Taking Stock 25 June 2020


EVEN more so, now that we are lumbered with what might be a permanent epidemic, New Zealand simply cannot afford to have poor leadership of its public sector and unworldly people lining up to govern the country.

We must again address the question of leadership in both the private and public sector and re-set our required standards.

We need to have ''fit and proper'' people setting strategy and overseeing strategy, applying knowledge, experience, judgement and integrity.


Tragically we are yet to see evidence of any recognition of the urgency of this need.

At the risk of boring those who already know these details, we can and should look back at the braindead behaviour that destroyed South Canterbury Finance, and the self-interested behaviour that followed, to prove the need for change.

Last week the SCF nightmares returned when I was approached for comment on a recent decision to put one of the SCF protagonists into the role of chairing one of our biggest banks.

Rabobank announced that its new NZ branch chairman will be Andy Borland, who currently is the chief executive of the admired apple grower and exporter, Scales Corporation.

It should be noted that Borland has a range of admirers. He comes from a popular Southland family, his father an esteemed rugby player and his family well respected.

Andy Borland himself was a senior commercial manager at Westpac in the 1990s, who left to join Allan Hubbard's Southbury Corporation Ltd, the owner of SCF.

Borland became a director of Southbury, a deemed director (deemed by me, anyway) of SCF and a highly paid personal adviser to Hubbard ($10,000 per month, for his advice).

He became Chief Executive of Scales, implementing Hubbard's largely successful strategy, and displayed his confidence in Hubbard by borrowing $5 million from SCF, at an improbably low interest rate, to buy 250,000 shares in Southbury in 2005 at a time when Hubbard and Forsyth Barr planned to list the group, exploiting its rapid growth and the absence of bad debts from its property development loans (at that time; they surfaced later).

We all know this turned to egg, milk, sugar and corn flour.

Southbury and SCF's hopeless governance and incompetent lending undermined an empire, leaving it vulnerable to interventions by self-interested and largely incompetent third parties, at the mercy of an excruciatingly poorly-led National Government.

The third parties bungled just about everything and Key's incompetence and his focus on political convenience, added to a covering up of an egregious Companies Office error, resulted in the destruction of at least a billion of taxpayer money.

It still releases bile in the stomach to recall the Mr Bean-like bumbling.

However the greater issue now is the failure to demonstrate that these oafish errors would be avoided in the future.

The first failure was of governance.

We do not have a national aptitude test for directors (governors), which is just as well, for to avoid embarrassment we might have to set the standards at about NCEA levels, given what we see from many public company boards.

We do have a law requiring the Reserve Bank to apply a ''fit and proper'' test before approving governance roles in such important business entities as Rabobank.

That process is not transparent, and does not demand input from a credibly-wide audience, nor can we know the criteria.

My submission to a public consultation process run by the RB last year was that a ''fit'' person had to have discernibly relevant knowledge and experience while a ''proper'' person had to have a track record indicating legal and moral standards.

Past failures would weigh heavily on the judgement of the RB.

Rabobank is at parent level an outstanding bank, effectively a Dutch cooperative, dominated by agricultural shareholders, with an almost flawless record. In the Netherlands it has huge capital and memorably once declined the Dutch government's offer of money (after the 2008 crash) by recording that it would rather lend to the government than borrow from it.

On another occasion its Chief Financial Officer stated that the bank had no knowledge of or interest in a toxic product of the day (collateral debt obligations) that seemed to beguile most bankers in Europe and America.

Rabobank Netherlands is genuinely a rock. But it does not guarantee the four billion dollars of retail NZ money that enables Rabobank in NZ to lend largely to the dairy industry, $11 billion, the remaining $7 billion contributed by inter-company loans and corporate lenders.

Rabobank Australia absorbs Rabobank NZ and reports a combined result to Rabobank Netherlands.

Rabobank NZ's major risk is its extreme weighting of dairy sector loans.

Andy Borland now chairs the board responsible for managing that risk.

I would feel much more relaxed if that hefty responsibility was being borne by someone whose passing of the ''fit and proper'' criteria was visible, its process laid out in detail, the breadth of the network used by the RB also visible.

An invisible process breeds doubt.

At surface level, Borland's governance failures with SCF, and the Crown's agreement to write-off $4.5 million of the $5.0m lent to him by SCF, would make him a candidate for careful inspection.

We are living in harrowing times, facing risks that many of us cannot quantify.

It will be to Borland's great credit if he proves to be an excellent governor of a bank whose risks are obvious, and not irrelevant.

The Reserve Bank does Borland and NZ banks depositors no favours by declining to discuss and display the values he will add to this role that would offset past errors and the default of a large debt (effectively to the Crown).

We absolutely must not revert to the lazy braindead behaviour that reached its nadir in the 2008-2014 years.

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THE recent announcement that a tiny Australian private equity company was going to buy and then trade some NZ publications might not have triggered national alarm.

The German group Bauer offered its NZ stable of publications (The Listener, North&South, Women's Weekly etc) to the NZ Government for a solitary dollar some months ago.

The Ardern government declined perhaps wisely recognizing that the combined business skill of its caucus, even if added to the combined skills of all other politicians currently on display, would be fully tested by the management of a fish and chip shop, at least in the opinion of some of our business leaders.

So the occupants of the Bauer stable fled from the gates and have not been seen since.

Suddenly last week Mercury Capital announced it had paid some tens of millions for the inhabitants of many more Bauer stables.

We now know the NZ inhabitants will be hocked off to someone else who thinks he might restore life (and profits) to them. We are just not aware of who that someone is but certainly it will not be our government. Mercury Capital has no obvious desire to own the NZ asset.

The more fascinating disclosure in the announcement was the make-up of Mercury Capital's team, and the identity of its main asset, Blue Star Print.

Readers with good recall will remember that in 2007 Goldman Sachs, the employer of New Zealander Clark Perkins, arranged to repay around $37 million of subordinated notes owned by Blue Star Group, by arranging a new similar debt issue of more than $100 million.

Perkins was a senior executive of Goldman Sachs in that period when GS took command of the fund raising for BSP, a programme that enabled BSP to head down a path that proved disastrous for the investors, as BSP used the money to pay far more for acquisitions than those takeovers could sustain.

The banks lent more, knowing any losses would be absorbed by the BSP bond holders. And so it proved, the bond holders losing more than $100 million, but the banks losing nothing much, while BSP, restructured, finished up with a pile of acquired companies without needing to be accountable for the destruction of money caused by stupidly extravagant purchase prices.

Armed with this new greater sum, Blue Star Print went on a buying binge, supported by debt from banks whose loans ranked ahead of the new bond investors.

