Chris Lee & Partners Ltd

Taking Stock 29 May 2025

THE decision of the Auckland Professor of Macro Economics, Robert MacCulloch, to abandon his well-read newsletters has been attributed by him to the overt "ghosting" with which he is threatened by politicians.

MacCulloch, easily the best qualified and most relevant university economist in NZ, had for years identified idiotic economic leadership in NZ in his hard-hitting website newsletters.

He had called out Key, Ardern, Hipkins, and now Luxon for lazy thinking and concealed ideology. He warned that Hipkins, knowing he would lose the last election, set out to a leave a mess that his opponents would not find easy to fix.

It looks like he understood the laziness of Key, who preferred power and media popularity to any sense of striving to make NZ a stronger country.

I suspect he noticed that Ardern and Robertson shared the primary goal of wedding Māori, the Rainbow community, and the public service, alongside trade unions, to build Labour a permanent unbeatable base for long-term political power, whatever the cost to NZ.

If his newsletters were rightly understood by me, his objective was to get leaders to display real leadership, and focus on building NZ a more productive society, better able to build NZ, steering it away from ever-greater debt levels and social division.

MacCulloch, Oxford trained, has offered what Wellington’s Victoria University economic spokesmen have not provided.

Victoria puts up the sad, deeply personal views of economist Max Rashbrooke, famous for his stunning observation that the houses and cars in some suburbs were nicer than they were in other suburbs. With glee, the left in the media drool over this thinking.

So MacCulloch will be missed, for the balance he offered.

NZ’s media has a bleak offering of economic comment, Cameron Bagrie and Tony Alexander being exceptions, sometimes accompanied by bank economists like Sharon Zollner at the ANZ. Admittedly, the academics like Don Trow and Claire Matthews have stood out.

But having lost the penetrating commentary of the late Brian Gaynor, there are few investment specialists willing to offer insight via the media, perhaps for the very reason MacCulloch has identified - ghosting.

MacCulloch’s retirement comments implied that contrarian views, that might not please the Old Boys Network, lead to exclusion from the roles that most need outlier thinking.

Is it drawing a link that is far-fetched to wonder if the reason for the upheaval in the NZME (NZ Herald) group has its origin in the failure of the media to see past the personal views of its own, generally unaccountable reporters?

MacCulloch is young enough to come again.

His views and analysis matter. They begin to address balance and should have been featured in the daily press.

For his coverage and insights, McCulloch is to be applauded.

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WHILE the media in NZ was filling its front pages last week with platitudinous comments on the country’s last budget, lurking in the menu of news items was an event that far exceeded our budget in relevance. Sadly, it lurked in a brief paragraph.

Obviously, the theatre around the budget is made for media, effectively ensuring an audience for a day or two.

But the real news, apparently not understood by the media, was that the world’s growing debt levels were coming close to midnight on that clock that equates midnight with doom.

Global debt is a boring subject. Former prime minister Muldoon might have said that the NZ public would be more interested in the retail price of butter than in the ramifications of rising global debt levels.

The specific relevant news was that the heavily-indebted giant economies of Japan and the United States of America were discovering that global fund managers and bond investors were losing enthusiasm for funding all that debt.

As both countries persist in huge annual spending based on using other people’s money, some other people, often referred to as the “bond market”, were signalling a global crisis is looming.

Last week, Japan had an auction of much-needed 20-year bonds, the money needed to finance critical spending today.

The level of bidding interest was the lowest for 38 years (1987). Accordingly, the government had to pay more interest to attract the money. In just a few months Japan’s long-term debt rates have virtually doubled.

Japan’s debt to GDP ratio was revealed last week by Japanese politicians as 235% of GDP, a ratio far worse than cot cases like Greece. The Japanese tactic of printing money was always a band-aid solution for a deep-seated problem. For years the country’s Central Bank has created money by “buying” long-term Japanese bonds with money it has created.

If Japan now owes the equivalent of US$20 trillion, a 1% increase in the cost of that money would be an extra US$200 billion per year. To put that into perspective, on a pro-rata basis that would equate in NZ to an extra US$8 billion of interest every year.

Without that extra cost Japan already runs a huge fiscal deficit, requiring it to print ever more money. Has anyone ever linked this to structural high inflation?

Last week global bond market signalled that Japan’s strategy is going to cost the country dearly.

The same distaste for fiscal deficits saw a weak response elsewhere, this time to a US auction for 20-year debt. That auction was also poorly attended and, again, the interest rate demand was higher.

In 2001 the US sovereign debt level was less than a trillion dollars.  It now closes in on $40 trillion. Its own government body, the Congressional Budget Office, foresees that figure reaching $50 trillion, unsurprisingly given the Trump wish to cut taxes and spend huge sums on defence, his latest project a dome, perhaps costing hundreds of billions, to ward off the ballistic missiles of enemies.

The CBO forecasts that in 30 years, the US will be paying 26% of its tax revenue on debt servicing. A figure of 6% is seen as too much.

US 30-year bonds reached 5%. (Japan’s rate exceeded 2.5%.) The US 20-year and 10-year rates were not far behind the 30-year rate. When interest rates far exceed economic growth, living standards are certain to fall.

