The Evil Diaries: “Foxtons, China and World Acceptance”

I asked a property dealer what he thinks of Foxtons (FOXT) and got the following:

“In London most Estate Agents fees are down. At high end ( above £5m lots ) there is little to no business being done.

There are 30,000 high end apartments being built where prices of £2000 per square foot are being sought.

SDLT at 12% kicks in at above £1.95m

Interest rates are going to go up not down. Inflation is flat.

Foxtons surge in its share price in May was artificial and caused by the general election result.

I expect a 30/40% Market correction in residential property prices. Rents are too high and deliver only 2% yields off high prices.

No one can afford to buy the home they live in. No one can afford to sell since they think cannot afford to purchase a replacement dwelling. As a result turnovers down.”

I also remind readers of the financial and reputational damage through having taken hidden commissions in their management department. Why it is at 210p is beyond me.

*****

I have today received the following from a HK broker:

“The recent efforts of the Chinese authorities to prop up their stock market have been pretty comprehensive and widely commented upon. They are also getting imaginative. They include;

Forbidding short selling. Telling state pension funds to put 30% of their assets in stocks. Lowering interest rates. Telling brokers to give forbearance on margin calls – i.e. don’t liquidate the punters just coz they can’t pay (EK remarks that this is a truly staggering development). Forbidding major shareholders and directors of listed companies from selling for six months (the lock in). Getting brokers to use their own capital to buy and hold until the market goes back up. Getting fund managers to buy. Getting the owners of fund management companies to buy with their own cash
Allowing companies to suspend exchange trading in their shares so that they cannot drop further.
I’ve probably missed a few more.

Now don’t think that I am suggesting that this sort of thing never happens in the West. We all remember the Hong Kong Monetary Authority controversially using public money to prop up the stock market in 1998. We are still living with the cost of the Fed bailing out their mates at Goldman, Merrill, Morgan Stanley, etc, etc to stop them going broke. Then back in 1980 Comex changed the rules of the silver market to screw Bunker Hunt and save the shirts of the big traders. In 1970 the Paris sugar market changed the rules when speculators were (for once) on the right side of a big price move which would have bankrupted exchange members. They simply declared the price rise to constitute force majeure and announced that all open trades would be closed out at a backdated, much lower, price which shafted the punters but kept the insiders solvent. So we have a long history of manipulative practices of our own.

Interestingly, in this instance the Chinese are actually supporting the private punters at the expense of the big boys. This is true socialism.  I love it.”

*****

Back in the world of individual stocks, I return to an old favourite, World Acceptance (WRLD). In May WRLD cancelled a $250m bond issue (presumably because the terms demanded were too onerous or because WRLD had no takers) and, more recently, they renegotiated the terms of the existing revolving credit facility of $630m. A feature of this deal is that, although there is an extension to June 2017, the interest rate has gone up 1% and the covenants have got tighter. For instance, they cannot buy back stock without the lenders’ permission and, crucially, “certain regulatory judgments, rulings or orders” will trigger a default. This, according to my City banker informant, smacks of desperation. He thnks that an adverse ruling from the current investigation into WRLD’s practices may see it “go to zero in short order particularly if a default is triggered”. That’s telling you.