Blue Star Print bought out some bleak printing companies at a time when such companies were facing extinction, apparently overshadowed by the growing level of electronic publishing and the demise of the finance companies whose constant prospectuses kept printers busy.

It did not take long for the stupidity of Blue Star Print's strategy to destroy the company.

The American opportunist Tom Sturgess, who had once owned BSP, sold out before the destruction to an ugly Australian private equity company Champ Equities, which promised that its plan would restore BSP.

It indeed did restore BSP but only after the unprotected NZ investors had been wiped out, cynically dispossessed of money borrowed and spent with what later was identifiably an abandon close to insanity.

In time Sturgess reacquired BSP's rump and now we read that the Goldman Sachs Perkins, who had formed Mercury Capital, is with Sturgess and the private equity investors, owner of BSP which was a major printer of …….. the Bauer stable publications.

Blue Star Print investors will probably never forgive Goldman Sachs, Champ Equities or Sturgess but will recall the wipe out of their cash as the result of stupidity, rather than chicanery.

There were many stupid deals done around 2007, not all of them by the likes of Bridgecorp, Money Managers, Hanover, St Laurence, Lombard, Strategic Finance, Dominion Finance, South Canterbury Finance ….. (I am running out of ink).

But Blue Star's behaviour, and the subsequent shenanigans, will live long in my memory, and probably long in others.

If Mercury sells Bauer's NZ assets, may the new buyer strike a deal that survives.

I doubt that any new deal will involve Champ Equities and any NZ investors.

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IT is now a month since I came across some unexplained behaviour by Perpetual Guardian, which I have labelled New Zealand's worst trust company, on the basis of its extreme prices for a low value service.

I might as readily have labelled it New Zealand's most expensive trust company.

To refresh, a Whangarei lady in her 90s died, leaving behind a home worth around $400,000 and a modest bank deposit of maybe $20,000. Her will required her assets to be divided and distributed equally to her sons and daughters.

She made the unforgivable error of signing an agreement that instructed Perpetual Guardian to act as executor of her will, authorising PG to deduct its various, exorbitant fees.

PG accepted this challenge and seems to have responded with a grin that would make a Cheshire Cat look melancholic.

It sold the house, collected up the bank deposit, charged an extravagant $15,000 for this clerical task, and then filled its boots with a $40,000 additional deduction for the ''extra'' tasks it encountered, like answering an email, dealing with real estate agents and performing anti-money-laundering clearances.

The behaviour explains my view that PG should exit the role of trustee or executor, handing all its files to the Public Trust, whose charges would be far less than half of what PG concocted.

PG would then be free to make its easy and more lucrative money from overseeing the funds of those lazy KiwiSaver managers who allow PG to charge millions for is function with KiwiSaver.

PG and others provide an oversight service for KiwiSaver clients by ensuring the KiwiSaver managers actually do hold the bonds and shares they claim to hold.

This task would be similar to ticking off Computershare and Link statements.

PG would also oversee the tax treatments for these funds.

For this, it, and all other such service providers, should be paid a rate that reflects the time and expertise involved, and the value-add of the service. I contend the value-add is minimal, unless the KiwiSaver managers were incompetent. (They are not.)

It is easy to imagine that the clerical function might be valued at an hourly rate of, to be generous, $100, and that any need for tax expertise might be charged out at a higher rate, say $200 per hour.

However our lazy KiwiSaver managers instead agree to pay a fee based on the quantum of the funds, expressing the fee in percentage terms, perhaps two basis points per dollar, or $2 per thousand.

KiwiSaver funds now total around $80 billion, so if PG has won the right to provide this modest, I would say perfunctory, service, it might be allowed to charge $200,000 per billion.

If it oversees $40 billion of KiwiSaver money it would be charging $8 million, an amount that would imply that the task engages 20 full-time clerks, paid $100,000 per annum, and 30 full-time tax reviewers at $200,000 per annum.


The practice of allowing any trust company to charge on the basis of a percentage of funds is nonsensical.

Trust companies insure their liability at minimal cost and cannot be sued for any poor asset selection by the fund manager, so PG's capital is not at risk.

This is quite unlike the liability of a KiwiSaver provider or sharebroker, like Craigs or Forsyth Barr, which certainly are liable for any transaction failure, or poor work. Their liability is real, though, oddly, rarely tested in court.

It is literally true that in their sharebroking activities, every sharebroker is liable for any payment failure, thus ensuring the seller gets paid and the buyer gets the security of purchase.

The trustee oversight responsibility is far less onerous and does not justify a fee based on the size of the fund. Its fee should be based on time and the modest skills required.

One hopes that any day soon a KiwiSaver manager will tender the trust company role, seeking a quote based on hours worked and skill required.

I guarantee no trust company would need to price the work of 20 clerks and 30 tax experts, the number that would need to be involved to justify an $8 million dollar fee.

Further, I wonder how many trust company clerks are paid more than $30 an hour ($60,000 p.a) and how many taxation accountants are paid $90 an hour ($180,000 p.a).

The trust company roles, so valued 100 years ago when The Public Trust was being moulded, are in their sunset years, still generating margins for their owners, but only because far too many people fail to demand value for money for the fees that eventually are met from other people's pockets.

Footnote: The member of the public who contacted me for help in retrieving the $40,000 from PG has now put her complaint to the Financial Services Complaints Ltd office. One imagines any resolution might be confidential. PG has an empathetic owner in Direct Capital and a leader in Mark Nicholas who, one hopes, will be addressing the broader issues I have raised.

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My plan to meet clients in Christchurch, Nelson & Blenheim in July is now in place, the appointment diary complete.

Edward will be in Auckland on July 27 & 28 and I hope Johnny and I will both be in Christchurch in August. I will return to Auckland in August and I hope to be in Tauranga in that month.

David will be in Palmerston North on 22 July.

Johnny is now enjoying at home the company of his gorgeous new daughter, born May 28, on paternity leave.

Michael's travel plans for August will be published later in July.

Chris Lee

Managing Director

Chris Lee & Partners Limited

Taking Stock 18 June 2020

ARE we adjusted to the reality of real changes in how we live, how we spend, and how we invest?

There is no soft way of discussing and digesting the reality. Change is unavoidable.

Visible within the next few weeks will be:

* The effect on retail businesses of lower consumer spending;

* The effect on retail, travel, leisure activities, rental car usage, hotel and motel occupancy rates and Airbnb usage of fewer international tourists. (Some hotels in Auckland are offering rooms at zero cost, just to get dinner bookings);

* The effect on consumer confidence of redundancies, wage cuts and restructuring (banking middle management being an imminent threat);

* The inevitable reduction in inner-city retail and office rentals, as small businesses and retailers seek to minimise costs. One major property owner forecasts multiple tenancy failures in the big cities;

* The reality about the opening date for our borders.

