Sorry not very knowledgeable just thought Balance's article (post 2929) was to do with Chris Lee wanting preference share holders to get taxpayer money as well.
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the ultimate irony of course with SCF was how (after the government guarantee ) it became the best investment in town. Not that I would ever have played that game.
How did it work out for those invested? Did the loss of opportunity cost cripple the (I presume) full return one eventually got from the government?
Well the bondholders got the benefit of the government guarantee, but the holders of the preference shares didn't. And seeing that both instruments were marketed to the same target audience, the difference seems rather inequitable.
That's the point of that little exercise - simple fairness.
One of my roles is as an inveterate bottom-feeder, and I bought both the bonds and the preference shares.
By the time that I bought them, the bonds came with a government-guarantee, and were yielding about 20%.
I bought the preference shares at about 25c , and sold out at about 60c, although IIRC they went higher. Later, the price went back down to about 30c and I got greedy and used half the profit I'd made to buy more in anticipation of a successful resolution. But then the "rescue plan" failed, and I got wiped out.
All three purchases were sheer speculation. Two wins, one loss.
Its not the audience in finance that determines outcome though, and shares are equity and equity is taking more of a risk than bonds - well that's the way I see it anyway.
It was a smart thing to do and in another time or place I might have as well.
Peat, you know about this stuff, I know a little about this stuff, but those poor b*ggers were just fish in a barrel.
I suspect that many if not most of the good (but financially illiterate) folk who bought these things had no idea what they were buying. None. Zero. Zip. Nada.
Blissfully ignorant of any difference between debentures, bonds, and term deposits, there's a good chance that they thought that "Equity" might be good for a place in the 3:30 at Trentham.
In many cases, seeking professional advice provided no better outcome (if not worse) than clipping the coupon in the paper and sending it off to one of the abysmally-supervised and appallingly-regulated many finance companies which blighted the early 21st century New Zealand landscape.
Now, given that financial markets regularly blow up about every ten years or so, where should we look for the next explosion?
Well done GTM3442 smart investing but you cost the rest of us taxpayers $1.7billion or $405 each at the time so well done, but fu at the same time.
I recall reading predictions regarding the imminent demise of the finance companies long before they happened. Although this isn't the article I recall reading I think it was Bruce Sheppard predicting the demise of the finance companies. Wish I had listened more closely to him when investing in Cadmus.
http://www.stuff.co.nz/waikato-times...ms-to-collapse
Although he wasn't very charitable towards Hanover investors after trying to advise them. Possibly his comments might be considered ageist in this more enlightened age. Watson & Hotchin sucked up all the available cash with dividends that could have been challenged although I do not understand the situation well enough to comment.
http://www.stuff.co.nz/business/7562...tupid-lunatics
Stupid lunatics might be an accurate label for finance company investors. Although the same label could be put on me after investing in companies I have not put much effort researching.
Oh Aaron! I shall take that as a compliment - albeit somewhat backhanded.
However I think that in the interests of fairness, you should save a word or two of criticism for the directors and managers of the various finance companies, as well as their trustees and auditors.
However, at the time, I don't think that the government had any real choice other than to implement some form of guarantee scheme. The economic, social, and political risks at the time were such that some such scheme was inevitable.
Personally, I like government guarantees. That's why I have a whole bunch of term deposits in Australia rather than New Zealand - the Australian guarantee scheme is still running. Mind you, given the interest rates currently on offer in Australia, I doubt that I'll be rolling them over at maturity.
Looking ahead, what do you think will blow up this time round?
That's right, GTM. Once Australia had a guarantee the NZ govt had no option but to follow suit to prevent a massive outflow of funds over the Strait. And, of course, the (mainly) banks paid a fee for that, little as it was.
All water under the bridge - until the next time?
There's no law against stupidity - as long as investors believe in what the crooks out there tell them, there will be the next time.
New cases emerge every month of more scams and ponzi schemes out there.
Meanwhile, the naive and gullible continue to send money overseas in search of love from Nigerians - tens of millions of dollars every year.
Musing regarding 'next time', some of the hybrid debt issues out there are shall we say are a little bit interesting. One hopes the default clauses never operate, though even with my cynical view it is hard to actually envisage these company's defaulting. Just taking as a random example with no slur attached at all , but say, Wellington Airport has a fair bit of debt out there even though the company isn't listed for shares. I mean its a steady business right?. Travellers all the time, including politicians whizzing around everywhere on our expense. But just say something went wrong.... the obvious one is an earthquake and I'm sure there is insurance so its probably something else. But just say something went wrong, theres $400 million of debt out there with hungry coupons.
Attachment 10896
Debt issues have been the lifestay of the NZX for a while now. Theres quite a few. 144 to be precise. With total capitalisation of $34,000 M so I'll call that 34 billion.
https://www.nzx.com/markets/NZDX
They are all rock solid of course though.
Right?
I am not smart enough to know what will blow up but if central banks keep dropping interest rates then maybe all debt will be OK, especially if we get to negative rates, no problems, no need to ever pay it back(even better than inflation but more obvious and still morally and intellectually wrong). No limits on asset prices either. If things get too farcical the concept of money might be questioned and if there is a loss of faith in money it will happen pretty quickly I imagine, but that is unlikely.
In NZ the finance companies provided finance which helped property development and bridging finance and banks easy lending pushed land prices up. The new higher valuations meant more money could be borrowed which pushed asset prices up further which improved valuations and on and on until the money stopped flowing. Sounds a little bit like Auckland house prices currently but Central Banks seem to be indicating they will drop interest rates as required and won't stop the flow of credit so perhaps we just keep going this time.
I am wanting to have a small amount of debt rather than savings in the bank but cannot decide on what to invest in as cash might be a good option if the "next thing" blows up. Sadly I still can't see into the future.
Whatever blows up, it's always something to do with debt that kicks it off. But who knows whose debt it will be - who is getting worried about who else has lent how much, and to whom, and what's that debt worth now?
As an aside, you don't have to go too far through the alphabet of nations to find some interesting "opportunities"
https://www.bloomberg.com/opinion/ar...adness-is-this
https://www.cnbc.com/2017/06/20/arge...year-bond.html
Whoever is buying that debt must think there will be little or no inflation in Austria for the next 100 years and a lot less than there is currently in Argentina.
More likely though they are waiting for the next round of rate cuts and QE.
Someone who can value debt might be able to explain just how much the face value of the 2.1% coupon bonds will have increased from the original $1 value in light of the current 1.2% yield only two years later. That would be a significant gain I would imagine. It makes the buyers of the 2.1% bonds look like investment geniuses.