Jump to content

frizzers

Members
 View Profile  See their activity

  • Posts

    3,274

  • Joined

  • Last visited

 Content Type 

Posts posted by frizzers

  7. Central LONDON Property: Databank & Charts

    in Monitoring: Data, Bellwethers, Forecasts

    Posted

    Central LONDON Property: Databank & Charts / for Data see Post #2, and #116

    "Never goes down" - except when it does

    ================================

     

    / Key : Red= Rightmove, Greater London, Green= Knight-Frank Prime Central London /

     

    lonprime.jpg : Data in Post#2

     

    (Here's the Original Post from Cuthbert Calculus)

     

    AGENT SPINS - Selling his Fund, as the Market Approaches its 2007/8 Top

    ============

     

    Evening all,

     

    As posted on HPC -

     

    THIS EMAIL arrived this evening from EAs Douglas and Gordon.

     

    Several things amazed me about it:

     

    1. That they are sending it out to everyone in their email database (to me that suggests things are bad, otherwise they wouldn't need to)

     

    2. The sheer bullsh*t and poorly researched laziness of some of their arguments.

     

    Anyway here it is. I look forward to your thoughts - and the tearing apart of some of their arguments:

     

    There is a lot of talk in the press about what might happen to Prime London property prices over the next few months. We, at D&G, thought you might be interested to read the views of the Fund manager of the only regulated and open ended Fund that specialises in investing in Prime London residential property -The Prime London Capital Fund.

     

    For more information on the Prime London Capital Fund which allows you to invest in Prime London property for as little as £10,000 either call 0207 9634622 or e-mail at

    info@dngam.co.uk or have a look at the website www.dngim.com

     

    Ivor Dickinson, Managing Director / Douglas and Gordon

    === === ===

     

    Is the Prime London party over and/or will the USA housing crash affect Prime London prices?

     

    Summary

     

    1 The Prime Capital London ( PCL ) market is quite distinct from the rest of the UK property market, let alone the USA one;

     

    2 The areas in USA where prices are falling fastest, and where we have been warning since Q1 that UK prices will fall too, is where there have been recent large increases in supply of housing stock;

     

    3 Supply in Prime London is diminishing, not increasing;

     

    4 In next three months it is possible that, compared to the first and second quarters, demand will soften in Prime London for all but the very best stock. As price increases pause and the press write about the PCL party being over potential sellers will retreat, leading to stock shortages in first quarter 2008;

     

    5 Demand for best PCL stock likely to remain strong;

     

    6 City bonuses likely to be slightly down on expectations of a few months ago but still strong ( those paid in their Bank's stock are likely to get that stock at very good price );

     

    7 UK interest rates likely to be coming down by 2nd quarter 2008;

     

    8 Next three months presents good buying moment for investors in PCL with 5-7 year time horizon;

     

    9 The value we are adding to the current portfolio ( refurbishment and/or improving lease quality) will not be fully reflected in the unit price until March 2008;

     

    10 Rental market still strong -gross yields of 4% still achievable target for the Fund's properties.

     

    11 The Prime London Fund performance this year

    / compares favourably to UK commercial Funds ( source : Sunday Times July 15th ) :

     

    - Prime London Capital Fund : + 7% ( since Feb 2007 -launch )

    - Scottish Widows SWIP......... : -19.5 %

    - New Star Property Fund....... : - 5.1 %

    - Aberdeen Property Share...... : -16.2 %

    - Norwich Property................. : - 4.6 %

     

    12 Sound fundamentals supporting the London economy.

    === ===

     

    What lessons can one draw from the USA housing market situation?

     

    Firstly, all property investment, like politics, is local. In the USA some regions are suffering, others continue to grow. Of course, in any huge and diverse economy, like the USA, different regions will be at different stages of their economic cycle and that tends to be reflected in local house prices. What is different about this US housing cycle is (a) supply, (cool.gif rising insurance premiums, © the sudden and dramatic move up in US interest rates.

     

    In the USA it is " sub-prime " mortgages that have attracted all the headlines. But it is important to draw a distinction between the effect that these loans have had/will have on the financial markets and the cause of falls in median USA house prices. In terms of the USA housing market these sub-prime mortgage problems are tiny. The root cause of falling prices is a dramatic increase in supply, and it is a reminder, once again, that when trying to make money out of property supply uncertainties are the major headache for any investor.

