Tuesday 2nd June 2020
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I have deliberately not published my views about the pandemic and its flow on effects over the last 3 months for 2 reasons:
• The market has had so many views and comments that I wanted our clients to see what the market was saying and
• more importantly I wasn’t sure of the next stage, I needed more time to watch developments play out, unfortunately, historic data is more accurate than those crystal balls.
My views are as follows:
1) New Zealand has done brilliantly in virtually eliminating the Convid19 virus from New Zealand.
2) The New Zealand economy has been massively deflated by the shutdown for 3 months.
3) The productive economy is still okay to strong
4) The service economy has been smashed
5) The financial services economy is stretched and under pressure, particularly those with low capital ratios (under 10% e.g. banks)
6) The food production sector is strong simply because it is a must have.
7) The agricultural sector that relies on its New Zealand Benefits (climate, grass, labour cost etc.) is in very good shape
8) Those that rely on free water and are in marginal areas are under pressure. There are some regions of New Zealand that should not try to produce the products they do. They can produce okay in good years, but there are too many bad years.
9) The producers who require imported food supplements e.g. Palm Kernel etc. have no competitive advantage. They will struggle.
10) The companies that have good reserves will survive. Those that live on next week’s income will fail. Those who had only a few weeks to get over the Christmas slowdown, will struggle. Most businesses had only been at full pace for around 6 to 10 weeks (after the New Year re - opening).
11) Sectors with high failure e.g. hospitality, tourism, small and fashion retail that have 15% to 30% failure in good years will have up to 70% failure, in this period. Many were marginal and survived on under the table payments, cash, migrant scams, GST dodges, landlord incentives supplier credit etc. These sectors will have high failure rates!
12) Big producers, who need volume will back certain businesses. Businesses like Breweries need volume to get economies of scale. They will back their clients with volume / their best clients. The rest will fail.
13) Landlords will struggle to keep “activity” in their buildings (office and shops). There will be very quiet zones around cities.
14) Buildings that relied on weak education companies will struggle. There have been so many poor providers and sham qualifications. Many were immigration shams “working to Permanent Residence”. They will fail! Their buildings will become very quiet.
In the short - term the outlook is tough! There will be a lot of pain in society! Don’t underestimate the social order / disorder element.
However, there will be a lot of money made in the next 2 years.
We all just have to do things differently and better!
Last year’s rules may /may not apply.
Check all assumptions before committing.
Note most of the experts don’t know any more than you.
Remember that most of us make the big decisions by talking to lots of people, thinking through the benefits and the disadvantages and then using our own brains – think of the big decisions you made like:
• Who to marry?
• Where to live?
• Who to work for?
• How many Children to have?
• What sport to play?
• What car to buy?
The key is it is your life – be smart with it!
Remember there are a huge number of people, who are paid to encourage you to do what is right for THEM, not necessarily what is right for you!
Saving and creating wealth is good and should be encouraged.
Consuming wealth could be very painful. Save the treats until you can afford them!
We are all in a battle to protect our families’ futures and to make them better!
Wishing you the best, in the times ahead.
Brent King B.Com., C.A., R.F.A
Managing Director / CEO
Investment Research Group
General Finance Limited
Equity Investment Advisers Limited
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