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Top 10 at 10: Curious Strategic deals; SCF selling; The dumbness of gold standards; Dilbert
December 22nd, 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 Wedensday’s Top 10 at 10 (the last of the year) to bernard.hickey@interest.co.nz
1. Hmmmm – Cactus Kate has done some digging around the deals being done between Triumph Capital and Strategic Finance. She finds connections to Korda Mentha partner Grant Graham. She asks some interesting questions about the independence of receivers. Please be careful about how you comment on this.
1. What nature was the transfer and for what consideration were shares in Triumph transferred from Vardon to Emporio and Wakefield?
2. Is there a gentleman’s agreement to buy-back later?
3. What proprietary information has Graham had access to as a trustee of the shareholder of Triumph, that compromises his position as KordaMentha the receiver in this and all previous projects relating to Vardon and Strategic?
4. How can we be assured he didn’t have access to this proprietary information if he says there was none?
5. Should KordaMentha now recuse themselves as receiver for Strategic based projects on this (at best) appearance of conflict?
2. South Canterbury selling – South Canterbury Finance told the NZX it had sold its stake in Pyne Gould Corporation to George Kerr as it seeks to raise cash, the ODT reported. We wonder what else they could sell. Brace for it.
South Canterbury had other investments, some of which could be realised. They included bonds in Silver Fern Farms, Fletcher Building, New Zealand Post, Contact and Tower Corporation.
South Canterbury also held shares in ING Medical, Nuplex, New Zealand Oil and Gas, Goodman Properties, New Zealand Refining, Restaurant Brands, AMP Office, Rakon, Vector, Goodman Property, Freightways, Renaissance, Austral Pacific, Hellaby and Allied Workforce.
3. Some good news - On the eve of Christmas ANZ National successfully raised US$1.25 billion through a three year bond issue into the 144a market in the United States that did not carry a government guarantee. This is a first for New Zealand since before global capital markets froze in late 2008. The Reserve Bank will be pleased.
4. Outrageous fortune – FTAlphaville points out Denmark’s Saxo bank has come up with 10 outrageous predictions for 2010. Last year Saxo successfully predicted massive Iranian unrest, but were wrong with their other 9. This year they say:
1)Bunds yields will fall to 2.25%
Deflationary forces and excessive monetary policy will lower the yield on Bunds and other sovereign fixed income when the government fixed income traders refuse to buy into the “growth story” that is being told by the stock market. We believe that the German 10-Year Government Bond could be forced from 122.6 to 133.3 by the end of 2010 in a general flight to quality.
2) VIX will fall to 14
3) CNY (China Yuan Renminbi) will be devalued by 5% vs. USD The efforts of Chinese authorities to stem the credit growth and avoid bad loans, combined with the creation of several growth bubbles could ultimately reveal the Chinese investment-driven growth as being deficient. The massive, Chinese spare capacity and the economic backdrop could be a deciding factor in devaluing the CNY vs. the USD.
4) Gold will fall to $870 in 2010 but will rise to $1500 in 2014
A general strengthening of the USD could break the back of the recent speculative element in gold. Although we are long term bullish on gold (believing it will reach $1500 within five years), this trade seems to have become too easy and too widespread to pay out in the shorter term. A serious correction towards the $870 level could shake out the speculative community while keeping the metal in a longer term uptrend.
5) USDJPY to reach 110
6)Angry American public to form third party in the US
The anti-incumbent mood is approaching 1994 and 2006 levels as a result of bail-outs and general disapproval of both the big parties. A demand for real change among American voters could propel a third new party to become a deciding factor in the 2010 elections.
7) The US Social Security Trust Fund will go bust
This is not so much an outrageous claim as an actuarial and mathematical certainty. The outrageous part is that social security taxes and contributions have been squandered for so long. 2010 will be the first year where outlays for the non-existing trust fund will have to be part-financed by the federal government’s General Fund. I.e. the budget trick, in reality a “fund” without funds, will be visible for the first time. Part of the social security outlays will have to be financed by higher taxes, more borrowing or more printing.