Why is this such an important issue that it far exceeds in relevance the NZ Budget? Why does the NZ public focus on buttons when the whole suit is disintegrating?

The critical issues are debt servicing costs and, ultimately, risk of default. The US no longer is rated as an AAA currency, the last of the agencies (Moodys) having joined the others (Fitch and S&P) which set the trend as signalling loss of confidence in the US dollar.

The Federal Reserve in the US is now using the phrase “higher for longer”.

US corporates are heading to Europe to borrow at European rates, roughly half the rates that now apply in the US. Corporates will need to use expensive hedging strategies to offset the obvious risk that borrowing in Europe might save interest cost but lead to long-term capital losses if the USD continues to weaken.

Perhaps the agencies note the undeniable trends in trade that Trump is disturbing.

In 2001 more than 80% of nations had a larger volume of trade with the US than they had with China. Today around 70% of countries trade more with China than the US. New Zealand is in that 70% figure.

Other signals suggest the global willingness to support the US dollar’s relatively low interest rates might be waning. China is withdrawing support. The two biggest lenders of money are now Germany and Japan.  They will want high, and rising, rewards.

The US has cancelled 83% of its foreign aid and is abandoning the World Health Organisation.  It is also threatening to send home those foreign university students who study at universities that defy Trump.

India in 2023/24 had around 330,000 students in US universities while China had 277,000.  What might have been a grateful army of US-educated foreign students around the globe seems to be diminishing.

Excessive and growing debt, at higher rates, takes the clock close to midnight.  Rejection of trade, reduction of support for global projects, and rejection of foreign students make a powerful, if toxic, mix for analysts with a key role in bond markets.

If the rating agencies see US debt rising from a minimal figure (around 20% of GDP) in 2001, to a huge figure (134% of GDP) in coming years, the world might have to adjust its thoughts on the future cost servicing of debt.

Today the US debt servicing burden is at a 28-year high. The world has to ask itself the question: who wants to lend 30-year money to the US (or Japan)?

If NZ is paying attention, it will be far more concerned about debt levels, debt servicing and the consequent effect on consumption and trade.  Then it would become energised about depreciation rates, pension rules or subsidies for rates.

The US annual spending has exceeded 6% of gross domestic product for consecutive years. This is unprecedented over many decades, except during nasty recessions or war. Now think about the CBO’s forecast for 2055 – 26%!

I rate global debt levels, especially in the world’s largest economies, as a massive threat to living standards and peace.

Those whose money is in a fund that has sought higher returns in private credit or private equity might be the first mob to be affected. PE and PC must be threatened.

Debt levels and debt servicing cost is an enormous subject, of far greater relevance to NZ than tinkering with how we spend our taxes.

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WITH gratitude to the public relations fellow who represents Perpetual Guardian, I record that the company has now been bought by staff, having dismantled the rather silly empire that had been envisaged years ago.

PG has had enough attention in Taking Stock so I shall refrain from repeating its turgid history, beginning when Andrew Barnes and George Kerr attempted to aggregate trust companies and flog them off as a public listed company.

Quite rightly, the most senior member of the investment markets declined to impose such a grouping on retail investors. This led to the break-up of the group plan, thank heavens.

PG is now owned by its management, a thoroughly appropriate outcome, meaning any ongoing returns and risks will not involve external investors.

A massive reduction in internal costs and a focus on client-first mindset will be the platform if PG is to be sustainable. The Barnes/Kerr plan, in my opinion, was ill-conceived.

I applaud the investment bank that created the roadblock to a public listing.

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Infratil Limited – 7-Year Senior Bonds

Infratil has announced its intention to issue a new 7-year senior bond (IFT370), maturing on 16 June 2032. Infratil is an infrastructure investment company with significant holdings in digital assets, renewable energy, healthcare, and other long-term infrastructure assets.

The minimum interest rate has been set at 6.00% per annum, with interest paid quarterly.

Infratil will cover the transaction costs for this offer, so clients will not be charged brokerage.

The offer consists of two parts:

Firm Offer: Open now to new and existing investors. Closes on 4 June 2025 at 10am, with payment due no later than 15 June 2025.Exchange Offer: Available to holders of IFT250 bonds maturing on 15 June 2025. Bondholders may elect to exchange part or all of their maturing bonds into the new offer. Elections open on 5 June 2025 and must be submitted no later than 5:00pm on 11 June 2025.

The minimum application amount is $5,000, with increments of $1,000 thereafter.

If you would like a firm allocation of this bond, please contact us promptly with the amount you wish to invest and the CSN you would like to use. If you hold IFT250 bonds and would like to exchange them, please let us know when making your request.

Please note that this issue may be scaled.

Travel

Napier – 9 June – Chris Lee

Tauranga – 11 June – Chris Lee

Whanganui – 11 June – David Colman

Hamilton – 12 June – Chris Lee

Christchurch – 23 and 24 June – Chris Lee

Ashburton – 24 June(pm) – Chris Lee

Timaru – 25 June – Chris LeeAuckland (North Shore) – 25 June – Edward LeeAuckland (Ellerslie) – 26 June – Edward Lee

Auckland (CBD) - 27 June – Edward Lee

Please contact us if you would like to make an appointment to see any of our advisers.

