Market News 26 July 2021

Are these the words of a discontented politician?

'The cryptocurrency industry leverages a network of shady business connections, bought influencers and pay-for-play media outlets to perpetuate a cult-like ''get rich quick'' funnel designed to extract new money from the financially desperate and naive.

Cryptocurrency is like taking the worst parts of today's capitalist system (eg. corruption, fraud, inequality) and using software to technically limit the use of interventions (eg. audits, regulation, taxation) which serve as protections or safety nets for the average person'

Or….

A person who established a cryptocurrency?

Clue: Pick the latter.

The European Union agrees and plans to legislate those businesses accepting cryptocurrency for payments, or receipts, requiring them to report the details of the counterparties.

INVESTMENT OPINION

Scam Warning – We all know scams are out there, every day, in every way, but this paragraph is as a result of a client telling me about being scammed out of a few dollars.

I hope it will turn into an education of modest cost once it is shared widely amongst their various contacts, and I shall do so here also.

The scam accessed these people via the phone.

Spark offers a very useful list for avoiding scams here: https://www.spark.co.nz/help/scams-safety/avoiding-scams

But I'll tell you my simplified thoughts also.

Lesson #1 – nobody ever calls you out of the blue to offer an unexpected service and then expects you to make impromptu payments outward; Nobody. Don’t waste your time even having the conversation with the caller.

If they call again, leave the line open and place the phone on the kitchen bench and go back to what you were doing, even if it means you were heading out for the day! Do not talk to them.

If you talk to them, you become exposed to their fraudulent verbal effort to draw you into a scam. They are experts at manipulating what you believe is happening. It is always deception.

Lesson #2 - If a person calls and claims to be from a service type, such as Spark, offering a service you did not request, simply ask them to contact you in the normal way and then hang up.

If you were inclined to believe the caller was from a real business, ask for a number to call them back on and still hang up. Then proactively compare that phone number to ones you can look up publicly for the real business and make contact with that business yourself (phone out, or email outward).

If a person has convinced you they were real, and the actions seemed to be necessary and they involve you arranging access to your computer or making a payment, STOP, hang up.

Make it a personal rule that you will never make such access or payments without talking to someone outside your household. Call your kids, your neighbour, your friends, us, anybody, and ask them to review what is happening; make this your own personal 'two factor authentication'.

Don't make a payment!

Don't provide access to your computer!

Most legitimate services expect you to call them, or for you to login to their service and ask for assistance. They do not call you and offer special assistance.

If by chance you do owe a business some money, it will become very obvious once they become distressed about non-payment! (2nd invoice, two reminders, threatening letters, debt collectors, etc) and you will have had plenty of opportunities to call them.

Lesson #3 – it is better to make a real business unhappy through late payment than make a payment to a scammer, which you will never get back.

It is very sad to conclude that you can no longer start from a position of trust with strangers, but it is the truth when it comes to those reaching into your world via the phone or email.

Email scams are different, but the simplest instructions are:

Don't touch links in emails you did not expect to receive;

Delete emails that you did not expect and have no interest in;

If you are tempted by some marketing in an email, delete it and access the service yourself by approaching them via a public option such as their website, or telephone.

You are not alone. Talk to others.

No, No and thrice No!

Public websites to consider if you'd like to read more about handling scams in NZ:

https://www.consumerprotection.govt.nz/general-help/scamwatch/report-a-scam/

https://www.netsafe.org.nz/advice/scams/

Politics – Positioned appropriately under my item about scams.

Sadly, we'll never escape the misleading and deceptive behaviour of politicians, all around the world, making it more than a little ironic that there are laws against it for the rest of us.

However, I had to laugh at China's recent political claim that Australia is profiteering from the large increase in commodity pricing right now.

China, being the one who decided to launch political attacks aimed at Australia by restricting trade but they are now upset that Australia is making more money than before on its exports.

To the governments of the world, let's have more focus on things that matter and a little less selfishness thanks very much.

