THOUGHTS ON BREXIT Chaos Calm Chaos Calm Calm Chaos

There is no doubt that we have seen a significant event over the last week.

The decision makes us all consider what will happen next and hence what to buy, what to sell and where to invest our money.

 

The following is a personal view, which you may wish to take into account when making your decisions. It is not Financial Advice.

 

What does this mean for the whole of Europe?

 

Chaos Volatility Calm   Chaos  Volatility  Calm  Chaos Volatility  Calm

 

There are a number of parties who want to vent anger about the outcome of the Brexit referendum. A number of these parties wish to reverse or at least disrupt the current process. They will use their skills and powers to influence the outcome.

 

We are now seeing parties saying this was only an anti-immigration vote. The rest of the EU is fine.  This is an oversimplification.

 

Be prepared for a very unusual period in the markets.

 

Do NOT get lulled into complacency, simply because matters have become more normal. Expect the unexpected in the next 4 months.

 

The answers to the following questions will give us an idea of how this will play out.

 

·     Will the UK Parliament ratify the Poll and take the steps to withdraw from Europe?

·     Will Northern Ireland and Scotland seek withdrawal from the United Kingdom and seek to stay in Europe?

·     Will a new Conservative leader have the support of all the conservative MPs and be able to get a sensible deal through?

·     Will the big banks take this lying down and accept this? or will they cause a crisis in the financial markets, thereby forcing the politicians hand?

·     Will Labour drop it’s “luke-warm” leader and seek a more charismatic leader?

·     Will David Cameron create a circumstance where he stays on because of circumstances, such as market turmoil etc. require stability?

·     Will the Conservatives call a snap general election, with Labour in disarray? Big money would be willing to fund the moderates in the current Brexit as well as the maybes. Scotland and Northern Ireland would likely also support this.

·     Will the upcoming elections in Italy, as well as next year in France, and the EU fear of these countries following Britain, cause Europe to be more accommodating of UK concerns and therefore be more willing to address some of the immigration issues?

·     Have any Institution(s) been “wounded “(incurred financial loss) by this result, because their assets or liabilities positions have been compromised by the movements in the market?

·     Has any major investor made a fortune? Mr. Soros?                        Lost a fortune? (the betting agencies seem to have lost)

 

 

Facts

 

·     SOME Investors make money in any type of market. There will always be winners and losers.

·     Volatile markets are like the Casino, there can be unbelievable profits (and losses). These can occur at random. Anything can happen.

·     Investment rules go out of the window when such events occur. Financial principles of N.T.A. return on equity, DPS, P/E, EPS, etc.  etc.  simply have less relevance.

·     Each country has the same number of mouths to feed. The same number of cars. The same amount of land. The same number of  schools, Universities, hospitals, bridges, buildings, ports, airports, planes, ships as it had last week.

·     The only thing that has changed is whether the UK is dominated by its relationship with Europe as it has had in the last 25 years.

·     The mood of voters that the status quo is not acceptable. There are too many people in the UK and Europe who feel left behind and want change.

·     Globalisation and free trade agreements will be under pressure from this result and Donald Trump’s attitudes to TTP.  Expect a massive PR campaign to promote the benefits.

·     Businesses and Banks still need customers so they can sell their products and services. They will adapt whatever the outcome.

·     The investors expectations may be lower now, but confidence will restore the unrealistic expectations.

·     The United Kingdom is now the 6th largest economy in the world. The UK economy will not collapse, but it will get “knocked around”

·     Asia will not be significantly affected by this event.

·     The opening of the “New Silk Road for China to Europe will have far more effect.  China will be the beneficiary of this, as it has developed strong relationships with all of the countries on the way.

·     Life will go on.  In due course this event will be of minor impact, but it will be unsettling in the short term. The new norm may not be good, but probably better than the old norm.

 

Opportunities

 

·     Markets always recover, never as quick as we like, but they recover.

·     Buying companies with good businesses when their prices are driven down is normally profitable.

·     Focusing on lower risk, stable companies will give consistent returns.

·     Companies that are going to need to raise cash will get smashed!   Avoid unless you are prepared to” double down “ i.e. to keep investing as the company needs cash.

·     Companies trading with Asia will be less affected.

·     Buying great companies tend to return value over time irrespective of the time in the cycle. Obviously the less you pay, the better (but a good stock is a good stock)

·     If you can’t afford the volatility then sell the investments with high risk /volatility

·     Find Bonds issued by companies with strong underlying businesses if you want regular income. The yields have been dropping but they are generally “locked-in.”.

 

 

What you MUST do.

 

·     Review all assets, particularly Investments to ensure they are able to stand the volatility

·     Speak to a trusted Adviser about each investment.

·     Ensure you understand the characteristics of each Investment.   How will they react to this market? Will the markets for the investments become less liquid (i.e. difficult to sell). Will your Investments need additional capital?

 

Fundamental

 

Take a close interest in your investments. Don’t just close your eyes and hope!

 

Make sure the underlying assets are in YOUR NAME.

Not just in a trusted associate’s name.

They are your assets.

Don’t let anyone have control over your assets at this time.

 

 

Whether you want assistance or not, you should consult an Investment Advisor you trust. It is like consulting a Doctor. You need input and advice.

If in doubt get a second opinion.

