider that because they see the ups and downs along the way.They tend to base their thoughts on when the markets go down as a change,it isnt.

A western market economy doesnt go under,it changes.The last cycle (that is ending right now before our eyes) favoured consumption over investment.Asset companies were not rewarded for investing.They invested to survive.Consumption companies were rewarded.They found a cheap source of products in China and started with 140% margins.Those margins are now about 10% and falling and anyone indebted high is probably already in negative cashflow.People bought houses instead of investing in other real assets and thought themselves experts as houses increased due to rates falling.That will rewind as rates go to new highs in the next cycle.What is old becomes new again.The people buying now on high leverage are making a life changing mistake.Massive interest payments ahead,or they go under and cant buy again.People in their 50s who think houses are pensions are in for a massive shock.There will be no equity release soon outside of maybe the top 10% of houses/values.

We are at a key inflection point and for myself i think it might be the first of two more i will see if i live to an average age.Debt is going to create so much financial dislocation that very few will be able to take advantage of whats ahead,and even less will understand the cycle coming.

Asset companies who have managed to stay profitable at the end of this cycle will be huge gainers in the next.Inflation is going to flow direct to their free cash flow and eat away their debts (as long as they have a good maturity profile).Buying is tricky and a stair case is always the best option,but selling for me is probably 7 years+ away.There will be some mistakes along the way of course,some big ones,but i fully expect most people on this thread will come out well ahead of the herd and the general population.If not then its all here in this thread for people to say how wrong we were.Interesting times.

 

 

Some pearls in there DB,you getting a full time job has been a loss to this thread...:-)

I remember the tech boom and the incredible bubble runs that I sold early in and all the stomach chruning moments over the years watching something I traded for a 10% profit soar like an eagle.I get less emotional now.It's like windsurfing,you have to fall off 200 times to become proficient and I think conquering my emotions ahs been the hardest feat of the last 20 years.

Even today,my blue shorts from monday have mostly gone red but I ahve it set up so it doesn't create an insurmountable emotional brittleness that will restrict their potential.

1 hour ago, kibuc said:

Fuck me twice.

Pan American Silver to buy Tahoe

https://www.reuters.com/article/us-tahoe-resources-m-a-pan-amer-silver/pan-american-silver-to-buy-tahoe-resources-for-1-1-billion-idUSKCN1NJ0ZD

That's Tahoe off my soon-to-buy radar, then.

Edit: 55% premium, oh for fucks sake! They couldn't wait two more month, fucking could they?

Looks likely there'll be more................

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3 hours ago, DurhamBorn said:

 

 

A western market economy doesnt go under,it changes.The last cycle (that is ending right now before our eyes) favoured consumption over investment.Asset companies were not rewarded for investing.They invested to survive.Consumption companies were rewarded.They found a cheap source of products in China and started with 140% margins.Those margins are now about 10% and falling and anyone indebted high is probably already in negative cashflow.People bought houses instead of investing in other real assets and thought themselves experts as houses increased due to rates falling.That will rewind as rates go to new highs in the next cycle.What is old becomes new again.The people buying now on high leverage are making a life changing mistake.Massive interest payments ahead,or they go under and cant buy again.People in their 50s who think houses are pensions are in for a massive shock.There will be no equity release soon outside of maybe the top 10% of houses/values.

 

 

 

This.

Putting on Prof Spy from Tos - Why do you think house went so much in price ove the last 20 years?

Browns th cunt credit boom.

WHy did houses go up? becasue banks lent more n more because most mortgage providers went from being mutual with limited access to capital, so followed convservative lending practises - proven saver, no more than 3 + 1 income mortgages, to a bunch of Master of the Universerve who thought theyd cracked how to make £££££ and could play with the big boys in the City. Nope.

90% of UK mutual BS went from de-muteing in the 97ish to blowign up in 2007/2008. 10 years.

160+ years of thrift and best practisce - and support for house building - blown up to be part of that one cunts 'Im a genius, me!' adventure.

The BoE has now put a hard limit on mortgage debt - max 4.5 x householincome minus any regular spend. Thast brutal. Its means about 3x for MrnMrs Average with 2 kids, car load, credit card, oliday abroad.