Chris Lee & Partners

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Taking Stock 22 May 2025

When Bob Jones donated $2 million to the cash-strapped Labour Government in the late 1980s, he negotiated the citation for his honours to include his “contribution to business” in New Zealand.

Following his recent death, after a short period of a myriad of health issues, the media commentators have rightly focused on the colour he injected to NZ, and the generosity he showed to those with troubled lives, in particular struggling media and PR people.

It seems dignified not to record those issues of his life that did not affect the audience for Taking Stock which is written for clients, not for the salacious or those who fail to differentiate criticism from defamation.

His behaviour outside of matters that affect investors can be left for others to tell.

But it is critically important that investors are made aware of, and never forget, the errors in business that destroyed what was once his billion-dollar public and bank-funded property company, Robt-Jones Investments Ltd (RJI).

For the benefit of younger investors, be aware that RJI was listed in 1982 at 50 cents a share, supported by his friend the late Eion Edgar (Forsyth Barr).

RJI raised $10 million to buy and hold New Zealand commercial properties. Its directors included his lawyer, the late Denis Thom, Edgar and friend Jack Newman and, later, Wellington’s mayor, Michael Fowler.

Before listing his company Jones negotiated a management contract for his personal company Robt. Jones Holdings Ltd (RJH) which would charge 8% of the GROSS income achieved by RJI.

The granting of this contract was a major governance error by his friends on his board, in my opinion. 

It incentivised Jones to focus on gross revenue rather than nett revenue, as I noted at the time.

Effectively if Jones could arrange to borrow $1 billion at an interest rate of say 8%, and buy properties that earned a gross rental of 8%, at least initially RJI would make no more NETT profit but the RJH management fee, based on the addition of another $80 million of gross revenue, would rise by 8% of this fee, that is $6.4m. Shareholders did not necessarily benefit from growth; they benefitted from nett profit, not gross revenue.

The transaction might add nett value only if the properties attracted more rent over the years, were sold profitably or through enhancement of value that would enable RJI to borrow more, and at better rates. They also relied on the interest rates falling.

No management fee should be based on gross revenue.

This was error number one; an error that no property company or listed property trust should replicate.

The first error led to Jones’ second error.

He could see that property valuation gains could arise not just from inflation and rental increases but by convincing valuers and the market that his property portfolio was worth more than the market believed.

He began the argument that a property’s value was linked to its replacement value. That implied that an ageing building, by definition built with ageing materials and containing ageing technology, would be worth a similar amount to a new building built on the occupied land.

Replacement value, in my opinion, is irrelevant to the value of an existing property.

Market regulators and the poorly-led NZ Stock Exchange, at that time a cooperative owned by hungry sharebroking businesses, allowed this argument to be featured in the annual reports.

The second error pointed to the third error, that of governance.  Jones had started his board with directors who did not challenge him.

It is a truism of success that real leaders always surround themselves with smart people whose collective knowledge expands that of the leader. Obsequious, subservient or fawning directors never add value.

RJI continued to rot because of this third error, a weak board without the firepower to contest any maverick ideas.

RJI lost banking syndication support, and its shares were largely spurned by institutions, leaving Jones to rely on his rhetoric to boost interest, including in the USA where for a short time he found a supporter, Grantham Mayo Otterloo & Co..

However, when Grantham himself arrived in NZ to inspect his new investment he saw what was obvious – that RJI was built on poor practices – and not only sold out, but did so after also loudly explaining his dissatisfaction, a rare response then (and now).

The rot became terminal at that point. Deeply indebted, fast-growing property companies built on short-term debt and poor access to capital rarely recover, even if they have skilled, orthodox management.

The next error was in skirting around the institutional demand that Jones appoint an independent chairman who institutions could respect, if Jones wanted institutional support.

Derisively, Jones selected a former governor general David Beattie, privately boasting that Beattie was willing to take on this task for a perfectly legal, but improbable, cash incentive.

The late Beattie was a poor chairman and probably never suited to any public company chairmanship, let alone to one dominated by an inexperienced but ambitious leader.

Jones meanwhile had made a crass error, perhaps because of cash flow issues and perhaps because of his incentive to grow his portfolio. He had cancelled the promised dividends, and introduced “bonus” shares but declared the “bonus” shares were only for those who owned shares for a year and were available only on application.

In those times shareholders received share certificates, usually a month, sometimes more, after they had acquired the shares.

To obtain the bonus shares shareholders had to send in to RJI the certificates which were dated, and would prove the shares had been owned for 12 months.

RJI’s register was dominated by retail investors. Unlike the institutions, many believed the optimistic valuations he calculated and believed his constant claims that his shares were worth far more than the daily market price.

The uneven bonus system was quite ridiculous and should never have been allowed by the Stock Exchange. Many thousands of people did not feel confident about claiming the shares, so only those in harmony with the scheme, like Jones himself, received the shares.

The bonus shares effectively created separate rewards for different shareholders.

