Taking Stock 30 August 2018

AT A time when countries as diverse as China and Britain are reviewing their laws regarding peer-to-peer lending (P2P) and snowball funding, New Zealand continues to prefer a hands-off attitude towards high-risk investing.

Our country’s attitude is inexplicable.

China, Britain and New Zealand, like the USA, have watched P2P lending grow, taking the attitude that if someone wants to lend a stranger money, nothing much is needed by anyone else.

I guess that the libertarians would be nodding. If Mr Plenty wants to lend Mr Broke $10,000 at 20% interest rates for a year, why should Mr Regulator regard this as his business?

If Mr Inbetween wants to organise this transaction, clipping the ticket by providing the platform to enable this transaction, then Mr Regulator simply needs to ensure that Mr Inbetween is enabling Mr Plenty to make a decision based on transparent information.

Presumably if Mr Broke was a bankrupt, or had been a bankrupt, this would be disclosed.

That seems to be the prevailing view.

I believe this is nonsense.

In my view the concept is flawed, depending as it does on an accurate assessment of what return is fair, for the particular risk taken.

Currently the platform providers allege that their software is an accurate predictor of the borrower’s reliability. Perhaps the software looks at personal credit scores, or past performance with other loans.

If history is the only relevant factor in guessing the future, that software might be helpful, but quite how software can then match a fair return for that assessed risk is much less obvious.

Given that most who seek to borrow from P2P platforms are people unable to obtain personal loans from banks, credit unions or building societies, I expect most borrowers to create sub-optimal risks.

I do not believe the claim that most borrowers ‘’do not like’’ the banks, credit unions etc.

I guess it is more likely that the banks etc do not like the P2P borrowers.

My guess is that if there is to be growing demand for P2P transactions, this trend really is a plan for the rebirth of the non-bank deposit-taking sector, or in less savoury terms, the finance company sector.

The difference between P2P and a properly constructed finance company sector is that the former allows amateurs to guess whether a deal is sound and properly priced, while the latter implies faith that an experienced, accountable money lender will make those calculations, and earn the right to clip the ticket.

Between 2005 and 2008 the finance companies that had any semblance of propriety lost their credibility by ignoring risk, and by reversing the only authentic value-add proposition they had.

There was value in selecting good lending deals and then funding them.

There never was value added by raking in public money and then seeking to lend it, under pressure to find loans that at best were highly risky, at worst were just insane.

Rightly the finance company owners, directors and executives were disgraced by the fallout from the sector, very few people emerging with honour. Most of them were simply gutless and dishonest.

That was ten years ago.

Today we have P2P, a similar investment concept, enabling savers to lend to borrowers, based on software predictors of risk, leading to software assessments of fair pricing.

The alternative – the rebirth of finance companies – ought to arrange a lending sector properly capitalised, subject to regulator-approved trust deeds, managed by accountable, competent and honest trustees. The company would have fit and proper directors, at least half independent, and would be completely transparent, the directors jailed if they knowingly breached their trust deed, a binary proposition. Deceit should equate with jail.

The auditors would be rotated and would be experienced in moneylending and required to be accountable.

Investors would receive perhaps a little less return but risk would be mitigated.

There would be virtually no lending done on the basis of capitalised interest. Fortnightly or monthly instalments would be paid.

For personal loans, vehicle finance, asset finance and even second mortgages on residential property, the structure would work.

It would certainly be a much better structure than P2P lending, where there is no capital and no accountability.

Snowball funding is even crazier than P2P lending.

The flimsiest of proposals will find a platform that allows completely uninformed people to invest their savings with virtually no protection.

The funding platform may well be managed by people who have accounting skills, or legal skills, or for that matter be ministers of a religion, but they certainly will not be the sort of experienced investment bankers whose track record deserves my faith.

With the lightest of regulations to protect them, retail investors who cannot invest in ‘’wholesale’’ deals are allowed to put some or all of their savings into projects or ambitions that would not meet the requirements of the likes of the real investment gurus.

You might think such investors need more protection than wealthy investors. I think that too, but the regulators disagree.

Funding of these high-risk deals is permitted because the regulators regard the investments as being of insignificant, small amounts. But $1000 to a normal citizen is a lot of money.  If anyone doubts this ask them how they react when they win $1000 with Bonus Bonds!

It is time the regulators rethought these issues. I would ban P2P lending and snowball funding, based on their current standards.

Of course I have no such thoughts on those platforms that seek donations, though clearly there should be certainty that the intended recipients receive the money, with only minimal ticket clipping, or none at all.

If people want to donate to any cause, the market regulators would butt out, unless the cause was dishonestly described, or the platform operator was gouging an excessive fee.

As I see it, P2P was an improbable, but temporary, solution to a loss of confidence in banking and in money lending.

Time has passed. Controlled by better rules, finance companies, with capital and with accountable, honest directors, should be returning.

Snowball financing simply needs far stronger rules and much more policing or should be outlawed.

Anyone wanting to read about the Andrea Moore fundraising saga will see that this regulation-light form of fundraising is utterly unfair.

 _ _ _ _ _ _ _ _ _ _ _ _

LAST week Taking Stock expressed disrespect for the ‘’Rich List’’ compilers and publishers and discontent that the NZ media quote from it as though it compiled its lists with meaningful and complete data.

I might have likened the list to a primary school drawing of the moon, depicting the man on the moon selecting his cheese from the moon’s surface. Other kids might enjoy the drawing but no one would take the drawing as serious art.

Judging by the response to the article, I am not in a club of one in questioning not just the validity of these figures, but the value of their publication.

One respondent who was not on the list, but would have been had he been spotted, noted that neither he nor his peers would ever again structure their wealth so it was visible to newspaper reporters, or indeed any voyeur. He points out that gross assets are not a sign of wealth. Nett assets are rarely known.

What is needed to bring about an end to this voyeurism, he asks?

One of the regulars listed by the ‘’Rich List’’ is Eric Watson, a ‘’glamour’’ business opportunist for two decades, the former 50% owner of Hanover Finance and the Warriors rugby league club.

Watson was also owner of the disastrous British appliance chain Powerhouse, which incinerated some $47 million of his extractions from Hanover and Pacific Retail Finance, the latter a short-lived finance company that Watson part owned.

Typical of opportunists, Watson has bought and sold many businesses, often funding his purchases with debt, or with the money of others attracted by his pitch.

A court case with the entrepreneur and business builder, Owen Glenn, heard that Watson often had others fund his ideas, enabling him to earn fees and a share of the gain, with little or no personal money committed.

The same case has been resolved and has led to a major award, said to exceed $100 million, Watson required to find cash (and raise debt) to repay Glenn.

The IRD is seeking $60 million plus other amounts, challenging a tax structure in the Cayman Islands, in a second case against Watson’s company, Cullen Investments.