If MMR was not bad enough (for future HPI), its also the fact that there are limited bank capital cash available. TFS has gone now. Banks have to go out and raise capiutal and cash.

Theres no point getting exposed to too much housing as the next generation on, with their expensive student loan, and access to max of 3x income mortgage are not goign to be borrowing much more than 100k for a mortgage.

And there's a good 30% less of them.

As it stands, some houses in Scabby are priced at less than the cost of materials to build them.

Go to Mbro and you can buy a house for the cost of the central heating system - assuming its not been knicked.

 

 

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1 minute ago, sancho panza said:

I had friends who were relatively high up in RBS,how they laughed when I said I thought it might go under.

Strange you say that in bold.I ran my slide rule over BP yesterday for teh first time in ages.Looks like going down medium term as with other majors.

Agreed a lot of higher ups are more concerned with levering up and cutting costs rather than growing a business sensibly.

I know you are.I think it's what I love about this thread and what makes it addictive is the presence of so many questioning minds all with differing views based on differing logics.

 

Some pearls in there DB,you getting a full time job has been a loss to this thread...:-)

I remember the tech boom and the incredible bubble runs that I sold early in and all the stomach chruning moments over the years watching something I traded for a 10% profit soar like an eagle.I get less emotional now.It's like windsurfing,you have to fall off 200 times to become proficient and I think conquering my emotions ahs been the hardest feat of the last 20 years.

Even today,my blue shorts from monday have mostly gone red but I ahve it set up so it doesn't create an insurmountable emotional brittleness that will restrict their potential.

Looks likely there'll be more................

I met a friends 20yo GF whod got a summer job in Scarb BS.

She was asked to find out why someone had lent almost 1m IO BTL to someone on benefits.

When you have clueless summer interns tryig to chase down your extremely poor credit and earning cheks you know they we fcuked.

Scarb BS went under the next year.

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https://wolfstreet.com/2018/11/13/crude-oil-bust-wti-plunges-to-55/

'

Oil Bust Sequel? WTI Plunges over 7% to $55

by Wolf Richter • Nov 13, 2018 • 31 Comments

Whiff of short-term capitulation. But fundamentals are not promising.

This is like so 2015: The price of the benchmark crude-oil grade West Texas Intermediate (WTI) plunged 7.3% on Tuesday, the biggest percentage drop since March 2016. Since the Financial Crisis, WTI has plunged over 7% on only five days, including today. It has plummeted nearly 28% since October 3. The red line in the chart is Tuesday’s move:

US-WTI-2018-11-13.png

Tuesday was the 12th session in a row of declining prices. Total volume traded was nearly double the 100-day average, in a barrage of speculative fever interlaced with desperation and a whiff of capitulation. Fundamentally, several things are coming together, including:

Surging oil production in the US

US crude oil production reached 11.3 million barrels per day (b/d) in August, according to the EIA, thus exceeding Russia’s disclosed production for the first time. By this measure, the US was the largest oil producer in the world in August. This data point was announced on November 1, and while it didn’t really surprise anyone, the downhill cascade that was already in full swing accelerated from there.

“The forecasts for 2019 for non-OPEC supply growth indicate higher volumes outpacing the expansion in world oil demand, leading to widening excess supply in the market,” OPEC wrote in its monthly report.

“Alarming,” is what OPEC Secretary General Mohammad Barkindo called the surge of non-OPEC supply. He thought that OPEC and its allies should cut production by 1 million b/d.

Iranian exports not as much of an issue

The White House said last week that China, India, Italy, Greece, Japan, South Korea, Taiwan, and Turkey would be able to continue for six months buying Iranian oil and dodge US sanctions and potential penalties for trading with Iran. This, in addition to other ways Iran has to get its oil to market, will allow for much of the Iranian oil exports to continue.

Global demand not so hot

OPEC, which still matters, now sees demand for its own oil at around 31.5 million b/d in 2019, down from its vision of around 32 million b/d just two months ago. OPEC’s outlook shows that global oil inventories will rise in 2019 even if OPEC cut its own output by 1 million b/d.