Water – Down here in the 'real world' when one approaches the council for permission to do anything with nature's water, they demand a perfected design for attenuation of water on your land to control its departure onto the land of others or into the storm water system, and out to the natural waterways.

That makes good sense.

So, on the heels of the recent flooding events around New Zealand, why are we constantly rejecting water attenuation strategies (let's call them dams shall we) that come with the additional benefits of renewable energy generation and managed irrigation (once things dry out too much)?

Take a look at the lake levels of our major generators and unsurprisingly you'll discover that they are doing their job reasonably well with attenuation then generation, with water levels managed within high and low limits (it could be better – Ed).

You can review some of the data via these links:

Meridian Energy - https://www.meridianenergy.co.nz/who-we-are/our-power-stations/lake-levels

Mercury Energy - https://www.mercury.co.nz/lakelevels

Lake Dunstan (not published by Contact Energy for some reason) - https://www.orc.govt.nz/managing-our-environment/water/water-monitoring-and-alerts/upper-clutha/lake-dunstan-at-cromwell

I then throw into the mix the political desire to inject some new competition to the electricity landscape you can understand why the ghosts of Muldoon's past can be heard with respect to thinking a little bigger and pondering the need to plan for some new government initiated hydro generation assets. (and water attenuation – Ed).

Yes, I know there is a long list of reasons to criticise Sir Robert Muldoon but allow me a little myopia, focusing on the benefits of long-term planning.

If 'we' (the government) build it, 'they' will come. Meaning, we can use the energy supplied, we will benefit from the water control, and we will easily be able to sell the new generation assets once they are operational so the government can recycle the capital used to launch the development.

Yes, I hear you; the government has an appalling record at using taxpayer money to build businesses and it should be left to private enterprises, but in this case those businesses benefit from a shortage of electricity generation so there is no incentive for them to oversupply the market (revenue risk). It's a little like to the housing market, scarcity rewards the developers.

So, the reward for injecting taxpayer equity to oversupply some products and services may well deliver lower pricing for most taxpayers.

Side story – I suggest that you also read about the proposals for using Manapouri electricity to power hydrogen electrolysis plant in Southland. The cheaper the electricity supply, the cheaper the hydrogen supply and the greater the update of this climate friendly fuel for transport industry (and export – Ed). It's maddening that we subsidise Rio Tinto instead of accelerating alternative proposals such as this one.

Market watchers will acknowledge how successful Trustpower (TPW) was when it launched Tilt Renewables (TLT) to be a greenfield developer of new electricity generation assets (elevated risks) which were only sold once the development was complete and risks were reduced. TLT, TPW and Infratil (IFT) were handsomely rewarded for their foresight, risk acceptance and good management.

I am not keen on decisions made between dinner on a Friday and breakfast on a Monday to build the likes of billion dollar cycle bridges, far more planning is required. My hope is that better planning would direct such billions to much better projects.

David Parker is the '3 waters' guy. He should be tearing up wasteful proposals such as a cycle bridge in Auckland, and changing water governance and calling for new, local, hydro management proposals in our largest catchments close to agriculture and horticulture locations.

Once they have been identified, and government equity is committed, maybe then the government could assign such schemes to Public Private Partnerships to manage the build.

Can someone please dust off the Ruataniwha Water Storage Scheme in Hawke's Bay before a damaging rain event occurs in their region.

The small earth dam at a low point in our suburb of Wellington did an excellent job of protecting others downstream. (It only lack s an electricity generator – Ed)

Electricity – Following on from the water item above, which spilled into electricity, this is not really a good story for NZ but it seems to imply higher profits for a while for the major electricity generators:

Flick Electric and Electric Kiwi are no longer accepting new customers and have removed themselves from the free marketing channel provided by the government – https://www.powerswitch.org.nz/whatsmynumber

No business removes itself from free, effective, marketing unless it has become impossible to serve customers.