8)The price of sugar will drop one third
9) TSE Small Index will rise by 50%
10) US trade balance will turn positive for first time in 34 years
5. Now that’s a tax – The fallout continues for Iceland. In a desperate effort to get its budget deficit under control, Iceland has imposed a VAT (GST) of 25.5%, Bloomberg reported. It has also introduced an environmental and natural resources tax and imposed two new income taxes to replace its flat tax. 2010 will be a year of fiscal pain for governments and voters.
6. Gold standards – Randall Forysth at Barron’s reckons nostalgia for the gold standard is misplaced. Studies from the Depression show that those who abandoned the gold standard first emerged faster and better from the Depression. Being able to print money this time around saved us from Depression 2.0, he says.
Impassioned adherents of the gold standard gloss over the inability to counter deflation. Modern democracies simply will not tolerate the Dickensian unemployment and suffering brought on by debt deflations, however, which is why the Federal Reserve was created during the Progressive Era that also had previously brought anti-trust laws and the beginnings of other government regulation of business.
For all its faults, the floating dollar monetary system permitted policy makers to react aggressively to the worst economic crisis since the 1930s and prevent the Great Depression 2.0 this time.
Now, the challenge is to heed the message of the soaring gold price, but not mechanistically, as the gold standard would demand by raising interest rates. The problem is on the fiscal side from trillion-dollar deficits as far as the eye can see. A change in the monetary system will do nothing to address that disaster.
7. More fallout – Canterbury Mortgage Trust may pay out just 88% of the NZ$251 million lent it by 4,500 investors, Marta Steeman reports at The Press. However, it may also pay out 100% within 3 years…
The trust warned investors in its annual report that it had made a worst-case scenario provision of $46.7m for bad loans. That meant investors might get only 88 cents in the dollar back.
However, the property market had improved since the $46.7m calculation so it still hoped to return 100 per cent of principal. That was reiterated in yesterday’s letter, which said “directors remain hopeful that full repayment of your capital can take place within the three years originally indicated – that is by the end of 2012″.
The trust was marketed as a low-risk investment that was conservatively managed and all lending was secured by first mortgage. But several of the major loans that got into trouble this year were advances to Christchurch property developer David Henderson or his entities.
8. Immigration Ponzi scheme – The Economist has an excellent article pointing out that America’s strength is its ability to welcome in migrants. Maybe a migration surge is what we need too to solve our looming dependency ratio problem.
President Obama promises immigration reform: stricter border controls but also a path to citizenship for those in the country illegally. George Bush promised the same thing, but Congress blocked him. Mr Obama has his work cut out to avoid that fate; and although he is the son of a Kenyan Harvard student, he has done little to make the system less cumbersome for skilled migrants.
The stakes are high. Immigration keeps America young, strong and growing. “The populations of Europe, Russia and Japan are declining, and those of China and India are levelling off. The United States alone among great powers will be increasing its share of world population over time,” predicts Michael Lind of the New America Foundation, a think-tank. By 2050, there could be 500m Americans; by 2100, a billion. That means America could remain the pre-eminent nation for longer than many people expect.
“Relying on the import of money, workers, and brains,” writes Mr Lind, America is “a Ponzi scheme that works.”
9. Higher interest rates – One of the big themes for 2010 will be rising interest rates. Moody’s captures this in its outlook for 2010, as reported by Zero Hedge. New Zealand’s debt raisings next year will be much more expensive. Bill English can’t be too complacent going into the 2010 budget.
As the global economic recovery attains a more solid footing, 2010 will at best see a “normalization”and at worst a severe tightening in government financing conditions. Long-term interest rates may increase more rapidly than expected because of an over-reaction to economic news, which we believe will be mildly positive overall. Moreover, the slow unwinding of “quantitative easing” will accelerate this credit repricing process.
