Archive for September, 2011
Thursday, September 29th, 2011
The NZ Shareholders Association said today that ex gratia payment of $3m to Tim Miles by PGG Wrightson continues the company’s pattern of overpaying a select few at the expense of many.
Chairman John Hawkins said the first mistake was the contract written for Mr Miles under which he was paid over $1.6m, while the next man down was paid only $680,000. Hawkins said the NZSA believes the salary of the CEO should always be related to the salary structure of the rest of the organisation. Good results are turned in by a team, not just a good CEO he said.
In this year’s annual report, Tim Miles salary was $$615,410 plus a $703,125 short term incentive. Hawkins said that given the company’s recent performance, it was hard to see how such a large short term incentive could be justified. Mr Miles was also previously granted 2.5m shares paid for by an interest free loan from the company and vesting over
several years as part of a long term incentive scheme. When Mr Miles resigned, the company acquired online pharmacy no prescription and cancelled the long term incentive shares.
Hawkins said that the $3m was described as an ex gracia payment, something that would normally be considered a voluntary payment rather than a contractual obligation. Hawkins speculated that PGW was probably forced into a buyout of Mr Miles contract because the company had changed – without the Uruguay farms, the finance company, and with the new majority shareholder Agria. He said with major operating divisions dispersed, Mr Miles may have been deemed redundant, adding that the very large ex gracia payment hardly seems fair to shareholders since Mr Miles was part of the management team that created the problems faced by PGG Wrightson. With the share price languishing around 40c, Hawkins said the market was demonstrating little confidence that the company had turned the corner.
The Shareholders Association hoped that the current Managing Director George Gould, who sold his related party shares to Agria, and who has a long experience in the farming sector, will accept a salary more closely related to those of his management team. He needs to correct not only the salary excesses, but also the problem of high debt and unrealistic investments that have dogged the company in order to restore it as the backbone of rural trading in New Zealand said Hawkins.
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Tuesday, September 27th, 2011
The price of gold and silver has fallen substantially in the past few days, the latter by over 15%. This suggests speculation in precious metals had been substantial and profit taking is now going on.
On the other hand, the US$ has also been strengthening, which might be pushing investors to the sidelines.
Some observers believe gold and silver have been in a bubble while others say it is the only true store of value in a world where central banks are creating money and credit seemingly without limit.
I lean towards the latter view but investors should let the trend be their friend and trim holdings, or at least refrain from buying until prices stabilise.
If you look at both metals, it is obvious that silver is more likely to be in a bubble. Its price had risen by 150% over the past two years, while gold has ‘only’ risen by 80%.
The macro trend for both, however, remains upwards and I note UK-based Barclays Capital, America’s The Brink’s Co, Germany’s Deutsche Bank, Australia’s Perth Mint and a company called Swiss Precious Metals (which may
or may not be based in Switzerland) have all been reported recently as saying they are running out of storage space for gold being deposited by clients.
This is further evidence that the ‘third wave’ of gold’s popularity is upon us and that demand at the individual investors’ level is rising fast. I still think there is some way to go yet before fully fledged gold mania sets in so it is not too late to buy some bullion or gold mining shares.
Monday, September 26th, 2011
The New Zealand Shareholders Association Chairman John Hawkins said today that the NZSA was concerned that many Telecom bondholders may not realise how important it is that they participate in the upcoming demerger vote.
A bondholders meeting
will be held in Auckland on Friday, September 30th. This is a month before the Telecom shareholders will consider the demerger. It looks to have slipped under the radar, but is every bit as important, said Hawkins. If bondholders do not approve the demerger arrangements it is likely that the whole scheme could collapse.
The Shareholders Association has already criticised the length of the required documentation. Hawkins said that to aid retail investors, the NZSA now had a three page summary of the key issues bond holders needed to consider up on its website www.nzshareholders.co.nz . We think that many investors will find the 80 page official documentation too difficult and repetitious, said Hawkins. Hawkins said the NZSA was also working on a similar summary for shareholders, but with over 500 pages to wade through, this was still a few days from being completed.
The New Zealand Shareholders Association is offering its usual proxy service to all bond holders. They only need to put our name on the proxy form, sign it and send it to Computershare. We will take care of the rest, he said. Computershare must receive proxy forms by 10am on Wednesday 28th September.
Hawkins said the Shareholders Association intended to vote undirected proxies in favour of the proposal because it believed on balance, it was in bond holder’s
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Thursday, September 22nd, 2011
All the debate about Greece defaulting and the like overlooks one key fact – there is no mechanism to allow any member of the EU to withdraw from the union.
It was never envisaged and there is no legal way it can be
Therefore, Greece and the other weaker nations are going to need bailouts by the likes of Germany and France. This recognition, plus indications that China might throw some money at the problem, have helped lift investors’ spirits.
However, current volatility is reflecting investor sentiment more than any likely changes to corporate earnings so investors should not get too sucked into hope or despair, depending on which way the markets move.