Because the global economy won’t be so hot

OPEC figures into its scenario slowing global economic growth. It just cut its forecast for global demand growth by a smidgen based on its vision of economic slowdowns in the emerging markets.

But Trump likes cheap oil.

Trying to put a floor under the plunging price of crude oil, Saudi Arabia over the weekend, announced that it would cut its own production by 500,000 b/d.

This drew withering criticism from President Trump, who has taken a stance on cheap oil, despite the economic turmoil and hardship cheap oil causes in the US oil patch, along with a drop-off in industrial production, investment, and the like. Cheap oil is no good for the biggest oil-producing states in the US, such as Texas, North Dakota, and Alaska.

But most of this has been known for a while. Oil production doesn’t just suddenly surge overnight, and demand growth doesn’t normally just slow down on your day off. These things move slowly, spread out over months and years. The fundamentals of the global oil market don’t change in six weeks, and haven’t changed much since October 3. But what did change was market sentiment.

For months, the idea of $100 oil was hung out there, and it was deemed credible and speculators took their sides. Now the bets have swung the other way. Energy junk bonds, which had been immense winners since the oil bust, are now turning the other way. And energy stocks are being beaten up again.

But with sentiment turning sour to this extent, it reeks of capitulation, at least in the short term. And a bounce in oil prices – even if it’s ephemeral – is likely on the agenda.

Longer term, oil production in the US shale patch will continue to surge until investors get tired of funding this cash-burning business. Investors did this briefly, and only to some extent during the last oil bust. A gaggle of smaller oil & gas companies defaulted and filed for bankruptcy. And production ticked down a little. But the money in the yield-starved world of that time – much of it from PE firms and hedge funds – started flowing again in the spring of 2016. And today’s self-defeating surge in production is a consequence.

But now the Fed is tightening, interest rates are rising, and yield investors have other options with less risk, and the next oil bust, if it comes to that, is going to play out in a different environment. '

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59 minutes ago, kibuc said:

Fuck me twice.

Pan American Silver to buy Tahoe

https://www.reuters.com/article/us-tahoe-resources-m-a-pan-amer-silver/pan-american-silver-to-buy-tahoe-resources-for-1-1-billion-idUSKCN1NJ0ZD

That's Tahoe off my soon-to-buy radar, then.

Edit: 55% premium, oh for fucks sake! They couldn't wait two more month, fucking could they?

 

33 minutes ago, Eventually Right said:

Haha-same response as me, kibuc!  I was toying the idea of buying some in the last couple of weeks, but decided I owned enough PM miners!  Ho hum...

Don’t beat yourselves up guys. You did good due diligence on Tahoe and rightly swerved it for a while. That kind of rigour will save you more than you lose in unexpected takeovers.

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3 minutes ago, spygirl said:

This.

Putting on Prof Spy from Tos - Why do you think house went so much in price ove the last 20 years?

Browns th cunt credit boom.

WHy did houses go up? becasue banks lent more n more because most mortgage providers went from being mutual with limited access to capital, so followed convservative lending practises - proven saver, no more than 3 + 1 income mortgages, to a bunch of Master of the Universerve who thought theyd cracked how to make £££££ and could play with the big boys in the City. Nope.

90% of UK mutual BS went from de-muteing in the 97ish to blowign up in 2007/2008. 10 years.

160+ years of thrift and best practisce - and support for house building - blown up to be part of that one cunts 'Im a genius, me!' adventure.

The BoE has now put a hard limit on mortgage debt - max 4.5 x householincome minus any regular spend. Thast brutal. Its means about 3x for MrnMrs Average with 2 kids, car load, credit card, oliday abroad.

If MMR was not bad enough (for future HPI), its also the fact that there are limited bank capital cash available. TFS has gone now. Banks have to go out and raise capiutal and cash.

Theres no point getting exposed to too much housing as the next generation on, with their expensive student loan, and access to max of 3x income mortgage are not goign to be borrowing much more than 100k for a mortgage.

And there's a good 30% less of them.

As it stands, some houses in Scabby are priced at less than the cost of materials to build them.

Go to Mbro and you can buy a house for the cost of the central heating system - assuming its not been knicked.