The end of exceptionally low financing conditions will expose the true cost of the crisis on government debt affordability across the world. Aaa governments will probably not have the luxury of waiting for the recovery to be secured before announcing and perhaps also implementing credible fiscal consolidation programs.
As most governments simply cannot afford another financial crisis, they will attempt to ring-fence their balance sheets from selected contingent liabilities. This could in some cases create disorderly market conditions.
10. Totally irrelevant video – HT to Andrew Wilson for passing on this Christmas lights video. Some Americans obviously have way too much time on their hands. Must have cheap power too….
Amazing Grace Techno – Computer Controlled Christmas Lights from Richard Holdman on Vimeo.
Tags: Top 10 at 10
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December 22nd, 2009 at 11:53 am
Oh yes what a call at number 4…gold will fall and then rise and “we are long gold” but obviously would like very much to jawbone down the price so we can buy a few ton cheaply after which we will start to blow hot instead of cold on gold…
December 22nd, 2009 at 12:22 pm
strategic has been in receivership for a year and hasnt paid out one cent and recently sent out a dear john on their expected payment before jan 9th.they are sailing along on big salaries and looking forward to a merry xmas at the owners expense.
December 22nd, 2009 at 12:44 pm
Gotta squeeze em dry before cutting up the pie alan!
December 22nd, 2009 at 12:56 pm
impossible pie! or maybe invisible pie,the receiver shouldnt be embedded with strategic.
December 22nd, 2009 at 1:03 pm
re # 1 wasn’t there a chap who was jailed as a result of a legal stough with Korda mentha or one of their employees?
Those questions seem very er, carefully, worded.
December 22nd, 2009 at 1:08 pm
Cactus Kate is always inventing conspiracies to keep herself at the forefront of the blogosphere. Evenutually she will be called on it and hopefully sued.
December 22nd, 2009 at 1:23 pm
Barry Ritholtz ( CEO of Fusion IQ ) predicts the $US to rise 30-40 % , and thereby crush the commodities and precious metals rally . He expects the Dow Jones Index to reach 13000 , but to fall back to 10000 points , over the next 3-4 years .
Bernard : What say you develop a New Years list of predictions , for 2010 . We can have some fun on 31 / 12 / 2010 , referring back to those crystal-ball gazings .
December 22nd, 2009 at 2:02 pm
I predict that all predictions are unpredictable.
December 22nd, 2009 at 2:19 pm
Nice one Craig, you sound a very negative person. All the facts are linked in my post as are the Companies Office Reports. I haven’t reached any conclusion myself on the basis that (apart from Strategic) the companies involved are private and therefore we unfortunately will/may never know the answers under current law.
If KordaMentha wish to answer the questions 1-5 I shall print their full response in a separate post with no commentary attached.
GOW – nope the jail in that case was a result of contempt of court after failure to comply with an injunction to remove material on a website after smacking up billboards all over town. I can guarantee none of that will ever apply to my actions, I’m not that committed to a cause!
December 22nd, 2009 at 3:03 pm
Regarding this share sale by SCF, see:
South Canterbury Finance: $4m loss = ‘a small profit’
see http://davidhillary.blogspot.com/2009/12/south-canterbury-finance-4m-loss-small.html
December 22nd, 2009 at 4:20 pm
Nice work Cactus Kate. Keep asking those questions. Relationships, relationships.
December 22nd, 2009 at 4:37 pm
What a dumb thing to say.
I would say, don’t count your chickens too early…..the total collapse is yet to come.
December 22nd, 2009 at 5:05 pm
I agree with Steve Netwriter’s post above. I think next year could get very rocky again. A lot of my trades-related clients are looking at very skinny books next year, much worse than up to this point, motel clients very pessimistic (right out to World Cup year) – lets face it, it’s the very resilient -thank God – milk price that is keeping NZ moving: if that falters, then bad news (I hope dairy farmers have learned to use surpluses this year to reduce debt, given cost of debt servicing is going to increase over next two and three years, however, I’ve heard on the day of the $6 payout announcement, six new sheds were ordered in Sth Canterbury – I can’t verify that, just hearsay – which does make me despair a little if true. Assuredly they would be well heeled entities, as no bank would be lending for new conversions unless on very safe numbers).