They were two more really serious errors, born from his lack of training, lack of business mentorship, and disrespect for orthodoxy.

The most avoidable was his disdain for regulators and Stock Exchange rules.

He fought incessantly with the Securities Commission on subjects like incorrect public statements and on issues like his personal trading of shares.

When JR Wilde QC (later Chief Justice) wrote a conclusive paper proving Jones was insider trading and clearly misleading the public, the chairman of his company, by then called Trans-Tasman Properties, was Beattie. (I hold a copy of Wilde’s report.)

The former Governor General ruled that there was nothing to be gained by prosecuting the insider trading. I was gob-smacked by this ruling. Insider trading did not matter?

On one infamous occasion Jones had announced “he” was buying millions of shares because they were under-valued by the sharemarket.

The naïve media of the time front-paged this declaration.  Banned from buying its own shares by the law of the day, by then RJI had set up a legal structure known as an Employee Unit Trust, a Jones-controlled entity that was allowed to borrow money from RJI (that is, borrow from the shareholders of RJI) to buy RJI shares. This structure had been permitted by law and was also used by the likes of Fletcher Challenge. Its buying and selling was not instantly transparent.

Jones in fact had sold more than 10 million of his own (RJH) shares to the RJI EUT, a “smart” decision given the continuing fall in RJI share prices. He was not buying RJI shares as the papers recorded. Far from backing the share price, Jones was selling. The RJI shareholders were buying.

The error of disrespecting regulators and rules further diminished the institutional and banking support his company needed.

The RJI ship was clearly firing canons that boomeranged.

But the error that ruined the company, and came close to bankrupting him personally, was his decision to guarantee the future share price of RJI, to enable RJI to grow by acquiring more properties without any borrowing.

At a time when the RJI shares were $2.00, RJH might offer to buy a property for $50 million by transferring to the seller, say, 25 million shares. RJH would guarantee that within, say, three years, the shares would be worth a much greater figure, say, $3.00. RJH undertook to buy the issued shares at the guaranteed price in the defined timeline.

Had he been right the vendor would sell his property now and later make a magnificent gain, without risk, at the guaranteed price. Jones was convinced he could persuade the market to pay a price for his shares that he could dictate.

The guaranteed future price was underwritten by a facility RJH had arranged with the BNZ, meaning the property vendor would be paid out at $3.00 whatever the share price might be in three years.

A tiny and barely credible small Lower Hutt broking firm would sometimes find sub-underwriters, reducing the exposure of RJH to this nonsensical “guaranteed future share price”.

Never having worked within formal structures and with no real controls on his unorthodox ideas, Jones believed his “idea” was revolutionary. He proposed writing a book about this genius. He could not see the risk; inexperience and lack of smart co-directors were failing to reverse all the errors.

Well, when investors began to see the fabrications, the RJI share price slumped, leaving the property vendors to claim the $3.00 price, and return the shares to RJH, by then worth much less than $3.00, probably worth less than a dollar, in some cases.

The BNZ honoured the legal commitment by lending RJH the shortfall, having secured the loan in such a way that RJH and Jones, as guarantors to the BNZ, were on the hook.

RJH used its available assets but ultimately was forced to sell its lucrative management contract back to RJI, to raise the shortfall, believed to be around $75 million.

Somehow the contract was valued at the figure that equalled the debt to the BNZ or near enough. How come? Ask the valuers of the contract.

To internalise with RJI the management and escape from an uncommercial contract that figure was $75m, paid for in cash by RJI to RJH, which used the money to square off the BNZ.

The transaction ruined RJI. The $75 million of cash was RJI’s necessary cash buffer, though in public arenas Jones would argue, after his exit from RJI, that the failure of RJI was due to subsequent bad decisions by others.

I know nobody who could not see the link between failure and the cost of the crazy share price guarantee.

RJI/Trans-Tasman Properties did not go into receivership or liquidation, but its assets were acquired for a figure that represented just a few cents per share.

RJI, whose market cap had soared past $1 billion, had been destroyed, in effect.

The errors need to be recorded, published here, and must never recur. They should form a rulebook that every retail investor etches into memory cells.

Management contracts must be negotiated by experienced, independent people. Fees payable on gross income lead to absurd outcomes. Nett income determines value, not gross income.

Property valuations must be made independently and must never be compromised by the wishes of the owner.  Investors should always view valuations as being a guess of temporary value, nor a decree from “on high”.

Public companies must have independent oversight of management.  Value is not added by obsequious friends being put on boards.

Regulators, now including the NZX, are part of the necessary controls of corporate behaviour.  Constant displays of disrespect, even worse, abuse, of these controls NEVER produces a good result for investors.

Insider trading is theft from shareholders.  If alleged, it must be prosecuted.

Bonus share decisions must apply to all shareholders evenly and should not be different for any groups of investors. Uneven schemes provide wealth for some at the expense of others.

Schemes devised by committing to buy at a guaranteed future share price reflect a degree of commercial naivety that no public company shareholder or market regulator should ever allow. They reveal the lack of experience and wisdom of the guarantor and reflect poorly on the wisdom of those who underwrite such nonsense.