 

 

Exactly.Dont forget a lot of probates are going to flood the market as well soon.Given a lot of those will be from people in their 40s and 50s with big debt problems of their own it will see quick falls.I was in the Boro yesterday.I went into a council estate to avoid paying at the hospital and it was brutal.Saw about 3 people walking about.Went in a local cafe for a sarnie,a few single mums in with the usual tribe of tax credit kids never seen a days work.It was like a scene from a zombie film.

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@ILikeCake @Majorpain ref Interswerve.

https://wolfstreet.com/2018/11/13/interserve-uk-next-carillion-about-to-fall/

Is the UK’s “Next Carillion” About to Fall?

by Don Quijones • Nov 13, 2018 • 16 Comments

The outsourcing giant with 70,000 employees is “circling the drain.”

By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.

When UK construction giant Carillion collapsed in January, it shook the foundations of Britain’s outsourcing industry to its core, casting a harsh light on the high-growth, thinning-margin, poor cash-flow, high-debt business model that has come to dominate the sector. It was the country’s biggest corporate bankruptcy in years. But now another outsourcing firm may be about to follow Carillion’s doomed footsteps.

That firm’s name is Interserve. It employs over 70,000 people worldwide, with around 20,000 employees based in the UK. On Monday its shares plungedover 30% to 30 pence a piece, their lowest level in 30 years, before rebounding somewhat. They’re down 95% since April 2014.

The trigger this time was news that the company had missed yet another deadline for handing over a £145 million waste-to-energy plant in Derby, England. The plant was supposed to have started operating in March but didn’t. Then, on Monday, in its interim results for 2018-19, Interserve’s partner on the project, Renewi, revealed that Interserve had missed the “project long stop date” to get the plant working, which had been scheduled for the end of September.

In failing to meet this latest deadline, Interserve now faces the prospect of having to pay liquidated damages. That could be a problem for a firm that keeps losing money while racking up ever increasing amounts of debt, and whose market cap, after years of uninterrupted decline, is a measly £58 million.

In late January, in the immediate wake of Carillion’s collapse, the government became so worried about Interserve that it assigned a team of officials to monitor its financial situation. With the company now preparing to ask investors for a fresh injection of capital, just months after the last one, those concerns were well founded.

Interserve has been plagued for years by compounding losses in its waste management division. But recently the problems spread to its core UK businesses, almost all of which are under-performing, as the company itself alerted in a profit warning in October 2017:

In U.K. support services, [losses were] driven by the continued employment cost pressures in the business, the cost of contract mobilizations, margin deterioration driven by a cost base which has not been flexible enough and contract performance in the justice business. Our U.K. construction business has seen further deterioration in operating profit as challenging market conditions and cost pressures as well as operational delivery issues have continued to impact performance.

The company’s performance has worsened since then.In March this year it came within a hair’s breath of defaulting on its debt. But it was granted a last minute reprieve by a group of lenders who agreed to provide up to £291 million of new borrowing facilities. Those lenders are led by the Scottish tycoon Alan McIntosh, whose firm Emerald Investment specializes in buying distressed debt.

In other words, the vultures are circling. Even if McIntosh hopes to engineer an eventual recovery of Interserve, the company’s core problem — the poor performance of its underlying businesses — shows no sign of reversing. On Monday an unnamed ex-shareholder told the So-Called BBC that Interserve are unlikely to survive.

“We could be looking at another Carillion. I don’t see how they can raise the £500 million or so needed,” he said.

Like Carillion in its prime, Interserve is massively dependent on government contracts for most of the services it delivers, including probation, cleaning and healthcare. It is also involved in large construction projects and looks after UK military bases in the Falklands, Gibraltar, and Cyprus. It has been awarded juicy government contracts with the Ministries of Defence, Transport, Work and Pensions and Justice.

Yet, Interserve needs to tap investors for more money. But that money, as the unnamed ex-shareholder told the So-Called BBC, is unlikely to materialize: “The management team and its track record is not good enough to make a case for investing new money… unless something weird happens from left field, like government providing direct financial support.”

CMC Markets analysts David Madden put it even more bluntly, saying that the company was now “circling the drain,” with investors unconvinced that management would be able to turn the situation around.