No one person knows (but all have an opinion).

 

Taking good advice will give you the maximum chance of riding out this uncertainty.

 

Take control of your future as soon as possible.

 

Good Luck with your investments.

 

Please let us know if we can assist.

 

 

 

Please click here if you want an adviser to contact you

 

 

Kind Regards

 

Brent King

 

Chairman & CEO of

 

King Capital & Investment Corporation Ltd

Equity Investment Advisers Ltd

Investment Research Group Ltd.

 

The Media industry has had a shocker!!

The Media industry has had a shocker !!

 

This year we have seen an amazing meltdown in the media industry.

 

We have all heard about disruptive technologies (particularly when they are being promoted by Brokers).

The impact of these technologies is obvious now as we see traditional media being smashed !

 

The 3 major companies in the sector have had a dramatic year.

 

NZME

 

This company was widely tipped to list in 2016 and the company was working through the plans to achieve this.

All has not gone well.

The CEO Jane Hastings resigned on the 9th of March and was replaced by the CFO Mr. Michael Boggs. Most Investors would interpret this as a holding position. The company is still talking about a listing in recent statements so maybe the turn around is closer. The speculation that Fairfax may sell assets to NZME and hence increase NZME’s market share could make the listing more attractive.

 

Media Works

 

The restructuring that CEO Mark Weldon had undertaken has gone very badly over the last 2 years. Although progress had been made over the period (e.g. the strong performance of The Paul Henry Show, The Bachelor, and the concept of the Newshub there had been a number of debate-able decisions made e.g. a radio sports show on the weekends starting at 2.00pm on a Saturday and Sunday thereby gifting listeners to rivals, loss of key personalities (John Campbell, Hillary Barry, Hamish McKay etc.).

 

Sky TV (SKT.NZ)

 

This company has delivered fantastic sport to New Zealanders for 25 years.

The financial pressures on households and the increasing availability of the same or similar products from other sources resulted in considerable reduction of subscriptions for the company. On   6th May Sky TV advised that their residential subscription numbers had dropped by 45,000 and that this was partly off set by increases in Neon and Fan Pass subscriptions of 25,000.

Sky TV had a 52 week high of $6.46 share price and it is now trading at $4.22. There was a significant   re-rating of the stock based on 6 May announcement where shares dropped from $5.50 to $4.00.

 

Nine Entertainment (NEC.AX)

 

This ASX listed company has had a proud history in the industry in Australia.

The company has had the same trend as the NZ media companies with the price now trading around $1.22 down from a high of 2.30 approx. 1 year ago.

The accounts have shown the need for a number of provisions and write-offs.

Also the accounts show approximately 50% of total assets are intangible assets. These include Licenses and other intangibles totaling A$977m out of total assets of A$1879m

The message here is simple. If the trading does not improve these items could be subject to a write down.

 

Macquarie Media Ltd (MRN.AX)

 

This is the old Macquarie Radio network. The company is now controlled by Fairfax. The shares are trading at A79c down from a 52 week high of A$1.15c

This repeats the issues of media other companies above.

Although the story is not as dramatic as others in the media industry in NZ or Australia, it does follow the pattern.

 

 

Summary of the Industry

 

The industry is quite simple.

It creates or buys content and it delivers this content to their clients either free or for a charge. If it delivers it for free, it requires advertisers to cover costs and profits.

 

The industry has suffered from the internet in 4 regards:

 

·     The ability for competitors to distribute content cheaply using the internet i.e.  no need for expensive infrastructure, set top boxes, aerials etc.)

 

·     Ease of larger operators to dominate by use of capital to create /buy content. This simply drives up the cost of quality content for smaller companies.

 

·     Piracy i.e. the ability to steal or otherwise utilize content at low or nil cost.

 

·     Cheap Entry.  Any niche market journalist e.g. political, social or sports blogger can start a website with virtually no capital. The specialist sites can erode support from traditional media very quickly.

 

 

The result now is that the old style media simply can’t compete.

 

The large staff numbers, high production costs, expensive distribution mean that the businesses are generally uneconomic.

 

Every media company is extremely volume sensitive. This is why they have all been paranoid about ratings. The reason is erosion of market share is debilitating.

 

The result is:

·     No cash for new /quality content (either created or purchased)

·     Staff lay offs

·     Lost of further market share

·     Loss of advertising or subscription revenue

·     It is a classic tail spin

 

Investors

 

The market has known that this is a tough industry.

 

·     Media works has been in Receivership

·     APN had its notes trading at 14% per annum

·     Sky lost its major shareholder (News Corp)

 

 

My thoughts for investors is simple:

 

If you are in this sector, make sure you can stand the bumpy ride or get out.

 

If you are not, think very carefully before investing

 

If you are a student of the markets, watch closely. This will be a case study for disruptive technologies.

 

The establishment companies will fight on for longer than you expect.

 

They will then enter a death roll hurting each other.

Some will merge, be taken over.

This will help in the short term as costs are cut, however this is temporary.

The government owned businesses will be ok.

TV One and TV Two simply have a massive shareholder who wants to get re elected. The shareholder will not do anything to upset their media.

 

 

In summary

 

Unless you are a gambler, maybe the best place to be in this particular game is to watch and learn from the sideline. When you are sure who has the game plan for the future maybe it is time to invest, maybe.