Perhaps today would not be a great day to ask Watson to finance a school trip to the zoo.

The NBR apparently claims Watson has nett assets of $250 million. I doubt that the NBR has any clue as to Watson’s real wealth. Nor should the NBR be interested.

I imagine Glenn and the IRD would feel pleased, should their claims be resolved as they propose.

Watson was in partnership in some of his ventures with Mark Hotchin, the latter an unlikely candidate for New Zealander of the Year.

Ironically, Hotchin, who has been a regular investor in Waiheke Island properties, may well be the right person to ask for funding for a school zoo visit.

Rich list guesses on wealth, I fear, look very foolish when the music pauses.

 _ _ _ _ _ _ _ _ _ _ _ _

HEARTLAND Bank responded to my criticism of its decision to sponsor seminars featuring a commission salesman preaching the doubtful merits of annuities.

I had noted this sponsorship might seem like an endorsement of an anachronistic, poorly-conceived product, featuring low yields, fat fees, an underwhelming credit rating, an eclectic bunch of governors, and some fairly low-brow salespeople.

Heartland was happy to address the same audience with its reverse mortgage product, having been told that the likely audience would include many people with no intention, or ability, to invest in annuities. As a result, it agreed to ‘’sponsor’’ a round of these promotions.

To Heartland’s credit, my observations were considered and a decision made that this sponsorship is unlikely to be repeated.

The modern trend of asking salesmen or journalists to promote public ‘’seminars’’ on financial instruments is one that the market regulators should consider. I cannot forget the likes of Richard Long and Colin Meads allowing themselves to be used to promote products.

It is difficult to discuss a particular product or security without the audience believing that they are receiving an endorsement or advice from moderators and sponsors.

No such salesmen can have the faintest idea about the circumstances or risk tolerance levels of each member of the audience.

This gap cannot be addressed by the all-embracing guff that ‘’this is not advice’’, or ‘’my disclosure statement is at the back of the church’’.

Genuine seminars on the principles of investing would not identify any particular products or securities.

Such seminars, run by experienced people, might discuss generic strategies or asset classes, but surely breach a standard that I would regard as acceptable when they promote a product.

A year or two ago I recall hearing from an attendant of a presentation led by two salesmen and a newspaper reporter. His response was that he was being insulted by a product endorsement from people who knew nothing about his circumstances, and not much about financial markets.

My response? ‘’Don’t attend. In time the provider will get the message.’’

 _ _ _ _ _ _ _ _ _ _ _

OF course product promotion might be a part of every launch of a new product.

Faux news however, is a problem, enabled often by the anonymity that accompanies internet and social media rubbish.

In South Korea recently a cryptocurrency fund invested in the shares of a marine salvage company.

The fund then published the ‘’news’’ that an ancient Russian shipwreck had been located, and was thought to hold $130 billion of gold.

Given the percentage that a salvage company might retain from such a windfall, the cryptocurrency fund had a leap in value, having bought at such a fortuitous time.

Sadly, the find was imaginary, faux news used to manipulate a share price and a managed fund’s unit price.

I wonder who sold the salvage company’s shares before the news of the shipwreck fund was seen to be fake news.

 _ _ _ _ _ _ _ _ _ _ _ _

NOT all managed funds have such loose ideas on how to succeed as the South Korean example, but some may need a Lotto ticket to improve their odds.

The long-established and sizeable Greenlight Capital (GC) fund in the USA last year had major bets on two companies, General Motors (GM) and Brighthouse Financial. GC lost when the two companies suffered falling share prices.

At the same time, GC shorted Tesla, the fledgling car manufacturer hoping to gain scale with its battery powered cars. GC borrowed Tesla shares, sold them, and had to pay a great deal more to return them to the original owners at the agreed dates.

Brighthouse dropped 22%, GM a little less, but Tesla rose 29%, so the idea of selling Tesla short was not a winner.

One of Greenlight’s executives responded by wondering why the market preferred Tesla’s ‘’bravado’’ to GM’s actual accomplishments.

The Greenlight executive noted he had ended his lease with a Tesla car because its touchscreen and power windows were unreliable. He would now lease a Jaguar I-Pace.

Told of this, the founder of Tesla (Elon Musk) said ‘’Tragic. I will send (Greenlight) a box of short shorts to comfort him through this difficult time.’’

Footnote: Greenlight had to cover its short selling, perhaps before Tesla’s price reversed its extreme gain. Shorting is a high-risk, volatile-return practice, best left for those who can afford volatile results.

 _ _ _ _ _ _ _ _ _ _ _ _

BETWEEN August 2008 and August 2018, the S&P 500 index grew by 10.5% per annum.

In the same period the provider of the index (S&P Global) grew 19.5% per annum.

Selling the shovels made more than those digging for gold!

A dollar invested in the index by an Exchange Traded Fund grew over those years to be $2.70.

A dollar invested in the index provider is now worth $6.00.

Since 2008 ETFs have gobbled up funds, growing in quantum from 800 billion to four trillion.

S&P and Moodys, meanwhile, control 80% of the global ratings market and sell their services to the very great benefit of their shareholders.

I am reminded of the flourishing grocer shop in Waikaia near Gore, where a gold mine began operations four years ago. ‘’We sell an extra 150 pies a day,’’ the grocer says.

 _ _ _ _ _ _ _ _ _ _ _ _


Edward is in Warkworth on 3 September and in Auckland (CBD) on 24 September, then in Nelson on 2 October.

Mike will be in Tauranga during early October.

Chris will be in Christchurch on September 18 and 19.

Our future travel dates can also be found on this page of our website: https://www.chrislee.co.nz/request-an-appointment


Any person is welcome to contact our office to arrange a free meeting.


Chris Lee

Managing Director

Chris Lee & Partners Limited

Taking Stock 23 August 2018


ABOUT 35 years ago the fledgling oil and minerals exporter NZ Oil and Gas issued shares to the public through the organising broker Renouf Partners.

Renouf had been founded by Frank Renouf and others. After his merchant bank NZ United Corporation had been sold to Barclays Bank, Renouf’s broking firm grew, attracting what I would describe as an eclectic mix of partners and brokers, some of whom Renouf could barely abide.  He was one of the original developers of our capital markets, tall, elegant, pompous and very much in charge of his businesses.

When the partnership listed NZOG, Renouf was out of the country and was privately furious with the decision to support the listing. Oil explorers are not that elegant!

Within a year or two a large number of new oil explorers were listed with great excitement.

Companies like Petro-Taranaki, Horizon, Oilfields and Southern Petroleum all sold shares and gave away options, making instant fortunes for the listing brokers, mainly Jarden & Co, and for those who were granted large allocations and weresmart enough to sell into a hyped-up market.