     

    1 The US mortgage market is worth $10,400 billion;

     

    2 13% of that ( $ 1,350 billion ) has been lent to " sub-prime " borrowers;

     

    3 14% of that 13% is delinquent ie the mortgagor is late with payments or has defaulted -so less than 2% of the total USA mortgage market is affected to date;

     

    4 About 5% of that $1350 billion is in foreclosure ( $67 billion ), of which half is likely to be recovered;

     

    5 Known losses so far are therefore about $33 billion;

     

    6 That represents about 0.047% of the USA total national wealth.

     

    So, our observation would be that the current malaise in USA housing is less down to the sub-prime lending per se but more to the fact that there is an unprecedented overhang of inventory ( source : Joint Center for Housing, Kennedy School of Government, Harvard, June 2007 ). Median USA house prices have fallen because of very large drops in those specific areas ( eg the South and South East ) where supply has been greatest. This has dragged down the national numbers. The " median " USA house price is that number where 50% of all USA houses cost more, and 50% less, than this number. It is not the average price. When there is a big overhang of stock ( up to 1 million units -see above report ) that hugely increases the numbers below the old median, and so the new USA median house price falls significantly. This tells you little or nothing about what is happening to the value of houses above the old median. As ever, statistics can be made to tell you anything but the moral is - average/median/index house prices are virtually worthless when it comes to assessing the strength and/or the outlook for prime areas where the supply/demand dynamic is totally different.

     

    The second, less-commented upon contributor to the fall in median house prices in the USA -insurance premiums. Since Hurricane Katrina ( 2005 ) household insurance premiums have risen by 300% in the very same areas where the supply of housing stock has been greatest ( the South and South East ). This has added hugely to the entry cost of any new home buyer and has meant many have been unable to enter the market.

     

    Thirdly, do not under-estimate the extent of the monetary tightening that has taken place in the USA. In June 2003 Fed Funds were at 1%, by June 2006 they were at 5.25 %. This is a 425% rise in USA interest rates in three years.

     

    Conclusion

    ==========

    If I told you that the average number of goals conceded by football teams throughout the English professional leagues was 1.5 a match would that be a helpful statistic when trying to work out how many goals Chelsea were going to concede per match this year? Of course not. What happens to football teams in the fourth division has no relevance to what happens to Chelsea -they are, effectively, playing a different game by different financial rules. Why do people continue to think that what happens to the general UK housing market, let alone the USA market, is relevant to what happens in the Prime London market? They are as different as the said football teams, perhaps more so. There are many differences but the big one is supply. In Prime London there is not only no extra net residential supply coming on stream but, arguably, supply is diminishing as flats get knocked into bigger flats or houses. That is what makes the PCL residential market totally different from the rest of the UK and it is why the USA example should be a reminder to investors that, in a mature market, demand will fluctuate to some extent during different parts of the economic cycle but what really disrupts/destroys property investment returns are supply shocks. If you can rest at night because there is no risk of further supply, as you can with PCL, that makes life a lot easier. This differentiates PCL residential property investment from not only the rest of the UK housing market, but also the London commercial property market where large amounts of fresh supply look like spoiling the London commercial property party for the next couple of years.

     

    So do you think Prime Central London average prices will fall over the next quarter or two?

     

    It is not our central forecast but it is possible that the Savills PCL Index could show a small decline over the next two quarters. That should not unduly worry investors in the Prime London Capital Fund. The Fund is a " stock-picking " Fund and picks the best properties from within the PCL universe. The properties within PCL that are most likely to show price declines will be the " sub-prime " ones ( basements, walk-ups, ones on busy roads, new builds ). The Prime London Capital Fund looks at about 30-40 properties before it makes an offer on any one and has done so since we launched. By definition, the properties we have rejected/failed to offer on we think have been overvalued, and it is these that could show some small capital decreases over the next six months. But, the best stock will remain in demand and will continue to get top prices and, as potential sellers react to talk of a softening sales market, so stock will dry up again. Once again, it all comes back to supply in PCL and we expect that to dwindle even further over the next six months.

     

    The next couple of months will be a good time to buy PCL stock if you are a long term investor.

     

    Why are you so confident?

     

    History. Over the last 20 years when there have been financial market jitters potential sellers of Prime London pull their stock, leading to supply problems..and, after a pause, a continuation of the long term trend growth ( + 9% p/a ).

     

    1 1994 - Mexican devaluation crisis.

