Bill Dalton

I have always said that my generation is the lucky generation.  Lucky because we haven’t known war or depression – both very strong influences in our parents’ lives.

But I’m beginning to re-think this “lucky” tag.  The communities our parents lived in, from my observation, seemed to be much nicer communities.  Murders were so infrequent they made headline news for days.  Certainly they didn’t have to cope with communities that contained the insidious gangs we now have to put up with.

We used to think that these appalling gangs, financed and fuelled by P, were confined to the big cities – largely South Auckland.  Now right here in Hawkes Bay we have them gate crashing parties and chopping and bashing people up with machetes and iron bars.  What is our society becoming and where to from here?

I’m sure our parents didn’t have to cope with the topsy turvy situation we find our financial sector in today.

Over the last couple of years we have seen a number of pretty rumpty financial companies fall over and I’m sure that poorly run companies have always collapsed.

But now with the so-called benefit of instant communications, we are starting to see sound, well run companies striking difficulties.  The problem is confidence or more specifically the lack of it.

Under the new continuous disclosure rules – finance companies have to report regularly the state of their finances.  Now you might think that’s a good idea but it can cause problems.

Most companies, at some stage, go through difficulties and in most cases trade through them and regain their strength.  When they have to tell the world they are having difficulties, even small problems seem huge in the eyes of an already nervous investing public.

So often small problems, become big problems because investors know information that in the past they would not have, and naturally take a conservative view.

The problem we have in New Zealand at the moment is a crisis of confidence.

The one thing my parents didn’t have in their day was a Governor of the Reserve Bank who could give some leadership.

In my view that is one thing that hasn’t changed.

A very happy new year to you all – and in many ways it has been a good start to the new year.

The weather has been good, Hawkes Bay has never looked better and the local economy is booming.

The only cloud on the horizon is of course – the financial markets and in particular the share market.

Clearly share market investors have taken a bath in this early part of the year and it would be easy to be pessimistic about the future. But of course – from these levels – the prospects for the share market look better then they have for a long time.

Most of the selling on the New Zealand market – has come from overseas. These overseas institutions have got trouble at home and they have simply decided to sell their Australasian holdings and take their money home – hence the fall in the value of the NZ dollar as well.

They are not selective in what they sell. Look at a stock like Contact Energy. Contact has fallen back almost 30% and yet we ask ourselves – what has changed with this company and the answer is nothing. It has no worse prospects now than it did 3 months ago.

The Fisher & Paykel companies have come back and that defies logic. It was always accepted that it was the exchange rate that was holding back these companies and yet when the exchange rate moved substantially in their favour – the share price went down.

So what’s the cause of all this nonsense?

In two words – George Bush – the fellow is an idiot.

Since taking office in year 2000 America’s national debt has grown 70%. George Bush has presided over an economy that has seen a budget surplus of 2.4% of GDP at the time he came into power, turn into a budget deficit of 3.6% of GDP. That is an amazing turnaround.

Instead of spending money on education and health programmes, Bush has spent half a trillion dollars on a ridiculous war in Iraq.

Up until now it has been widely accepted that Hoover was the worst ever president of the United States – clearly Bush will now assume that mantle.

So the commercial powerhouse of the world has been run by an incompetent cowboy and the whole world suffers.

But it is certainly not all gloom and doom. There are now excellent opportunities for investment both here and in Australia that weren’t there before – and the New Zealand economy – to some extent – has a degree of insulation from America’s woes.

We just need to take positive view and try to ignore the nonsense that is coming out of the States.

What a terrible Christmas it is going to be for those who have lost huge amounts of money in the collapse of 13 finance companies.Hundreds of millions of dollars have gone down the gurgler – and at this stage at least – that’s due to poorly run finance companies – irresponsible advisors who have directed funds to them and individuals who have failed to seek advise from suitably experienced professionals.

Clearly these finance companies have been poorly run. What should happen in a credit squeeze, if a finance company’s books are properly balanced, is that the finance company would simply get smaller. Loans would mature and be repaid to the company – the company would repay debentures to investors – and if further investments were not forthcoming then the company would end up with a smaller book.

Those that have failed here, either had a geared book or, have been inefficient lenders – or both.

Clearly many financial intermediaries are guilty of greed – of putting their interests ahead of their investors. Why did the likes of Bridgecorp receive such huge support from financial planners – especially late in the piece, when the whole industry knew they were in trouble. The only answer – the only answer is that Bridgecorp were paying brokerage at a level about double the industry average. Wouldn’t that tell you something.

Why are some financial planning firms significantly exposed to the likes of Bridgecorp- Provincial – Capital & Merchant and yet firms such as my own – Somerset Smith Partners – has never placed one cent in any one of the 13 finance companies that have collapsed.

Clearly some firms do their homework and work in their client’s best interests – some are more mercenary.

And finally there are those individuals who have been sucked in by the fancy advertising campaigns, and have managed to make a mess of things all on their own.

Why have these people not sought advice from reputable professionals. It costs them nothing – brokerage is paid by the company – why have they simply blazed on, on their own?

There are still some very good soundly run finance companies out there – good advisors know which ones they are.