Petro-Taranaki eventually morphed into a leisure company, Oilfields merged, Horizon morphed into Capital Markets and then Fay Richwhite, and Southern Petroleum ended up in Fletchers, after finding significant hydrocarbons just off the shores near Waitara, New Plymouth.

NZ Oil and Gas has survived, has occasionally paid dividends, but today is mostly identified as a company that has been run for the benefit of a few shareholders and directors, and as the company that developed Pike River into a coal mine that exploded, killing 29 people in 2010.

NZOG’s interest in coal had surfaced long before Pike River.

One of its original directors and shareholders was Jack Barbarich, who had practical skills rather than academic qualifications.

I met Jack when NZOG was looking for working capital from the small merchant bank I headed in 1982-85.

He took me on a tour of the Waikato and Taranaki, taking me into a coal mine, my first and only experience in such a place.

My memory was of the gassy smell. My response was of a fear that some macho idiot would light a cigarette and send us all to a fiery hell.

He also showed me a seam of coal that was on the surface of some scrub near Ohura, then a prison town for low risk offenders.

Barbarich took me to an area where the locals helped themselves with a simple pick and shovel, scratching out coal that was within a foot of the surface (don’t tell anyone!).

He was convinced that NZOG had found jumbo oil structures but that new technology, and an acceptance of the equivalent of ‘’fracking’’, would be needed to extract the oil dollars, ‘’billions, multi billions’’, off the Taranaki coast.

He was a character of generous stature.  Jack believed that one could eat as much ice-cream as you liked providing it was served with pawpaw. The magic fruit would eat the calories. (I wish he had been right.)

It was my experience under the earth with Jack that returned to me when I read last week that the senior Labour government minister Andrew Little is still pursuing the possibility of laying charges against the directors and chief executive of Pike River Coal.

Readers will recall that charges were put aside in return for a $3.4 million cash settlement, provided by the insurers of Pike River, perhaps topped up by contributions from the directors and the executives.

Anyone who read Rebecca Macfie’s outstanding book on the subject would surely conclude that this pay-off, criticised by the Supreme Court, was inappropriate.

Macfie demonstrated that the Pike River directors and executive pursued production to meet contracts and generate cashflow without adequately addressing the very obvious problemof operating in an environment that was extremely dangerous.

Corporate New Zealand, and the 29 families who lost sons, husbands and fathers, would be well served if Little were to reopen the files and read the Macfie book again.

One hopes the Limitation Act does not deny any civil claims.

The governance and behaviour of Pike River Coal cannot be forgiven. Perhaps those directors should be at the front when the mine is re-entered.

The cash payout of $3.4 million was not an offset, in any way.

Nor were the Pike River people the only people to exhibit cynicism and stupidity.

The government of the time knew its supervision of mining was at best sketchy, its mines inspection function cruelly under-manned and under-resourced. The loss of life should also sit heavily on the conscience of that government.

Little is exactly the right man to pursue this.

Recovering the 29 bodies from the mine would be of some relief to the families.

However a High Court prosecution of all those who contributed to this disaster, including those in Parliament that undervalued the importance of mining safety, would be a much more important outcome.

Such a prosecution might also remove the whiff of corruption that keen nostrils still believe can be discerned, along with the powerful methane gasses.

_ _ _ _ _ _ _ _ _ _ _ _

THE general despair at the never-ending errors at Fonterra might be paused by the arrival of a new chairman and a new chief executive.

There may even be hope added by the news that the board has sensibly reviewed what it needs to pay its CEO, and will cut back the excessive package his predecessor had been granted.

Usually, big companies with swollen numbers of overpaid middle managers need a dramatic change in culture, if they are to be restored.

Dramatic change usually accompanies new people, with fresh eyes, no fear and no financial needs.

It is easy to recall the difference Sir John Anderson made to the National Bank of New Zealand when he moved from heading its investment bank (South Pacific Merchant Finance) to the role of Chief Executive of the National Bank.

He followed a long period when corporate politicians, of moderate banking ability, had led the bank, creating an environment where politics had led to banking mediocrity, the longest conversations being about salaries and perks, rather than banking excellence.

Anderson revitalised the bank through the strength of his personality, his presence quickly overshadowing those who clung to their perks and resisted any thought of banking excellence.

Fonterra clearly needs a similar injection of vigour, rigour and candour.

Might it come from its relatively new director Scott St John, previously the chief executive of FNZC, where he presided over an investment bank whose winning record has replicated that of the All Blacks?

St John retired from FNZC at an early age, barely 50, to take up directorships of Fisher &Paykel Healthcare, Fonterra, Auckland University and now Mercury Energy.

He will have observed, in his career, the difference between mediocrity and excellence.

FNZC has had a run of excellent leaders, including Bill Trotter and Chris Liddell, and has had many major contributors to New Zealand, including its founder Ron Jarden, and its permanent company builders, Bryan Johnson, David Wale, John Benton and the late Keith Taylor.

Trotter is now its chairman. St John has just resigned from its board, presumably acknowledging potential conflict with his other directorships.

St John has displayed several skills, including his selection of talent. FNZC has had a history of attracting skilled people, paying them well but expecting (and achieving) excellence.

That is what Fonterra must address.

At FNZC the challenge would have been uniting a large number of well-paid high achievers, imposing on them a shared goal of excellence, and keeping them focussed on their goals in an atmosphere where candour, vigour and intellect must be evident.

If St John can transfer this leadership mindset to Fonterra, the difficult task of holding together a cooperative with a public company structure might be achieved.

Fonterra must first produce and sell products with a margin to its clients; it must satisfy the members of its cooperative, it must satisfy its other stakeholders, including the shareholders and its bankers; and to survive with limited access to capital, it must be innovative, and nurture its resources, which include its people.

To date, its success rate has been at best patchy.

If it needs fresh eyes to introduce and enforce a culture that rewards excellence, perhaps its new director, St John, might be the key person.

Fonterra will not want to be cancelling dividends too often, if it is to keep the patience of its shareholders.

 _ _ _ _ _ _ _ _ _ _ _ _

ALREADY it faces the ire of its suppliers.

Fonterra collects about 80% of NZ’s milk production, requiring farmers to hold shares in the company if they want Fonterra to collect their daily production.

In return the farmers expect dividends on those shares and, of course, they expect their milk to be collected, wherever their farms might be; up the steepest, narrowest shingle roads, or beside a highway.

Fonterra then processes the milk, sells it to retailers (and competitors) or uses it for other milk-based products, hoping to add value.

Various farmers are now challenging this model.

Should farmers be paid for the raw milk, and permitted to opt out of the value-add process, thus not required to invest in the higher-return, higher-risk aspect of the dairy industry?

One South Island dairy farmer last week noted that had he been allowed to invest not in Fonterra, but in any of the others who add value (Synlait, A2 Milk, as examples), he would have been better off, by millions.