     

    PCL - March 1994-March 1995 : + 19.2%

     

    - March 1995-March 1996 : + 3.2% ( slowing but still positive growth )

     

    Due to the slow-down in growth during 1995/96 stock was pulled leading to a rise of + 13.6% for period March 1996-March 1997.

     

    2 1997-1998 - Russian and Long Term Capital Management crises

     

    PCL - March 1997-March 1998 : + 23.8%

     

    - March 1998-March 1999 : + 2.9 % ( slowing but still positive growth )

     

    As in 1995/96, the slow down in capital growth in 1998/99 led to stock being removed from market leading to rise of + 23.3 % for period March 1999-March 2000

     

    3 2000 bursting of tech bubble

     

    PCL - March 2000- March 2001 : +15.2 %

     

    - March 2001-March 2002 : + 6.8% ( slowing but still positive growth )

     

    The pattern continued - slow down in growth in 2001/02 led to supply shortages and capital growth for the March 2002-March 2003 period was + 9%

     

    4 Finally, September 11th 2001/Enron collapse 2002

     

    PCL - March 2003- March 2004 : - 0.6%

     

    - March 2004- March 2005 : + 2.5%

     

    After these, relatively, slow years stock diminished and period March 2005-March 2006 was + 4.4%, and March 2006-March 2007 + 22%.

     

    Conclusion

    ==========

    What no-one can predict is when (a) the slow down in growth rates will take place, and (cool.gif when the next big + % year will be. What can be observed from the last 20 + years of PCL price action is that when the slow down occurs (a) it is likely to be a slowing in growth rates, not an actual decline, (cool.gif any slow down soon affects seller sentiment and thus supply levels, leading to © a demand-supply imbalance and a resumption of long trend growth. The time between (a) and cool.gif and (cool.gif and © is anyone's guess. The risk of not being invested for the © leg of the process ( ie the big % year ) is clearly greater than the risk of investing in a year of sub-trend, but still positive, growth. Of course none of the above takes into account rental yields which tend to rise at times of capital growth slow-down and make a significant contribution to total returns ( which have not had a negative year since 1992 ).

     

    So what about units in the Prime London Capital Fund -where will they go over the next few months?

     

    I am restricted from making any hard and fast forecasts but what I can say is that we are in the midst of adding, we believe, significant value to some of our properties. We will be spending capital to improve the look of the estate and/or improving the quality of the lease through lease extensions. We expect the added value in the units to be fully reflected in the price of the Fund's units by March 2008. There are, at least, a couple of dealing days ahead of March 2008 and the intention is to move the Fund to monthly dealing next year.

     

    Wouldn't it make sense to wait a bit before entering the PCL market?

     

    If you can pick the highs and lows of any market, let alone the PCL one, you don't need us. Nobody knows for sure where prices are heading and what the outlook will be. What we can say with 100% certainty is that the lesson of the last 30 years in PCL is that the longer you have been invested in the market the more money you have made. We have been buying, selling, investing, managing Prime London properties for nearly fifty years and there are far more examples of people regretting that they delayed buying or getting out of the market than there are of people who have successfully sold at the top and bought at the bottom. The strategy of this Fund is not to trade -we are not pretending to know when the top of this cycle will be ( although on an historic basis there is at least another 100% in capital increases to go in this cycle which started in June 2003 ). We are an investing Fund looking for quality and value and we will leave calling tops and bottoms to others. We will get on with seeking the best Prime London stock, improving it and making it sweat a steady 4% p/a gross yield.

     

    Isn't one of the lessons of the USA-led financial market volatility that now is a time to reduce risk?

     

    I would put it differently. The events of the last month are a salutary reminder that you should always invest in things (a) you understand, and (cool.gif where the risk is transparent. The extraordinary aspect to the current bout of market jitters is that the so-called financial market experts did not understand the risk they had bought. Many, apparently, thought they had triple A grade debt but it turned out they didn't.

     

    The risk profile of the Prime London Fund is easy to understand and transparent :

     

    1 We invest only in the very best residential Prime London real estate;

     

    2 We borrow, on average across the portfolio, 50% of the purchase price;

     

    3 Our net yield from the rent more than covers our mortgage payments;

     

    4 We seek to improve the underlying asset through refurbishment and/or lease improvement;

     

    5 We are seeking long term p/a total returns of 9%. This is made up of 6% capital growth ( long term average for the PCL index is 9% ), and 3% net yield;

     

    6 We will never be a forced seller of the underlying assets because the Fund will never have to redeem more than 8% of its NAV in any one year.

