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Top 10 at 10: Somers-Edgar’s First Step ’smells like a rat’; NZ’s toothless watchdogs; Dilberts
November 9th, 2009Here are my Top 10 links from around the Internet at 10am. I welcome your additions and comments below or please email your suggestions for Tuesday’s Top 10 at 10.
1. ‘Smells like a rat’ – Money Managers supremo Doug Somers-Edgar features at the heart of an excellent opinion piece by Tim Hunter in the Sunday Star Times on the First Step debacle. Hunter targets the various trustees and advisers who have run for cover. The poor mums and dads have noone to protect their interests. And the powers-that-be wonder why no one has any faith any more in investment schemes. It’s a must read.
Hunter uncovers a web of trusts, finger-pointing and withheld reports. He concludes:
The upshot is that although First Step appeared to have several people looking after the investment – a trustee, a statutory supervisor, a manager, a financial advisory group – their willingness to actually do anything to help seems limited, if not non-existent.
The complex structure of First Step leaves investors powerless. Their anxiety, rage, clamour and entreaty drains into an enervating nothingness lined with headed notepaper. Who is responsible? No one. Who will help them? No one. This affair has many of the hallmarks of a cover-up and smells like a rat to me.
2. Get a move on – Tim Hunter also has an excellent piece pointing out how useless our authorities have been at prosecuting dodgy investment scheme promoters. Sigh. It seems they don’t have the powers…
IN the past two years, Australia’s top financial regulator has begun 19 lawsuits aimed at recovering money for investors in the failed property finance and development group Westpoint.
Since January 2007, how many lawsuits to recover money for investors have New Zealand’s financial regulators begun? Three? Five? Plenty of money has been lost. Maybe 10? The answer is none.
Of course, being able to sue to recover money requires reasonable grounds – the existence of enormous losses for investors in, say, Bridgecorp, Blue Chip, MFS Pacific Finance, Capital & Merchant Finance, Nathans Finance, First Step or the Super Yield Fund doesn’t automatically mean anyone did anything wrong, provided inadequate advice or was negligent in their professional duties.
Putting those questions aside, do our regulators lack Asic’s powers to get money back for investors?
Yes. The Securities Commission has been empowered to take civil action to recover money on behalf of investors only since October 2006.
Those powers are limited to action against a company or its directors for issuing a misleading prospectus and do not extend to acting against auditors, trustees or financial advisers on any grounds whatsoever.
3. KiwiSaver joke – It seems KiwiSaver is destined to be tarnished by the sort of flakiness that afflicts other investment schemes. Rob Stock from the Sunday Star Times points to the example of Lindsay Hay of Real Property KiwiSaver Ltd. It turns out he runs a motel on the side…
The manager of the only direct property KiwiSaver scheme on the market says it can survive despite attracting only a few hundred thousand dollars of contributions and having no property to its name 16 months after its launch.
But perhaps the slow start is only natural – Lindsay Hay, of Real Property KiwiSaver Ltd, also owns the Azena Motel in Christchurch and he told the Sunday Star-Times he had been spending more time taking bookings and greeting guests than he had on managing the KiwiSaver fund.
4. So many troubles… – Julian Robertson, the billionaire fund manager with a penchant for building golf courses in the Hawkes Bay, has a few personal quirks, it seems from details given for a court case, NYMag reports.
He has time-management issues. “Mrs. Robertson testified that it was typical for petitioner, who tends to ‘cut everything to the wire,’ to be the last of the party to arrive at the airport for a flight.”
He can’t deal with voice mail. “Petitioner does not know how to retrieve voice mail messages at Tiger, and has never done so.”
He hates traveling through La Guardia. When traveling to New York, he usually chooses to land at Teterboro, “because it is much closer to New York City and is less expensive and less prone to ground traffic and air traffic delays than La Guardia.”
He annoys his assistant. “Petitioner mentioned his unexpected August 21, 2000 visit to New York City to Ms. Depperschmidt on several occasions in order to make certain that she recorded that day as a NYC day, so much that Ms. Depperschmidt got annoyed with petitioner for mentioning it so many times.”
