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Top 10 at 10: Jacks Point prices halved; Kiwi’s exposed to cocaine-fuelled New York ‘Boiler Room’; Dilbert
July 9th, 2009Here’s my top 10 links from around the Internet at 10am. I welcome your additions in the comments below or please send any links for tomorrow’s Top 10 at 10 to bernard.hickey@interest.co.nz My soul is not going anywhere.
1. Nick Smith at The Independent has the inside story on why Treasury withdrew its government guarantee from Viaduct Capital, citing a Treasury memo. In particular, the memo highlights the shadowy role in the background of Hunter Capital’s Paul Bublitz.
The Treasury memo alleges Viaduct breached rules regarding related party lending and general business conduct. It (Viaduct) initially launched its prospectus on March 3 seeking $50 million, but on April 20 Treasury withdrew its guarantee, citing the likelihood of the guarantee extending the benefit to people “who are not intended to receive that benefit”. One such person, according to the Treasury memo, is Paul Bublitz, managing director of Hunter Capital Group, which provided Wevers with the funding to buy Viaduct.
Bublitz told The Independent in April that his sole involvement was providing funding for purchase. But Treasury sees it differently. ”We consider that it is reasonable to take the view that the transactions surrounding the purchase of Viaduct appear to have been designed primarily to advance the interests of Mr Bublitz.”
Viaduct contends it did conduct proper due diligence on loans involving Phoenix Finance (Wever’s holding company), Hunter Capital Property Trust and Hunter Capital Group.
2. Nick Chris Hutching at NBR has an interesting piece on how the Dunedin City Council-owned electricity contractor Delta has bought 100 sections at Jack’s Point that were earmarked for Hanover Finance, which has been unable to settle.
One interesting byproduct of the story is that section prices at Jack’s Point have been halved, but that somehow residential property investment is still better than other investment choices, according to the developer John Darby. Also, Delta appears to have bought a half share in the Luggate development from Jim Boult. What on earth is a council owned contractor doing buying undeveloped blocks from property developers?
Hanover had recently re-launched the Highland sections at prices between $280,000 to $325,000 for 1000sq m compared with $550,000 to $650,000 two years ago.
Mr Darby said Hanover was probably “a little ambitious” in its original pricing. He said the re-pricing of real estate at Jacks Point made for attractive buying. The word he was hearing from local realtors was that inquiry levels were building but actual sales were still slow.
He noted that residential property as an asset class continues to outperform other investment classes. Commentators often failed to appreciate that different sectors of the property market were performing better than other sectors and averages and medians tended to over generalise what was occurring.
3. The FBI has arrested 6 brokers and the CEO of Sky Capital Holdings in New York and charged them with fraud. It seems they operated a ‘Boiler Room’ type operation that marketed to investors in Britain and New Zealand. Here is the link to the full Securities and Exchange Commission complaint. It seems the CEO Ross Mandell was a ‘colourful racing identity’ involved with cocaine and alcohol, FTAlphaville points out.
Here’s more from an FT article on Mandell’s past.
In an interview with the New York Sun in 2005, Mr Mandell said he had been an alcoholic and addicted to cocaine. “I lived hard and played hard,” he told the Sun. “I treated my friends, business associates and clients quite badly.”
He blamed his erratic behaviour in the preceding decades on his drug and alcohol abuse but insisted he was clean and sober. That same year, he told Forbes that his record since his sobriety “[compared] favourably with the most reputable brokers and bankers on Wall Street”.
4. More green shoots? The IMF has upgraded its forecast for economic growth in 2010 to 2.5% from 1.9%, the WSJ.com reported. Here’s the full IMF World Economic Outlook Update document.
The global economy is beginning to pull out of a recession unprecedented in the post–World War II era, but stabilization is uneven and the recovery is expected to be sluggish. Economic growth during 2009–10 is now projected to be about ½ percentage points higher than projected in the April 2009 World Economic Outlook (WEO), reaching 2.5 percent in 2010.
Financial conditions have improved more than expected, owing mainly to public intervention, and recent data suggest that the rate of decline in economic activity is moderating, although to varying degrees among regions.
Despite these positive signs, the global recession is not over, and the recovery is still expected to be slow, as financial systems remain impaired, support from public policies will gradually diminish, and households in countries that suffered asset price busts will rebuild savings.
5. The government is picking up on idea re-floated at the jobs summit. Bill English said in a release yesterday the government was considering a local body ‘bond bank’. Local government New Zealand reckons the ‘bond bank’ could cut borrowing costs by 10 basis points.