These seven errors should be discussed at every university or school where young people gather before they launch a business career.

Having said all of this, let me finish with some balance.

Bob Jones became an excellent landlord when he reverted to private company involvement in the mid 1990s. The banks funded him, particularly the BNZ, and helped him ride successfully the property market gains that only recently have stalled. The banks applied proper rules and oversaw his plans. They filled the role that the RJI directors failed to fill.

Jones did not “sweat the small stuff” with tenants. He had certain signature characteristics that his tenants liked.

His buildings often display modern New Zealand art pieces, classical music is often played in foyers and elevators and those who wanted to smoke, as he did for most of his life, were often built little alcoves outside their office, so they could puff away in fresh air.

His philosophy grew to attract many long-term tenants and enabled him to rebuild the wealth he had sought to make through RJI and its management contract to RJH.

Jones died after a relatively short period of ill health, at the age of 85, an age which he himself would have willingly admitted was at the extreme end of his expectations, given his colourful lifestyle.

Perhaps he did deserve the citation of his “contribution” to business, having demonstrated all the errors never to make, prior to his reversion to sole use of banks, with the implied submission to orthodox management.

Perhaps by proving to investors the cost of poorly thought out, maverick ideas, Jones has eventually made a very real contribution to Business NZ.

Let us hope his lessons of what not to do are never forgotten.

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IN TAKING Stock last week I highlighted the quite dreadful work of Covenant Trustees. It added zero value to the finance companies prior to the 2008 finance company collapse.

In more recent times, as I noted, it let down badly investors in a forestry unlisted syndicate.

I noted Covenant had become a part of the equally unimpressive Perpetual Guardian, which continues to operate in what is clearly a sunset industry.

Created by George Kerr and Andrew Barnes, with the help of expensive mezzanine debt, Perpetual Guardian has reduced debt and brought in an equity partner.

It has sold Covenant to an Asian company.

I hope the price paid reflected the fact that in these days banks, and soon the Reserve Bank (for all companies it guarantees from July) act effectively as trustees, with a great deal more expertise than any trust company could display.

Estates and trusts should find a far more skilled, more attentive and much cheaper model to serve as trustees than is offered by trust companies.

The sunset industry should be in the final twilight moments before darkness prevails.

To the overseas buyer of Covenant, a kind person would wish for them good luck.

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Chorus Limited (CNU) has announced that it is considering an offer of up to $170 million of subordinated capital notes.

Further details are expected to be released during the week of 26 May 2025, with settlement likely due at the beginning of June.

While the interest rate has not been confirmed, similar subordinated securities are currently trading at around 5.00% per annum, and we expect the Chorus notes to offer a similar return.

Chorus builds and maintains the fibre and copper lines that deliver internet and phone services to homes and businesses across New Zealand. It does not sell broadband directly to customers—instead, it provides the infrastructure used by other retail providers. Chorus recently reported that more than 70% of homes it covers have now connected to fibre, with that number expected to grow. It is a large, essential infrastructure provider with consistent demand for its services, generating earnings of over $700 million in FY2024.

Chorus is likely to cover transaction costs for this offer, meaning no brokerage would apply. This will be confirmed once the terms are finalised.

To register preliminary interest, please reply with your indicative amount and CSN. We will contact you as soon as the full terms are released.

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Travel

Auckland (North Shore) – 26 May – Chris Lee

Auckland (Ellerslie) – 27 May & 28 May am – Chris Lee

Lower Hutt – 29 May – David Colman

Napier – 9 June – Chris Lee

Tauranga – 11 June – Chris Lee

Whanganui – 11 June – David Colman

Hamilton – 12 June – Chris Lee

Christchurch – 23 and 24 June – Chris Lee

Ashburton – 24 June(pm) – Chris Lee

Timaru – 25 June – Chris Lee

Please contact us if you would like to make an appointment to see any of our advisers.

Chris Lee & Partners

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Taking Stock 15 May 2025

ABOUT 15 years ago I enjoyed a battle with Bob Jones in a civil case. It was the fifth occasion he had taken aim at me for what he considered defamatory comments about his behaviour when he was running a publicly listed company.

On this fifth occasion he won and secured a modest sum to penalise me for what was my error, in misdescribing the ridiculous fees he privately charged the public company he had formed.

I erred; my mistake; I paid. He had boasting rights, for whatever they were worth.

On the first four occasions he had retired without a court battle. On those occasions I had not erred. His legend was important to him.

Jones died a few days ago, aged 85, after a colourful and I imagine enjoyable life.

At the time of my battle with Jones, I was provided with a large arsenal by the business world and the public, inundating me with anecdotes and data, presumably provided to help me prove that my error was insignificant. Not everyone wore his fan club badge.

For a while I prepared to write the defining biography of Jones and dispel the myths perpetuated by the mainstream media, which had helped him to create a back story that was hilarious but balderdash. I went as far as asking HIM for some photographs. There was no response.

A friend and legal counsel (then QC, now KC) offered his opinion on my plan to write the truth about Jones’ business life. There had already been too many books about Jones, he opined. Forget it. Leave him out of your thoughts. Whatever the merit of it, the book would create endless litigation.