Of course Fonterra would argue that without the margins of the value-added products, the payout for raw milk would be lower.

Perhaps it is the success of Synlait’s model, or A2 Milk’s marketing, that is the cause of dissatisfaction with Fonterra.

Whatever the cause, Fonterra must act.

It is not hard to foresee Fonterra’s continuing loss of dairy farmers whose milk production would be convenient to collect, making those farmers a target for Synlait’s new collection area, the Waikato, where it is building new plant.

Every farm that is handily located in effect slightly subsidises every farm in the back country. Losing the easy collections would quickly add to the average cost.

Value-add then would become more important to maintaining the price of milk solids.

Someone with a keen mind, a skill in creating a culture that is universally adopted, a fresh set of eyes and some independent thinking is now needed to take the reins at Fonterra.

Will the Fonterra board be brave enough to appoint a newcomer to take on this significant and controversial role? Would St John commit to such a demanding project?

Would the Fonterra shareholders, suppliers and directors be alert enough to recognise the need for a new culture?

 _ _ _ _ _ _ _ _ _ _ _ _

THE vile and meaningless ‘’rich list’’ has again surfaced, and continues to be quoted by the media, as though it was an authority on wealth in New Zealand.

Of course, it is not. It is the guess of people whose knowledge of the subject is neither relevant nor informed.

The guesses published are made by people who have no ability to judge the value of private companies, no knowledge of debt levels, no knowledge of the existence of things like derivatives, put or call options, or private treaties, and no knowledge of the assets kept in nominee companies, or harboured offshore.

Accordingly, the list grossly over-values the wealth of most of these on its list, perhaps undervalues others, and ignores those who want no part of this crude, crass exercise.

Readers will recall many who the list claimed were ‘’worth’’ hundreds of millions, yet who within short periods were bankrupt.

Those readers will also ponder how the list can accept valuations of an asset that might not generate any buying interest if put on the market.

For example, there are hundreds of ocean-going tankers or fishing vessels around the world that cost tens of millions or hundreds of millions, but for which there are no buyers at all, meaning the vessel tied to a pier somewhere is worth nothing, indeed a negative amount.

As another example, take the old Westpac building in Lambton Quay, bought many years ago for about $30 million, sold years later for half that price.

A valuation of a building simply reflects an opinion on what its value might be relative to recent sales.

Whenever property investors and developers go broke, their assets get sold off by a process that might be stupid, in that assets get sold at sub-optimal times, but might also be proof that valuations are a poor guide to wealth.

The Wellington property owner Mark Dunajtschik is said to have virtually no debt, meaning his wealth is real.

There is the old saying that if you value your assets at two billion, and have $1.4 billion in debt, you ‘’own’’ nothing and are in deep trouble. The banks ‘’own’’ you. In stressed times you might find your buildings are ‘’worth’’ one billion but your debt is unchanged.

Quite why New Zealand has come to regard a ‘’rich list’’ as either interesting or accurate is something my grandparents or parents would find most disturbing.

For them ‘’wealth’’ had much to do with health, family, friends, social contributions, stable employment, and ‘’enough’’ to be comfortable.

Like them, I will remain mystified by all this, as well as uncomfortable about what it says of New Zealand.

It does seem that there is a market for this junk and we are a country now obsessed with what can be ‘’marketed’’. Pity.

If anyone actually needed to know the true financial value of a person the enquiry would start by asking that person and would then check the information supplied with the person’s family, their bankers, lawyers, accountants, sharebrokers and probably real estate valuer.

I can guarantee that the bankers, lawyers, accountants and sharebrokers would respond with a ‘’no comment’’.

Newspaper reporters are capable of researching public records.

Virtually none of the most relevant data would be on public record.

The pretentious’’rich list’’ is barely more than public bar fizz, of interest mostly to those who believe in fairy tales.

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I will be in Christchurch on August 28 and 29.

David will be in Lower Hutt on 29 August.

Edward is in Auckland (Albany) on September 3.

Mike is planning to schedule a trip to Tauranga during early October.

Our future travel dates can also be found on this page of our website: https://www.chrislee.co.nz/request-an-appointment


Any person is welcome to contact our office to arrange a free meeting.




Chris Lee

Managing Director

Chris Lee & Partners Limited

Taking Stock 16 August 2018


NEW ZEALAND investors are again being targeted by salesmen for obsolete financial savings programmes.

If one could imagine commission salespeople knocking on doors during the depression years, or even in World War II years, then the timing of such sorties would have been worse.

Take out those two inappropriate times and one would find it hard to think of a worse time than now to be hawking out-dated, fee-heavy annuities or managed funds, coupled to insurance policies.

Right now the timing is so lousy because here, and in Australia, the UK and in the USA, the subject of savings in unsubsidised pension funds and especially annuities is under extreme scrutiny.

In Australia the commission into banking practices has morphed into public examinations of selling managed funds, pensions and annuities.

No long-time reader of Market News or Taking Stock will be surprised by the Australian tales of oafish selling practices, based on high incentive packages for salesmen with no value-add and no obvious knowledge of capital markets.

One Australian provider charged clients a fee equal to 80% of the income produced by a so-called fixed-interest fund, the Australians were told.

Salesmen were offered 6% fees for selling the most outdated funds.

In the UK, the subject has dominated headlines, after a claim that fund managers had helped themselves to ‘’bonuses’’ of more than $200 billion over the past decade.

In the USA, the robotic funds that simply follow a formula or an index are now being offered on a zero-cost basis.

Instead of fees, these index-based funds are making their revenue by lending their clients’ securities to short sellers, and charging fees that amply reward the fund manager.

In the UK the politicians are under pressure to introduce new legislation that retrospectively provides investors in annuities with the right to withdraw all of their money, now, and use their own capital to top up their income needs in their retirement years.

The alternative was to borrow on home equity release mortgages, repayable on death. The problem with this alternative is that it costs interest more than three times the average return after fees of any of the annuities in which investor funds are locked.

With all these signals to investors occurring contemporaneously, why on earth would anyone today hold seminars around the country, using salespeople to sell annuities to crowds of retired people? Do they think New Zealand’s retired investors are unaware of these realities?

Surely now is the time for providers of such an improbable financial product to be silent, or to find better solutions for savers.

It will be the Australian enquiry that receives most publicity here.

The Australian people have handed around A$1.5 trillion to pension fund managers. Boosted by employer contributions and tax breaks, this strategy has worked, despite the ticket clipping, which since 2007 has enriched the fund managers by some $150 billion, enabling the sector to live the life of Riley.

The Australians have in effect traded off higher wages in return for a subsidised pension, a tactic that works well for those in gainful employment.

Here, our KiwiSaver formula is based on a similar tactic.