The constant distraction being caused by Greece, concerns about which are responsible for volatility in markets lately, raises the question “what’s so bad about a default?”.
Plenty of countries have been unable to pay their sovereign debts over the years, including many South American countries which today are quite prosperous. The major issue, of course is that, once one country is able to default and withdraw from the EU, others will want to follow and that probably would cause more problems than it solved.
To avoid this scenario, there has been co-ordinated central bank action to inject US dollars into the European financial system.
This was to avoid gridlock as banks with high exposure to basket case economies like Greece were finding it hard to get other banks to deal with them. However, the injection of funds hardly registers against the hundreds of billions of Euros owed by the weaker economies and I believe it won’t do anything to alleviate the growing prospect of default.
Meanwhile, latest housing stats out of the USA are dismal and economists are projecting no recovery in demand until well into 2012.
Purchases of previously owned homes in August were close to the lowest of the year and construction dropped to a three-month low. Until there is a recovery in demand for housing, particularly new ones, unemployment will remain high and economic growth low.
As a result, anybody hoping for a sustained rise in equity markets in the near term will probably be disappointed.
Friday, September 16th, 2011
The New Zealand Shareholders Association says the size of the documentation required to be distributed to Telecom shareholders informing them of the proposals to split the company in two is ridiculous.
Chairman John Hawkins described the 500 plus page booklet as an extreme example of disclosure gone mad. Hawkins said that he did not blame Telecom for the situation. This has been forced on them by regulatory requirements. The company has satisfied us
that this was the minimum they were legally required to distribute. That just goes to prove the current law around this issue is an ass, he said.
The Association says that retail shareholders want clear and concise documents that highlight the basic issues. Hawkins said that the NZSA intended to prepare a short summary for the benefit of their members and
others who would otherwise struggle to wade through the official document. We hope to have this up on our NZShareholders website in the next few days he said.
Hawkins said that fortunately there was light at the end of the tunnel. Upcoming changes to securities regulations would require concise brief documentation for shareholders and an internet based database for the more complex detail. Unfortunately this will not be law until sometime next year he said. The NZSA has been involved in the consultation process and is satisfied with the likely outcome.
In the meantime both shareholders and companies are stuck with huge documents that must be in hard copy. Since the sheer size would put most people off reading it, Hawkins described the huge booklet as an officially sanctioned waste of money and resources.
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Tuesday, September 13th, 2011
On Thursday, New Zealand will be the latest country to review its official interest rates and, like the US, UK and others, will almost certainly not raise them.
This country is due for a rates raise, not least
because we have lagged Australia which has made several moves in the past
couple of years and the rates were trimmed here to help out with the aftermath of the Christchurch earthquake.
On the other hand, higher rates will attract more investment here and push up our already painfully high exchange rate, which the Reserve Bank and exporters most certainly will not want to see.
Meanwhile, interest rates in the USA have fallen to record lows with 10-year treasury stock trading for around 1.92%, having been as low as 1.87% on Monday. In Europe, the yield on the 10-year German government bond fell yesterday to 1.78%, having likewise visited an all-time low of 1.71%.
Apart from investors chasing safe haven investments in light of the continuing European debt crisis and threats of renewed recession in the US, I believe these low rates also point to a growing expectation that the outlook for the global economy is deflation, not inflation.
This goes against traditional economic theory, which says that pumping lots of extra money into an economy will lead to inflation. While it is true that food and energy are rocketing, the price of manufactured items from clothes to stereos to motor vehicles is falling.
As much as I like the idea of prices falling, a deflationary spiral is much more dangerous and harder to fix than an inflationary one. Also, it punishes those with debts because the real value of those liabilities goes up over time. Given the issues we face with sovereign and household debt globally, that is something to be very, very concerned about.
Wednesday, September 7th, 2011
Falls on Wall Street in the past few days means the US market has entered a tight trading range, with the Dow over the past month trapped between 10,800 and 11,600.
from this trading range will occur eventually, and the direction of that movement will be a powerful indicator of the mid-term performance of world share markets.
Another indicator will be the Bank of England, which is reviewing its official interest rates tomorrow and this will make an interesting comparison with the recent US review.
Both economies appear to be under pressure, however, and it is hard to believe that rates will be lifted. This lends weight to my view that deflationary forces have the upper hand globally, despite all the injection of liquidity by the central banks.
Markets hate uncertainty and it is quite likely there will be volatility to come across the Tasman in light of the Australian government’s defeat in the courts over its its plans to handle illegal immigrants offshore. The government is very fragile and PM Julia Gillard is unpopular. Outright collapse cannot be ruled out, which would be bound to put a dent in investor confidence.
On the other hand, statistics out today show strong GDP
growth in the June quarter and this has lifted the local markets despite the gloom on Wall Street.
With luck, this means we are returning to the pre-globalisation days where markets moved in a different direction to each other depending on local conditions. This can act as a ‘fire break’ when you have a financial or market issue in one particular economy.
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