The truth is that the wage subsidies, the rent holidays, the mortgage holidays, and the Reserve Bank free loans to ailing businesses will not be available indefinitely.

Perhaps the election date will be the signal for the reality check that will follow the inevitable removal of subsidies.

These realities must surely affect household behaviour, and investment behaviour.

Currently we are observing anomalies.

Household income is falling, and registered unemployment figures are beginning to rise. Some sectors have reduced wages. Bank and public sector bonuses are frozen. Interest on bank deposits is minimal and some companies have cancelled their dividends.

Central banks have printed trillions (billions in our case), and helicoptered cash indiscriminately to defer the reality.

The anomalies and audacious response in NZ have seen around 100,000 new people opening share broking accounts and, without the benefit of information, experience, or advice, investing some savings into randomly chosen listed securities.

Anomalous, audacious and perverse might be adjectives to describe such a response.

Names of companies with high brand recognition, like Air New Zealand and Auckland Airport, have had thousands added to their registries, many of the newcomers appearing with a small handful of shares, fuelling illogical price increases.

The housing market has not retreated, though numbers of sales have fallen.

New car sales are well down but at least for the first few weeks after lockdown, the retailers of brown and white goods (furniture, dishwashers etc) report impressive sales figures.

This bold behaviour surely cannot continue, unless NZ moves to a consumer society that embraces the concept of perpetual spending by perpetual growth in credit card debt.

Might we have more sense than to fall for that unsustainable way of living?

There is anecdotal evidence that the over-worked money photocopier in the Reserve Bank has fed the banks with money to lend to their well-heeled clients, enabling their clients to play the nett yield game, borrowing at 3% to buy securities that yield 5% (currently).

If interest rates fall to zero, those investors might chase securities that yield 2%.

Investors are already doing just that in many countries, like the United States.

If investors would buy assets (shares) with an earnings rate of 2%, those investors would be paying a price/earnings ratio of 50.

Historically, most markets have had average earnings ratios of 15, not 50.

Has the world lost its connecting wires with its cerebral organ?

Will we be as reckless here, in our more sober land?

If one pays 50 times earnings, and then recession, a resurgence of Covid, or structural changes in consumption lead to a halving of earnings, the PE ratio next year would be 100.

Would some investors contemplate that?

One explanation is that if central banks keep the photocopier working at full pace, the central bankers might need to pay you to borrow, to get that money into circulation.

This may sound like complete insanity but do not dismiss this as impossible.

As central banks continue to believe that employment and economies will be lifted by negative interest rates, why would the central banks nor persist with ever higher negative rates, if the recycling of the money was tardy.

If the central bank charged banks 5%, or more, for their cash balances, the private banks would be logical if instead they lent to their best clients at negative 2%.

If a bank pays me 2% to borrow money, a reliable return on my investment of 1% makes me a 3% profit.

No textbook offered to me has ever tested this 21st century wizardry. I am agog with fascination.

Yet the theory holds and explains why low cost bank loans feed into the hands of the wealthy (the banks’ least risky clients) and push asset prices ever higher. The witness to this is the news feed that tracks global sharemarkets. Such behaviour is evident now.

The worse the economic news, the more money is printed at ever lower interest rates, leading to the wealthy having access to virtually nil cost money, enabling them to buy assets at ever greater costs.

If this cycle is virtuous, then the measuring instrument of such virtue must be the same one that finds virtuosity in presidents who pardon their own crooked lawyers or immigration ministers who approve visas but require those immigrants to mow the minister’s lawns or iron his underwear.

The top 10% of the world’s wealthiest people, who by definition have nett assets exceeding a million, own around 85% of the world’s assets.

The corollary to that is that the bottom 90% own only 15% of those assets.

How far away is the globe from watching the top 10% owning 90%, or 95%, thanks to no-cost loans provided in effect by the masses who are losing their jobs?

At what point do the masses seek to reverse this modern form of feudalism? Would they achieve change peacefully?

A neutral observer might wonder if these trends were proof that democracy does not work, that socialism does not work, and sure as anything, communism does not work.

What next? Military juntas, run by benevolent dictators?

Many will ask why the photocopied money does not lead to hyperinflation immediately. Surplus printed money should convert to excessive consumer demand, not matched by supply of goods and services, so prices would soar. Yes?

However, supply is ample (in New Zealand), households lack the confidence to borrow or spend, so the bank coffers remain full. There is margin for the banks in lending to the low risk or well-heeled. Those people will borrow to invest in our best assets, not to spend on manufactured goods that create employment.

The ‘’hyperinflation’’ is visible currently only in asset prices, not in consumer goods. Inflation indices are not much influenced by share prices. Those indices track household spending, not household investing.

So we live, as Confucius described, in interesting times.

As I noted last week, cautious investors will watch upcoming economic data with respectful attention.

Data should emerge in July and August that should lead to a level of sobriety not currently evident in global sharemarket behaviour.

Does anyone believe that the investment and social environments will be more predictable, more sustainable and more acceptable if the top 10% owns everything?

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BORROWED money has to be repaid, serviced (with interest), forgiven, or stolen (by subsequent repayment default). Argentina and Russia are well acquainted with the last option.

In New Zealand’s case our national debt will soon have doubled, increasing by around $60 billion to $120 billion, maybe a little more.

As a first-world responsibly managed country, NZ would want to reduce debt by repaying it, restoring our sovereign debt ratio to a credible 20% of our GDP, currently around $300 billion.

We could restore that 20% ratio by growing our GDP to $600 billion. This might be a tad optimistic, and ignores forecasts that GDP is actually likely to fall, given the absence of tourists and immigrants.

We could inflate the problem away by allowing our prices to grow at a double figure annual rate.  We tried that in the early 1980s. Massive currency falls accompany high inflation.

The problem is that high inflation destroys the lives of nearly all categories of our people, especially those on low or fixed incomes.

Or, drumbeat please, we could substantially raise taxes, create surpluses and repay debt.

A new personal tax rate of 45% for those earning more than $100,000 per annum is certain to have been modelled by unworldly people in the public sector.

Modelled also, would have been wealth taxes, death duties, capital gain taxes, maybe financial transaction taxes and carbon taxes.

Of course, a fourth option to create fiscal surpluses is to decrease spending.

The NZ pension could be income and asset tested or the retirement age shunted higher. Public sector wages could be cut.

A fifth option would be to sell assets. The Chinese might buy Landcorp, or state forests or fishing rights, or our surplus water, or our electricity lines, or our conservation lands.