     

    Our strategy is a simple one and our borrowing is modest. The trick comes in (a) getting access to the best stock, and (cool.gif acquiring it at the right price and that is very labour-intensive. That is what you pay your Fund manager to do for you, and to make sure that the assets are improved and made to sweat. But there are no hidden complications and the model and the Fund is straight forward and transparent.

     

    The moral of the recent USA " crisis " according to the great Mr W Buffett is " don't fear risk, make sure you understand it ".

     

    Is the growth in PCL based on a secure economic footing?

     

    The financial and business services sector of the UK economy doubled between 1980-2007 ( from 15% to 29% ). In London the sector went from 20% to 42% of the region's economy over the same period. This sector of the UK economy grew by 10% in the year to the first quarter 2007, compared to 2.8% growth for the rest of the economy. In London 28% of the workforce is in this sector.

     

    In short, the importance of financial services to the UK economy is huge as is the centrality of London to that sector. No Government will risk the pre-eminence of London to the UK financial services sector and that is why the Prime Minister, and his right hand man Ed Balls, have resisted calls to revisit the tax status of private equity and wealthy overseas non-domiciled residents as well as insisted that they will work to continue to make the City the financial centre of choice ( see attitude of FSA vs SEC to markets regulation ). They know that it is these high earners who can decide where to base Fund management and Private equity firms, and if they leave London it will have a serious impact on tax revenues.

     

    As for the future, the consensus is that economic growth in London will out-strip the rest of the UK by up to 1/2 % - 3/4 % p/a every year for the next decade ( source : Cambridge economics ). There are also the planned infrastructure projects associated with the Olympics.

     

    So, future demand look set fair.

     

    What do other market participants thinks this all means for the future of PCL prices?

     

    One of the joys of being a residential property Fund manager is that everyone is a property expert. The press love to write the story about " booms " and " fat cats " and then "busts" and " pricked balloons ". Remember the press need to sell newspapers and so there is no point in a property page sub-editor being understated when he prepares the headline for the next property story. Over the next few months it is quite possible that the press turns on the housing market in general and the Prime London market in particular. This could well have the effect of scaring off marginal sellers in Prime London, reducing supply ( see above ) but have little or no impact on the competition for the best properties, except maybe there will be 3/4 after each rather than 8/9.

     

    On a longer term perspective, investment bank Investec undertook some research in August 2007 and found that over half of all London agents thought that, within two years, £4,000 per sq ft would be common place for the best stock. The Fund is currently buying the best stock for between £1100-£1600 per sq ft.

     

    For more information on the D&GIM Prime London Fund please either call or e-mail me at the number/address below and/or go to our website www.dngim.com

     

    ==== ====

    Link to Here----- :: http://tinyurl.com/GEI-london

    London Population :: http://www.londononl...ile/historical/

  15. SILVER

    in Gold, FX, Stocks / Diaries & Blogs

    Posted

    Ace,

    I have just written a newsletter for moneyweek and here are the silvers that I mentioned. If you stick in stink bids and we get another Aug 16th - you may get them a lot cheaper:

     

    Excellon Resources (CA:EXN). Cleverly-financed silver producer in Mexico, also growing their resource through exploration, with innovative and inventive management. Chart stuck in a range between $1.25 and $1.50. Buy below C$1.30, if you can.

     

    First Majestic (CA:FR). Another silver producer-explorer from Mexico with Keith Neumeyer (of First Quantum fame) in charge. Share price has underperformed, is highly irascible, but has a lot of upside potential. A snip below C$3.50, but not a good stock for the nerves. I suspect this is a stock that gets shorted a lot.

     

    Aquiline (CA:AQI) A long way from being a producer, but they have in their Navidad property in Argentina one of the largest undeveloped silver deposits in the world. They may need a little help with it from a major, if you catch my drift. Marc Henderson (of Laramide fame) is a great CEO. Price has pulled back a lot during recent correction. Could easily go back to $12, even without much of a move in the price of silver. Buy around C$8.50.

     

    Silver Wheaton (CA:SLW) The most major of these miners, if you’ll forgive the pun. A tightly run (barely a handful of employees), pure silver ship with a simple and unique business model. Having silver purchase contracts with five separate mines, the Company expects to sell approximately 15 million ounces of silver in 2007, growing to 23 million ounces by 2009. It's a royalty company, basically, but I have not met management. Forget the silver ETFs, buy SLW and buy it as close to C$11 as you can.