 

Happy New Year!

IT HAS BEEN A GREAT YEAR FOR US IN 2015

Happy New Year to you !

I hope you have had a chance to relax and enjoy the festive season.

We have been open for business on every business day right through the holiday period.

We are available to service any of your investment requirements.

Our individual subsidiaries had an excellent year in 2015.

 

 

Equity Investment Advisers Ltd.

Equity is our Investment Advisory business which offers retail advisory services to the public.

The highlights for 2015 are:

We have distributed 15 new issues in 2015.

-These have included bonds and shares.

-We have distributed IPO’s as well as new bonds issues.We have increased our market trades by approximately 35% (year on year).We have increased our active client base by approximately 30%

If we can help you with a transaction or an investment please contact Equity on 09 304 0145 or 0800 437 8489.

 

 

Investment Research Group Ltd. (IRG)

IRG is our Investment Banking and Research business.

We have seen this activities of this business grow substantially

Research

As our name suggests we offer research products to the market.

We have 2 separate products:

IRG Investment Yearbook

The 41st edition of this publication is an iconic fact filled book. The book is selling well to professionals, investors and students alike. It has data and write-ups on over 250 companies from small to large NZ companies, like Sky City, Auckland Airport, AFC and RIS, and Large Australian Companies, like BHP and ANZ, through to International companies such as Apple and Daimler Benz.

It is a great read and reference for all interested in the investment markets (whether beginners or experts).

Click here to order your copy. [https://irgresearch.myshopify.com/products/new-yearbook-2015-2016]

Company Research

IRG compiles individual financial research reports on listed companies. These reports are available for purchase .The research is a valuable insight into a company .It is wise to buy and read before you make a decision (either to buy or sell). It does not give you financial advice. It gives you facts on which to base your decision.

Reports start at $9.99 so they are value for money. You can buy the reports either individually or as a bundle for an industry group (e.g. Retirement Villages).

Investment Banking.

IRG has specialized in Investment Banking transactions in the smaller capital market. This year we have undertaken 3 public transactions for clients.

Australasian Food Corporation Ltd (AFC) reverse listing.

IRG was approached by a Chinese company looking to invest in a company and develop trade with products sourced from NZ and Australia and exported to China. This project was completed in 14 weeks and the share price growth has been 700% over the year. (Shareholders have also gained from a warrant issue).

This has been an excellent project for the Investors and shareholders and the future for this company looks interesting.

Management Buyout.

The management of Mykris Ltd a NZAX listed Malaysian based business approached IRG to seek to buy back the operating businesses. The businesses were listed originally to enable entry the NZ and Australian markets. This had not occurred and the Directors and management wished to privatize the company.

IRG managed the buyout and left the shell with net assets and the ability to seek new investments. It is proposed to use the shell as a listing vehicle for another company.

If you or your colleagues are interested in listing please contact IRG (09) 304 0145.

RIS Group Ltd. / Chow Group Ltd.

IRG is advising on the reverse listing using NZAX listed RIS Group Ltd for an accommodation property associated with the very successful entrepreneurs John and Michael Chow. The project is expected to complete by the end of the February 2016. The Chows are very successful in a number of different businesses and they will bring a very strong track record to NZX.

This will be a stock to watch.

Acquisitions

Winery

We have negotiated the purchase of a Winery for an overseas party. This is a boutique winery producing a specialist wine for a defined market. IRG acted for the purchaser and achieved both the purchasers and vendors objectives.

Dairy Exporter

IRG has acted for a purchaser who wished to buy a small dairy product exporter. IRG completed all aspects of the transaction including review, due Diligence, negotiations and settlement. The buyer and seller are very satisfied with the outcome.

Moneyonline Limited (MOL)

 

MOL is our online presence through our websites

·Sharechat.co.nz

Our very popular business web site www.sharechat.co.nz [http://www.sharechat.co.nz/]. has had a very strong year .We increased the number of subscribers and page views.

Our service allows subscribers to join lists which allow us to send them topics of their choice. The choices include Daily news, After the bell news summary, IPO’s.

Subscribers get emails sent to their inbox. They can review the summary or if they want more detail they can click on the link and read the full article.

Check out the www.sharechat.co.nz [http://www.sharechat.co.nz/] and see if we can provide information that is relevant and easy to understand.

OUTLOOK 2016

This year, 2016, is going to be VERY BUMPY!

It has started on a negative both investment wise and also politically.

We all need assistance, advice and information.

If we can help with any of our services:

· Buying or selling securities
· Information on investments
· Advice on corporate activities
· Listing or de-listing
· Acquisitions
· Great reading material or gifts

Please contact us if we can help with your investing objectives. Phone 09 304 01445 or 0800 437 8489

Wishing you great returns this year

 

 

 

 

Brent King
Chairman & Managing Director
King Capital & Investment Corporation Ltd

ENERGY IS THE KEY!

After decades of trying to produce energy for the world, we now find ourselves in a position where there is simply far too much energy available for the current level of demand.

This has been caused by:

  • The significant growth in the production of solar panels; and
  • The significant growth in the wind power industry; and
  • The cheapness of the nuclear power; and
  • The advancements in the power storage industry ( battery technology); and
  • The massive growth in the shale oil industry; and
  • The major oil producers now being in a position where they either  have  to keep pumping to pay their debts, or they are pumping oil to  drive low cost producers out of business; and
  • The focus on energy efficient appliances.