We are not likely to hear much discussion on these matters in the next three months. They are unpalatable subjects for election campaigns.

Surely what every New Zealander would hope is that those in charge look at these options, recognise that one cannot pretend that a painless solution will just arrive, the day after those of us who have a voice have passed away, leaving our grandchildren to face the problem. Not even psychopaths are as selfish as that, one hopes.

Would the masses condone such selfishness?

It seems doubtful that the electorate in September will be offered a credible mix of policies to address the ‘’Covid’’ deficit. The experience and quality of our politicians is most kindly described as ‘’patchy’’. Our best people would never want to run an enterprise alongside people they do not respect and did not appoint. We will make do with muddle-headed strategies and poor financial leadership, whoever wins the election.

Nor could one have much hope of finding in the public sector the financial equivalent of Dr Andrew Bloomfield. Grant Robertson has predictably failed to shake up Treasury, as he had signalled.

Confucius can stop laughing, right now.

This is not a laughing matter.

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THE Guardian newspaper is probably seen as anti-establishment, green, and left-wing, but its analysis of the growing Dis-United States of America is fascinating.

The Guardian speculates that the 50 states comprising the USA have never been so split between left-wing states and right-wing states, the gap never wider.

The British newspaper posed the question about state and city tax policies to handle the US ‘’Covid’’ deficit that is widening by TRILLIONS each month, it seems.

Republican states and cities seem to support the Trump solution of cutting taxes and borrowing more. The Democrat led states and cities favour raising taxes of the rich, and reducing debt, effectively addressing the inequality issue as well as the debt.

The Guardian wonders whether that dichotomy leads to big companies abandoning Democratic higher-tax states, relocating to low-tax Republican states, rather as the big technology companies have done in their antisocial pursuit of avoiding taxes, by shifting their income base to low-tax regimes.

Might Seattle in Washington lose Boeing, resulting in soaring unemployment numbers, housing price falls, tax base depletion, perhaps leading to secession?

Would there be dozens of new ‘’Detroits’’, as the rich and powerful head to Republican states that preserve the ideology that Trump represents?

You can trust Britain’s Guardian newspaper to ask hard questions.

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ONE business sector that is under pressure is the retail bookshop and book publishing sector.

The bookshops in Britain are on record as having a forecast for 2021 that book sales will be 25% of their 2019 volumes.

The Covid numbers in NZ were disastrous – one publisher achieved 6% of forecasted sales – but even without Covid the trend had been dreadful for all but the best of the shops.

I learned a little about the subject when I wrote, published and marketed The Billion Dollar Bonfire, a non-fiction book, arguably the second in the genre of NZ business books that were neither biographical, autobiographical, or the sort of dross that presents unresearched opinion as ‘’advice’’, from people of modest achievement, on matters of ‘’how to get rich’’ or ‘’how to remain rich’’.

Rebecca Macfie’s outstanding book on the corruption and cynicism that led to the Pike River tragedy is the gold standard in this genre that brought me into the world of bookshops. Her book should be a part of every commercial curriculum at tertiary institutions.

I learned that a NZ non-fiction book typically sells around 1,000 copies. Any book that sells 4,500 copies is a best seller. (Rebecca sold 10,000 copies).

If a book sells for $40, the retailing shop collects around half of that. The distributor collects around 15% ($6). So, a successful best-selling self-published book that sells 4,500 copies earns 4,500 times $14, or $63,000 (less GST).

However, to publish a properly researched book, using professionals to provide advice and basic services (like indexing) might include costs like this:

Publishing advice, indexing, proof reading, type-setting, and printing      $60,000

Research and editing advice                                                                                        $40,000

Legal, marketing and travel                                                                                         $45,000

If one’s costs are $145,000, without any payment for one’s time, and the revenues for a book that the retailers and distributors regard as a ‘’rare best seller’’ are $63,000, then the economics of writing a non-fiction book would work only for an author who had a mission that ignores its cost.

For the bookshops, the implication is not great either.

Rarely does a good bookshop sell 50 copies of any book, let alone a non-fiction book.

Bookshops sell weekly magazines, but The Listener, Metro and the rest in the Bauer stable are currently not printed so there are no sales of these.

New Zealanders do not buy as many books as they used to do. In the past five years physical book sales had fallen by 35%, BEFORE Covid.

Whitcoulls, privately- owned, has a series of branch managers who do as Head Office dictates. The model looks fraught.

Paper Plus is franchised, meaning each shop is managed by its owner. The true hourly rate of the owners might be modest. The model survives on passion and ownership ingenuity.

Others, known as independents, are privately owned.

My travels took me to outstanding shops in places like Wanaka, here in Paraparaumu, in Dunedin, Ashburton, in Wellington and in Havelock North.

However, many other shops were clearly without a budget for marketing, or even for repairing holes in the carpet.

Covid has made things much worse, revenue further damaged. How I admire all those book sellers who continue to invest their passion into their shops.

Amazon is now shipping books to people who previously bought in the shops. Amazon margins are low, set by a model that recognises volume.

Electronic books deliver around $4 to the author and by-pass bookshops, doing nothing to help the bookshops.

The sector, both for publishers and retailers, is stretched, close to relying solely on passion rather than strategy.

Does NZ care? Should we be making grants to publishers to sustain the sector?

As an avid believer that knowledge (and sometimes entertainment) flows from good books, I hope that the solution arrives.

Currently, it looks as though any solution that does arrive will be in the same category of miracle as walking on water.

What would our nation be without books?

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I will be available to meet clients as follows, with available appointments displayed in parentheses-

Tuesday June 23, Albany – Albany Executive Motor Lodge (2)

Wednesday June 24, Whangarei – Mokaba Café (1)

Thursday June 24, Auckland – Ellerslie International Hotel (1)

Tuesday July 7, Nelson – Beachcomber Motel (5)

Auckland and Whangarei clients seeking a discussion should contact us now. I will be travelling up on Monday, returning Friday.

Edward will visit Auckland on July 27 and 28.

I hope to travel to many cities in August.

Chris Lee

Managing Director

Chris Lee & Partners Limited

Taking Stock 11 June 2020

WE have endured an avalanche of fear-instilling bad news, both in the area of health and in financial welfare.

Some cheering news would be welcome, to offset the negativism.

There are some signs of future blossom arising, occasioned by the release of the official view that Covid is suppressed, at least temporarily sulking in a locked cupboard, and many of the nation's businesses are reopening for business.

Consumers will be playing catch-up in areas like hairdressing, car maintenance, health checkups, internal business and holiday travel, family gatherings and maybe discretionary spending.