Anyway, to continue, if you think even up to here we’ve prevented the Great Depression 2.0, then re-read #5 again, think of those countries, Greece, Ireland, who are taking action, but not the extent of the action needed to get them out of the mess, and all argubly taking the wrong actions, because stimulus just makes it worse a year and two years out, and even our own governments continued borrowing program with no nerve shown to attack the size of the State and the welfare system – I don’t see how we’re out of the mess at all, and anyone making the call we are is imprudent to say the least.
All Western societies are moving towards NZ’s position of one person in the private sector having to work and cover the living of one person on a state wage, a benefit, or in the Harris gang, and all this with the baby boomers retiring: how do these economies make the numbers work anymore (quite outside of all philosophic arguments of freedom from the State, and how we’ve turned our modern nation-states into slave states for the hard working and risk takers)?
December 22nd, 2009 at 5:14 pm
Um, Cactus, I can guarantee none of that will ever apply to my actions, I’m not that committed to a cause!
Spoken like a lawyer
December 22nd, 2009 at 5:18 pm
Whimsy.. No prize for the title or the author
“Harmlessly passing your time in the grassland away
Only dimly aware of a certain unease in the air
You better watch out,
There may be dogs about
I’ve looked over Jordan, and I have seen.
Things are not what they seem
What do you get for pretending the dangers not real
Meek and obedient you follow the leader
Down well trodden corridors, into the valley of steel
What a surprise!
A look of terminal shock in your eyes
Now things are really what they seem.
No, this is no bad dream.”
I think the sheep win in the end though.
Happy xmas and thanks for all of the educators out there.
December 22nd, 2009 at 5:40 pm
DeeDeeJ
Ditto.
December 22nd, 2009 at 7:14 pm
Mark Hubbard
Well I’m not into breaching injunctions and contempt of court if that’s what you mean!
Very bad for your health.
I realise that carcasses must be picked over and have assisted in picking over a few myself, however there are rules and procedures to be followed in the interest of fairness and those who don’t play fair give capitalism a bad name.
December 22nd, 2009 at 7:37 pm
Well I’m not into breaching injunctions and contempt of court if that’s what you mean! Very bad for your health.
On that, fair cop: I agree. But, taking away context, I simply hated the statement, vis a vis, not committing to causes, which I deemed as lawyer’ish’ – it is that I was reacting against: the general, as opposed to the specific instance.
And of course, in your blog, albeit a very good blog, but your support of the compulsion touters in ACT is always annoying. Though said as a member of the Libertarianz list in 2008. Context.
December 22nd, 2009 at 8:17 pm
Mark Hubbard
I agree with you agreeing with Steve except for the point where you state that the milk price is very resilient. The evidence for that is missing. Yes, Fonterra has indicated a payout over $6.00, and spot prices look good at the moment, but the prices received for NZ dairy exports as reported by Statistics NZ are abysmal. Any $6.00 plus payout is likely to be dependent on all of significant FX gains, improving export receipts, and the drawing down of equity. That mix does not equate to very resilient dairy prices but rather a pre-determined and probably inflated payout.
December 22nd, 2009 at 8:59 pm
Korda Mentha seems to be turning up involved with a number of dodgy deals, bringing their reputation into disrepute.
A Brisbane Korda Mentha director is also chairman of a failing franchise company Allied Brands Ltd. (ABQ). This company has been involved in a number of investigations and yet they are planning to bring their corrupt practises to NZ soon. So that Kiwi’s can be screwed by these deals!
http://baskinrobbinsaustralia.blogspot.com
December 22nd, 2009 at 9:13 pm
How can I read Cactus Kate on my blackberry?
December 22nd, 2009 at 9:55 pm
Hmmm, well Westland Milk upped their payout this week to $6.50 so seems there is still some upside in milk.
