Archive for November, 2011
Wednesday, November 30th, 2011
Latest leading indicators from the OECD show more good news for New Zealand, but little joy for other countries.
The figures for New Zealand, which combine statistics for various sectors that point to changes in the overall economy for up to 12 months ahead, have been rising steadily throughout 2011.
This goes against the trend in the rest of the world and probably is being caused by strong food prices. Since the rest of the world is
more industrial than clean, green New Zealand, our economic cycle tends to be different from other countries.
The country showing the worst figures is the UK, where the indicators have been trending down since May 2010. However, the rate of decline has been picking up in recent months and this does not bode well for that country’s economy, which already is implementing austerity measures.
The rest of Europe and the US have also seen downturns.
China has had a gradual decline, which appears to be in keeping with the government’s desire there to engineer a ‘soft landing’ for its economy in order to keep a lid on speculation and inflation.
In Australia, the indicators are showing a gradual upturn after a few months of decline. Its reliance upon resources means it is vulnerable to global growth and this pattern appears in keeping with impacts upon demand for important industrial minerals and energy.
The good news for investors is that, while the rest of the world might slow down in 2012, New Zealand and Australia are sitting pretty comfortably.
That offers encouragement to share market investors, and suggests that increasing exposure is a worthwhile venture.
Thursday, November 24th, 2011
The New Zealand Shareholders Association Chairman John Hawkins said today that the NZSA was pleased with the decision by Pumpkin Patch Chairman Jane Freeman to reduce the director’s fee pool by $130,000 as part of a wider cost cutting exercise. Hawkins said that this was a clear indication that the Associations broad message that fees should align more closely with size and performance was being heard.
While shareholders were not happy that the former high flying retailer had been so heavily impacted by the economic head winds, possibly exacerbated by an overly ambitious expansion program, they would now feel that the cost was being carried by all involved, he said. The action also indicates that the company is serious about turning its situation around.
The Shareholders Association has criticised some actions by Pumpkin Patch in the past, but on this occasion we are pleased to give credit to the company and directors, said Hawkins.
Pumpkin Patch shares have fallen by 65% in the last year, but rallied by more
than 6% after the cost cutting initiatives were announced.
Ph 021 640 588
Tuesday, November 22nd, 2011
Legendary US investor Warren Buffett has proven to be a generally smart investor for several decades now, so his enthusiasm for shares in the depressed third quarter this year has to be taken note of.
His Berkshire Hathaway investment company invested US$23.9bn in the July – September period, the most in at least 15 years, and he broadened the portfolio beyond the usual consumer and financial-company holdings.
Among the new industries he has taken a shine to are drug stores, cable television, weapons manufacture, computer components and discount retailing.
Despite the volatility of markets, Buffett lives by the theory that, if you can find a good company at a reasonable price, then you should actively ignore day to day fluctuations in the markets, economic statistics and kneejerk media headlines.
As he said this week on his first trip to Japan (where he is likely to invest) he is looking for “businesses that will be around for many, many decades.”
Investors should check their portfolios to make sure they have that level of confidence
in their investments.
As it happens, his timing may be pretty good. Statistics out this week from the US show that economy is starting to recover in a number of areas, including consumer spending, business spending and housing. GDP growth is estimated to be running at a decent 3% – 4% annual rate in the current quarter.
Naturally, an improved economy is good for corporate earnings and share prices, so it appears Buffett may be in the money yet again.
Mere mortals like the rest of us could do well to follow suit.
Tuesday, November 15th, 2011
Sacking a couple of incompetent politicians is not going to solve Europe’s debt crisis and it could well take
decades to sort the problems out.
One possible solution, using the European Central Bank’s trillions of euros in reserves to help out ailing members, is not on the table because of deep fears about stimulating inflation.
Germany in particular, having experienced hyperinflation in the 1930s, is particularly paranoid about it. However, there has been no sign of widespread inflation in countries
where there has been a lot of fiscal stimulus.
One exception is food prices, which seem to be escalating.
In the US, it has just been calculated that an average family Thanksgiving this year will be 13% higher than in 2010. In India, food prices are up 12.2% over the past year on average. In the UK, latest figures show food and drink prices rising at an annual rate of 5.8% and a forecast of 7.5% has been made for continental Europe.
In New Zealand, the figure is a more moderate 6.2% for the year to September.
Since the price of food affects everyone, but the poor more so, expect further social unrest if this trend continues.
Despite this, the global economy looks like it will avoid a double dip despite Europe’s issues, latest statistics suggest.
Recent good news includes a decline in the US unemployment rate to 9%, the lowest since April, evidence that Chinese manufacturing continued to expand in October and, in Japan, the economy grew in the third quarter, the first time that has happened in a year.
One announcement in particular this week struck me as significant. This was a statement by China’s premier at the recent Apec summit in Hawaii that China wanted to increase its imports. It flagged this as a heartfelt desire to help the rest of the world but in reality China’s leaders are keen to develop an economy that can drive itself based on internal activity, rather than just being a source of cheap goods for the west.
Fortunately, what benefits China will also benefit the rest of the world and this, plus the recent figures, are vindicating the mildly positive upturn in equity markets of the past week or two. Barring further shocks, there is a good chance markets will stabilise at least.
Tuesday, November 8th, 2011
New Zealand Shareholders Association Corporate Liaison Director Des Hunt said today that the NZSA had engaged with Sky City at the highest level in regard to the proposal to increase their director fees. Hunt pointed
out that the increases of 25-33% are well ahead of inflation, which was around 16% since the date of the last increase in 2006. The Sky City directors have told us they want to bring themselves up to the 50th percentile of equivalent companies he said. They also argue that they need to hire an Australian Director at Australian market rates.