The net result is that the price of energy is under significant downwards pressure. Currently, there is no reason to believe this will alter.

This could increase as governments subsidise “alternative energy“, on the basis that they are working towards their international climate change objectives. This could see further growth in supply.

In New Zealand we are used to significant taxes on petrol and oil (approximately 60c per litre, plus 15% gst). I am sure that a future government will increase this and justify it on the basis of “climate change”.

The New Zealand electricity industry has always suffered from a lack of real competition. We currently have a model where the Government controls the industry via its 50% of the listed companies (Mighty River, Meridian, Genesis). This has a stabilising effect on the market, but it is grossly inefficient. The only real evidence of competition is the stupid television advertisements. This gives the appearance of competition however there is no real price competitiveness.

The New Zealand consumer is the party that is paying for the high petrol tax and the government controlled oligopoly.

What can we learn from this?

  • There is unlikely to be an increase in energy prices.
  • This will mean that there is unlikely to be any significant inflation in the medium term.
  • With the worlds governments committing to temperature targets, there will be a default position for any government to justify increased spending.
  • Governments will move the focus from increasing money supply by simply printing money to borrowing and spending “for the good of the planet”.
  • The world will become even more Government driven, and less “free market”.
  • There will be even more reasons for governments to borrow money.
  • There will be even more bad decisions made which will reduce world growth, and it will add to the waste of resource as more projects become uneconomic and politicians throw good money after bad.
  • Investments in energy without government support will not be economic.
  • Investments in energy without significant barriers to entry (a wide moat) will not perform well.

Summary

  • We are living in a very changed world.
  • The memories of the “Oil Shocks” and the fear about world disruption if the Middle East is at war is long gone.
  • We are all need energy.  However, the supply/demand is in a very strange position just now.
  • Expect the “natural“ forces to want to reduce price,  but governments to fight the market. Very strange movements will occur.

If you are going to Invest in this sector, do so with knowledge and caution.

Happy Investing!

Brent King

Managing Director

Investment Research Group Ltd

 

Greece, Greece and more Greece!

 

The world is certainly focused on this small country.

It appears that it is the centre of the universe just now.

Every news bulletin, every newspaper, every website has a view.

Here is mine. It is just as likely to be right or wrong as any other.

Facts

  • The Greek economy cannot produce sufficient funds pay their bills.
  • Austerity will NOT fix the problem.
  • Debt forgiveness will not fix the problem.
  • The Debt burden is far too large.
  • The international community has fed it the worst of all drugs, debt.
  • It is a hopeless addict now.
  • The people in Greece feel aggrieved, embarrassed, humiliated and angry.
  • The World’s “Money Men“ have fortunes simply doing enough to keep the ship afloat and to move risk. The deals that have been done and the massive fees paid may return to haunt some parties.
  • If a club creates rules and a member breeches them publicly, the club must take steps to remediate/discipline that party or simply expel them. Ongoing breeches simply weaken the organisation and allow others to follow the delinquent behavior.
  • Greece is a small player by world standards, population of 11 million, GDP US$242B, debt to GDP 180%.

Who is winning?

  • Those advisors/financiers who are making big fees.
  • The politicians from other countries who are not in the spotlight, and who can blame their failures on the “Greece crisis“.
  • The parties who have taken positions in various markets that have benefited from this (they may be long or short positions).
  • The IMF because they gain more airtime and appear to be important.
  • The media, because it is a great topic to speculate on.

Who is losing?

  • Those countries who have played by the rules but who have been dragged into the mess by agreeing to buy bonds, provide lines of credit, etc.
  • Anyone who is holding Greek assets.
  • All Greek businesses, as no one wish to enter a contract with a party who may not be able to perform. Most will chose other companies to do business with.
  • The whole European Union as they appear impotent.
  • The world as we are become risk averse in decision making, hence economic growth stalls.

What will be the outcome?

  • They will be a “Problem Child“ for a long time.
  • International Investment Banks will assist and they will make significant gains.
  • There will be a significant transfer of wealth to parties who can offer solutions, particularly ready cash.
  • Competitors of the EU, and the West, will seek ways to take advantage, e.g. Russia, China, various Middle East countries.
  • The Greek people are hurting and the youth are angry. There is a real chance of significant civil disorder (terrorism).
  • There will be a number of chapters to be played out yet. There will be significant volatility.

Eventually, Greece must have some debt forgiven and they must accept the need for change.

They will eventually see benefit in being separated from the EU, and masters of their own destiny.

They will have a currency that is not linked to strong economies, as they can never create a competitive economy with the Euro.

Greece may serve as a lesson for all small countries that join large economic blocks, in that they are very vulnerable.

If they do not have strong diversified economies and when they have structural weaknesses that need to be addressed, they will not have the ability or power to use monetary, fiscal and exchange mechanisms to cope better with the pain that accompanies required structural change.

There is also a lesson to be taken from this, for countries that are small and relatively economically undiversified, that sign free trade agreements with large much stronger economies. They too are at risk when they face financial trouble and need to make structural changes, which may impact on the terms of the free trade agreement and this has the potential to limit them to implement change.