And sometimes his wife. “Mrs. Robertson had a lot of “busy work” to accomplish in New York City, packing and getting organized for her upcoming trip to Australia to meet with a designer to discuss plans for a golf resort that the Robertsons were then building in New Zealand and getting things together to discuss with the designer. Mrs. Robertson likes to take her time getting these sorts of things done and was better able to do so without having petitioner ‘in her hair’ in New York City.”
5. Catch 22 – FTAlphaville points out a report by Radiant Asset Management’s David Ross on the future of the US dollar and China. There’s a couple of interesting quirks. Firstly, Ross says China cannot buy too much more US debt and may have to buy other country’s debt. Could that include New Zealand’s? Ross looks at China’s options for getting out of its bear hug with the US dollar.
a) Do nothing; convince their citizens to spend more of their savings – a move that will inevitably strengthen the yuan devaluing their dollar holdings.
b) Change the degree of linkage of the yuan and the dollar – a move that would be unpopular and difficult to sustain as the dollar weakens.
c) Buy gold instead of dollars – but while they can supplement their foreign reserve holdings with gold, there is simply not enough gold produced in the world to cover more than a small fraction of Chinese needs.
d) Go someplace else, purchasing the debt of other countries– although dollar conversion issue would simply accelerate the devaluation of their dollar holdings. Also the world’s biggest supply of debt instruments remains the United States.
Which leads Ross to conclude: China cannot solve its balance of trade surplus by purchasing debt instruments in quantities much out of line with the surpluses themselves. The only sure way China can move away from US debt purchases is to reduce the trade deficit with the United States.
And that’s no good for China either.
The only option left therefore is a slow and finely balanced transition towards a multiple-currency international reserve system via the increased use of special drawing rights in trade and settlement.
6. Ugh – US mortgage behemoth Fannie Mae looks like it will need all US$200 billion of bailout money, Bloomberg reported. HT Gertraud via email.
Fannie Mae, which owns or guarantees more than 20 percent of the $12 trillion U.S. home-loan market, has been hobbled by a three-year housing slump that has wiped 28 percent off home values nationwide and led to recordforeclosures. Fannie Mae Chief Executive Officer Michael Williams said Sept. 9 that the housing market still had a “long road ahead” to recovery and investors and borrowers should remain cautious.
The company estimates that home prices have fallen 15.6 percent from their peak in the third quarter of 2006. Home prices will drop 6 percent in 2009, less than the 7 percent to 12 percent drop predicted, the company said yesterday. Fannie Mae also revised its forecast for peak-to-trough price declines to between 17 percent and 27 percent, from 20 percent to 30 percent.
The amount of nonperforming loans that Fannie Mae guarantees for other investors rose to $163.9 billion from $144.2 billion in the second quarter, according to the filing. Fannie Mae also owned $34.2 billion in non-performing loans as of Sept. 30, up from $26.3 billion in the second quarter.
“In absolute dollar terms, you’re still looking at outlandish growth in nonperformers, which tells you that reserves will continue to increase,” Miller of FBR Capital Markets said. “So you can’t tell when this thing is going to be profitable or if they are reserving correctly.”
7. The Japanese disease – The chief economist for Nomura, Richard Koo, has a great collection of charts here (admittedly from March) which looks in detail at the risks of America following Japan into years of decline. HT Gertraud via email.
Bloomberg spotlights the Consumer Financial Protection Act and uses it as a jumping-off point for a smart story on the state of the finance-lobby’s might.
The theme is that the financial industry is still awfully powerful but—and this is a new thing—not all-powerful anymore, particularly when it comes to consumer-facing businesses.
That’s why the CFPA has been pretty much unstoppable, even if it’s been watered down by the community-banks lobby, which got all of its members out from under the proposed agency, which means 98 percent of all banks are exempted from its oversight.
9. Credit contraction – SeekingAlpha points out that commercial paper issuance in the United States is contracting at a record rate. Green shoots anyone? The chart is spectacular.
The Federal Reserve calculates and publishes the total amount of CP outstanding every week and as of the latest published period, commercial paper outstanding is contracting at nearly the fastest rate on record, registering a whopping 17.81% decline year-over-year.
