Taking Stock 12 March 2026

Chris Lee writes:

QUITE naturally every fund manager and most investors are now contemplating a new world in which oil transport is interrupted, leading to sharp price increases.

Inflation is closely linked to oil prices.

Interest rates are closely linked to inflation.

It is a statement of fact that the worlds largest economies are grossly overindebted, meaning interest rate rises would be at least inconvenient, if not crippling.

My own guess is the oil dilemma is short term, as will be Trump and Netanyahus war, likely to end when they read their advisers research on Irans history and discover Iran will never surrender, and will never have its leadership subservient to the West.

To me, it has seemed obvious for some years, as our newsletter has regularly opined, that the hard to solve real world problem stems from cynical use of debt for decades.

Within that real problem, the biggest certainty is that just as happened prior to 2008, all manner of lenders have surfaced chasing high margins, beefing up the problem.

Their target has been the ambitious borrowers not serviced by the trading banks. They build their edifices at low tide levels.

Real banks are intensely regulated and supervised, required to hold meaningful capital, forced to be transparent about nonperforming loans, and audited these days by audit firms that would be severely damaged should their audits be superficial.

My caution about lending catastrophes does not exclude banks from my concern, but the obvious issue is the much looser, less regulated, much less transparent portfolios of loans being held by literally hundreds of Private Credit fund managers. The largest of these include Apollo, BlackRock, Blue Owl, Capital, Goldman Sachs, Blackstone and, largest of all, Ares Management.

Consider this:

 Blue Owl has recently cancelled the withdrawal rights it had promised its investors (largely pension funds and investment banks).

BlackRock has written off a $25 million loan to zero, three months after attesting that it was not a doubtful debt.

The major UK based fund MFS has written off a $2 billion loan, partly funded by Santander and Barclays Bank, after discovering the security for the loan had been double pledged by the fraudulent borrower. The Australian fund manager Realm Investment House was a lender.

BlackRock has limited withdrawals on one of its largest ($26 billion) fund after redemptions spiked.

 Blue Owl, a listed company, has seen its shares fall by 30%, Blackstone by 26% and Apollo also down 26%.

 Private credit managers, having sabotaged their relationship with pension funds by breaching their liquidity promises (honouring redemption requests) have turned to the trusting but gullible retail market.

Pension funds have lobbied for governments to allow MORE exposure to Private Equity and Private Credit.

Trump, the fount of all wisdom, has introduced legislation to enable fund managers to use private investor (401) superannuation accounts to patch up Private Credit illiquidity.

Goldman Sachs is marketing a product to short private credit loans. (to bet the loans fail)

A reasonable conclusion is that loans to borrowers that the banks would not fund are vulnerable and that the quantum of them is now sufficiently sizeable that a flow of failures would seriously impact market confidence, globally. The loans are not liquid, nor transparent.

There are US $2 trillion of private credit loans.

The rationale for them is from the same playbook that in New Zealand led to the mushrooming of nonbank lenders in the years between 2001 to 2008.

Whereas banks, particularly the BNZ, had lent like greedy amateurs before the 1987 market collapse, in the years prior to 2008 the most stupid lending was done by finance companies and mortgage trusts, though the banks were certainly unwise. 

When the tide went out on the finance companies and mortgage trusts we found a huddle of mostly men, many of whom had lied, cheated and wilfully deceived, an example of which will be described in the next item.

I still wonder how the Canterbury Mortgage Trust could promise first mortgages only on existing properties, and be seen, by the waning tide, to have lent to serial bankrupts on development loans.

I also gasp at the fees this fund generated for the lawyers whose lending made up the portfolio. Competence? Commerciality?

Those days were then. Today it is private credit globally, that exhibits the same vulnerability we saw in 2001 to 2008.

Iran and Ukraine, as well as other hotspots, are top of our concerns. Geopolitical events whose outcome is unpredictable are a worry, but there are underlying conditions that cannot be solved by a truce. The misuse of debt and poor lending is a long term problem.

Horrendous overuse of debt, and selfish margin chasing by underregulated greedy and inexperienced lenders, is a threat that is identifiable, mathematically.

We need to recall the NZ experience in nonbank lending at a time when the investment mindset was gungho. Loan defaults may be a longterm hazard that we currently overlook.

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IT WAS with the niggling concern about bad lending in my mind that I drove last week from Timaru via the Mackenzie Country for a mine visit at Bendigo, near Cromwell.

As I approached Omarama, in the region of the hydro schemes the roadside cafe The Wrinkly Ram appeared.

Investors with a good memory will recall how this venue was where the kindling was set for the most unnecessary bonfire of a billion dollars (at least) of taxpayer money, more than decade ago.

The year of the Wrinkly Ram misbehaviour was 2009. The bonfire was set just days after an adult, detailed plan to preserve that money had been presented by genuinely experienced and skilled credible people to a small group, in Wellington.