I accepted that, after some contemplation. Jones, 15 years ago, was no longer relevant to investors. He funded his property business entirely with the banks. He was 70. The myths about his life were unimportant.

The public was not at risk of any repeat of what had happened with Jones’ public company (RJ Investments Ltd) which had been buried decades earlier, largely due to his personal vanity and stupidity.

So there was no book.  (As Trump says, “Never say never”.)

Nor will I record the details of his personal life now. He is dead. He will live on by the presence of his private company and some number of family trust structures, about which the public need not care.

Various people on whom he showered gifts – real estate agents, struggling media people and public relations people, selected women, and no doubt many lawyers - will find other benefactors after lauding him in obituaries.

So they should.

If he was a major donor to the Upper Hutt Jaguar Club, let the club praise him for his donations and his buttering of the bread at their sausage sizzles, if that was his contribution.

I acknowledge that he added colour to the world and will leave it at that. We always need colour.

However, the less personal matters of the myths about his business practices must be worth discussion. His errors must not be repeated.

Taking Stock seeks to help investors. The fables about business creativity should be countered. In coming weeks I will discuss these.

Meanwhile, his various sons, daughters, wives and partners are entitled to enjoy a hearty wake, as he prepares to knock on the pearly gates hoping, no doubt, to find an audience for his irreverent, sometimes funny, observations on his surroundings.

He should simply not talk about his disasters with RJ Investments Ltd, whose share price began at 50c, fell to 30c, rose to nearly $20 and finished at a level that, if recognised by one cent coins, would not fill a cup designed for a quail’s egg.

I will discuss the errors in a future Taking Stock

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THERE would be few investors, if any, of my generation that ever became wise about financial matters during their school and university years.

Probably that was a good outcome.

Then, and now, teachers and university lecturers are a most unlikely source of financial knowledge, let alone wisdom.

The truth is that those who work in financial markets must bring together in-depth experience, a widespread network that relies on the trading of knowledge between its network members, and the energy to accept the 24/7 nature of financial work. Those who succeed very rarely would contemplate the restrictions and rewards of the teaching trade and its often political curriculum.

It is for this reason that multiple years of academic devotion produces no Warren Buffetts or any of the others who walk the walk.

I was reminded of the divide in work ethic and motivation after I had written The Billion Dollar Bonfire, an account of political and financial market disasters around South Canterbury Finance that destroyed far more than a billion dollars, unnecessarily.

Multiple corporates and banks bought boxes of the books to share with directors and executives.

As a kindness, I wrote to each of New Zealand’s universities, offering a box of books without charge, to share amongst commerce students. I directed my email to their Commerce Faculties. Not a single university replied. Whether this silence came from laziness, incompetence, indifference, or some other reason, was not clear to me.

The real world had a different view of a presentation based on a level of research that was undeniable. Financial “advisers” who passed exams but had never worked in financial markets were, and are, likely to trot out some textbook stuff.  Sadly textbooks, like Chat GPT, are barely a starting point for any plan to create value or collate wisdom.

For this reason, I will be thrilled if the new Minister of Education succeeds in persuading people with real knowledge and experience to help create a curriculum on Financial Literacy AND persuades the same people to help with delivering it to the Year 10 classes.

For many years the local colleges in Kapiti sought my help in communicating in classrooms with the 6th and 7th form commerce students. The teachers themselves who sat in almost inevitably were amongst the most attentive members of the audience. They may have had no portfolio, and no or little savings beyond their pension schemes, but they clearly relished information tailored for beginners.

The arrival of KiwiSaver has marginally improved the energy to learn about financial markets but the truth is that there is a giant long-term gap between the vast majority of young people and the tiny percentage that learn about the discipline of investing.

The likes of Sharesies has helped large numbers to play, raising the level of fun in speculative investing but that group will learn only if they have the energy and discipline to seek out knowledge.

Just one topical example springs to mind. In 1988 a young man, late 30s, called on me asking to buy $75,000 worth of Bob Jones’ shares, RJI.

I asked him to reveal his logic. He owed the IRD $75,000 later that year and believed Jones’ public statements that the shares were worth twice as much as the share price.

“When the share price rises, I will sell enough to pay my tax and keep the rest,” he explained.

I asked of him one small matter. “Have you arranged with IRD that if you have no other means of paying they will accept your new RJI shares as full payment for the $75,000 if the shares fall in price?”

He put the $75,000 into an interest-bearing bank account. We all know what happened to the share price. He ended up making a decision that any young person would make after digesting some financial market wisdom.

So the key issues will be an interesting, relevant, agnostic curriculum covering relevant areas AND teachers that can hold their pupils’ attention by supplying real-life examples of the difference between investment and speculation.

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A RECENT Taking Stock item illustrated the nil value-add of trust companies, highlighting just one of the areas where that industry chisels for itself some money with no comparative value-add.

I wrote about trust company supervision of trust deeds, with all their covenants (promises) created to market unlisted projects, in particular, syndicates to own land, plant trees, grow a forest, harvest the wood, replant and then sell the land and the saplings.

These very long-term proposals have often produced reasonable results.