If the funds are placed in the type of assets that matches the risk tolerance of the client, KiwiSaver works well.

Fees are excessive, the salespeople are filling their boots (explaining all the seminars) but the tax break and the employer subsidy makes KiwiSaver an obvious choice, though it should never be compulsory.

But annuities? You kid me! Fee hungry, low yielding, credit rated the equivalent of Hanover Finance debentures, and effectively locking away funds, annuities in NZ seem to me to be an anachronism.

My guess is that Heartland Bank has helped sponsor these seminars because of the likelihood that those who hand over their savings to annuity providers will end up at Heartland’s doors, applying for a 7% home equity release loan so that they have some money again.

In effect, the annuity savings will be earning 3%, while the borrowings from Heartland will cost 7%.

Stop the bus!

 _ _ _ _ _ _ _ _ _ _ _ _

FORMER National politician Jenny Shipley has displayed wisdom, or the benefit of good legal advice, in resigning from her chair’s role at Genesis Energy.

Very few politicians, if any, make great directors, let alone chair, of public companies. Shipley is not one of the exceptions, in my opinion.

The value of experience and knowledge of private sector asset management is rarely understood by those whose livelihoods have come from serving the public sector.

I will one day display this gap by explaining why the country lost so much money unnecessarily because of ham-fisted people in the public sector – politicians and public servants – presiding over the fire sales of South Canterbury Finance.

The same outcome occurred with NZ Rail, in the 1990s.

Shipley has resigned, probably because she needs to address the serious court case being brought by Mainzealcreditors against the board of Mainzeal directors, over which Shipley presided for many years.

Although the directors will be largely covered by insurance, there must surely be individual contributions to any costs that this high profile case will incur, let alone any awards that may, or may not, be made against the directors.

Indeed, the Australian providers of Directors and Officers insurance have responded vigorously to the growing claims, based on governance and executive errors.

Following the Haynes Commission hearings of bank, fund manager and insurance company ‘’errors’’, the cost of insurance cover has risen on average by 70%, and in one case by 400%, according to the Australian Financial Review.

Insurers are also excluding cover for what is colloquially called ‘’Royal Commission Exclusions’’.

The intended outcome of these increases is to make governors and executives behave better. The more likely outcome, sadly, is that shareholders will simply be paying more to provide this cover for their directors and executives.

It has always seemed odd to me that any such insurance should cover wilful or criminal errors, such as we saw regularly in New Zealand during the 2005-2008 period.

Shipley, like her political mate Ruth Richardson, has had a crack at making a living as a public company director.

My view remains that the private sector should look for private sector exposure and experience, for governance roles.

 _ _ _ _ _ _ _ _ _ _ _ _

WHEN Shipley announced her retirement she talked of her achievements at Genesis, citing the introduction of Genesis to the NZX, the purchase of a hydro facility at Tekapo, and the profits, dividends and share price appreciation enjoyed by Genesis.

One wonders whether these were achievements of the management or the governors. The Tekapo transaction was forced on them by the government of the day.

It would alarm me if board chairs were to be judged on a mix of activities that are usually quoted to support executive bonuses.

If Shipley is to make a contribution to the private sector, my preference is that she confines this to taking up a role to encourage private sector women to move through the ranks of management, executive management and eventually into governance.

The key to any such move is a combination of knowledge and experience, mixed with a strong moral base and a meaningful network.

New Zealand needs impetus in this area. Shipley may be useful in this role.

In the NZX listed companies barely 20% of directors are women. In the USA that figure is nearer 14%.

If one includes the public sector, NZ women directors get to 27%, a figure much higher than Britain or the USA, but seriously lower than is the case in Norway or France.

In the UK there are more public chairs with the first name of John, than the total of all female chairs of LSX-listed companies.

In my view, Shipley does not set the standard as a private sector chair or governor, but she may well be an inspiration for young women, in that she was NZ’s first female Prime Minister, and as a result, has had public sector governance experience.

I doubt that anyone wants to see a governor simply chosen to fill a quota but NZ would certainly benefit if it could increase its pool of governors by creating pathways to corporate success for more women.

My own view is that the finance company sector explosion in 2006-2008 would not have happened had the boards of those companies had governors with a wider range of views, and private sector experience.

 _ _ _ _ _ _ _ _ _ _ _ _

THE success of Pacific Edge in attracting another couple of million of capital from an American wealth provider is notable.

However it seems that Pacific Edge has little else to attract positive headlines.

Seven years ago its chief executive forecast that within five years its annual sales revenue would reach $100 million.

Last year the figure was $3 million.

It has tapped its shareholders regularly for capital.

To be fair, it has found international interest in its bladder cancer detection technology but the applause has not been accompanied by anyone willing to pass the hat around the audience.

It was interesting to observe a newspaper reporter recently advising readers that Pacific Edge might yet be the ‘’next Xero’’.

One wonders whether forlorn hope was not the source of energy for this improbable forecast.

Xero has a billion in annual sales, a share price of around NZ$50, and is one of New Zealand’s largest companies.

Pacific Edge’s sales are more akin to a small Four Square grocer, its share price anchored at 30 cents.

For how much longer will it win the freedom to convert a good idea into a monetised idea?

 _ _ _ _ _ _ _ _ _ _ _ _

THE collapse of Turkey’s currency points to fragile international confidence in global markets.

Turkey, a NZ$1.2 trillion economy, has seen its currency fall by nearly 20% in a week, and 40% over a year, leading to scenessimilar to those of its arch enemy, Greece, a decade ago.

Retail depositors have been withdrawing lira from the banks, leading to cash shortages at large banks.

Turkey’s President for ever, Tayyip Erdogan, has faced an unusual problem, having to house and protect two million Syrians fleeing from their civil wars.

It seems only a few years since Turkey was contemplating an entry to the EU. Had this happened, the Syrians would have had freedom of movement to the likes of Germany, Holland and Sweden.

The collapse of Turkey’s currency is a loud reminder that the prolonged strength of global financial markets should not lead to an assumption that global markets are without significant risk.

 _ _ _ _ _ _ _ _ _ _ _ _

IN recent years banks in NZ, economists, politicians, fund managers and others who should have known better have been forecasting an imminent rise in interest rates in NZ.

As bank rates continue to fall, bond markets trade long bonds at yields at historically low rates, with very low margins for credit risk.

In this environment the clear winners have been those who bought long bonds, ignoring the errant forecasts, and corporates with manageable debt, now borrowing at unimagined low rates.

I recall a wise investment banker asking me a loaded question several years ago.

‘’Would you rather lend to a company for seven years at five percent, or own shares in the company that can borrow at that low cost?’’

As it has transpired, both propositions have produced healthy results.

Long bonds have suited investors with a need for certain income.