This reopening must help recreate some of the jobs that were sacrificed during lockdown.

Listed companies are finding it easy to raise capital, even to fund underwriters for equity raising, and debt costs have not been lower, certainly in my 45-year career in financial markets.

The Government is lending to high-risk small businesses on very favourable terms; very low interest, perhaps interest forgiven when the capital amount is repaid, personal guarantees not required.

The banks are lending to the well-heeled, ensuring many assets are priced by debt-fed demand, rather than over-supply.

There is other good news.

Potential governments seeking to be elected in September pledge to build a better health service; education will be presented from a wider range of platforms, home schooling likely to be supported by systems refined during lockdown; apprenticeships seem to have support from both potential governments; water quality is to be targeted for improvement; pensions seems safe, underwritten by huge sums of funny money; dole payments will rise. The outcome of Covid might have been less benign.

At least so far, the biggest boost for investors has been the re-inflating of asset prices, the combustion providing the energy for the price rises being the burning of funny money printed to avoid social incohesion.

As a country that relied on international tourists being happy to fuel our excessive living costs, New Zealand obviously must adjust, the many small businesses that aimed to feed off tourists being forced to close, or to re-price, based on much lower demand. De-scaling will bring lower costs (motels, rental cars etc) to maintain domestic demand.

However our food providers have lost no important consumers, here or globally. The autumn was kind, rain eventually reached Northland, pasture has kept growing, and perhaps there are now more home-grown people who might seek training for the physically-demanding work available in land-based businesses.

Our kiwifruit and apples are enjoying record demand and the global demand for our wine has never been greater, happily coinciding with a best-ever vintage season for grapes up the east coast of the North Island.

New Zealand's biggest wine exporter tells me his export sales have far exceeded previous years, his retailers overseas less focused on price than on certainty of supply.

In Britain, the chains selling his wines limited customers to two bottles per person during lockdown.

What better outcome could a wine exporter imagine!

The best dairy farmers report containment of costs, especially in debt servicing, a concern about the availability of labour but satisfactory nett profits after tax. The best farmers contain their costs, control their debt, and are frugal with capital expenditure.

Admittedly sales of farms have fallen, especially in the South Island, but there are now banks happy to lend to the best farmers. I inject here a note of caution. Chinese banks might offer cheap loans, but the covenants attached to the loans should be scrutinised.

So yes, we are open for business, and in many areas there will be increases in activity and, hopefully, sustainable jobs and sufficient margins to offset risk.

One should just observe that as economic data is assembled and released, we should remain alert.

Our former Finance Minister Bill English is still better informed than today's spokespeople and he cautions that the upcoming releases of data might prompt sobriety, rather than the current cicada-like noise made when corks are being popped.

The upcoming data to which investors should allocate a few minutes include:

- Registered unemployment

- Work place participation

- Small business closures

- Office and retail rental re-sets

- Velocity of money

- Consumer spending

- Credit card usage

- Motel and hotel occupancy rates

- Commodity prices (meat, wool, milk, lumber, grains, crops)

On a less formal basis, I will watch for movie theatre patronage, available car parks in Featherston Street, patronage in my favourite Chinese restaurant, sports club closures, aircraft loadings and timetables, airport shop closures and inner-city shop vacancies.

Edward left on my desk some graphs that might interest readers. In the USA the Dow Jones Index on selected days was as follows:

2 June 2019                       25983

3 February 2020                29379

6 April 2020                       23719

5 June 2020                       27110

Highest ever: 13/2/2020     29551

The NZX 50 index on similar dates were

10 June 2019                     10027

3 February 2020                 11543

1 April 2020                          9794

5 June 2020                        11171

Highest ever: 20/02/2020   12085

The surprising news is that the world's fund managers are telling us that prospects in America are now better than they were a year ago. (I am not kidding.)

In NZ, the nation adjudges our prospects today as better than they were in June 2019. Perhaps I should more correctly say that the active fund managers and the index fund managers, who represent 87% of market turnover, think that our prospects now are better than they were when international tourism was booming, a year ago, and when the world had much less funny money in circulation.

 _ _ _ _ _ _ _ _ _ _ _ _

Wellington's experienced commercial real estate people believe that a crucial focal point should be the Australian department store David Jones, which moved into the space vacated when Kirkcaldie and Stains decided its retailing headquarters was doomed.

Many in the sector now expect David Jones to abandon its store when its lease allows it to do so. A few expect it to exit before that date. David Jones has almost certainly never had a genuinely profitable month. The company itself has nothing to report on its plans.

To me, David Jones seems an anachronism, with dated retailing software and inappropriate stock, including a restriction on clothing sizes that does not match the generous frames of Wellington's wealthier demographic.

Spectators surmise that David Jones may seek a long-term rent holiday, or rental reduction, which would ward off its departure, thus underpinning rentals and valuations in Wellington's commercial business district, for at least the term of its occupancy.

Were David Jones to accept that it made a mistake in opening in Wellington, the building it occupies would remain a great location, but might be a nightmare to re-tenant, its floor plan suiting a departmental shop but perhaps not being as suitable for multi-tenant adaptions, when car parking might be a real issue.

For many decades, the ''Kirks'' building has been the central point of Wellington's retail, a flagship for the affluent in a city where average incomes, fed by public sector munificence, are higher than any other NZ large city.

Many expect property rentals to fall, irrespective of the ratchet clauses in leases unwisely signed in the past. Ultimately any leases can be discarded if both parties to it agree that the conditions today have made the legal documents obsolete, a hindrance to negotiations.

City retail space is likely to be the first to be tested.

Few would expect office workers to remain working from home indefinitely, so demand for office space seems less vulnerable than retail.

The strongest demand is likely to be in the industrial zones, seeing manufacturing and distribution benefitting as NZ seeks to control its supply of essential goods.

 _ _ _ _ _ _ _ _ _ _ _ _

FOR many years we have kidded ourselves that New Zealand and Australia treat each other like brothers.

We fought in wars together. We love our sport. We long ago cast aside our founding guides (Britain).

It may be that New Zealanders wanted to believe this, just as a younger brother wants to believe his big brother really does care about him, as he confiscates the new bike little brother was given for Christmas.

If we took the behaviour of Australian retailers or property owners, the strength of the bond has never looked strong.

Clearly when the Australians arrive here, their motive is high nett returns, not the nurturing of a little brother, and in property deals the Australians have sometimes been straight-out cheats, as many might remember.