In every case of success the common features were honest, skilled forestry managers, favourable lumber prices, a favourable exchange rate, excellent locations (enabling collection of the logs) AND a helping of good luck (no fires or diseases etc). Not once would the trust company managing the deed have been a factor in the syndicate’s success, at least in my experience.

The harsh truth may be that syndicates, always absent of cashflow for decades, choose to engage with the lowest-cost trust companies, seeing no merit in any of them. There can be no argument – if you pay dock weeds, not even a low-IQ sheep would offer any enthusiasm.

Trust companies do not offer lush pasture so these creatures can bleat but the bleating would be ignored.

I described a forest management group that behaved unintelligently, selfishly, and with the wisdom of the low-IQ sheep. The promoters may or may not have collected generous levels of fees but the investors have every right to feel rorted, having been led to believe that trust companies safeguard investors.

Promotional charts showed thousands of dollars of initial investment growing into a six-figure sum over the 30-year life of the syndicate. The reality is that after 30 years, the capital was returned, barely improved from the original subscription. 

The trustee supposedly protecting investors by supervising the directors and enforcing the promises made, had been paid over the 30 years, a sum of maybe $300,000.

The trustee had failed to add any useful protection for the investors. His function had been performed to a level perhaps matching the value of six aniseed balls at their cost in 1956.

The various trust company people who played the role over 30 years should be thoroughly ashamed of their contribution, or lack thereof.

The public response to the Taking Stock item was telling. Clearly my experiences are not unique.

I hope two things happen:

1.A litigation funder is able to overcome the Limitations Act by proving that the failures of Covenant and the directors continued into very recent years.

2.Parliament brings in law that punishes the owners of trust companies, imposing high personal sanctions, for the clear and obvious failure of the trust company to perform to its promise.

I will update progress should there be any.

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Travel

Auckland (North Shore) – 26 May – Chris Lee

Auckland (Ellerslie) – 27 May & 28 May am – Chris Lee

Wellington – 28 May – Edward Lee

Lower Hutt – 29 May – David Colman

Napier – 9 June – Chris Lee

Tauranga – 11 June – Chris Lee

Wanganui – 11 June – David Colman

Hamilton – 12 June – Chris Lee

Christchurch – 23 and 24 June – Chris Lee

Ashburton – 25 June – Chris Lee

Timaru – 26 June – Chris LeeAuckland (North Shore) – 25 June – Edward Lee

Auckland (Ellerslie) – 26 June – Edward Lee

Auckland (CBD) - 27 June – Edward Lee

Please contact us if you would like to make an appointment to see any of our advisers.

Chris Lee

Chris Lee & Partners

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Taking Stock 8 May 2025

James Lee writes:

"Give me a view. It's what I am paying you for. "

I was sitting at dinner with a CEO of a company for which we were trying to launch an IPO. I replied, “How honest do you want me to be on a scale of 1-10?” He said 10, so I didn't hold back.

To this day we have a very honest and direct relationship based on two key concepts - respect for each other's capabilities but more importantly a shared understanding that being clear with your views, whilst awkward, if done with respect, will generally improve a situation. 

When I look across the market today, I worry that the advice industry has become so careful with its language it is nearly impossible to know what is being said.   The more cynical side of me wonders if for some people it's easier to position your view so carefully that you haven't actually given a view, perhaps because you actually don't know what you are talking about. 

Unfortunately it matters a lot because over the past four months investors have been exposed to probably one of the most wild rides in human history, driven by a group of powerful people whose logic frankly can't be explained.

Whether it's the tariffs, the Ukraine war, China’s economy, Musk’s foray into politics or the Germans’ fundamental shift in approach to debt, investors have no place to hide.

At the start of the year most banks forecast that the S&P500 would be at 6500 by year end. Today they are forecasting a significant chance of recession. Most will tell you to be passive because markets are efficient, while others (me included) believe markets are materially inefficient in the short term because of their structure.

Some will tell you that you can't time the market, others will highlight that Warren Buffett has proven that to be nonsense. 

With all that, how should the average investor form a strong view given even the “experts” don't? 

Usually I would say make sure you get advice, but given some of the gobbledegook I have seen recently I can empathise with the sense of caution some have. So instead I will say, please go to see someone willing to give you advice and to listen to your exact risk tolerance. 

We all have to accept that an opinion is just a view in an uncertain world, but don't fall for the “buy the index and it’s all going to be okay” nonsense. 

If any adviser were to tell me that time in the market was more important than price, or that over time markets always recover, or that no one can predict markets, I am pretty certain that I would walk out. Such salesmen’s guff is not advice that adds any value.

Markets do not always go up; prices do not always recover; and I would be paying to receive a valuable view on the markets. 

I do believe however that markets are always rational eventually and generally look out only nine months so you can beat the market if you are right with your analysis and your ideas.

Recently I read that if you missed out on the 17 best days in the history of the markets your returns would be materially worse; sure, but equally those 17 days mostly followed the 17 worst weeks in history. Avoiding the worst weeks is important.

I might have missed the S&P going up 10 percent in a day last month, but the S&P is still lower than it was on January 1st,a time that clearly preceded a risky quarter.