Most NZ listed companies have profited through low-cost borrowing, leading to better profits and dividends.

Maybe the signal to watch is the value of our currency.

If our interest rates remain low, while those of other countries rise, the logical consequence is a falling currency.

The NZD has lost value against the USD but to date other currencies, like the sterling, have themselves been weak.

Perhaps our petrol prices will provide all the signals we need.

 _ _ _ _ _ _ _ _ _ _ _ _

FONTERRA’S business model, lauded by media commentators, does not seem to win much support from investors.

Its decision to cancel dividends may or may not be aimed at accommodating its bankers’ wishes, but is hardly evidence of the successes of New Zealand’s highest paid executive and middle management team.

Fonterra’s strategies, and the execution of those strategies, remind one of the performance of the various meat exporters of earlier decades.

Either it has received very poor advice on strategy, or has been particularly poor in executing the strategies advised.

If it demonstrates nothing else, Fonterra provides evidence that high remuneration of directors and executives does not imply certainty of success.

Synlait Milk, by comparison, seems to have benefitted from smart management.

Just three years ago, Fonterra was a six-dollar share, Synlait Milk a three-dollar share. Fonterra today is priced around five dollars, Synlait nearer 11 dollars.

The market has weighted value, and spoken.

 _ _ _ _ _ _ _ _ _ _ _ _


I will be in Christchurch on August 28 (pm) and 29 (am), at the Airport Gateway Motor Lodge.

David will be in Lower Hutt on Wednesday 29 August.

Mike will be in Auckland on Monday 3 September (Remuera) and is planning to schedule a trip to Taurangain early October.

Edward will be in Albany on Monday 3 September.

Our future travel dates can also be found on this page of our website: https://www.chrislee.co.nz/request-an-appointment


Any person is welcome to contact our office to arrange a free meeting.

Chris Lee

Managing Director

Chris Lee & Partners Limited

Taking Stock 9 August 2018

WHILE the subject of Britain’s planned exit from the European Union is paramount in conversations in Germany, it is not discussed with any more vigour than the new risks to passive fund management and exchange traded funds (ETFs).

The recent fall in the value of Facebook shares has led to some dramatic conversations about passive investing, long overdue in my opinion.

Passive funds management and ETFs have grown at 4.5 times the rate of research-based funds management in the last decade, reaching a quantum of investor money of 8 trillion pounds, according to the Bank of International Settlements(December 2017 figures).

Of this figure some 3.2 trillion pounds are in ETFs, the remainder in other passive funds. Accelerating the growth have been Smart Beta ETFs, which follow specific sections of an index, rather than the whole index.

European conversation now centres on the effect on these numbers when, inevitably, the cycle leads to money coming out of share funds, and the trend away from the so-called ‘’momentum’’ stocks is reversed.

Prime among the momentum stocks are Facebook, Apple, Amazon, Netflix and Google (FAANG).

The share prices of these companies were originally established by research, skilled analysts assessing their future cash flows, business models and sustainability.

As prices grew, contemporaneously the amount of money poured into index funds grew. To replicate the index, the ETFs bought more of the FAANG stocks, by offering rising prices and eventually attracting an agreement from the original holders, largely active managers, to sell to the ETFs.

As prices rose, and the FAANGs reached their current extraordinary level (12% of the S&P 500, 27%of the NASDAQ 100), ETFs were forced to keep buying because of the continuing flow of money from fund managers and financial planners moving to this robotic, no-blame, model.

The Europeans, having recently seen Facebook’s price fall dramatically, are now pondering what will happen if the current levels of withdrawals from ETFs continue, as they have in recent weeks.

The active managers were happy to sell to the ETFs at high prices but as the ETFs are forced to sell, at what price will active managers agree to buy?

The argument is that what rose at disproportionate rates based on robotic demand, will fall at disproportionate rates, real buyers easily able to calculate the selling pressure and easily able to lower buying prices, until they reach a bargain level.

As the current pricing has little to do with company specific information, and never has had respect for this information, the buyers would be able to game the ETFs.

The comforting news is that the current tech boom is not seen as comparable with the dot com boom in 2000, when stocks were filled with cotton wool by greedy American analysts and investment banks, chasing fees.

Those stocks had no revenues, no proven business models, and were promoted to carve out fees for the greedy.

The FAANGs are not comparable. They have revenues, profits and credible business models, especially Google and Apple, and arguably Amazon.

Amazon is perhaps the most debated of the companies, given its nineteenth century attitudes towards its labour force.

Recent UK investigators record that Amazon stipulates the length and frequency of toilet breaks and has absolutely no respect for the wellbeing of its labour force.

Yet it receives dozens of applicants for the most menial and underpaid jobs, suggesting that the state of employment around the world is more based on desperation than on career availability.

The Europeans worry that the recent phenomenon of slight interest rate increases will add tremors to markets already disturbed by threats of trade wars, and threats of immigration costs.

The first signal of disturbed responses has been the withdrawal of tens of billions from ETFs in recent weeks.

The Europeans, and especially the British, expect that, just as ETFs have led to strangely-weighted portfolios and extreme prices, so will a sell-down lead to exaggerated falls.

(Given that FAANGs are 27% of the Nasdaq 100, one can hardly see diversification in an ETF based on that index.)

As I have often noted, with ETFs you get what you pay for.

No research. No thinking. No focus on company specific information. And no fees.

Will these formulae be the bargain of the century in a market downturn?

 _ _ _ _ _ _ _ _ _ _ _ _

IT IS interesting to observe that many of the world’s biggest fund managers are not solely wedded to index funds or ETFs.

As at December 2017 the world’s biggest fund managers were:

Blackrock             5.2 trillion pounds

Vanguard              4.0

State Street          2.2

Fidelity                  2.0

BNY Mellon          1.7

Capital                  1.6

JPMorgan             1.5

Pimco                    1.5

Amundi                  1.5

Legal & General    1.4

Goldman Sachs    1.3

Legal & General is Britain’s biggest fund manager.

It faces a Financial Conduct Authority enquiry after whistle-blowers made alarming claims about L&G’s conduct.

They allege regular breaches of compliance, leading to multi-million-dollar costs to clients, and they speak of a ‘’toxic’’ culture of bullying.

L&G respond by saying they have the best leadership team in their history.

Maybe the two views are not mutually exclusive.

 _ _ _ _ _ _ _ _ _ _ _ _

RECENT falls in allocations to ETFs have had the counter-intuitive result of increasing allocations to the highfee, highrisk in the CFD world (Contracts for Difference).

CFDs are just about the highest risk sector in the market, using leverage, requiring margin calls, and buying derivative contracts, the average life of which can be minutes or hours, and more rarely days or weeks.

The money now invested in CFDs has reached a trillion.