Certainly you would draw that conclusion from the behaviour of Girvan Corporation when it bought the unleveraged St Martin Property, an Auckland-based listed company in the 1980s. Girvan then leveraged St Martins, used the money to sell to it awful Girvan properties at ludicrous prices, ''guaranteed'' the rents via a subsidiary company which soon after defaulted, and left St Martins with property worth less than the debt.

Girvan's Australian shareholders won. New Zealand shareholders were stripped. Girvan was not the only such miscreant.

In retail and in property ''big brother'' has been a bully, often.

Perhaps in banking the behaviour has been similar but as we are about to observe, NZ now has a regulator, the Reserve Bank, headed by a ''ginger''(Adrian Orr) who will not lie back and think of our common founder, England, while the Aussies mess with us.

About to discover that is the ANZ Banking Group, now comfortably our biggest bank, with nearly 50% of our banking market. The ANZ escaped relatively lightly from the Australian enquiry into banking culture, but it has made serious errors if it imagined it could continue to treat New Zealand as a high-margin version of its Australian branch network.

Its first error was in its governance.

It has for many years allowed a toothless board to represent it in NZ, perhaps believing that NZ's regulators were easily intimidated or impressed by good media performers or by corporate muscle.

The NZ board did not have the authority to appoint a chief executive, and has no meaningful input on strategy, except superficially.

In my opinion ANZ Australia wanted a mellow NZ board to offer a superficial compliance with NZ expectations, and expected that the Australian banking culture might be invisible but would prevail, when needed.

To maintain a comfortable, complacent relationship it wanted a NZ board of corporate people who would not challenge the Australian model. It might not have told this to its nominated board members.

When the ANZ was led in Australia by John McFarlane, an excellent banker without a trace of sociopathy in his genes, in NZ the ANZ was being led by the late Sir John Anderson, easily New Zealand's best and most socially-wise banker.

That happy circumstance ended more than a decade ago.

The ANZ should have sought governors and a chief executive who understood the nuances of NZ central bank expectations, and equally were in tune with social considerations.

It preferred to maintain the corporate cult that now seems worthy of social mockery, its last unwise decision to seek a figurehead chairman, in former Merrill Lynch foreign exchange trader and manager, John Key. By then Key was recognisable as a tactically-smart politician, but blessed visibly with neither strategic skills, nor in tune with the masses who had sent him the signal that led to his flight from political office. Tactics are a sub-set of strategy.

Key was, and is, an American bank-trained manager, self-described as a ''smiling assassin'', a moniker not implying that he enjoyed firing people, but rather that when firing people he would do so without vitriol, and with a smile, not a growl.

In American banks ''smiling assassins'' are not quite two-a-penny. They obviously must have come through the banking grades with a clean record, they must understand the words of the corporate manual, sing the company anthem with full voice, and be skilled with the relationships with their peers. Such people are paid like kings but do not have royal blood.

In the likes of Goldman Sachs, the ''smiling assassins'' sack the lowest performing group of employees each year, calculated at 5% of their huge work force.

The bottom 5% are sacked not because they are unproductive or are failing to produce nett revenue for the firm, but because the sacking ritual incentivises the remaining 95% to go harder, for fear of dropping out of the top 95%.

American banking culture is anathema to most New Zealanders.

The likes of Goldman Sachs and Merrill Lynch represent an army whose focus is narrow – profits, bonuses, and then dividends for the shareholders – and whose social aspirations are minimal. Why do we pay homage to them?

Probably we all recall the disclosure in the US Congress hearings of banks which drove their tellers to sell loans and credit cards to those who could never repay, rewarding the successful salesmen, but punishing the shareholders when the bad debts rolled in.

New Zealand does not need American bank-trained governors. Our need is for a banking culture that is indeed profitable – banks must thrive – but is not based on incentivising salespeople and is not based on the sort of toxic greed that characterised banks that were examined in the 2018 Australian enquiry.

So New Zealand now watches as the ANZ butchers its relationship with our regulators and its clients in NZ.

In two years the ANZ stands accused of:

- Mismanaging, and mis-reporting its required capital levels.

- Mis-coding and approving silly expense claims within the bank, and then not disclosing such                                                 frankly childish behaviour.

- Resisting central bank regulators over banking reform.

- Mis-selling insurance products, chasing premiums for a product that would not cover any of the events the policy purported to protect.

I interpret this as arrogant, Trump-like behaviour, enabled by practices more evident in the USA's psychopathic banking world than would be acceptable in the more socially developed climes of New Zealand.

What was the Australian board of the ANZ thinking?

In my opinion it should now clean out its board and put in charge a New Zealander without any vestige of American training, preferably a non-banker, but someone with great judgement, developed social skills and a devotion to meet the requirements of clients, staff, regulators,  shareholders, and society.

Bonuses and salaries would adjust.

The selling culture would revert to an attitude of finding solutions for client needs.

Administrative excellence would be a prime goal.

Consultation with the community would be used to find workable solutions before binary decisions were taken, like reducing the branch network to 50, or like disconnecting cheque accounts from those who have no engagement with modern, internet technology.

I doubt this can happen until the ANZ is so pressured by the Reserve Bank that it gracefully retires its board and selects a new board with visible social, as well as business, orientation.

The Reserve Bank should determine that each new board member is a fit and proper person.

To be fair, I think the same comments might apply to Westpac, BNZ and ASB.

One hopes that Kiwibank, Heartland, TSB and SBS can exploit the opportunity to grow their market share, at least until the Australian banks recalibrate their vision of the banking opportunities in NZ.

 _ _ _ _ _ _ _ _ _ _ _ _


Now that we can meet with clients around the country, Kevin, Edward, Michael, David and I will plan city visits and publish dates here, and on our website.

I want to allocate more time to each visiting client, perhaps up to an hour per client.

It would assist me if clients could email me, nominating 40 minutes or one hour for meetings.

I will be in Auckland (Albany) on Tuesday June 23, Whangarei on June 24, and in Mt Wellington on Thursday, June 25.

I will be in Nelson on Tuesday, July 7 and Blenheim on Wednesday, July 8.

I will be in Christchurch on Tuesday, July 14 and Wednesday 15.

Kevin will be in Christchurch on Thursday, July 2.

We will enjoy re-establishing our contacts with clients throughout New Zealand.