     

    For the record, I own stock in all the above companies (except Silver Wheaton) – and have done for a while.

     

    Great Panther (CA:GPR) is also worth a look.

     

    I have it on good authority, Ace, that Garibaldi (CA:GAR) is an excellent explorer, pursuing the same staking strategy as, I believe, Silver Standard, but I do not know the company and I have not met management.

     

    On all the above DYOR

     

    Dr Bubb, do you have any that you like? And what is your view of silver at the moment?

  16. SILVER

    in Gold, FX, Stocks / Diaries & Blogs

    Posted

    The COT report can be an extremely reliable indicator.

     

    Here are some findings:

     

     

    1 Aug 2006 Commercials net short 44000 contracts

    2 September 2005 (at start of silver’s big move from below $7 to $15 in May 2006) Commercials net short 32000 contracts

    12 May 2006 (Just before big correction) Commercials net short 53000 contracts

    8 Sep 2006 (Just before correction) Commercials net short 51000 contracts

    3 Oct 2006 Commercials net short 35886 contracts

    23 Feb 2007 (Just before major correction) Commercials net short 65000 contracts

    21 Aug 2007 Commercials net short 35422 contracts

    28 August 2007 Commercials net short 27000 contracts

     

    Suppliers of COT data:

     

    http://news.silverseek.com/COT/

    http://www.cftc.gov/dea/futures/deacmxsf.htm

    http://www.softwarenorth.com/trading/commitmentscurrent/

  17. SILVER

    in Gold, FX, Stocks / Diaries & Blogs

    Posted

    TED BUTLER COMMENTARY

    http://www.investmentrarities.com/09-04-07.html

     

     

     

    September 4, 2007

     

    Actions Speak Louder Than Words

     

    In a surprisingly bullish development, the latest Commitment of Traders Report (COT) recorded a shocking further improvement in COMEX silver futures. For the week ending August 28, the dealers bought heavily again, as large speculators sold aggressively. There was some deterioration in gold, but we are still in COT territory highly suggestive of a significant potential advance. A number of other markets, including the Euro, are similarly aligned bullishly in COT terms.

     

    He goes on to say ...

     

    The combined total commercial net short position is at its lowest (and most bullish) point in 4 years, at 27,000 contracts, The gross and net long position in the non-commercial category is at its lowest in that same time span. This is confirmed by the even more dramatic change in the number of traders in the non-commercial category, where there has never been fewer long-side traders or more short-side traders than in the current report. Thus, the already bullish COT set up just got a lot more bullish.

     

    and then

     

    I can’t over emphasize the bullish COT set up in silver. The fundamentals have never been better in silver, and the dramatic improvement in the COT creates a particularly attractive opportunity for buying silver at this time.

     

    The last time the COT was this good, 4 years ago, silver was priced around $4.50 an ounce. We know we have less available silver in the world than 4 years ago. We know that what available silver remains is held in stronger and less concentrated hands. We know the shorts are more concentrated than they were 4 years ago and are coming under increasing scrutiny. That’s makes them more vulnerable and sets the stage for an upside surprise. No one would turn down the chance to buy silver at $4.50 an ounce. In a very real sense, according to the COT market structure, silver is the equivalent to its $4.50 price tag of 4 years ago.

  21. SILVER

    in Gold, FX, Stocks / Diaries & Blogs

    Posted

    Term:

    Fractal

    Definition:

    An object in which the parts are in some way related to the whole. That is, the individual components are "self-similar." An example is the branching network in a tree. While each branch, and each successive smaller branching is different, they are qualitatively similar to the structure of the whole tree.

     

    Fractal

     

    What does it Mean? A type of pattern used in technical analysis to predict a reversal in the current trend. A fractal pattern consists of five bars and is identified when the price meets the following characteristics:

     

    1. A shift from a downtrend to an uptrend occurs when the lowest bar is located in the middle of the pattern and two bars with successively higher lows are positioned around it.

     

    2. A shift from an uptrend to a downtrend occurs when the highest bar is located in the middle of the pattern and two bars with successively lower highs are positioned around it.

     

    Investopedia Says... Fractal signals are most useful when used in conjunction with other technical indicators, such as Fibonacci retracement or various moving averages. It should be noted that this is not a widely used indicator, so it may not be available for every type of charting application. But various third parties have developed various plug-ins which make using fractals possible.

×
×
  • Create New...