Obama’s Socialist Politics Interfering with Business
Some astounding news has come out of the US with Justice Ruth Ginsburg granting an emergency appeal to stop the Government back sale of Chrysler to Italian automaker, Fiat. At the direction of the President, Bondholders are being told to take an 82% haircut on their investment. Watch this space, there are some very interesting questions being raised over this impending sale/merger. Will this damage the bond market?
On the home front
Dennis T. Avery (who was formerly a Senior Analyst for the Department of State) and now Director of Global Food Issues (see reference cgfi.org) reports that New Zealand could go bust over the global warming through the New Zealand sign up to the Kyoto obligations. Apparently Clark told us that New Zealand voters would lead the world with a carbon tax of about $150.00 a year. The British Government now admits that the new carbon tax could cost as much as $27,000 per UK family.
Flashback to 1930 Depression
In 1930 the Smoot-Hawley tariff initiated a protection policy in the United States which strangled global trade. Smoot & Hawley thought they were doing the US farmers a favour by protecting their agriculture industry. Is there a parallel with the Obama Government punishing New Zealand with the new dairy export subsidies? If anybody was noticing in 2008 in the run up to the US elections, Obama actually signaled this in his policies. Not many took any notice. This is one policy pre government election that he appears to be putting into place. Watch how “free trade” gets modified to pacify powerful home lobby groups.
The New Zealand Economic Dynamo coming up for a rewind
It is now reported that the 358 most indebted New Zealand dairy farms have debts of around $17.3 million (each). The average farm debt is equivalent to $21.00 a kilogram milk solid (this is reported by Duncan Bridgeman through the National Business Review, June 12 2009) with the figures taken from independent analysis expert in Palmerston North, Mr Colin Riden. This is bad not only for the dairy farmers, but also for the heavily over extended banking industry in this country. I am old enough to remember when you could not get mortgage money from banks to lend on residential houses. The banks then took over the housing loan business ending up with the world-wide mortgage problems. Later in my life I used to make a track between my office and the banks trying to get money to develop dairy farms and got laughed at by the bank managers who said “our future was with the commercial sector”. Our BNZ went overboard lending money to Equity Corp and became insolvent itself. In the last two years the banks have had an open cheque book for the dairy industry. de ja vu?
Dairy farm financing alert
The article in last weeks NBR is a warning shot to the New Zealand economy that the banking industry now has to handle the dairy financing very carefully. Information that the top 358 dairy farms have an average of $17.3 million debt each is amazing enough, but the cost of producing a kilogram of product rising to over $4.00 is even more serious, as apparently that makes a dairy unit with the average herd size (with no debt) earning only $40,000 per annum.
Syndication Comments of the month
Very favourable comments have come out in the Colliers International Property issue no 2 of 2009 by Tim Lichtenstein, Colliers syndication expert. Tim talks very sensibly about the proportionate ownership schemes which are now commonly being promoted by a number of highly professional syndicate managers. I can advise on the quality of both the syndicators and the properties they are promoting. On the negative side there has been some very unfortunate comments by Mr Brian Gaynor in the Weekend Herald of 30th May 2009. Much of Mr Gaynor’s claims about property syndications are completely and demonstrably wrong. Is it just a bald attempt to put people off property syndications and thus more likely to put their money in Gaynor’s firm, Milford Asset Management? Gaynor’s article is likely to destroy any credibility Mr Gaynor may have had in the investment world. I would have thought Mr Gaynor would be more careful with his remarks as listed property trusts performance over the last five years does not bear close inspection. Listed property managers can swap investments around with the result that the investor can not be sure of what they have actually invested in. This breaks the number one rule of investing. On the other hand a property syndicate very firmly chooses a particular property from the many on offer.
I note that the Sovereign Insurance New Zealand Property Fund Reports returns for one year was -10.62% and for the ten year average +6.65%. These are appalling returns and should signal a change of behaviour in trustee investment attitude.
Advice in respect of the listed and unlisted property market and syndication is available by ringing this office and making an appointment. Trustees should be particularly aware of the obligations of Section 13(e) of the Trustee Amendment Act in respect of the risk of the capital loss or depreciation. The risk of this has never been greater and you need to check your position.
Book of the month
Freakonomics – Steven D. Levitt and Stephen J. Dubner.
This is a refreshing look at complicated questions and turns them into simple equations. It will alter the way you think and approach business. There is a blog also for those who wish to argue.
David A Wood Llb; Affiliate of the Australian Securities Institute