What Does This Mean for NZ Investors?

The major factor is nobody knows how this will unfold. Everyone is speculating on various outcomes.  As a result, many people will lose money.

The best thing for investors, is to work out what they want from their investments.

If you want stability, make sure your investments can stand this period of instability.

If you want income, make sure the income is sustainable in this period.

If you are looking for growth, make sure you have assets that are positioned to take advantage of this turbulent times.

We are seeing many investors simply holding assets that they have previously invested in.

Reviewing your portfolio and reweighting it to your current circumstance is a critical part of being a smart investor.

Being in a growth or an income or a conservative asset is acceptable at any time of the cycle. The key factor though is, is it right for you, and is the asset actually what it appears.

Reviewing and understanding your assets, their characteristics and their attributes, is one key to constructing a portfolio.  Understanding your objectives and risk appetite is the other.

Do not hold on to an assets that were growth or income because of history.

Make sure it is meeting your intended purpose now.

If in doubt speak to your advisor.

The Future

The only thing we know about the future is that it is coming.

The best thing for all of us is to be prepared.

We are not telling you to buy or sell anything (your portfolio may be ideal for you).

Just take some time to read articles, speak to parties and to take good quality advice.

We are in interesting times. Risk and opportunity will abound.

Hold assets that will give you the outcomes that you desire from them.

Enjoy the next few months, this is going to be a roller-coaster ride.

Expect the unexpected!

 

Happy Investing

Brent King

Managing Director

Investment Research Group Ltd

What have we learnt from 2015?

 

We have consumed 5 months of 2015 and what do we know?

The overriding fact is Governments have stopped leading and they are reacting to situations. There is no restructuring or strategic initiatives to improve the economy. Each government is taking a status quo position unless absolutely forced to take action. The only real action is to increase the money supply in a series of novel ways and reduce interest rates.

The result is that economies are not restructuring.

The major issue for investors is that the current settings will continue “as is“ unless/until we have a major event. This is fantastic because we will have reasonably predictable markets. However when it changes it will be dramatic.

Like most other dramatic changes it will be when we least expect it.

The biggest issue in the market is that capital is being very poorly allocated. We have poor decisions being made. We have stupid advisors saying “don’t worry about a few losses, when you win it will make the losses seem irrelevant.“

There are a number of advisors saying you only need 1 in10, or 1 in 20, to win and you make a fortune.

This is very bad for the capital markets. Capital is being destroyed at a very fast rate. No different than any other casino, there is always a winner but a lot of losers (plus the house takes a percentage). The issue is capital is not being valued at all. The destruction is not as obvious as it would be if times were tough. When a downturn comes it will be dramatic.

What should we be thinking of?

Making money!

There have been some fantastic IPO’s, particularly in Australia, with fantastic upside! (Not all have of course).

A recent issue of shares in a Chinese company (ASX: XPD) has shown returns of over 80% in the first few days.

We have seen the New Zealand technology company (Martin Jetpack ASX: MJP) list at 40c and move into the $3.00 range and back to the 90c range, still a 120% gain.

There have been lots of others IPOs in Australia, some winners some losers.

The variance of returns is a sign of volatility which in technical analysis is   defined as risk.

We are in a very interesting stage of the market. The good thing is Governments won’t do anything dramatic and markets will continue until a major event occurs.  Be careful that you understand what you are investing in. If you are looking for safety make sure it is a safe investment. If you are looking for income make sure the income stream is protected, if you invest in a speculative asset, make sure it has the potential to give a multiple return on capital to make up for the high risk.

The issue is the same as it has always been. Define what you are looking for, and ensure the product has the right characteristics. Remember, the market is full of products that are not as they seem. The product pushers are skilled at focusing on the positive and disguising the negative.  The key is to look at what your portfolio needs and ensure the product meets that criteria.

Always remember that when it changes, it changes!

 

Brent King is the Managing Director of King Capital & Investment Corporation Ltd, the owner of Sharechat, IRG, Moneyonline Ltd and Equity Investment Advisers Ltd.

This article is of general nature and does not constitute advice (except to seek advice).

If you wish to contact Mr. King, please email him on Brent.king@IRG.co.nz

brent king

 

2015 HAS STARTED WITH A BANG!

 

 

 

We are off and running in 2015.  The world events have taken center stage and we have all been spectators.

The major events have been:

 

Paris

 

  • The shocking events in Paris and the apparently related events of Brussels.  This has shocked the western media and placed a microscope on matters.  It does appear that it is deliberately destructive and religiously motivated.  The attack on people who are advocating free speech to a very small and targeted audience is simply wrong.  Yes it may give offence to someone, however it is in a small newspaper bought by people who like that type of journalism.  Frankly, there are lots of media that I won’t read because of the slant that the editor has.  The equally distressing matter is the attack on persons at a supermarket who are probably of one religious faith (although not all were of one faith).  This is simply wrong and undermining of a free society.  It all must be put into perspective though.  The numbers killed are small.  In many countries it was thought of as a small group of crazies that all countries have.  It simply did not have the impact in Asia that it had in the west, as many Asian countries have had similar attacks and have had to deal with it.  I am very concerned that we will return to the crazy days of a police state where there is interference in everyone’s business.
  • Let’s all make sure we don’t see “Reds under the bed“, and rush around in a state of paranoia.  These people are bad and they are destructive.  So are drugs and crazy drivers on the road and we have real issues like unemployment, youth suicide and drownings etc.
  • Remember this is a very convenient time for politicians to distract the public’s attention from the issues they are not addressing i.e. the economy!  The attacks were bad, but let’s not think that this group of disaffected people can hurt our strong democracies.  We are better than that!