10. For no relevant reason – Here’s Jon Stewart hammering Glenn Beck…for fun.
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November 9th, 2009 at 12:09 pm
For those interested in green energy – here is a link to an audio on the rare earth mineral situation
Rare earth minerals are central to the next wave of energy technology.
November 9th, 2009 at 12:20 pm
Martin – in a similar vein here is a graphic from New Scientist showing how much longer various strategic metals/minerals will last at present and expanded rates of consumption:
http://www.newscientist.com/data/images/archive/2605/26051202.jpg
Quite how we will find the appropriate resources in sufficient quantities to make the switch is never adequately dealt with when future energy technologies are discussed.
November 9th, 2009 at 12:47 pm
Bernard, not trying to hijack the conversation, but what kind of answers are those on today’s poll?
How about homeowners not listing their homes because low interest rates are making them affordable?
Or, because they see housing as a good investment?
Maybe try a throwing in a few positive options amongst your all of your gloom!
November 9th, 2009 at 1:33 pm
@Andy H: indeed….let alone growing green energy to the scale needed to replace declining crude oil production…
So we have a interest conundrum , “scientists and engineers will solve our future energy needs with new as yet un-invented technology” so say the Pollies and economists…so that’s a neat pass. If engineers and scientists dont find or invent new technology its the engineers and scientists fault and not the Pollies or economists for lack of sense or [contingency] planning. Of course even if engineers and scientists could find some neat technology its then down to business men and women and/or even Govn’s to fund and build plant on the scale needed….Then of course just where does the money come from to build plant in a in few years that took decades to do for oil at a sane price, or even where do we get the steel from let alone the rarer minerals…so 5~10% of future GDP per annum and every year for a decade or more is going to have to be dumped into plant to replace fossil fuel plant….that’s going to make us poorer, or cant anyone see that?
Does anyone have an idea what the fossil fuel plant in NZ (and asia) is worth? and then from that the cost of replacing it and then the cost per litre or kwh for the energy allowing for a return on investment?
What does that do to prices for energy? double it?
regards
November 9th, 2009 at 1:45 pm
The green movement sounds great in theory, but in practical terms its not feasible. Considering that it takes around 600kg/MW of rare earth materials per wind turbine due to the fancy magnets that generate the power. Even a Toyota Prius requires around 80lb of rare earth elements. If everyone in the world wants a Prius or a wind turbine….sorry folks theres not going to be enough rare earths to go around. And if you can get them, you’ll be buying from china since they control 97% of the worlds rare earths resources. After 2014 china will no longer export their rare earths as they will be consuming it all themselves.
November 9th, 2009 at 1:46 pm
@Khrysos: So the alternative is?
November 9th, 2009 at 2:09 pm
@ Steve
For the individual investor, look for companies/countries outside china that deal in rare earth elements. They will become much more valuable when china closes their doors on exports.
For new zealand we should probably look at our vast coal reserves and improving on clean coal and coal to liquid technology. Maybe a nuclear plant if there was the politcal will and if we could secure a long term uranium supply contract from australia. Theses measures may buy another 100 years as the world deals with peak oil.
Unfortunately I dont see solar, wind, battery technology saving us. There’s just not enough supply of the special materials needed to make them on a large scale.
I see huge price inflation in the coming years, possible wars from debt default, broken promises, resource scarcity, religion.
Untimately less people on this earth living a more simple life.
November 9th, 2009 at 2:48 pm
Khrysos there is never going to be a nuclear plant in N.Z. I am sick of people going on about it. Why would we need one? to top up the 60% of power generated by hydro? We have alot of untapped energy prospects here in N.Z.
November 9th, 2009 at 2:57 pm
Nov. 9 (Bloomberg) — “The dollar fell against the euro after the Group of 20 governments agreed to keep stimulus measures and remained silent on the greenback’s decline this year, boosting demand for higher-yielding assets.”
Which suggests we are in for a commodities bull run all the way to xmas. Thanks Santa!