But Interserve is not the only major UK construction company that is struggling in this post-Carillion, pre-Brexit reality. Recent research by the weekly publication Construction News revealed that the average pre-tax margin for the 10 biggest UK contractors has fallen for the fifth consecutive year, to -0.9%, while their combined debt rocketed 24% year-on-year to €3.9 billion. Dividends have also been slashed, as evidence emerges of firms tightening their belts ahead of Brexit. By Don Quijones.

A “fraud on the people.” Read…  After Carillion Collapse, UK 

 

1 minute ago, DurhamBorn said:

Exactly.Dont forget a lot of probates are going to flood the market as well soon.Given a lot of those will be from people in their 40s and 50s with big debt problems of their own it will see quick falls.I was in the Boro yesterday.I went into a council estate to avoid paying at the hospital and it was brutal.Saw about 3 people walking about.Went in a local cafe for a sarnie,a few single mums in with the usual tribe of tax credit kids never seen a days work.It was like a scene from a zombie film.

Who you trying to sell it to?

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13 minutes ago, spygirl said:

This.

Putting on Prof Spy from Tos - Why do you think house went so much in price ove the last 20 years?

Browns th cunt credit boom.

WHy did houses go up? becasue banks lent more n more because most mortgage providers went from being mutual with limited access to capital, so followed convservative lending practises - proven saver, no more than 3 + 1 income mortgages, to a bunch of Master of the Universerve who thought theyd cracked how to make £££££ and could play with the big boys in the City. Nope.

90% of UK mutual BS went from de-muteing in the 97ish to blowign up in 2007/2008. 10 years.

160+ years of thrift and best practisce - and support for house building - blown up to be part of that one cunts 'Im a genius, me!' adventure.

The BoE has now put a hard limit on mortgage debt - max 4.5 x householincome minus any regular spend. Thast brutal. Its means about 3x for MrnMrs Average with 2 kids, car load, credit card, oliday abroad.

If MMR was not bad enough (for future HPI), its also the fact that there are limited bank capital cash available. TFS has gone now. Banks have to go out and raise capiutal and cash.

Theres no point getting exposed to too much housing as the next generation on, with their expensive student loan, and access to max of 3x income mortgage are not goign to be borrowing much more than 100k for a mortgage.

And there's a good 30% less of them.

As it stands, some houses in Scabby are priced at less than the cost of materials to build them.

Go to Mbro and you can buy a house for the cost of the central heating system - assuming its not been knicked.

 

 

I've never seen it put like that.The fall of the mutuals was incredible in that context.

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@sancho panza i asked a woman directions to get back onto the main road as it was like a maze and she was pretty much asking me to hers for a coffee.Maybe she wanted to have a talk on debt deflations and the future silver bull market.xD

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7 minutes ago, DurhamBorn said:

Exactly.Dont forget a lot of probates are going to flood the market as well soon.Given a lot of those will be from people in their 40s and 50s with big debt problems of their own it will see quick falls.I was in the Boro yesterday.I went into a council estate to avoid paying at the hospital and it was brutal.Saw about 3 people walking about.Went in a local cafe for a sarnie,a few single mums in with the usual tribe of tax credit kids never seen a days work.It was like a scene from a zombie film.

That really is a false economy.

No matter how shitty a car, some xcrote will knick it.

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2 minutes ago, DurhamBorn said:

@sancho panza i asked a woman directions to get back onto the main road as it was like a maze and she was pretty much asking me to hers for a coffee.Maybe she wanted to have a talk on debt deflations and the future silver bull market.xD

And Id never do that either - never talk to an uknown woman from a car.

Basically, all of boro is a redl ight distrcuit.

Your details will end up on the kerb crawling list of shame.

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17 minutes ago, sancho panza said:

 

@ILikeCake @Majorpain ref Interswerve.

https://wolfstreet.com/2018/11/13/interserve-uk-next-carillion-about-to-fall/

Is the UK’s “Next Carillion” About to Fall?

by Don Quijones • Nov 13, 2018 • 16 Comments

The outsourcing giant with 70,000 employees is “circling the drain.”

By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.