 

 

The Swiss Franc is unpegged.


I have watched this closely over the past week and this has been fascinating.

The simple fact is the ratio was wrong and the Swiss central Bank moved to remove the peg.

The peg at 1.2CHF to the euro was simply wrong for the performance of the two economies.

If it was right then when it became unpegged, there would have been no change (it would have remained at 1.2).

I have seen commentators making unbelievable comments about this matter.

Switzerland has no obligation to stay pegged to a group of countries that are managing their economies badly.  Why should each person in Switzerland have to pay more tax so that its government can hold an exchange rate that is simply wrong?  They shouldn’t.

It is wrong for the world not to give the EU the message that this soft stupid process of “print more money and all will be well“ policy has any merit.

The lack of any real policy, except the stupid left wing policies of increasing money supply is simply doomed to failure of catastrophic proportions.

Increasing money supply simply helps the speculators and allows the structural issues to remain.  The average person is far worse off, and they will react in the future when they see the speculators have assets and wealth created with the cheap money that Central Banks have pumped into the market.  I am expecting a reaction by the poor of significant proportions (yes, massive social disorder).

 

 

Asia

 

This is a very different story.  China’s economic miracle is due to its massive surpluses, plus it has moved from a centrally controlled economy to a freer market economy.  This means asset allocation is improved (whereas the West is becoming more Government dominated and the asset allocation driven by the market is reducing, hence the return from these assets is reducing).  Asia makes goods and sells them to the world.  It may not own the intellectual property (this may be owned by Apple or IBM etc.), but it does own production and has trade surpluses.  It is true Asia is slowing a little, and will slow more.  It does have massive reserves which other countries/regions do not have.  Its markets are becoming more flexible/market driven, when the west is becoming more regulated and constipated.

Asia has moved to consumption, e.g. it is building apartments and luxury buildings at a great rate.  There are lots of these being planned and built now and an oversupply and a “correction“ will occur.

The key for me is that they are producing goods and products that Europe and USA can make, but can’t do so at cost effective rates.

 

 

New Zealand

 

The major issues to think about now is have we digested the drop in Dairy income that has occurred over the last 9 months, and can we continue to have growth driven by central and local Government spending?

 

Dairy

New Zealand has benefited from its dairy farmers increasing supply, and also the strong commodity price.  The drop in Dairy price has been massive.

Most farms will have lost a minimum of 30% of net income, and some of the farms have lost 150% of net income, i.e. they have lost their last years profit and are in the RED!

This is simply a statement of fact.  The big question is how will the banks deal with clients in this position?  This hasn’t been determined yet, but we will see actions over the next 12 months.  If prices improve, things will settle down.  If not, expect a blood bath.  The debt levels were too high, and as always the new entrants into the game will have the highest.  They are the most vulnerable.  They will be the ones the banks will deal with.

Note on my recent visit to China, I read an article stating that Chinese farmers are destocking due to low prices!  They can’t make it work at these levels.

Can we?

 

Government Spending

The increase in spending in local government is a major concern.  No one really holds local officials accountable.  The spending is out of control, and the outcomes are poor.  This is a major issue for New Zealand’s economic performance.  The ability to tax (rate) and to borrow is a real problem.  There is no accountability, and this will cause problems for councils in the future.

If Auckland house prices plateau or reduce, then this will cause massive problems.

Watch immigration figures and policies, as any movement in this will have a massive effect.

 

Commodities

 

We have seen the dramatic drop in the oil price and most producers are hurting badly.  The worst thing about commodities is that the production is slow to start and very slow to stop.  The issue is once you have built your mine, setup your dairy farm, you tend to keep on producing.  If prices drop, the easiest thing is to produce more so that you can survive and your competitors go out of business, hence supply drops.  The industries virtually never reduce supply in an orderly manner.  Producers need to produce to pay bills.  If income drops they produce more and prices drop more until someone fails.

Gold is not strictly a commodity.  It is money.

We have seen gold end 2014 higher than it started 2014 in every currency other than the US$.  Is this a sign?

It’s certainly a point that we should all factor into our thinking.

When commodities are falling and gold is rising that tells me the world believes there is massive uncertainty.

 

Deflation


There is no question we have deflation in most assets.

Commodities are mainly down, but so is the real price of an equivalent cellphone, TV etc.  The only reason that any prices are up is because the product we buy is 2 to 3 times better than before.  It has more memory, more cameras etc.  A ‘ like for like product ‘ is cheaper.  A Chinese cell phone today is at least as good as your 3 year old Apple, and 10% of the price.

That is real deflation.  The only thing we are seeing not reducing in NZ is middle-top end housing.

We should factor this into the equation.  If the inflow of capital to top end housing stops, watch out for a problem.  Look at our smaller cities and at how the market has moved without capital/migrant inflow.  This will be how Auckland will be if our investors/migrants stop investing.