November 9th, 2009 at 3:09 pm
@Khrysos, agreed on the investmant strategy…lithium also might be worth watching it has to be mined from one lake in SAmerica somewhere…
Re: Minerals/rare metals, though we have a trade agreement with China dont we? ie can they stop us buying and exporting to NZ to “finish’ into wind turbines? just a thought.
From an engineering perspective clean coal does not exist, it probably never will…so as an engineer that strikes me as risky…Coal to liquid fuels is hugely CO2 emitting..that might also be risky if carbon trading impacts it badly.
Nuclear plants, you cant have just one, when it needs a re-fill it goes off line so you always need a N+1 ie a standby which is probably un-economic for NZ. Tide might be a good one for NZ via the cook straight, that’s being investigated….Battery ~ there is investigation looking at batteries from common minerals…even then the scale is mind boggling.
Price inflation – agree
Less people -agree
Simpler life – agree.
@Dogma: Nuclear is talked a lot about as one of the alternatives to give a base load…there are supposed to be some small safe plants that might suit NZ well….ie a few hundred megawatt each, highly modular..”safe”….and say 6~10 of them is possible. the problem with hydro is what happens in a dry year? and what about NIMBYS? The west coast could be self sufficient if they put in the proposed hydro of 80mw? To me given the possibility of brown or blackouts its lunacy not to attempt to get security of supply.
regards
November 9th, 2009 at 3:42 pm
Former Citi banker apologizes for creating a monster…
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=albMYVE7D578
“I would compartmentalize the industry for the same reason you compartmentalize ships”
Good call. We need more engineering principles in Finance. We could call it Financial Engineering … oh.
November 9th, 2009 at 3:50 pm
@dogma & steven,
Regarding nuclear & coal, I just gave those as possible options. Each has major drawbacks of course. Those pushing for green solutions will also find there are drawbacks or infeasibilites on a large scale.
The problem is there are no easy solutions. This worries me and makes me think we are in for chaotic times ahead.
The free trade agreement with China is about opening up markets for our exporters. Theres nothing there about China supplying us with rare earth elements. They can cut us and the rest of the world off anytime they like.
November 9th, 2009 at 4:28 pm
@ Khryos: http://www.earthship.net/
http://earthship.co.nz/
November 9th, 2009 at 4:37 pm
@Khrysos: ….I think the easy solution was put it off until tomorrow….tomorrow is here….what I dont see yet are signs that voters are going to hold Pollies to account and indeed themselves and sort it until there is absolutely no other option…
“in for chaotic times ahead” – probably, certainly I dont know how shortages can be avoided….I think its reasonable to assume that there will be fuel shortages in NZ within 5 years and food shortages in some countries within the same period…Example if nothing else the USA will accelerate the ethanol conversion of corn to power their SUVs…so less corn powder for Mexicans, so mexico is in for a rough time….especially as it wont be exporting oil…
“Those pushing for green solutions will also find there are drawbacks or infeasibility on a large scale.” Agree, and this is what worries me, ie there is little to give me confidence in the alternatives on the scale needed, but the beauty of NZ is it is a small scale nation….with excess food…
November 9th, 2009 at 4:54 pm
Ironically I bet that the little Kiwisaver scheme that still has all its money sitting on the sidelines would be the best performed fund of them all. Quite funny really.
November 9th, 2009 at 4:57 pm
As a believer in peak oil and the critical importance of natural resources for economic growth I have difficulty accepting the volatility of resource prices.
If Bernanke announced tomorrow that he was withdrawing liquidity over the coming months and increasing interest rates by 1% all the prices of natural resources and related stocks would crash: 20 or 30 or 50% and probably more, perhaps even below the March lows.
99% of investors still want paper promises from insolvent governments ahead of ownership of critical metals and natural resources. This doesn’t make a lot of sense to me.
November 9th, 2009 at 5:51 pm
First Step of investing…get yer money back……preferably with INTEREST.
Round and round she goes, where it stops nobody knows.
Like taking candy from a baby. Summers yours…but most of it is mine…..
Slight of hand and fleet of bank transfer, with a few expenses thrown in to ensure nothing remains.