The derivatives most frequently are based on long or short individual share positions, but also focus on currencies, including crypto currencies and various indices of major and minor sharemarkets.

My worry that CFDs naturally encourage insider trading does not seem to worry the authorities, who have great difficulty in regulating the sector.

However the authorities are to beef up regulations.

They propose:

1. To legislate leverage, for example making it illegal to leverage investors into crypto currency contracts at any higher rate than two dollars borrowed for each dollar invested (whereas with major currencies the ratio might be 30:1).

2. To ban margin calls, forcing the providers to close out derivative contracts that lose the deposit paid by investors.

3. To restrict marketing incentives paid to financial planners and others who promote this high-risk form of investment.

 _ _ _ _ _ _ _ _ _ _ _ _

SAUDI Arabia was long seen as the world’s richest oil baron but the warmongering country, currently attacking Yemen, is no longer the equivalent of Fort Knox.

It has overspent for years. Its sovereign wealth fund, Public Investment Fund (PIF), is asset rich but will soon be seeking to borrow to diversify its investments from an over focus on oil.

Interestingly, it is downsizing a petrochemical investment by selling its 70% share for US$70 billion to the Saudi oil company, Aramco, which three years ago was to list a small number of shares on the London exchange.

That listing never occurred. Saudi commercial laws and practices may have deterred global institutions from accepting Saudi valuations of the share.

Aramco now will seek the same outcome by buying from PIF its 70% holding (in SABIC), funding the purchase with bonds and bank loans from US and UK banks.

Banks are making submissions to win the right to lend.

Margins will be tight. Fees will be minimal.

Who knows about the risk of accepting the valuations of others, without concrete evidence that the base figures mean what bankers think they mean?

Making submissions to lend someone else money is not a strategy that I understand.

 _ _ _ _ _ _ _ _ _ _ _ _

RECENT items in Malta, published in Taking Stock, brought responses about the little island’s vulnerability to corruption.

Rapid growth, leading to rapid improvements in average prosperity, often come with a cost.

I recall that South American proverb that Kevin likes to quote: ‘’He steals but he gets things done’’.

There have been two major issues that have taken Malta into the headlines, one being the murdering of an activist journalist by car bomb, the other being a magisterial enquiry into the Prime Minister’s financial behaviour.

Three Maltese men with unusual lives are facing trial for the murder of the journalist. The three own expensive assets, cars, boats etc, but have never had paid employment. Odd.

The Prime Minister has been cleared by a judicial enquiry which found no evidence of an alleged million dollar payment to Panama-constructed trusts. Allegedly, the payment came from the president of a country that supplies gas to Malta.

The Labour Party PM (Joe Muscat), the energy minister and the tourism minister were alleged to have formed trusts in Panama at the same time. The finding cannot link Muscat to these trusts.

The Maltese people have mixed reactions to these events, loathing the thought of corruption, but liking their improved living standards.

The overt evidence of corruption is non-existent to a tourist.

There is no Mafia visibility, the police are friendly and undemanding, there are no customs backhanders, and the judiciary is definitely independent, as is the church.

Generally, the people remain family-centric.

However the economic growth has caused labour shortages which in turn has led to a huge increase in short-term immigration.

In restaurants we were served by people from Columbia, Venezuela, Chile, Serbia, Montenegro, Croatia, Ukraine, Poland, Hungary, Italy, Moldova, Greece, Somalia and Sudan.

Maltese people don’t want those lower paying jobs.

Malta estimates it needs 10,000 new, English-speaking, work-motivated, law-abiding people every year, indefinitely, to service the tourism and hospitality industries.

The availability of jobs, the weather, the food and the clean sea seem to attract those workers, especially young women.

We need Hemmingway to write a 2018 novel about the thronging of young people to the little island.

 _ _ _ _ _ _ _ _ _ _ _ _



I returned to the office today. I will be in Christchurch on August 28 (pm) and 29 (am) at the Airport Gateway Motor Lodge.

Edward will be in Auckland (Remuera) on 3 September and in Albany on 4 September.

Our future travel dates can also be found on this page of our website:


Any person is welcome to contact our office to arrange a free meeting.

Chris Lee

Managing Director

Chris Lee & Partners Limited

Taking Stock 2 August 2018

BRITAIN’S financial markets have always been accepted as being world class, their role in price-setting unchallenged in Europe.

If Britain leaves the European Union, much of London’s firepower will have been removed, with many major institutions moving to Frankfurt, Paris, Hamburg and Amsterdam.

The fear is that London’s reliance on its financial sector means the English capital of financial markets would be dehorned if its capital market dominance ended.

In particular the derivative market would be threatened.

To a passer-by it seems quite extraordinary that these natural consequences of an exit from the European Union are being discussed fearfully, two years after the referendum.

Given the level of panic in Britain about such consequences, it seems ridiculous that these issues were not clearly explained and debated before the referendum.

While it is right to acknowledge Britain’s leadership role in capital markets, it is equally important to acknowledge that Britain is beginning to lead the way in investor activism.

Illustrating this was a recent shareholder refusal to accept an absurd bonus package for the new CEO of the Royal Mail listed company.

The directors proposed to provide this fellow with a ‘’golden hello’’ of six million pounds, pay him 640,000 pounds a year, with potential for a bonus of another two million pounds, and they wanted the shareholders to accept that ‘’golden farewells’’ of a million pounds were the prerogative of the board.

The mail company is a monopoly, coping with falling deliveries partly offset by increases in parcel deliveries.

The chief executive of a monopoly was to be paid like some sort of corporate genius.

Mercifully, 70% of the shareholders voted against the board’s executive package, at long last displaying both the common sense and the energy that for too many years have been hidden. Presumably the fund managers stood alongside retail investors.

It is a sad reflection of corporate culture that the Royal Mail’s board accepts shareholder votes as no more than a recommendation and is empowered to ignore the investor signal.

Very likely that is what the Royal Mail’s board of prats will do.

However the people have spoken. Expect the next vote on directors to put paid to nonsensical excesses like golden hellos and golden goodbyes.

Ironically many company pension schemes in Britain are in deficit, their investments not earning enough to pay the promised pensions.

This is particularly true of many annuity schemes, where the payback is barely equal to the sum invested.

One wonders whether the managers of these funds have ever modelled the cost, via lower dividends, caused by the ludicrous pay packages given to executives.

A few million here, and a few million there, quickly add up to significantly lower levels of dividends.

Pension funds need dividends.

Britain is also well behind the acceptable standard in promoting diversification.

Most people of my age, and many women, do not want to select an inferior person to sit on a board, simply to satisfy the pursuit of some random number of people who are not ‘’pale, male and stale’’.

We do want diversity, but we want it to be achieved by choosing the best people, discounting no eligible contender because of race, age or gender.

Britain is making a mess of its goal of having equal numbers of women directors.