We are exporting more oil than ever so their is a surplus in the oil account.
One of NZ biggest stevedores is the busiest they have ever been by some considerable margin so exports of many products are going upwards.
Wine and Kiwifruit are bringing higher incomes.
Tourism has started to rise again.
Building is staggering to a positive number again.
Imports are well down.
Our biggest trading partner is up and running.(Aussie) Plenty of well paid jobs around for those that want them.
Our newest big trading partner is buzzing along.(China)
Seems to me some of you should go for a walk in the sun and look around you instead of interviewing you computer screens so much.
Oh sure we have a wee way to go until we have all the jobs we need but then plenty of them were time wasting.
We need more money advanced into science.
We need a severe pruning of Govt. waste and spending.
We need simplifying the tax system, not complicating it more with bullshit ideas of CGT and Land Tax. ( more rorts available and more tax rules to circumvent, which we Kiwi’s will.)
We need a lot less need to collect tax.
We need a law that limits the amount of tax any Govt. can take (As they have in Hong Kong, and I’m sure Cactus will be happy to explain it to all of you who don’t know anything about how it works and the results it achieves.)
And we need less, yep, way less regulation of everything and everybody.
Will we get any of this.
Unlikely while all the socialists play together.
How about we raise the level at which anyone has to report GST to $150K. Been at 60K forever. Barely covers someones wages now.
Better still lets raise the rate to 20% and the threshold to $250K.
If we keep doing what we have always done we will keep getting the same as we have now. More mediocrity.
December 22nd, 2009 at 10:19 pm
Well Grant Graham from Korda Mentha is certainly a personable chap – have nailed a few beers with him at Cowboy in the Viaduct in the past…
Meethinks that CK may be seeing shadows in the dark that aren’t really there… Still Brian Fitzgerald is a cunning as a rat up a drain pipe….
December 22nd, 2009 at 10:41 pm
Robert:
Please explain. Thanks.
December 23rd, 2009 at 4:25 am
House resales in the US ( month of November ) at highest level in nearly 3 years . Median price $US 172 000 . Down 4 % over the year . Gumnut stimulatory plan is assisting sales .
December 23rd, 2009 at 7:58 am
Tolley has fallen off her trolley!
sweeping Government changes.
Tolley yesterday released her 5 year plan
Tertiary institution funding will be linked to performance,
Initially, this will focus on student results.
Later, funding will also relate to graduates’ eventual jobs….
haaaaaaaarhaahaahaahaahaahahahahaha….oh shite this Tolley is a laugh a minute.
You have to wonder whether Tolley might not be an alien….
December 23rd, 2009 at 8:23 am
Wally
Tolley may be blunt but something had to be done when the guy in servicing your car had a ‘degree’ and we were about to drown in Aromatherapy graduates
Neven
December 23rd, 2009 at 8:49 am
Neven:
I agree that far. From there though how about first getting to understand what the real problem is. Tolley hasn’t to my knowledge clearly defined the problem let alone how what she is hoping to achieve will address it. So we get stupid simplistic plans – par for the course.
December 23rd, 2009 at 8:53 am
Threatening to cut govt funding is somehow going to lead to improved grades! Absolute hogwash. This is no more than a tolley load of humbug for the masses. Here we have a person with no qualifications as far as I can discover, telling others they need to improve their grades. If she can be Minister of Education without any formal qualifications in education, then why can’t I get a job piloting a passenger jet!
December 24th, 2009 at 12:24 am
Mark H.
You will find lawyers are very committed to causes if their fees are paid in a timely fashion.
For the Craig Butlers and Boris’ out there, the first “conspiracy theory” I had in May in relation to conflicts in NZX seems to have turned out okay…… http://www.nbr.co.nz/article/seccom-says-nzxs-dual-roles-raise-conflict-issues-116916
Didn’t Bernard have a conspiracy theory with the Crafar’s as well? Even after it was caught on tape.
A classic case of conspiracy-conspiracy theory me thinks