Hunt pointed out that Sky City’s operating performance has been flat since
2008. Revenue 803m against last year’s $804m; EBIT 224.5m against last year’s $221.6m. NPAT (prior to asset sales) has increased from $108m to $123m, an apparent increase of $15m, but in fact this is due to a drop of $32m in funding costs, because they raised more capital from shareholders and sold some heavily geared assets.
The company argues their Total Return to Shareholders (TRS) is better than many, but Hunt said this ignores the fact that since 2007, the TRS has fallen. We feel that they are really comparing themselves to the greedy majority, whose fees have not moved in parallel with shareholder returns he said.
Hunt said that the Association accepted some increase was necessary, and supported providing additional funds to appoint a deputy chairperson. It had suggested to the directors that they should take 50% this year and the balance next year, dependent on results. This would be a fairer decision to shareholders, and a better reflection of the economic conditions today, he said, adding that it would allow “improved performance’’ to show through.
Hunt said that the Association would prefer companies to consider revisiting director’s fees every two years to avoid large catch-ups, which are difficult for shareholders to assess.
For any company to continue to increase directors’ fees ahead of the CPI without some relationship to shareholder returns is unacceptable he said.
Contact: 021 669 048
Tuesday, November 8th, 2011
After years of waiting for new companies to come to the New Zealand market, it has been disappointing to see the poor results of two recent floats.
Lightbulb company Energy Mad (MAD) has seen its price drop by 15% in the few weeks it has been listed. This is perhaps forgiveable since the company is a small technology company and therefore high risk and likely to have a volatile share price.
Less encouraging is the poor start of retirement villages company Summerset (SUM). Its shares were sold to investors at $1.40, the lower end of an indicative range, but failed to provide a decent initial profit on its first day trading and since then has been sitting a slightly under the offer price. The New Zealand market is doomed unless it quickly finds a way to introduce some good companies at a reasonable price that will generate some wealth and excitement for investors.
Here’s hoping the looming IPO of Trademe does better. I think the float will be well supported but only because individual investors like to invest in companies they are familiar with. With a price of $2.70 per share, it is at the top end of its anticipated price range and appears, at the least, to be fully priced relative to international equivalents.
Unfortunately, good companies that do decide to list on the local market don’t last particularly long before they are taken over by international competitors.
despite some speculation that it could be the precursor
to a takeover bid, there is no need to get too excited about the emergence of US institutional investor Blackrock on the Telecom Corporation (TEL) share register. Blackrock revealed recently it had built up a 5% stake.
Keep in mind that the $220m or so Blackrock has spent on its investment is a mere drop in the bucket of its $4 trillion or so in funds under management. The investment is spread over 16 entities and I believe this is just a routine investment into this part of the world. No doubt the dividend offered by Telecom is part of the appeal, which is very high by US standards.
I am not a big fan of Telecom and think the benefits of its breakup are already reflected in the price.
Once the Trademe float is over, the next excitement will be the float of some government-owned entities, principally energy companies, next year. I am convinced these will be priced to ensure a good start so investors should pursue these with enthusiasm.
Wednesday, November 2nd, 2011
We have seen the Minister of Finance, Bill English, announced a record government deficit of $18.4 billion. And yet no-one really cared. The markets took this in their stride and continued as if there was nothing wrong.
Yes, about $9 billion related to the Christchurch earthquake. However $9 billion did not. New Zealand is in serious trouble. Our government is grossly overspending, its wage and salary bills are exploding, we have more rules and regulations and yet no progress on either the financial or social fronts.
New Zealand is not much different than most Western economies. The gross overspending, the inevitable deficits and the incurring of debt are crippling the Western world. They are surviving solely on the
fact that somebody wishes to lend money.
The majority of people do not un- derstand what a Central Bank is set up to do, i.e. what it does and its objec- tives are. The Reserve Bank of New Zealand is like most Central Banks; their roles relate to money supply and maintenance of an orderly banking en- vironment. They do not create wealth.
They do not aid social responsibil- ity. They do not care about whether the economy is efficient or whether the government is spending or whether investing or spending is in the right sectors. They do care about inflation and having banks that can meet their obligations.
Central Banks are looking at money supply only, not about whether the economy is moving in the right direction for the country’s current and future prosperity.
The fiasco we are seeing with Greece and other European countries where the focus is simply on a rescue package is short sighted and must fail. It is very easy to lend somebody more money because they have gotten into dif- ficulty, but problems relate to helping the party restructure their income and expenditure.
Unless Greece changes its approach and chooses to run surpluses it must get into trouble again. New Zealand is in exactly the same position. Although we may move towards a surplus because National chooses to sell assets, this has not changed the structure of New Zealand or the government.
You have sold half of your silver (partial privatisation) but you continue to waste money on stupid and irrelevant matters.
Unless New Zealand demands an outcome that
makes New Zealand better each year than the year before we will continue to be reliant on money supply increasing to make our houses more valuable so that we can take bigger mortgages, have our overseas trips and flat screen TVs.
Yes, democracy is for the people. However, real leadership is sometimes leading the people against their will.
On a brighter note, with the financial distress and the mayhem as outlined above occurring, some very interest- ing opportunities are being presented. If a person does want to get superior returns there are opportunities to do so and there are some very interesting opportunities occurring for those who have a good broker and an understand- ing of how to access risk and return. The dumbest thing now is to stop investing. The smartest thing now is to invest smart.
Leaving your money in the bank may appear to be attractive. However, losing the three to six per cent returns you can gain may be costly in the medium term.
Investors must not freeze – they must maintain and keep on moving forward. There have been some shares that have risen 20 – 30 per cent.
Investors need to ensure they are thinking about making a return on their investment and not simply going into hibernation.
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