Must be like playing poker with an octopus, with a stacked deck…and a crooked smoke and mirrors auditor to see fair play.
All we need now is a AA rating from the TRUSTEES…, then we could all have a DRINK.
New Zealand Financial managers….money managers…Club Finace…all….appear to be oxy-morons….
And they didn’t need a Club for this hold-up.
So what gives…..or is that takes?.
November 9th, 2009 at 6:02 pm
@Khrysos – do you have references for those statements on how much ‘rare earth’ metals are in wind turbines?
November 9th, 2009 at 6:40 pm
Just one 4 wheel drive put on rails with rail wheels (like those trucks that inspect the rail lines) could pull a train with hundreds of people in light weight carriages into our cities. It would be so easy and cheap to save electricity! Heating water for a bath with electricity is like feeding the cat crayfish. It is stupid. We should only use electricity for computers, TV and things like refrigerators. Bath and shower water should only be heated by solar- and maybe topped up with electricity. We are like the fat shopaholics who is freaked out that his/her credit card is going to run out during a shopping spree. The problem is not our overdraft limit- it is that we are living like maniacs. If we stopped wasting electricity, diesel, food, land etc etc, we would be fine for many years to come.
November 9th, 2009 at 8:16 pm
@ crazy bill, those numbers come from a recent interview with James B. Engdahl, President & CEO of Great Western Minerals Group, one of the companies outside of china who specialise in rare earth minerals. You can listen to the interview here:
http://www.financialsense.com/fsn/main.html
November 9th, 2009 at 8:50 pm
The biggest elephant in the room is still population. Until that decreases by a factor of about two, forget ‘green’ anything. Good ideas, but they get washed away by the exponential (sorry Rev’d Roj) maths.
Tim Hunter actually misses the thing that Bollard seems not to grasp: what was the investment proffered in the first place? If folk took the inflated value of an existing property, ‘invested’ it, what exactly did they contribute?
A not-underwritten-in-any-way wish, seems to me. Pass the empty parcel until the music stops. Hunter treats the ‘investment’ as real wealth, and sympathises with the ‘investors’. It will sell papers to a certain section of society, I suppose. Presumably just another economics-trained person with a not-quite understanding of real physics.
He’s probably a helluva nice person, but we actually need the bigger message to be addressed now.
November 9th, 2009 at 10:51 pm
What happens when you get 500 oil geologists together in a major conference in London and ask them to vote on the motion “Peak oil is no longer a concern’ – what do you find – that fully 2/3rds of them disagree.
For those that wish to be enlightened:
http://www.theoildrum.com/node/5947#more
And as written up in one of the bibles of the industry (the Petroleum Review)
http://www.theoildrum.com/files/20091000%20Pet%20Rev%20-%20BP%20PO%20debate.pdf
November 10th, 2009 at 12:18 am
Next to the long-lasting worldwide recession with enormous economic uncertainties, political instability in a few oil- exporting regions can cause a major increase in petrol prices soon.
Such developments are forcing us to rethink our economic pattern. As I mentioned in many blogs before New Zealand needs to create other economic segments. For a start we need to be less dependent from other countries, building a solid “Green Energy” policy.
November 10th, 2009 at 7:37 am
@W. Kunz,
too true!
It beggars belief that we have no credible strategy for local transport fuel independence.
Our resources are almost completely in foreign hands with no interest whatsoever in our long term future.
Incredibly the super fund are looking at investing in dubious retail and a refinery that can’t even handle our own oil, why the hell aren’t they taking this shrinking window of opportunity to buy up any and all oil and gas prospective and producing fields available?
We should also be encouraging the conversion of our transport fleet to gas yesterday, more renewable electricity etc.
Talk about stumbling to disaster!
November 10th, 2009 at 8:41 am
It’s Cup Week here in Canterbury , Walter . So I’ve come up with a ” Green Energy ” policy ……….. Frog Racing ……..ribbit , ribbit ………How the heck do yer get saddles on the little varmits ?
November 10th, 2009 at 10:08 am
And so it goes on…and this is about RE-CYCLING.
We have a cycleway starting today.The old sod is being first turned by the KEY.