 

 

Where should you invest?

 

Well I hope the above has given you a big picture view.

It is my view, and there are many smarter people than myself in the market.

Use this as part of your research.  I am not giving you advice.

I am giving you information on which you can make your decisions.

Be very careful though.  Don’t just rely on those advisers who say give me all your money, I know what I am doing.

This is your hard earned money.  Be smart with it.

 

Points

 

If you think about it, there are countries that are making money and those who are not.  Who should you reward with your investments?

  • Every investment is about the future.

You take an action today expecting that action to make you better off in the future.

Most experienced investors accept that not all investments they make will make them better off, however, at the time you make the investment, you expect it to be successful i.e. a sensible investor will understand things don’t always work out as you wish.

 

  • Key Point – Think about the big issues.                                                                            –    The world economy.  Which countries will win, which will lose?

–    Think about our economy and how we earn our way in the world.

Can we really have as many people in Banks, central and local governments earning these massive salaries?  Seriously?

Can we really have every person in NZ having cell phones, 2 colour TV’s etc, even if they chose not to contribute to society?

–          Is that shiny stuff that we put into Wedding rings and valuable pieces telling us something?  Is it good to have some tangible metal?

The world is at a very interesting stage now.  Think about the big things and make good decisions.

Don’t get blinded by a few years of good returns which have been based on an aggressive stance in a positive market.  The market went up 18% last year, did your adviser pay you more than this?

The years since the bounce after the crash of 2008 have been good.  Most fund managers have made good money from 2010 on.  The issue now is can they make   the same in the next year or two or should you become more active and take a greater interest in your assets?

Only you know that.  You must look after your investments as you do your health, your relationships and other valuable assets.

Neglect them and you will lose them.

2015 has started with a bang. It will be a very interesting year.

The question is will you be ready for it?

Will you have done your homework and will you be ready for the next BANG?

 

 

 

Brent King is the Managing Director of King Capital & Investment Corporation Ltd, the owner of Sharechat, IRG, Moneyonline Ltd and Equity Investment Advisers Ltd.

 

 

This article is of general nature and does not constitute advice (except to seek advice).

If you wish to contact Mr. King, please email him on Brent.king@IRG.co.nz

 

Time to Think about the big issues

Currently the world has a series of issues that could severely upset the current balance.

  • The world events of the Middle East and the Barbaric acts staged to gain international attention under the names of ICIL, ICIS etc.  are disturbing and have the potential to cause major impact.
  • The impact of Ebola in West Africa  , plus the spread to USA and Spain are 2 events that could easily unbalance the world economy.
  • The Civil protests in Hong Kong have brought the Chinese Government  into the limelight. How will they deal with the protests ? Will it be the old style of using strength ? or will it be more subtle?  Will groups in China with similar grievances gain strength from this

These events are of such significance that they have pushed  Russia /Ukraine /MH017  into the background. The internal war in Ukraine ( backed by various Super powers )  is a major event for the world , but there is little attention paid to it as currently as the  ICIS and Ebola events are taking all the limelight.

The economic impact is limited so far (Airlines such as Delta, American ,Qantas EasyJet  etc. have dropped around 4%  not significant yet but something to watch).

The biggest issue about these stories is that we are not focusing on the major economies. We are watching side shows and not understanding whether the big engines are improving , stable or worsening. The major issues to focus on are whether the Central Banks can tighten their monetary policies. All western Governments have been running some form of stimuli ( pumping liquidity ) , whether it is  “quantitative easing “ , buybacks etc. etc. The markets have massive liquidity and the result is significant  price distortions  e.g. top end Real Estate , Early stage  technology Stocks etc.

We are in the silly season , i.e. most major crashes occur at this time of year.

We have a large number of variables with significant downside .

It is time to watch   “ the  Main Game “but to also be aware of the  sideshows.

( Remember the saying “ it’s the straw that breaks the camels back”  )

We must observe the  events , and assess what the impact  will be on the markets

Downside risks     Share market volatility  and  price reduction

Default by a major Bond issuer causing yields to increase and prices to drop .

Upside Opportunities  Gold  / Precious metals  plus  currency appreciation (for stronger currencies) .Investors move to quality and intrinsic value.

Comment

The market seems very  “ skittish “. Small events can trigger a significant reaction.  It’s a good time to review your portfolio and decide why you hold each investment.

Is it because of

  • Safety
  • Growth
  • Income

You should be clear of the intention and whether the asset will deliver your objective. If not, move to an asset that will deliver the required outcome.

If you are unable to undertake this yourself , you should seek professional advice.

Brent King is the CEO of King Capital & Investment Corporation Ltd and subsidiaries, Equity Investment Advisers Ltd, Money On Line Ltd and

Investment Research Group Ltd.

This article is of general nature and does not constitute advice (except to seek advice ).

If you wish to contact Mr. King  please email him on Brent.king@IRG.co.nz

Wow !!! We needed that !!

Last week’s correction is very important for the New Zealand Capital markets.

The market had become “drunk “.

We were constantly being offered assets at price which had no logic other than they were hard to get. The shortage was created by investors clamoring to get stock because it was the “next big thing “.

No sensible market can take the graph of GeoOP seriously (see below).

 

A company that had Sales of $300,000 per annum and listed at $1.00.