A study will look at whether combining councils’ borrowing needs would result in lower interest rates and transaction costs. This arrangement is common overseas. The study will also investigate options for how such an organisation could be run.
6. Barry Ritholz at the Big Picture points out that investors would have been better off putting their money in the bank since 1994 than putting their money into the S&P 500.
7. Bloomberg is reporting that Morgan Stanley is planning to repackage a downgraded Collateralized Debt Obligation (toxic debt) into new securities with AAA ratings. OMG. ROFLOL. Yikes. Read this and weep, and then rant, and then kick the cat, and then slump back in your chair. HT Kevin.
Morgan Stanley is selling $87.1 million of securities that it expects to receive top AAA ratings and $42.9 million of notes graded Baa2, the second-lowest investment grade by Moody’s Investors Service, according to marketing documents obtained by Bloomberg News. The bonds were created from Greywolf CLO I Ltd., a CDO arranged in January 2007 by Goldman Sachs Group Inc. and managed by Greywolf Capital Management LP, an investment firm based in Purchase, New York.
Two years after the credit markets began to seize up, costing the world’s biggest financial institutions $1.47 trillion in writedowns and losses, banks are again taking so- called structured finance securities and turning them into new debt investments with top credit ratings. While the Morgan Stanley deal is the first to involve CDOs of loans, banks have been doing the same with commercial mortgage-backed securities in recent weeks.
8. Here’s a great new phrase from Paul Collier at The Guardian’s Comment is free: ‘Bankslaughter’. HT Felix Salmon
The key problem with using the law against bankers has been the difficulty of getting a conviction: surely, the managers of Northern Rockdid not intend to profit at our expense. We do not need to set the burden of proof that high. Intention misses the point. Faced with a corpse and a killer, police do not need to prove ill intent: manslaughter sets the hurdle lower than murder. It is enough to show the killer was irresponsible. That is the standard we need; we need a crime of managing a bank irresponsibly: in other words, bankslaughter.
And he points out that restricting bonuses is no solution to the problem of containing irresponsible bankers.
The inherent problem facing shareholders is that incentive payments cannot go negative. However much damage a manager inflicts, wiping out both shareholders and depositors, the consequences cannot be remotely commensurate. As a result, even bonuses with a three-year lag bias the system towards risk-taking. If you thought big bonuses were history you have missed BAB, the new banking mnemonic: yes, Bonuses Are Back.
9. Here’s what the end of the US dollar hegemony could look like. Chinese exporters, often state owned, will simply stop accepting US dollars for exports. Slow but effective. Here’s a Bloomberg story looking at one example.
Sales using the greenback at Guangxi Jinbei Group, where Huang is vice president, dropped to 30 percent of contracts in 2008 from 87 percent in 2007. The yuan, which has gained 21 percent since it was allowed to strengthen against the dollar starting in 2005, offers greater stability, he said.
“In recent years, the dollar has gone in only one direction and that is down,” said Huang, 45, in his second- floor office in Pingxiang, a town set amongst karst limestone hills and sugar-cane fields in China’s southwest Guangxi Zhuang Autonomous Region, three kilometers (1.9 miles) from Vietnam. “Settling our orders in yuan removes a major risk.”
China expanded yuan settlement agreements last week from border zones to its largest financial centers, including Shanghai, Guangzhou and Hong Kong. The program is being rolled out across Malaysia, Indonesia, Brazil and Russia, all nations seeking to reduce the dollar’s role as the linchpin of world finance and trade.
10. Rolfe Winkler at Reuters points out that John Meriwether of Long Term Capital Management fame (remember that debacle?) is closing his fund after losing 44%.
Tags: Top 10 at 10
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July 9th, 2009 at 12:18 pm
Why would anyone have put money with Meriwether after LTCM? Incredible.
Speaking of the men behind the meltdowns, Michael Lewis’ piece on AIG’s Joe Cassano is up on Vanity Fair:
http://www.vanityfair.com/politics/features/2009/08/aig200908
Meanwhile, Goldman Sachs isn’t the only entity having computer problems. The US Govt was cyber terrorized over the July 4 weekend (via ZeroHedge):
http://finance.yahoo.com/news/US-officials-eye-North-Korea-apf-1342411279.html?x=0
July 9th, 2009 at 12:23 pm
Wasn’t Jacks Point supposed to save Hanover investors?