When UK construction giant Carillion collapsed in January, it shook the foundations of Britain’s outsourcing industry to its core, casting a harsh light on the high-growth, thinning-margin, poor cash-flow, high-debt business model that has come to dominate the sector. It was the country’s biggest corporate bankruptcy in years. But now another outsourcing firm may be about to follow Carillion’s doomed footsteps.

That firm’s name is Interserve. It employs over 70,000 people worldwide, with around 20,000 employees based in the UK. On Monday its shares plungedover 30% to 30 pence a piece, their lowest level in 30 years, before rebounding somewhat. They’re down 95% since April 2014.

The trigger this time was news that the company had missed yet another deadline for handing over a £145 million waste-to-energy plant in Derby, England. The plant was supposed to have started operating in March but didn’t. Then, on Monday, in its interim results for 2018-19, Interserve’s partner on the project, Renewi, revealed that Interserve had missed the “project long stop date” to get the plant working, which had been scheduled for the end of September.

In failing to meet this latest deadline, Interserve now faces the prospect of having to pay liquidated damages. That could be a problem for a firm that keeps losing money while racking up ever increasing amounts of debt, and whose market cap, after years of uninterrupted decline, is a measly £58 million.

In late January, in the immediate wake of Carillion’s collapse, the government became so worried about Interserve that it assigned a team of officials to monitor its financial situation. With the company now preparing to ask investors for a fresh injection of capital, just months after the last one, those concerns were well founded.

Interserve has been plagued for years by compounding losses in its waste management division. But recently the problems spread to its core UK businesses, almost all of which are under-performing, as the company itself alerted in a profit warning in October 2017:

In U.K. support services, [losses were] driven by the continued employment cost pressures in the business, the cost of contract mobilizations, margin deterioration driven by a cost base which has not been flexible enough and contract performance in the justice business. Our U.K. construction business has seen further deterioration in operating profit as challenging market conditions and cost pressures as well as operational delivery issues have continued to impact performance.

The company’s performance has worsened since then.In March this year it came within a hair’s breath of defaulting on its debt. But it was granted a last minute reprieve by a group of lenders who agreed to provide up to £291 million of new borrowing facilities. Those lenders are led by the Scottish tycoon Alan McIntosh, whose firm Emerald Investment specializes in buying distressed debt.

In other words, the vultures are circling. Even if McIntosh hopes to engineer an eventual recovery of Interserve, the company’s core problem — the poor performance of its underlying businesses — shows no sign of reversing. On Monday an unnamed ex-shareholder told the So-Called BBC that Interserve are unlikely to survive.

“We could be looking at another Carillion. I don’t see how they can raise the £500 million or so needed,” he said.

Like Carillion in its prime, Interserve is massively dependent on government contracts for most of the services it delivers, including probation, cleaning and healthcare. It is also involved in large construction projects and looks after UK military bases in the Falklands, Gibraltar, and Cyprus. It has been awarded juicy government contracts with the Ministries of Defence, Transport, Work and Pensions and Justice.

Yet, Interserve needs to tap investors for more money. But that money, as the unnamed ex-shareholder told the So-Called BBC, is unlikely to materialize: “The management team and its track record is not good enough to make a case for investing new money… unless something weird happens from left field, like government providing direct financial support.”

CMC Markets analysts David Madden put it even more bluntly, saying that the company was now “circling the drain,” with investors unconvinced that management would be able to turn the situation around.

But Interserve is not the only major UK construction company that is struggling in this post-Carillion, pre-Brexit reality. Recent research by the weekly publication Construction News revealed that the average pre-tax margin for the 10 biggest UK contractors has fallen for the fifth consecutive year, to -0.9%, while their combined debt rocketed 24% year-on-year to €3.9 billion. Dividends have also been slashed, as evidence emerges of firms tightening their belts ahead of Brexit. By Don Quijones.

A “fraud on the people.” Read…  After Carillion Collapse, UK 

 

Who you trying to sell it to?

No pension black hole but still too much debt, they look knackered to me.

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PAAS -10% pre-market, that would put them -20% in November alone, and 1/3 down since Summer.
As a result, Tahoe premium reduces a little bit, as the deal is roughly 80% shares, 20% cash.

Might keep an eye on PAAS as they approach single digit.