That said, every opinion is awesome in hindsight, but some of the best educated people I know in markets are terrible advisers because they miss the single most important part of advice - actually understanding the client’s risk tolerance. 

You will get bored with me saying this but the most important thing to do is get your risk tolerance and time horizon right. This is why being told you can have five different, largely passive, asset allocations of model portfolios isn't advice. It's the human form of robo investing and, at its most simple, is just an attempt to avoid accountability. 

Setting your goals and your risk 

It is only once you know what you want to achieve from your wealth then you can make a portfolio. As I don't want to venture into the world of advice today, I will just tell you how I do it for me personally, openly acknowledging everyone's risk tolerance and goals will be different. 

I start each year looking at where the market is in terms of risks, geopolitics, macro and leverage vs where it has been.

I then look at how I think this year and next year might go on balance of probabilities compared to current market expectations (i.e. market pricing).

I then decide what my liquidity requirements might be over that period, and what my income needs might be, then decide how much cash/ bonds or private credit I should have to meet that income part of my portfolio. 

Whatever is left over I then put into growth assets. I choose what market is more likely to perform based on the trends in economic data, and then I choose some sectors that should do well in that environment, and pick some companies based on their board / management. 

I finally look to see how expensive a company is relative to its peer group/ history and finally how expensive it is in absolute terms.

How does that work right now?

Let's take the US. The market is within a few percent of where it started the year. Its growth will be impacted by this tariff war. It is also a mathematical certainty that US growth will be slower than previously expected because investment decisions are being paused, and consumers, after the initial surge, will worry that US leverage will continue to grow so interest rates are unlikely to fall unless/ until the economy tanks, meaning the market is already expensive. 

New Zealand on the other hand will see the benefit of lower rates flow through and Christopher Luxon will create new jobs with the fast-track projects. New Zealand has a tonne of savings to invest in infrastructure and the RBNZ is likely to cut banking capital requirements to stimulate lending growth. The property market appears to be stabilising. Tariffs in NZ are a non-event relative to elsewhere and the market pricing is largely where it was in 2022. 

I use these two markets as my starting points because, as a New Zealander, my dividend returns are improved by imputation credits and the US covers 70 percent of the world, so I have all my growth available to me by looking at that one market. 

So once I have formed a view on the world, I think what would a good return be this year and I think what I would be happy with over the next year. 

This year looks to be one where, if I can get a positive return of 6-8 percent, I am going to be happy, but next year I think the New Zealand market is likely to do okay as the economy improves so I need to look at what parts of the market I want to be exposed to. 

In the short term I think the US market probably struggles, as the data in the next few months gets worse, and I think next year returns are more likely to be negative than positive as all of this uncertainty will slow down decision making, and possibly consumption. Domestic consumption is what drives the US economy. 

I accept that if Trump and Xi agree a compromise the market might bounce on sentiment, but I have more confidence that risk-adjusted NZ will meet my investment needs next year with less risk than the US. 

Now I have decided that, I think 6-8 percent this year would be good, and that I want some exposure to a bounce in the NZ economy for next year.  I structure a portfolio of companies leveraged to that theme, that are paying a good dividend to cover me through this year and whose management I respect. I accept that investors must rely on the advice sector to form a view on management. I hope my background will help our clients in this assessment.

I write my plan down with catalysts and then write down what I think these investments might be worth at the time of the catalyst and compare back to this on a regular basis.

The good news for me is I can't really quibble with my financial adviser if I get it wrong! 

Summing this up:

Right now it's ok to feel confused, as markets are really hard. You do not have to be invested in high-risk assets to generate a sensible return in this environment. 

Before you agree to paying an adviser to help you manage your money make sure you understand your own risk tolerance and cash flow needs, and make sure your adviser understands these issues. 

Finally agree a plan and review that plan regularly 

Our team is equipped to help.

Editor’s note: James was previously CEO of investment bank Jarden and is, from July 1, CEO of the Canadian listed company Healwell AI Inc, a health software provider, now the owner of the NZ- formed company Orion Health. He became chairman of Chris Lee & Partners Ltd on 1 April  and chairs the investment committee of our company. 

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Chorus – New Capital Note Offer Pending

Chorus has announced that it is considering an offer of up to $170 million of subordinated capital notes.

Further details are expected to be released during the week of 19 May 2025, with payment likely due by the end of May.

It is anticipated that Chorus will cover the transaction costs associated with the offer, meaning no brokerage would apply. This will be confirmed once the offer formally opens.

While the interest rate has not yet been disclosed, comparable securities in the market are currently trading around 5.00% per annum, so we expect the offer to be in that range.

Investors wishing to be kept informed or pencilled in for this offer should contact us now to register their interest.

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Travel

New Plymouth – 9 May – David Colman

Nelson – 12 May – Chris Lee (FULL)

Blenheim (pm) – 13 May – Chris Lee (One appointment time available)

Auckland (North Shore) – 26 May – Chris Lee

Auckland (Ellerslie) – 27 May -all day & 28 May (am) – Chris Lee

Please contact us if you would like to make an appointment to see any of our advisers.

Chris Lee & Partners

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