Chris Lee

Managing Director

Chris Lee & Partners Limited

Taking Stock 4 June 2020

GO back in time six months and the following events were not in anyone’s geopolitical or financial forecast. No one envisaged that:

> A pandemic would sweep across the globe, causing hundreds of thousands of deaths and spreading fear in densely populated areas;

> China would break its agreement to allow Hong Kong to operate independently for 50 years;

 > The USA would see unemployment rise by 35 million in a month, while in many other countries unemployment would double or treble;

> Business failure, worldwide, would leave offices and retail property emptied of perhaps 20% of their tenants;

> Central banks would print US$9 trillion of ‘’funny money’’, effectively aiming to maintain consumption at levels that would stave off deflation and depression;

> China would respond to Trump’s bellicosity by rejecting American imports, especially of food ingredients;

> China would respond to Australian blunt talk by rejecting Australian beef and putting 80% tariffs on its barley;

> The European Union members, joint and severally, would issue guaranteed debt instruments to save Italy;

> France would place a new constraint on domestic air travel;

> World tourism would fall by 90% overnight, for a period of at least three months;

> America would face street riots and looting, sparked by police thuggery;

> Companies like Hertz, JC Penney and Virgin Australian would file for bankruptcy protection;

> New Zealand would face a major reconstruction of health, employment and education.


Now just imagine if all those events had been signalled last year and markets had been required to re-price assets.

Would anyone have believed that the re-pricing would simply deduct the previous three months of gains, and start again, the new pricing set at around 90% of previous pricing? Ninety per cent!

Markets would say, ‘’nothing to see here’’, minor correction needed to be followed by the foot on the accelerator!

Yet that 10% fall is now where markets have stopped the correction, at least for the moment.

What, you might ask, would it take to propel the markets into a pricing model that valued future earnings and future dividend yields in a credible way, with a model reflecting the new reality?

I guess the answer to this extraordinary anomaly can be deduced by the difference between what central bankers and global policy-setters see, and what some fund managers of all types are seeing. The contrast is stark.

Last week, policy makers in Australia, the USA and Europe referred to current market pricing as ‘’naïve’’ and ‘’unsustainable’’. Our own former finance minister, Bill English, warned the clients of our market-leading broker, Jardens, that the damage done was not reflected in current market pricing.

Market price makers, like fund managers and sharebroking leaders, replied that if central bankers were going to print nine trillion dollars, the money has to trickle or gush into somewhere. Why not asset prices (share prices)?

The first flush will be to the banks; next repository must be with those to whom banks will safely lend, most obviously to the sector one might describe as well-heeled. So asset prices soar.

Let the governments (tax payers) do the lending to the poor, where lending risk is greatest.

Governments and central bankers want the money to fall into the productive sectors, to circulate freely, greatly restoring the velocity of money and creating instant jobs to shorten the dole queues and grow the GST and tax take.

Bankers have no such objective. They just want to survive and make profits, the primary of those objectives not being obvious.

They want the money to underwrite their liquidity and reduce bad debt risks.

Effectively they want the money to lift property and asset prices, so that forced sales will find new buyers at full prices.

So how can the central bankers stop the money from being stockpiled to prop up banks?

Watch this newsletter for developments. Central banks do have a potential weapon.

Imagine if a central bank announced negative interest rates of 5% or more, effectively taxing the banks for holding large cash reserves. Perhaps the central banks would offer a guarantee of liquidity for banks to offset the risk of a run on any bank that dumped the money into the productive part of the economy. In effect, the central bank would be saying that it would guarantee survival but not guarantee profits, dividends, absurd salaries and bonuses.

Perhaps the central banks might use unimaginably high negative rates to force the banks to circulate the printed money, if there were banking resistance.

Reserve Bank governor Adrian Orr was not nicknamed by the Australians as a ‘’ginger’’ for the food connotation.

This is the most credible explanation for the apparently nonsensical pricing of listed financial assets.

In New Zealand it is said novice retail investors are the buyers of shares in distressed companies (like Air New Zealand), pursued by robots, which run the index and exchanged-traded funds. If the novice buyers force prices up, the index funds must recalculate their allocations to the affected shares.

Some actively-managed funds step aside, but if the volume of funny money provides momentum for price increases, no matter how illogical those price increases, ultimately the active managers have to join in what kids might call ‘’Blind Man’s Bluff’’.

For many old-timers, including Warren Buffett, the markets are becoming a version of the Goon Show – amusing, exhilarating, but still utter madness. He has stockpiled cash. He has patience.

I repeat my warning of two months ago. Markets rarely are priced properly in the months, or even the first year, after a market crash. The 2008 crash did not find a sustainable bottom until 2011.

The 1987 crash found the bottom in 1991.

If the 2020 crash has already found a sustainable bottom then the market pricers have awesome prescience, and no fear of the backlash, when the division between rich and poor grows to even more revolting levels.

_ _ _ _ _ _ _ _ _ _ __

BY accident or by design, one of the consequences of the global printing of US$9 trillion of funny money has been the survival of pension funds, annuities, insurers, and bankers.

If this were by design, and if that survival was the key objective, then one ought to acknowledge the success of the strategy, though it may need time to pass before we can be certain of the outcome.

The developing problem worldwide had its origin in excessive household and sovereign debt, which we all know led to the 2008 crisis.

The solution to that 2008 crisis was to abolish any servicing cost of debt and then borrow more.

Zero interest rate policies enabled us to pretend that there was no degradation of existing debt, no need to write off loans to the likes of the Greeks. If there is no interest cost, and no requirement to repay, how could there be a default? 

No-cost money enabled the banks to keep lending money for housing, underpinning the capital value of housing at the cost of widening the divide between the ‘’haves’’ and the ‘’have nots’’.

Rising housing prices made bank loans that looked doubtful into loans that looked amply secured, a $500,000 loan being risky if the houses were worth $600,000, but not risky if the market price of the houses rose to $900,000.

All of this financial wizardry, superficially, looked to be producing miracles but as is the case with any artificial solution, there have been consequences.

The most obvious has been the effect on the middle tier of income earners. Wages did not rise. So $900,000 houses required unaffordable deposits and home ownership became the preserve of the well-paid or the well-heeled. Rentals and Airbnb houses grew as the first-home buyers’ queue fell away.

Another insidious consequence was the slow-burning damage being done to pension funds, annuities, insurance, and financiers.

If we take an annuity fund as a simple example, for its survival it needed income from investments to enable it to meet its monthly payments. Those payments had been defined and were a promise. Non-delivery would be a default.

The pension fund managers need to moderate investment risk by diversification amongst asset classes, the lowest risk being cash deposits and high-ranking bonds.

A properly managed annuity fund would want to retain at least a third of its funds in these traditionally low-risk categories.

The challenge such a careful investment strategy faced after 2008 was that interest returns were, and are, virtually nil, or even negative.

An annuity fund promising life-time payments, even today, assumes its investment return on its total portfolio will be at least 4% (some assume 7%). Let us park up for one moment the small matter of costs and commissions.

If a third of a managed fund earns nothing, the remaining two thirds needs to earn 6.67% for an overall pre-tax return of 4%.