 

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14 hours ago, Cattle Prod said:

Yeah, I've said it twice now, including in the post you quoted. Its very useful, especially the US data as they have to report accurate data or get sued. The middle east is murky, but nature is nature. Fields decline, in a fairly predictable way. 

Time will tell, and as always, dyodd

Just out of interest, would you say the North sea decline is typical of what you would expect to see? Or is it unique compared to land based oil?

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Democorruptcy
1 hour ago, spygirl said:

The BoE has now put a hard limit on mortgage debt - max 4.5 x householincome minus any regular spend. Thast brutal. Its means about 3x for MrnMrs Average with 2 kids, car load, credit card, oliday abroad.

If MMR was not bad enough (for future HPI), its also the fact that there are limited bank capital cash available. TFS has gone now. Banks have to go out and raise capiutal and cash.

Theres no point getting exposed to too much housing as the next generation on, with their expensive student loan, and access to max of 3x income mortgage are not goign to be borrowing much more than 100k for a mortgage.

 

Have I missed an update, got a link? All I know about is "no more than 15% of mortgages can be over 4.5x household income". That's 15 out of every 100 mortgages that can be over 4.5x, which means lots of others will have to go up to nearer 4.5x to compete on price.

The Mansion house up to £5bn leveraged at a ratio of 150x is even worse then the TFS.

Is that 3x max income just another one you have plucked out of nowhere?

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6 minutes ago, Democorruptcy said:

Have I missed an update, got a link? All I know about is "no more than 15% of mortgages can be over 4.5x household income". That's 15 out of every 100 mortgages that can be over 4.5x, which means lots of others will have to go up to nearer 4.5x to compete on price.

The Mansion house up to £5bn leveraged at a ratio of 150x is even worse then the TFS.

Is that 3x max income just another one you have plucked out of nowhere?

The 'no mre than 15% of loan greater than 4.5x' is a sop to the idiot banks and their backers/lobbyists.

In reality., no bank that wants to stay in biusiess is letting people go over the 4.5 limit.

MMR includes a nubmer of other hurdles inc stress test @ mortgage payments 6% should not take more than 30% of household income.

Its hard to get figures o nthe how many mrotgages asre >4.5. Id gues very very few. And only in truley expcetional cases

 

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5 hours ago, DurhamBorn said:

Most of my biggest mistakes have been selling

My problem too.  Have great buy signals but poor sell ones.  Like now.  Trading MCRO and 13% up in 7 days but oh what to do!

PS:  Obviously nothing compared to you "hard hats"!

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On 12/11/2018 at 17:56, Harley said:

You may have nailed that (WTI but same for Brent)......

Capture.thumb.PNG.9ad99b288fcb81fccced00e32e3b4418.PNG

What else you up to!!!!!!!

@Cattle Prod Looks, for the sake of balance, I now need to send you a "Dear Wally" message!

But I won't 'cause I'm too busy waiting for the mother of all buy signals|!

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1 hour ago, spygirl said:

The 'no mre than 15% of loan greater than 4.5x' is a sop to the idiot banks and their backers/lobbyists.

In reality., no bank that wants to stay in biusiess is letting people go over the 4.5 limit.

MMR includes a nubmer of other hurdles inc stress test @ mortgage payments 6% should not take more than 30% of household income.

Its hard to get figures o nthe how many mrotgages asre >4.5. Id gues very very few. And only in truley expcetional cases

 

I’m pretty sure that it’ll be 15%

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23 minutes ago, Castlevania said:

I’m pretty sure that it’ll be 15%

No.

I struggle to get figures but asking someone who works at HSBC who says 4.5+ are barely registering.

HSBC bascially will not lend more than 4.5 incomes. In fact they stop well short of 4.5.

I mention HSBC as they are one of the only few banks doing UK motgages.

It surprise some ut there are very few resi mortgages beign written as the UK banks just dont have the captial now TFS has stopped.

I dont doubt Skipton BS, NW and the like, were lending 4.5+. But now TFS has stopped, they appear to have shut down all 4.5+ lending.

What MMR doesnt say is waht happens toa 4.5+ mortgage that goes bad. My guess is the punihsment is pretty bad.

 

 

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