It is lifting the numbers of non-executive female directors to a level of nearly one-third of all public company directors, but it is going backwards with the use of female executive directors, presumably because the number of women in executive positions is still far below the aspirational figure.

My theory is that it has only been in the past 30 years that most women have committed to corporate executive careers.

Given that directors are expected to be experienced in handling the different economic cycles, there will be some catch-up period required before the natural balance of a board is achieved.

Britain, where the lords still get trolleyed in clubs at lunchtime, and where productivity is still far below its potential, is not the best example of a country with agility and energy to introduce change.

The United Kingdom still believes thatrules and laws will establish a culture, rather than true leadership, reflected by a chairman and a chief executive.

Accordingly, you might expect Britain to reach those modern, aspirational goals many years after more nimble countries have got there.

Certainly ten years of wage freezes have made households vulnerable to any deterioration, caused by a no-deal exit from Europe or by continued falls in pensions.

The British media report growing pressure on its politicians to change the laws on annuities, the investors wanting their capital released now to fund living costs, effectively reversing their original decision to hand over savings to an annuity provider.

As an aside, I have long wondered why anyone would ever hand over their capital to such an expensive, low-yielding, fee-hungry arrangement.

Britain has for the first time in 30 years discovered that the households of Britain last year took out loans and plundered their savings to enable them to spend 900 pounds more than the average household earned.

The government had reverted to providing support for low-income households by providing vouchers that could be used only for food purchases.

As you would expect there is now a busy secondary market in these bespoke vouchers, the sellers wanting ubiquitous cash, the buyers achieving a handsome discount.

The shareholder revolt at Royal Mail has given me hope. The solidarity of the Old Boys network introduces doubt.

Change is certain. My guess is that change will ultimately be forced by law, as is happening in our public service.

I am no fan of the law interfering with the right to choose on the basis of talent but I have no doubt that those who will soon be in power will be unmoved by my reservations.

Even Britain will have to change.

_ _ _ _ _ _ _ _ _ _ _ _

IN THE 1990s Westpac Bank’s backroom boffins concluded that the supermarket stocking of pharmaceuticals would ruin the viability of chemists in New Zealand.

The bank set out to reduce its exposure to the sector, advising chemists that they were to repay their overdrafts, some required to repay within a week or two.

Chemists use overdrafts to fund their stock. If the stock turns over regularly and at nice margins, the banks should have nurtured this business. Their overdraft lending is always at a nice margin.

Westpac lost some profitable clients, two of their clients engaging with me to help them move banks quickly.

Both of those pharmacies remain today as profitable, necessary businesses.

Westpac erred with that forecast but nearly 30 years later the British are now observing the cost to communities of losing their local pharmacy.

In the past 12 months, 80 pharmacies in Britain have been closed, blaming not their bankers but the government, which is reducing its contributions to prescription drugs.

It is small towns which are the most vulnerable when chemists close.

In small towns, the local chemist is also the low-cost unofficial general practitioner, diagnosing the cause of sniffles and aches, and prescribing over-the-counter remedies.

Britain does not like the closures.

_ _ _ _ _ _ _ _ _ _

THE United Kingdom may be one of the earlier civilisations to have adopted democracy, supposedly giving power to the people.

But you could have fooled the Brits.

A recent survey, conducted by the Centre for Policy Studies, published the following outcomes:

Ø 49% of Londoners were unaware that they have an elected mayor;

Ø 15% of adults surveyed thought Britain had already left the European Union, the figure being 19% from all those aged 18 to 24;

Ø 40% said they had no trust in Parliament;

Ø 29% said they did not know Parliament made the laws;

Ø 39% said they did not know the European Union made laws that affected Britain.

The survey director summarised by noting that the British people were, simultaneously, sceptical of government and largely ignorant about it. That was hardly a recipe for a healthy democracy, he noted.

_ _ _ _ _ _ _ _ _ _ _ _

CATHOLICISM still dominates Malta, undoubtedly explaining the generally law-abiding and family-friendly culture that makes life so easy for tourists.

However, its controls in earlier times erred a tad on the side of men.

During the 1940s a wife who deserted her husband was taken to court and required to explain her behaviour.

If the explanation was not satisfactory, she was jailed!

Not until Dom Mintoff became the popular Prime Minister in 1971 was this law overturned. Mintoff was responsible for much social reform in Malta as was Napoleon in the late eighteenth century. It was the French occupier who abolished slavery and improved the conditions for women who worked, such as nurses.

Dom Mintoff had also been Prime Minister between 1955 and 1958, when Malta was a colony of Britain, and had rebelled against the British. Malta became a republic in 1964.

It was not until 2011 that Malta had a referendum which voted in favour of allowing couples to divorce.

Malta was the last EU country to approve of legal divorce.

_ _ _ _ _ _ _ _ _ _ _ _

MALTA’S economy last year grew 6.6%, and enjoys a significant current account surplus.

Imports contracted, exports grew, domestic consumption grew and, for 2018, GDP growth was estimated to be 5.8%, led by the services sector, particularly tourism, remote gaming and professional services.

The rising participation of women in the workforce helped the labour market grow.

The fiscal surplus is about 4% of GDP.

Spending on health and education continues to grow, tax revenues are growing.

Malta’s debt levels are forecast to be 43% of GDP next year.

Britain’s government debt level of 1.78 trillion pounds is 87% of GDP, costing in interest 8% of the total tax revenues.

Germany’s debt level is 2.1 trillion euro (a similar figure to Britain’s if measured in the same currency) but this is just 61.5% of GDP.

France, with a slightly smaller population, has 2.3 trillion euro of debt, which is 100% of its GDP.

Italy’s government owes 2.1 trillion euro, 132% of GDP, whereas Holland is 443 billion euro or 64% of GDP.

By way of comparison, as a percentage of GDP, the following chart is instructive:

Japan – 253% of GDP

Italy – 132%

USA – 105%

France – 100%

Spain – 98%

Canada – 90%

UK – 87%

Brazil – 74%

India – 68%

Germany – 61.5%

China – 47%

Mexico – 46%

Australia – 42%

Switzerland – 30%

Indonesia – 28%

Turkey – 28%

Russia – 12%

The NZ debt level to GDP is 22%.

Of course the figures are of government debt only. Total debt figures include corporate debt and especially household debt.

If one adds these other debts to the US figures, the total is nearer 300%, whereas the NZ figure is nearer 160%.

It is household debt that threatens NZ, but not Malta, where personal debt levels are extremely low.

_ _ _ _ _ _ _ _ _ __ _



Edward Lee is in Remuera 6 August and Albany 7 August.

Our future travel dates can also be found on this page of our website:


Any person is welcome to contact our office to arrange a free meeting.

Chris Lee

Managing Director

Chris Lee & Partners Limited

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