The price ran to $4.49 giving it a market capitalization of $122,443,049.

As of now GeoOp is trading at its issue price of $1.00.

The rumour is that there is about 20 similar companies looking to list.

Seriously !  Seriously ! this feels like 1987 ?

That is nuts.

We have Xero, our superstar and arguably one of the best managed companies in New Zealand announce its contracted revenue will hit $100,000,000.

Our markets values this at $3,323,050,406 @ $26.00p.s.

This price is down from a high of $45.99 p.s.

This is crazy !

 

Pre IPO market

This market has been nuts !

We have seen naïve sales people running around to “professional investors saying this is cheaper than XXX.

This will be better than ZZZ.

Institutions have encouraged their clients to take higher risks.

Many clients are sitting with a portfolio of early stage investments that will take a long time to liquidate and that will need lots more cash.

We have seen early stage companies claim values as high as 300 times revenue.

Of course you can create growth when you give a company $1.0m and the company creates $200k of sales.

The supporters say but it is re-occurring.

The answer is that is sometimes it does reoccur, sometimes it doesn’t.

And sometimes it re-occurs for a number of years.

The real issue is a market issue

 

All smart marketers look for the client who is an “early adopter “i.e. the clients will take risks, buy new products before most people.

These people are risk takers, they are opinion leaders.

They are first on Facebook, Twitter etc.

These people allow you to build your business.

The problem is they are extremely disloyal. They will quickly change brands and they will “try “ a competitor. Those who adopt early leave early.

The point about this is simply, you can get clients in the early stages, but can you keep them and build a business on them.

Where to from here ?

 

  • The price of Equity capital is rising and early stage capital could rise significantly.
  • Investors will move to safety i.e. companies with earnings and positive cash flows.
  • The pre IPO market will become a lot tougher.
  • Fund managers will be under the spotlight to see if they are simply good at managing in strong markets or can they pick real value.
  • Watch any company not making profits. If they fall out of favour the fall will be brutal (Note GeoOp, Moa, etc.).
  • Good companies with cash flows and profits will continue to have value.
  • There will be massive efforts to push the current pipeline of listings through onto the market. Watch out for the “dogs”.
  • Be very careful of the “spruikers “, the snake oil salesmen who have little market knowledge but speak well.

Take Action before 30th June 2014

If you pay $1042.86 the Government gives you $521.43.

That’s a great deal!!

Every year the government will make a contribution to your KiwiSaver account as long as you are a contributing member aged 18 or over. This is to encourage you to save. This is paid every year around July/August to members of a KiwiSaver scheme or to a “complying fund” until the member is eligible to withdraw his/her savings.

To receive this tax credit you must be:

  • 18 years or older and
  • You must reside in NZ except if you are a government employee who’s serving outside New Zealand and a person who is working overseas as a volunteer for a token payment for an accredited charitable organisation (named in the Student Loan Act regulation) and the work performed meets at least one of the requirements of the Loan Schemes Act 1992.
  • The member must contribute at least 1042.86 during the year (this excludes the employer’s contribution).
  • A member for the preceding 12 months before 30th June
  • The contribution must be directly from the member, so employer contributions, government contributions and amounts transferred from Australia under the Trans –Tasman retirement savings portability do not count towards eligibility for this credit.
  • (A “complying fund” is a superannuation scheme that has membership criteria similar to KiwiSaver, such as your savings being locked in until the age of eligibility for NZ Super. Members of a complying fund are entitled to receive the member tax credit but not the $1,000 kick-start.).

Have you maximised this return for 2014?

If you have not contributed $1024.86 to your annual KiwiSaver contribution, consider if it right for you to do so by the 30th June 2014, to ensure you get this free maximum annual government contribution after the 30th June 2014. Why not consider taking advantage of the 50% gift from the government. It is very hard to find a return per like this with a similar risk profile.

What if I haven’t made contributions of $1024.86?

If your annual contribution, via your pay is going to be less than $1,042 you can make voluntary contributions to ensure you annual contribution is at least $1024.86 by the 30th June. This will then then allow you to receive the full member tax credit from the government, provided you have been a member in the fund for the preceding 12 months prior to 30th June.

What is the position if I haven’t been a member all year?

If you have been a member for less than 12 months, then the government tax credit is prorated to the period that you have been a member for that year.

If you will be a member for the 12 months preceding 30th June , check your KiwiSaver contributions for the period ending 30TH June 2014 and consider topping  up if it is right for you.

How do I claim this Tax credit?

Your KiwiSaver provider will claim the tax credit on your behalf after 1 July each year. You don’t have to do anything.

Have your kids joined KiwiSaver?

Don’t forget the Government gives a new KiwiSaver member $1000 towards their account, as a once off tax free incentive contribution for him or her when they join KiwiSaver. Children are entitled to join the KiwiSaver and get this once off incentive Government contribution.

If your child is under 18 years he or she does not have to make KiwiSaver contributions, unless required by your KiwiSaver provider. Voluntary contributions can be made at any time.
Have your children joined yet?

Everybody (children, grandchildren, husbands and wives) that is not on a KiwiSaver scheme and is eligible should take advantage of the government’s generosity.

Why delay the receipt of the free $1000?

Click here to register your interest and to obtain more information

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