Top 10 at 10: Sam Stubbs' KiwiSaver idea; Not so Great Southern collapses; German Zombies; Yellowing shoots
20th May 09, 10:17am
Here's my Top 10 at 10. I welcome your suggestions and additions in the comments below. My apologies in advance to all the MBAs I am friends with. But couldn't resist this Dilbert. 1.Sam Stubbs from Tower is advocating KiwiSaver Partnerships (PKPs) as vehicles to invest KiwiSaver money in public infrastructure such as hospitals roads and schools, Kris Hall at BusinessDay reports. 2. Fund manager analysts Morningstar have given New Zealand fund managers a D minus ranking in its latest Global Fund Investor Experience research report. Here's the verdict. Not pretty and deservedly. No wonder so many people are in rental property.
New Zealand scored the worst overall, largely because of low grades for prospectuses and shareholders' reports and taxation. New Zealand received a grade of D- for prospectuses and shareholders' reports. This poor grade was given for several reasons, the most important of which was the lack of portfolio holdings disclosure. New Zealand also received a grade of D- in the area of taxation. Dividend and capital gains tax rates are high, and there is no tax incentive for long-term investing"”tax rates are the same for dividends, short-term capital gains, and long-term capital gains.3. Here's something painful from the US bailouts. It seems execs at AIG's Financial Products unit are doing easy deals with other banks that are costing the taxpayers but are making them look personally good in the eyes of future employers, TPM reckons. 4. Across the Tasman, receivers have been appointed overnight to Great Southern Ltd, a timber, cattle and grape investment company that raised over A$1.8 billion from investors over the last 5 years, the Sydney Morning Herald reported. It had asked for A$35 million to tide it over, but its banks, which include ANZ. Commonwealth Bank, BankWest and Mizuho, said no. These banks are owed A$376 million, with ANZ most exposed with A$220 million. This collapse follows the recent collapse of a similar scheme known as Timbercorp.
The four banks are owed $376 million by Great Southern Ltd, with McGrathNicol indicating yesterday that they had security as creditors over its major assets, thought to be its land holdings. Another syndicate - also led by ANZ and including Bank of Scotland International, GE Capital and the Singaporean bank United Overseas - lent $223 million to the responsible entity. The banks have executed their security over the company's assets, but yesterday's move only heightens the concerns of Great Southern's 43,000 investors in its 45 managed investment schemes.5. Buyers of used Japanese imports may find it easier to find them at better prices in coming months. The Japanese government has offered a tax break for Japanese people to buy fuel efficient new cars, which seems to be working, the FT.com reports.
Japanese carmakers are reporting a sharp rebound in sales in their home market this month after the government cut taxes on lower-emission vehicles. Toshiyuki Shiga, chief operating officer at Nissan, Japan's third-largest car producer, said Tuesday orders at Nissan's dealerships had risen 30 per cent so far in May compared with a year earlier. Mr Shiga credited the "eco-car tax break" for the improvement. The tax break came into effect on April 1 and can cut the cost of the most fuel-efficient vehicles by several hundred thousand yen, or several thousand dollars6. Here's a very interesting piece from FT.com columnist Wolfgang Munchau about how the Germans are dealing with their banking crisis, which is second only to the US crisis. Essentially, the German government is refusing to recapitalise the banks, leaving them stumbling across Europe as Zombies for potentially decades. Here's his conclusion.
The German political classes have yet to comprehend that recapitalisation is necessary, and that it will end up costing the taxpayer a lot of money. The plan as it stands now offers no resolution, only procrastination. While US banks have already written off a fair proportion of the bad debts, the Europeans are adopting schemes that allow the banks to postpone resolution. The more I think about it, the more I am reminded of Japan. But this might be unfair to the Japanese. They solved the problem eventually. If we freeze our toxic securities for 20 years, a Japanese-style lost decade will soon come to be regarded as the optimistic scenario.7. Felix Salmon at Reuters points out that the TED spread (the gap between 3 month Treasury Bill yield and LIBOR (London Interbank Overnight Rate) has narrowed to 48 basis points from as much as 139 basis points on March 17 and over 400 bps in September. The TED spread is one measure of stress in the wholesale money markets. As a former Reuters journalist I couldn't resist the irony of Felix having to link to Bloomberg data online to show what was happening with the TED spread. Again, it's worth asking the question if our banks are starting to see this reflected in the funding costs on their NZ$100 billion of foreign borrowing on these wholesale markets. This is the reason they say they haven't been able to pass on the April 30 OCR cut to floating rate borrowers. How long will this reason last? 8. Nouriel Roubini from RGE Monitor issues his latest missive on why the green shoots of recovery are yellowing.
First, the current deep and protracted U-shaped recession recession in the US and other advanced economies will continue through all of 2009 rather than reaching a trough in the middle of this year as expected by the current optimistic consensus. Second, rather than a rapid V-shaped recovery of growth to a rate close to potential US and global economic growth will remain sluggish, sub-par and well below trend growth for at least two years into all of 2010 and 2011; a couple of quarters of more rapid growth cannot be ruled out as we get out of this recession towards the end of the year and/or early next year as firms rebuild inventories and the effects of the monetary and fiscal stimulus reach a delayed peak. But at least ten structural weaknesses of the US and the global economy will cause both a below trend growth and even the risk of a reduction of potential growth itself. Third, we cannot rule out a double dip W-shaped recession with the wings of a tentative recovery of growth in 2010 at risk of being clipped towards the end of that year or in 2011 by a perfect storm of rising oil prices, rising taxes and rising nominal and real interest rates on the public debt of many advanced economies as concerns about medium term fiscal sustainability and about the risk that monetization of fiscal deficits will lead to inflationary pressures after two years of deflationary pressures.9. I love Tyler Durden at Zero Hedge. He writes like a gossip columnist, but actually knows all about hedge funds and seems remarkably well informed. This is a bit off the beaten track, but I've taken a shine to the Porsche-VW debacle story. Porsche took on too much debt in a vain attempt to take over VW and resolve a juicy family dispute between two cousins who run the respective groups. Now Porsche and VW are locked in a debt-fuelled bear hug that could kill at least one of them. They are now hunting for a rich Middle Eastern investor to provide cash because few others will lend Porsche, in particular, after it made some money last year burning hedge funds.
Porsche, which last year thought its "hedge fund" division was smarter than all the actual hedge funds in the world and with the implicit complicity of the BaFin created the Volkswagen squeeze monster, might very soon be at the mercy of the same hedge funds it nearly guillotined. As Zero Hedge reported, the failed merger between it and Volkswagen (so much for domination), is likely going to be just the beginning of the company's problems. The first thing Porsche has to be worried about is the fact that it will now be unable to secure a credit rating for itself by the time the self imposed May 31 deadline rolls. The company, which had recently been exclusively focused on containing the failed merger fallout, kinda forgot that absent a credit rating, the spread on its existing â‚¬10 billion loan will increase by 100 bps to EURIBOR + 425: 1% on 10 billion is not something to sneeze at.10. The inexorable shift away from the US dollar as the dominant reserve currency for financial and trading purposes is slowly taking shape. Brazil and China plan to use their own currencies rather than the US dollar in trade transactions, the FT.com reported. Russia and Turkey are also moving to using their own currenices, rather than the US dollar, Reuters reported. HT FTAlphaville.