Taking Stock 14 August 2025

THE hope was that four weeks in Europe with time to meet people, listen, read and discuss with the other three directors of our company would provide some conclusions to the central question - How do we steer clients towards decent returns on their investments that offset the risks of inflation, precariously balanced major economies and general tumult?

If countries cannot afford debt except at minimal servicing cost, yet run deficits and plan bigger deficits (to fund defence and infrastructure), then the politicians will try to crush interest rates - Trump.

Or they will borrow even more to service debt - Trump.

If the cost of money is artificially low, inflation would surge, and the prices of assets would surge. The result would be even more money and assets settling in the hands of the top 10%.

Dare I say it, but at some point, one of two outcomes would follow:

Democracy would allow the other 90% to set the new rules, perhaps a blend of socialism and communism.

The alternative outcome would be signalled by the rising sales of pitchforks.

My sons James, Edward and Johnny, and their families settled on the island of Gozo to ponder a way to deal with all of this, in amongst a rare full family holiday in the sun.

Returns on predictable assets, like bank deposits and bonds, will be somewhere south of 4.5% in NZ, and in most wealthy countries.

Measured honestly, inflation would be a similar figure.

Britain, for example, has huge debt, is running a 50-billion-pound deficit, already has uncomfortably high tax rates, and has a government (Labour) that is being slaughtered, according to the polls.

It has rising unemployment, inflation around 4%, debt rates around 4%, and social problems that seem unsolvable.

In a country with rapidly rising crime rates its police successfully solve just 5% of all crimes reported, down on last year’s figure of 7.5%.

The Police Commissioner, desperate for staff, says that in some weeks not a single applicant registers to join the police force.

Illegal immigration is at record levels.

Wages have stalled.

Like much of Europe, it is now reversing its budgets to decarbonise.

Yet currently its share market is hitting new highs every month, despite its retailers, including supermarkets, being squeezed.

Its publicly listed supermarket, Morrisons, reported a loss for the past 12 months of 500 million pounds.

Yet BP is on the rise, selling oil at ever greater margins, its last quarter profits in the billions.

Investment returns in listed shares have been high.

The movement to high-risk private equity and private credit so far is reporting high returns.

My conclusion: investors are accepting ever more risk to achieve what they regard as acceptable returns. Is this the case everywhere?

It is the case in the US, where just a handful of companies make up the bulk of the value of the top 500 companies, grossly rewarding those who bought the index, despite most of the 500 companies being moribund.

How do global investors achieve satisfactory returns?

They accept far more risk, buying shares in listed companies priced at record multiples of earnings.

Investors must assume that in these over-indebted times, when unsolved problems are simply stored up in the attic, the star companies will enjoy perpetually rising sales and margins.

What does this signal to NZ investors?

Here we have low interest rates, justified by a method of measuring inflation roughly akin to assessing the value of a mystery Christmas gift by the size of the parcel.

If real cost increases in NZ households are less than 6%, then the Presidents of North Korea and the USA really do average six holes-in-one in each of their golf rounds.

But let’s be kind and accept the figures provided in NZ: inflation 2.7%; unemployment 5.2%; crime rates falling; GDP growing at 1.0%; wages growing; house prices stalling; rents falling; school attendance rising.

In this environment how does a wealthy retired person, with savings of $500,000 (top 10% of all retired people), achieve a nett return exceeding the true rise in living costs?

In the past 15 years there have been opportunities to buy subordinated bank securities yielding around 7%, there have been times when property trusts yielded 6% nett, the power generators and the likes of Spark and Chorus have had attractive dividend yields, and there have been many examples of local and foreign listed companies that have grown at attractive rates.

Yet currently bank securities are expensive and low-yielding, and the reliable collectors of income, like power companies, are yielding lower numbers.

Our trip to Malta has been helpful if only in enabling us to observe the as yet unsolved problems facing larger economies.

My conclusion is that an investor whose portfolio is resilient and yields 4% after tax is likely to outperform pension funds, on a measurement of return measured against risk.

We think we have a strategy for the various groups of investors we help.

However, unsolvable problems face many countries, including fiscal deficits to fund defence, infrastructure and embedded social spending, not to mention the need to repair health and education systems.

Clients are welcome to discuss what we have learned.

No investor should overlook the relationship between risk and return. Older investors should never underestimate the value of liquidity.

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WHEN the directors of the aspirational gold-mining company Santana Minerals elected to accept an offer of a large sum of capital last week, by their action those directors were signalling at least one of three things.

The most likely motive was that without any effort Santana could raise all the money it might need to raise, possibly ever.

If this were the logic, the board was being slothful.

If the consenting process is overseen by adults, the Santana share price would soon enable a placement at a much less dilutive formula than applies now.

An alternative signal was that the offeror of the capital, apparently two large global institutions, greatly enhanced the strength of the share registry, providing some future access to large bundles of capital.

A third possible interpretation is that Santana’s board is insuring against a long, slow, expensive consenting process, muddled by the potential delays caused by any science-based opposition (not the empty vessel shrieking of the likes of the Tarras spokesperson).

I guess that a fourth explanation might be that Santana’s directors believe the yields and quantum of gold will be much higher than they can forecast, so the dilution of existing shareholders will be offset by inevitably higher dividend pools.

Perhaps if that were the explanation, Santana would be showcasing the mindset of most Australian discoverers of minerals – that is that “leakage” will be unimportant if shareholders are happy.

Personally, I would have declined the global money (at A$0.58 a share) and patiently observed the consenting process.

If that process is conducted by adults, and is not challenged by real obstacles, the Santana share price might soon have enriched an issue much less dilutive than the issue concluding now.

If it takes an issue of 100 million shares to raise $60 million at current prices, it might take just 50 million shares if the share price doubles, following progress with consent.

Santana’s explanation and behaviour was odd.

Just days earlier, a mining conference in Australia was told Santana was fully funded and that interested buyers should visit the secondary market.

The sun sets a few times, and then we are told of a documented placement, an act of contrariness that needs a better explanation.

As a minor shareholder in Santana Minerals, I expected a detailed summary of the global institutional interest, if not their names.

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THE rising cost of government borrowings is in part caused by the cheap Covid interest rates being gradually repaid, new replacement debt at higher rates.

Long-term debt in many countries is being replaced by short-term debt, in the somewhat forlorn hope that the world can again resort to free money.

More money spent on servicing debt either means new or higher taxes, or less spending.

The United Kingdom is in fierce debate, the right wing calling for more targeted spending, the far-left wing calling for confiscation of wealth by taxing assets that do not produce income.

The debate is vitriolic, if nothing else wonderful click-bait for mainstream media.

So it was interesting to collect some data that might counter the most hysterical voices, such as those we hear in NZ.

In the UK last year, the following data points were verified and published: -

The top 1% of earners paid 20.6% of all income tax received.

The top 5% paid 47.1%

The top 10% paid 58.6%

The top 25% paid 75.6%

The top 50% paid 90.1%

The bottom 50% paid 9.9%

The bottom 25% paid 2.4%

The bottom 10% paid 0.4%

The bottom 5% paid 0.1%.

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Travel

Our advisors will be in the following locations on the dates below.

20 August – New Plymouth – David Colman

21 August – Wairarapa – Fraser Hunter

22 August – Lower Hutt – David Colman

28 August – Christchurch – Fraser Hunter

11 September – Ellerslie – Edward Lee

12 September – Albany – Edward Lee

Please contact us if you wish to make an appointment.

Chris Lee

Chris Lee & Partners Limited