Owners of shares in the major electricity companies may feel good about their investment, but they should be even more concerned about the absence of genuine price competition for all consumers (private and commercial).

It will be pointless promoting electric vehicles and asking industrial businesses to switch away from other energy sources such as gas and coal if we cannot supply sufficient electricity at constantly competitive pricing.

For goodness sake, it was only two short years ago that our government fell on its sword and subsidised Rio Tinto to keep the Aluminium Smelter operating.

It would have been better if they had shown them the door and immediately started to increase the Transpower grid capacity to move electricity North.

Water and energy are two highly important elements and anecdotally we seem to be moving in the wrong direction at the moment with respect to outcomes.

ASB Concedes – and appoints BlackRock as delegated fund manager for its clients' managed funds.

Presumably ASB is acknowledging the value of pushing diversity up and bringing costs for investors down; not to mention lower costs and possibly less capital commitment for the bank.

NZX, with its Smart Shares funds must be happy about this development at ASB and highlighting the value of diversity and lower costs. Maybe now's the time for the NZX to start cutting its own fees to try and attract more money away from other actively managed funds?

Are you paying too much in fees for the management of your wealth?

EVER THE OPTIMIST

It's excellent to see business leaders considering long term plans in Southland to make use of some of Manapouri's electricity supply, by proposing a hydrogen electrolysis plant.

I hope this inspires NZ Refining to consider doing so in the North and inspires our government to support the development of new electricity generation schemes!

Saudi Arabia surfed its natural advantage with oil; maybe NZ should be making more effort to surf our natural advantage with hydro generation and converting it into exportable hydrogen fuel.

ETO II – Vaccinations

Vaccination doses delivered – 3.85 billion jabs (many large nations are now passing above 70% first jab)

Total (recorded) Corona Virus cases – 194 million

Active Cases – 13.8 million (increase)

Daily rate of new cases – 500,000

People in serious condition – 84,000 (increase)

Daily Deaths (Covid related) – 7-8,000 (stable)

Investment Opportunities

Net Cash – 2021 has been an experience of more bonds being repaid, than new ones being issued, and this theme continues all the way through until Christmas.

One of the banks kindly sent me a list of details and the total maturing across the year, from all borrowers in NZ dollars, was $16 billion.

Even though we expect some new bond offers in coming months, I don't think the imbalance between repayments and new borrowings will change so a shortage of reinvestment options seems assured.

Access to investments via the secondary market remains available to you, with our help, and it might improve now that the central bank is reducing its meddling with supply and demand. It would be even better if the RBNZ agreed to sell some bonds from its inventory.

It is July, but we already know that Westpac will repay (at the early date) it WBC010 subordinated bonds in September. ASB will surely do the same in December (ABB050).

Other maturities by month, of bonds that I know 'you' own:

August – Kiwi Property Group (KPG010);

September – Westpac (WBC010), Precinct Properties (PCTHA - convert to shares), Turners (TRA100);

October – Christchurch Airport (CIA1021), Fonterra (FCG030);

November – Contact Energy (CEN030) and in Z Energy's latest quarterly results announcement (which was good by the way) they remind us that they will repay (not rollover) the $150 million ZEL040 bond on 15 November.

December – ASB Bank (ABB050), Trustpower (TPW140), Precinct (PCT010).

All the while, you also collectively have many tens of millions maturing in bank term deposits and some senior bonds from the banks.

What iss frustrating, from a 'speed of time' (a constant – Ed) point of view, is that I can still remember clearly when most of these bonds were issued!

TRAVEL

Kevin will be in Timaru on 5-6 August and Christchurch on 11 August.

Chris will be in Christchurch on August 17 (p.m.) and 18 (a.m.) then in Auckland on 25 August (Ellerslie) a.m. and (Albany) p.m..

David will be in New Plymouth on 19 August.

Johnny will be in Tauranga on 26 August.

Michael plans to be in Auckland during August then Hamilton and Tauranga in September.

If you would like to make an appointment, please contact our office.

Michael Warrington