Maybe he will call a spade a spade as he does it.
POLITICALLY CORRECT to the last gasp of our NATION.
No need for an energy solution.
You have to provide your own…GUYS….
Dynamo for light and TANDEM for the Family,, with a trailer behind, like they do in Europe.
Think BIG is back.
Gonna be busy in the Christmas Holiday rush in a coupla years as petrol goes through the roof. The cycleway will be packed in the future, though alongside may be the State highway ONE…empty.
Deliveries might be a problem, but rickshaws may be the way to go for light weights, though a couple of American heavy weight tourists might be a problem for even Sarah Ulmer to cope with.
This is the best our Primed minister can come up with for 50 million?? as THEY JOHN_KET around the world in LUXURY, talking themselves to our death.
While it may bring a few tourists here for a coupla years, with the way fuel is increasing again, there will not be many who can afford to FLY here.
It will never solve our rising on-going energy problems, just use up more fuel for our make work Politicians to think this will be for the good of the NATIONAL pride and to keep the LABOUR in work…and maybe off the KEY-boards here.
If they use BITCH-U-MEN…it will deplete the Energy stocks even more so, each passing year.
I know we will not be flying around ourselves too much ourselves in vehicles soon too, but the Shell Stations along the way may be ours to own and admire….or is that ADD-MIRE…and somewhere to park the MINISTERIAL …BMW….for good.
We are closing other Petrol Stations at the rate of a coupla a week already, we will soon own all the SHELL sites via KIWISAVER, but no viable businesses will be had.
Why do you think SHELL are putting them on the MARKET if they are so viable…….DUH.
Another great use of the SAVERS money…..it will be just like keeping our money in BANKS and other SAFE houses, for the future me-thinks..
INFRA-TILL will be very soon, OUT-FROM-TILL as the clever guys in POWER buy another failing business…still we are SMART users and think a head…
A new SHELL game will be in operation to fleece the TAXPAYERS and PENSION funds some more. Find the pea…if ya know what I mean.
POWER should be the next investment, without that we will be truly stuffed.
Those in POWER are the problem, not the solution. Most of em are GREEN and I do not mean conservationists.
The wasted trips abroad at the TAXPAYERS expense, not only wasted even more fuel and MONEY, that we can ILL-AFFORD….they show a complete disregard for the use of those products for the BETTERMENT of all NEW ZEALANDERS, not the snout in the trough POLLIES….JOHN-kets.
Conservation of funds, fuel, resources and an increase in planning for the future fuel shortages is what is needed, which is not apparent from the current wastrels in POWER who can WASTE it faster than MOST.
We might need FUEL to keep our NATION functioning, not have a few holiday snaps at VAST EXPENSE to the TAXPAYER, instead.
HONE-stly I ask you….an APOLOGY is not near enough. It never will be no matter how they HIDE behind the “IT IS MY RIGHT” to screw the public.
DUNNE bad deals will never provide a CARTER for the goods of the future…like DOUGLAS…fir shipping….
BUT the MONEY and the FUELS they all wasted at great TAXPAYER expense may have kept our CHILDREN going a little LONGER with the right investment in the FUTURE.
It would have paid for some investment like the DANES make….DAILY.
We do not need more CON-sultants and FLY- by -nighters… first class….I ask you.
FIRST CLASS they AIN’T
We need some true INVESTMENT. Until they then are just a waste of space and TAXPAYERS money.
SHAME they have no real commitment. SHAME they have no real SHAME.
SHAME all we can do is WATCH as they take us for MUGS some MOORE.
RE-cycling….why bother…they just waste more than we can ever RE-CYCLE.
WAKEY WAKEY…NZ……SO……..BITCH-U-MEN…and WOMEN…MAORI & PAKEHA.
Not sexist….or RACIST………like sum.
Keep up the good WORK here…guys one and all.
We might make HONE-st guys of em YET.
Let us leave them nowhere to HIDE.
November 10th, 2009 at 11:31 am
@ Steven. I wasn’t sugesting more hydro, we have alot of hot rocks to tap in the central volcanic zone. best of all these arent weather dependent.