By Bernard Hickey
This week felt a lot like any week in March 2006 or March 1999 or March 1986.
The extraordinary frenzy of pre-registration for the Mighty River Power float spoke volumes about the mood of stock market investors.
So too did the NZX50 index, which hit a record high despite unemployment being only just below a 13 year high.
The mood of investors is bubbly and there's a whiff of greed in the air.
The theory - which is yet to be tested by the substance of a prospectus - is that Mighty River Power is the surest of sure things.
How could anyone possibly lose money when you have a dominant position in a network monopoly providing an essential service for a captive market?
Who wouldn't want to take advantage of a government handing over a high yielding cash generator to private investors?
The unspoken view is this is a once-in-a-lifetime carve up of a piece of the commons that private individuals can get their hands on.
Why wouldn't you leap before you look when 'free money' is being given away and the herd is thundering in the same direction?
The best dose of smelling salts for those in a bubbly trance came on Thursday from the Commerce Commission. It offered up a sort of time capsule from 2006 for investors to peruse. The Commission's report into the way brokerage Forsyth Barr and French investment bank CALYON foisted NZ$91.5 million of toxic bonds onto regular investors is a neatly encapsulated warning from the past.
The Commission said both Forsyth Barr and CALYON were "misleading and deceptive" in the way they accentuated the positive of these bonds and tried very hard to eliminate the negative.
There wasn't much messing with 'Mr Inbetween' in the way these supposedly 'capital guaranteed' bonds were marketed. Forsyth Barr brokers told their customers these Credit SaILS notes were 'safer than investing in a Westpac term deposit' and would generate an average return of 10% and regular interest payments of 8.5%.
Instead, the notes were based on derivatives of bonds issued by a range of supposedly blue-chip firms, including three Icelandic banks called Kaupthing (careful not to insert the 'r'), Glitnir and Landsbanki, as well as US banks Lehman Bros and Washington Mutual.
When they collapsed in late 2008 so did the capital in the 'capital guaranteed' Credit SaILS notes.
Forsyth Barr has consistently denied any responsibility for the notes or any wrongdoing in the marketing of the notes.
The Commission's report, however, details a range of evidence showing how Forsyth Barr was consistently "misleading and deceptive" during the marketing process.
The best example is an email showing Forsyth Barr's reaction when CALYON tried to tone down some of the language in the prospectus. "One of the deletions we feel is harmful to the marketing of this offer. Remember we catch more flies with honey than vinegar!," the email read.
The salesmanship was barely concealed in another email detailing Forsyth Barr's frustration at a Companies Office request to tone down the 8.5% return figure. “Why can't we put the 8.5% in there with a tiny (1) next to it and then at the bottom in tiny text next to the (1) we put all their dumb language? This would be workable. We're not selling bloody cigarettes!”.
Forsyth Barr has not denied the emails exist, but has disputed the Commission's report, saying it contained factual errors and statements were taken out of context.
The government certainly doesn't feel it is selling cigarettes either with its sale of Mighty River Power shares. Yet it has included Forsyth Barr on the panel of brokers to sell the shares to regular investors.
The Mixed Ownership Model share floats are designed to win back the confidence of an older generation of stock market investors and create a new generation of investors.
Including Forsyth Barr on the panel risks undermining that aim.
The government should remove Forsyth Barr from the panel and its Managing Director Neil Paviour-Smith should resign as an NZX director.
Investors should also go through the Mighty River Power prospectus when it comes with a fine tooth comb and a very sceptical eye.
We all love to party, but partying like it is 2006 or 1986 or 1999 will just give us another hangover.
This article was first published in the Herald on Sunday. It is used here with permission.