The architects of the credible plan were New Zealands best investment bankers Jardens and Cameron & Co, with their colleagues being the NZ Treasury. Their mission was to save South Canterbury Finance, thus avoiding the losses of public money and the loss of a credible and important South Island money lender. (SCFs losses were underwritten by the Crown)

The Wellington plan was for Treasury to lend 10 year money to SCF and to become a medium term shareholder underwriting the public who might invest in SCF, or who had invested.

Their belief was that over ten years, SCF would recover its stupid property development loans and be salvaged.

The company would survive, no money would be lost, Treasury eventually would be fully repaid with interest, and the South Island would retain a money lender that complemented the banks.

The founder of SCF, by then suffering from a degree of senility probably brought on by cancer and kidney failure treatments, would pledge his assets to SCF and would retire, possibly with the title of Founding President.

Allan Hubbard, the founder, by then frail and in his 80s, would be excised from the recovery plan, but would retain some element of dignity that his previous good work deserved. He was not a common crook though he cut corners that would meet the definition of fraud.

The Wellington plan was that Forsyth Barr would cease to advise SCF but would remain an important broker, raising money for a commission, from the public. SCF was Forsyth Barrs biggest source of revenue, by far.

So the meeting at Wellington Airport in a hired boardroom was held in 2009, attended by telephone by the chairman of SCFs advisor/broker (Forsyth Barr). The recovery plan clearly had legs. It was a credible solution. It would have worked as planned, as time has proved.

A few days later the Wrinkly Ram in Omarama hosted a group of SCF and FB people who met to hear the most improbable alternative plan, which I would describe as the kindling for the bonfire.

That plan was built on the theory that Hubbard would remain the boss, FB would raise equity from his adoring fans, the public would be convinced to invest and FB would remain SCFs advisor and broker.

The assembling of this plan was not FBs finest moment. To be fair today, under the leadership of its new chairman David Kirk, FB is a different beast, much less grasping, than it was in 2009.

The Wrinkly Ram had been chosen as a venue, presumably to escape the public eye.

It is quite accessible to Queenstown where Edgar lived but a long drive from Timaru where Hubbard was as well known as the whereabouts of the local railway station.

Succumbing to vanity and senility, Hubbard voted to hand over to FB and to turn away from Treasurys nascent plan. His was a dreadful decision that destroyed his lifes work.

The decision was sheer idiocy, perhaps not so much as setting the kindling for an arson attack as pouring kerosene on glowing embers.

The Wrinkly Ram is now a financial market heritage site for its role in that billion dollar (plus) unnecessary disaster.

It still makes large cheese rolls and serves its tea made with tea leaves, presented with a strainer, a touch of class in todays world, but it will always be remembered as the cause of a Billion Dollar Bonfire.

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AS THE Fast Track panel moves into its third week of hearing Santana Minerals resource consent application, the Dunedin newspaper remains committed to its belief that activism is the key to higher circulation figures.

The daily diatribe clearly pleases what the paper considers its audience to be.

Who knows if the paper is right?

The panel will be guided by science and evidence and is likely to be thorough and competent.

It spent many hours last week on the site at Bendigo, the guest of Santana and will probably grant time, perhaps an hour, to all those who have an opinion, in its 140 days of consideration.

Those who shout that mining brings prostitution, drugs, and Saturday night burnouts by drunken louts would be heard with respect if they produced evidence that these undesirable outcomes follow mines around the country.

As far as I know neither Waihi nor Palmerston endure such indignities, but the activists might know better.

The most important evidence will be on matters like water purification, chemical treatment of the slurry from the processing plant, the efficacy of the tailings storage and the respect for Ngai Tahu, along with its runanga and hapu.

Last week the Dunedin commentator and animation software expert, Ian Taylor, visited the mine site at Bendigo.

Taylor is a likeable persona, definitely expert in animation software but very clearly neither familiar with mining, nor with the science that now governs mining behaviour.

During his visit he will have learnt that the chemical treatment of slurry does not lead to any poison being released to waterways.

He will have learnt that the tailings storage is most definitely not creating a giant lake that stores dangerous poisons for 10,000 years.

He now knows that the toxic material is broken down by light within a few days and that as soon as mining stops (in say 12 years) the tailings within days will not resemble anything like cyanide.

He will know that the tailings will comprise around 90% shingle, the outcome of crushed rock, topped by the liquid, awaiting sunlight purification.

Taylor is bright. He knows it would be equivalent to fraud to endorse untrue claims.

It is reasonable that Taylor will continue to oppose the Fast Track process, believing it favours those with the wealth to build their case. His credibility will soar as he refocusses on that opinion, and distances himself from the poorly informed.

Taylor is most unlikely to risk his reputation as an animation software specialist by presenting views that he will now know are based on hysteria rather than science.

The other widely quoted public figures who oppose the Bendigo project will not have the same opportunity to learn about the science of mining unless they visit the mine and listen.

My opinion remains that the respectful inclusion of Ngai Tahu will greatly enhance a project that would enrich the country and the local area, as well as the shareholders, gold price dependent.

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Travel

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Chris Lee and Partners