July 9th, 2009 at 12:27 pm
This was in the comments section:
Tartan Mafia Alive & Well
The old boys network is alive and well, instead of spending on infrastructure and creating jobs, mates bail out mates, this stinks to the highest level. What possible reason would the ratepayers of Dunedin have for investing in this! Jacks point is a joke from the day it was conceived, Fletchers are bailing because the havent sold a single property & their showhome has been on the market for three years.
http://www.nbr.co.nz/article/dunedin-city-councils-delta-rescues-hanover-jacks-point-105123?headsup=1
July 9th, 2009 at 12:30 pm
25 years ago, Kerry Packer had the answer to point 8(b). If you managed his &/or Consolidated Press’ FX exposure, KP took 90% of the P&L, his dealers took the other 10%. That potential 10% “L” was enough to chasten many a dealer, given the quantum of his dealings.
July 9th, 2009 at 12:56 pm
Jack’s Point: Mr Darby has a cunning plan. He realises that Tony Alexander knows beyond any shadow of a doubt that property prices have hit rock bottom. So Darby is going to onsell them all to wise Tony, who is going to make a pretty penny out of them. Everyone will be a winner. Well, nearly everyone.
July 9th, 2009 at 1:04 pm
Do Messr. Boult and Darby have a buy-back agreement from Dunedin City Council, or subsidiaries, like Mr. Henderson does from Christchurch City Council? It’s all about winners, loosers and who you know.
July 9th, 2009 at 1:13 pm
Wow ! Who would be a Dunedin City Council rate payer. Hope Gore Dristict Council dosen’t adopt the same Investment Strategies.
July 9th, 2009 at 1:16 pm
Something smells very rotten down in Dunedin. Isn’t English blathering on about councils needing a Bond institution because they are going to be short of loot for sewerage and water schemes! Dunedin CC better not turn up expecting a handout.
July 9th, 2009 at 1:22 pm
More green shoots?
Interest rates are at historical lows… what happens to mortgage repayments if they rise by 2-3%..
And the IMF has upgraded its forecast for economic growth in 2010 to 2.5% from 1.9%.
July 9th, 2009 at 1:27 pm
Wally something is very rotten in Dunedin. Taxpayer money of $15M has gone towards funding the Stadium. I am thankful that I am not a ratepayer of the DCC.
This council is out of control with no sound business practice and prudent stewardship of resources has gone out the back door. It is evident that the old boys network is
alive and well.
July 9th, 2009 at 3:11 pm
Anyone here been following this story?
“Goldman Code Theft BOMBSHELL?
…GS, through access to the system as a result of their special gov’t perks, was/is able to read the data on trades before it’s committed, and place their own buys or sells accordingly in that brief moment, thus allowing them to essentially steal buttloads of money every day from the rest of the punters world.
If true, this should be highly illegal, and would, in any sane country result in something like what happened to Arthur Andersen…
GS was given access to the databanks at the NYSE to allow them to see the data on pending trades BEFORE they were completed. GS could then modify their own trades reaping huge profits on data nobody else was allowed to see.
The ultimate in insider trading.”
****
The all important code has been stolen by an employee
http://www.bloomberg.com/apps/news?pid=20601087&sid=atvhNzr3wH5w
http://www.nytimes.com/2009/07/07/business/07goldman.html?_r=2&ref=business
July 9th, 2009 at 3:16 pm
Re: 6. Which begs the Q, why put your money (for a pension) in unit trusts etc (not that there is much choice!)….If you are long term (40 years) bonds or banks look better and way safer, indeed anywhere but shares….also you dont get screwed by the so called managers who take a % even if they lose your shirt for you, you can invest yourself….
I just had the last of my pensions annual reports, the best performing one lost 22%, (while last year it made all of $100)….so 7 years gains just got wiped and this isnt over yet….The worst one was shocking….an 88% loss in one year THEN they took the fees took the loss over 90%…..FFS and these are so called professionals….I just hope my Govn backed ones dont default/collapse because 30 years of saving for my old age has really been hammered in < two years….
July 9th, 2009 at 3:17 pm
Gus: yes they should do time and lots of it
July 9th, 2009 at 3:30 pm
Great rort Gus! Now you know why Buffet’s investment was such a wise play.
July 9th, 2009 at 3:32 pm
Steven: what was the 88% loss fund?
For me one of the interesting things to shake out of this financial crisis will be whether modern portfolio theory is altered in any significant way. It, and ‘buy and hold’, in my opinion, are not looking like the best policy over the long term. (Don’t know what is though).