If one third of its funds is put into property, the return would differ, depending on the quality of the property and the certainty of the income stream from that property.

Rental housing in Levin might return 6.67%, whereas in Wellington it might return only 4%.

Does the annuity fund take the risk of using the Levin risk/return formula or does it head to Wellington?

If it takes the lower risk example then the fund would have deployed a third of its money in cash, earning nothing, and a third in property earning 4%, meaning two thirds of its money returned 2%, before expenses and tax and commissions.

For the fund to earn 4% on average, the remaining one third now would need to earn more than 8%.

If the remaining third was invested into listed shares, its return from dividends might be 4%, so to reach 8% the fund would need the shares not just to pay 4% dividends, but to increase in value every year by another 4%.

The 2008 global crisis and the 2020 Covid crisis changed society, savaged investor confidence, damaged profits, dramatically reduced dividends, and thus made the premise of a comfortable 8% annual return from equities about as probable as Wellington enjoying perfect, calm, sunny days forever.

Of course to earn 4% after tax and expenses would require equity investments to return, every year, a rate nearer 12%, making my example even less likely.

So annuity funds, pension funds, and others who promise to pay out insurance claims or return our money to us, had become dependent on investment returns and capital market reliability that simply would not happen, unless the investment world was turned on its ear.

Drumbeat, please!

Enter into the equation, funny money, quantitative easing, fiscal stimulus; attach to it whatever moniker you wish. Just print trillions. Nine trillion (US) in the past two months!

The money must end up in asset prices, owned by the rich, not affordable for people whose jobs are being sacrificed, and whose wages are more likely to be cut, than lifted.

Thus share prices might soar, the annuity fund’s investment in shares, shorn of its 4% dividends yet still seeking to achieve a return of 8%, might lift the overall fund to 4% because, thank heavens, the shares are rising in price by 8% per annum.

Let there be praise for funny money, delivered to the altar of those who are extravagantly paid to run pension funds and annuities.

All these pension funds and annuities can avoid bankruptcy, for as long as the printing machine has ink, a power source, a supply of suitable paper and a machine operator who does as the politicians tell him to do.

By design, or by luck, for at least another day or maybe another political cycle (elections due in three months), we can avoid the outcome of excessive debt (bankruptcy) by taking on an incalculable risk that can be hidden for a while, waiting to be addressed by our coming generations.

The new risk, of course, is society-destructive hyper inflation leading to the humiliation of the ‘’have nots’’, ultimately leading to civil upheaval, trade wars, currency wars, and, if we acknowledge history as our guide, military wars.

Perhaps one hint of the latter of these events might be the display of fury of a depressed race in Minnesota last week, a flare up that grew to global protests based on brutality but with its origins in economic suppression.

We may rejoice that so far there has been no confession from annuity providers that their promised returns are unsustainable.

As things are, these providers pay themselves and their salesmen more than 4% of their funds each year and promise to pay annuities based on a nett return of 4%, after costs.

Those who believe that this model is sustainable clearly believe that New Zealand and global share prices will rise every year by 4% at least and will deliver dividends at the same rate of 4%.

Of course I have simplified the investment options to avoid the need for this topic to absorb 300 pages of lecture notes. The truth is to deliver 4% the funds need to earn more like 8%, to accommodate costs and commissions.

Of course the annuity or pension manager might choose to put some money into Puerto Rican spaghetti trees.

With the help of the bigger fool theory, these might enjoy 50% returns next year, thus lifting equity returns and allowing the fund to buy more shares in lower risk companies, like Auckland Airport, where dividends will be nil for many years. Yet its shareholders are optimistic that its tarmacs and shops will soon again be crowded, the shops still paying the same rentals that applied pre-Covid.

There will be others, a group that includes me, pondering the consequence of deferring the hard decisions, the transferring of the problem until tomorrow morning, the creation of the certainty that asset inflation creates more paper wealth for the rich but abject misery for a rapidly growing number of the powerless.

The globe has printed nine trillion US dollars, with the switching of a button.

Helicopters disperse it, figuratively speaking, to those with swimming pools and tennis courts in the richest suburbs.

How the Chinese must be laughing. Their awful solution may be the most obvious outcome – their funny money in exchange for our food, water, and land, and a worldwide level of subservience to a social system most of us would find abhorrent.

We must all pray for wise leadership, here, and globally. (We have not seen much of that for decades, Singapore being a rare exception).

 _ _ _ _ _ _ _ _ _ _ _

AS the Covid virus makes an exit (but perhaps goes on holiday rather than emigrates from NZ) it might be time to applaud our retirement villages and rest homes.

In countries like Britain and the USA tens of thousands of residents in such facilities have been infected and then died. Just in the USA 26,000 residents in care facilities have died of Covid.

The health authorities here, and certainly our listed retirement village companies, were fearful that the virus would sweep through our aged care facilities, entering from asymptomatic but infected nurses, families, and friends, and then killing off those who were frail or with weakened immune systems.

To the great credit of their management and nursing staff the likes of Ryman, Summerset and Oceania have had zero Covid deaths.

The contrast with Britain and the USA could not be more stark.

Likewise, in Kapiti Coast villages, like Sevenoaks and Parkwood, the residents have endured a lengthy period of closed door policies but have reaped the reward. Zero deaths from Covid.

There was a real risk that deaths might have challenged the concept of aged care facilities, some commentators believing that there would be share price carnage if the grim reaper was allowed to roam.

As someone with some decades of governance roles in a large retirement village I am in utter admiration of the success the industry has had.

Now, will the government recognise the value of aged care services and pay the providers properly?

If the Crown had to rebuild aged care facilities, the bill would be in multi billions per year.

Currently the aged care providers live off a cross-subsidy model, effectively forcing the families (through deferred maintenance charges and often extreme development margins) to pay the bill from the estates, once the residents have died.

The aged care providers have proved their worth in recent weeks, maintaining a gold standard of healthcare.

Imagine if the residents and patients had been in a facility like the old geriatric hospital in Silverstream, Upper Hutt.

Would such a public facility have had such a great outcome in warding off infections?

Now is the time to recognise the importance of retirement villages and for our government to reimburse the operators for the costs it imposes on the sector.

 _ _ _ _ _ _ _ _ _ _ _ _


Jacinda Ardern has signalled that the barriers to internal travel, face-to-face meetings and even attendance at seminars might be lifted next week.

If that were so, I will advise dates for a return to my planned visits to various cities, starting in late June or early July.

I will write to clients advising dates as soon as we have certainty.

Chris Lee

Managing Director

Chris Lee & Partners Ltd

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