Here 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.
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. Richard Koo Presentation 8. Lobby power - The US banking lobbyists may be losing some of their power, CJR points out in its take of a Bloomberg piece.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."
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.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.
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.
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