July 9th, 2009 at 3:56 pm
Isn’t Jim Boult, the developer of Luggate Park, now the CEO of Christchurch Airport (owned by ChCh City Council)?
July 9th, 2009 at 4:34 pm
Grab some copper Mark. Either the world blows up and we go under or Beijing saves us from our own stupidity, in which case the one commodity you really have to own is the red metal. Think of all those electric cars we will be chasing with our Chinese currency!
July 9th, 2009 at 4:48 pm
No thanks Wally, I’m no speculator. Indeed, this crisis has taught me that my ’sanest’ way to invest for retirement is my house and holiday home – yes, I know property, but neither house is back by 60% like what’s left of my share portfolio, and I know too many people just trying to get their money back out of finance companies – and after that, money on term deposit in one of the big four, plus Raboplus.
Work hard, accumulate slowly, safely, plodding on, keep all the insurances up to date, while spending as much time as I can reading books and watching DVD’s at the holiday house [over a good Marlborough beer and with no guilt].
But good luck to those looking for the fast lane, and I’ll be the last to begrudge your success if it comes.
July 9th, 2009 at 4:51 pm
Meanwhile in the UK, 125% mortgages are back:
http://www.ft.com/cms/s/0/64f4b7cc-6bf4-11de-9320-00144feabdc0.html?nclick_check=1
Must…Not…Recognize…Loss…
July 9th, 2009 at 7:41 pm
“7 Bloomberg is reporting that Morgan Stanley is planning to repackage a downgraded Collateralized Debt Obligation (toxic debt) into new securities with AAA ratings.”
The absolute mind boggling thing is that hippy-hoppy investors will rush out and buy these the moment they are on the market.
Lessons will be repeated until learned…
The only way to ‘teach’ banks to be less risky and pay appropriate bonuses is by letting natural consequesnses take their course and LET THEM FAIL – is it too late to try this strategy?!?!?!? Oh no Obama is already talking of another round of bail outs – guess he has all the answers…
July 9th, 2009 at 7:55 pm
Mark – a man after my own heart – Your approach is becoming more popular by the day
July 9th, 2009 at 9:04 pm
The Extraordinary Evil of Bernie Madoff
By Bill Bonner
“But, what is the point of keeping Madoff in prison? He represents no threat. Rather than pay $30,000 per year to keep him locked up, we suggest that he be forced to do community service work. He should be pressed into service as the next head of the Federal Reserve after Ben Bernanke’s term expires in December. With Madoff in the big office, there would be no longer any illusions about what sort of bank the Fed is running.
http://dailyreckoning.com/the-extraordinary-evil-of-bernie-madoff/
July 9th, 2009 at 9:12 pm
@ Mark Hubbard
Have a listen to the Mcalvany guys at mcalvany.com – I have been following them for 2 years and my investments are up about 12% over past year. The solution
1/3 in gold
1/3 in cash
1/3 in speculative investments
Also buy and hold is not a winning stratergy unless you factor in dividends.
Thats my take on things, anyhow.
I do see property being a sound investment again once the bubble blows over.
July 9th, 2009 at 11:09 pm
The following is public information that is available through the Companies Office.
Dunedin City Holdings Ltd
Mike Coburn – Director
Delta Utilities Ltd
Mike Coburn – Director
Luggate Village Holdings
Mike Coburn – Director
John Darby – Director
Head of the Lake Holdings Ltd
Mike Coburn – Director
John Darby – Director
Jack’s Point Ltd, plus all the holding companies
John Darby – Director
Delta Utilities purchased sections in the Luggate Village development, which is owned by Luggate Village Holdings.
Delta Utilities purchased sections in the Jack’s Point development which is under the control of Head of the Lake Holdings.
These are facts. This is what is being done in our name. This stinks.
Richard Walls says “If you don’t like it, find somewhere else to live”. I say we run these guys out of town.
July 9th, 2009 at 11:34 pm
I think we can rest assured that the appropriate authorities will be acting on this information…can’t we?
July 12th, 2009 at 1:01 pm
I was surprised to read about the Japanese Yakusa’s role in tourism and property development (especially on the Gold Coast) in the past, the Chinese traids were even tougher they would rob the yakusa in their home territory. Makes you wonder.
July 12th, 2009 at 1:34 pm
Dam sure of that Gus, it’ll be buried in an inquiry set to report some time in oh say AD2092