Taking Stock 27 March 2025

DURING the most stressed times it seems inevitable that investors will be inundated with sales advice, much of it regrettably self-serving.

I am reminded of the Dad’s Army officer causing panic by shouting “Don’t panic!”

Or I recall the health specialist who starts his summary of laboratory results by saying “this is not necessarily as bad as it looks”.

There are some undeniable facts.

1. The globe has created debt at such extreme levels that, absent zero interest rates or harsh new tax revenues, the debt cannot comfortably be serviced. NZ this week acknowledged this problem.

2. The world order has changed. Territorial wars are one matter. Trade wars are a new dimension. Currency wars are inevitable, with both China and the USA wanting to devalue their currency. Civil wars usually follow extreme inequality, such inequality historically solved only by plague, famine or wars.

3. Globally, households have stretched budgets, leading to less consumerism, lower corporate revenues, lower dividends and lower government tax revenue.

It is a messy picture that I draw, clearly signalling a likely reversal of the recent extreme gains of asset prices (housing and financial securities, shares, obviously).

There is nothing new in such a reversal.

Going back to the 18th century, there have been many occasions when the US stockmarkets have lost value for a full decade, sometimes two decades. Between 1965 and 1974, 1929-1939, 1911-1921, 1847-57 or 1832-42, the 10-year losses ranged from 23% to 37%, the losses adjusted for inflation.

The Santa Clara University in California has recently published research identifying these dismal decades. It also revealed that between 1912 and 1932 the US markets lost 13.9%, 1837-1857 lost 8.8%, and 1901-1921 lost 4.1%.

Wars, money printing, and stagnated economies naturally lead to hardships, with pessimism replacing optimism.

Most markets globally reflected the US market performance.

I repeat these numbers in response to the codswallop dished up by our most desperate financial salesmen who are given space in an unthinking media to promote their wares.

In recent days I have heard a former Goldman Sachs salesman, two fund manager chief executives, and even a government agency, offering blanket advice urging people to swallow the lie that losses revert to profits for all patient investors.

The lie would transform to just a careless statement if these salespeople began their spiel with a loud caveat.

The caveat could be, should be, that if you have time to outlast a period where potentially there could be ten years of losses, then history is in your favour; the outcome cannot be guaranteed but rarely will markets take more than 10 years to wash out their excesses. Those of any age where 10 years is an excessive period should review their risk settings.

Lamentably, I never hear this caveat.

I hear these gauche salespeople talking about AI, American exceptionalism, new health treatments leading to longevity, and I hear about how much the likes of Germany might benefit by borrowing trillions to beef up its arsenal of bombs, tanks and jet fighters.

Indeed, the current burst of enthusiasm for European stocks celebrates the news that Germany would borrow more, and that France might provide nuclear “protection” for Europe.

I also cannot avoid observing Trump’s withdrawal from the World Health Organisation, the Paris Climate accord, trade treaties with Canada, commitments to fund poor countries, and Trump’s determination to impose tariffs.

Trump seems to believe that high tariffs would not result in the affected goods losing the enthusiasm of consumers. He expects the tariffs to generate federal revenue that could be used for tax cuts. He has not discussed the possibility that high tariffs would simply reduce consumption. He believes that tariffs will force overseas manufacturers of the goods to move their production to the USA, creating employment, and notes the indications from some overseas companies that they plan to shift to the USA. There has been no formal discussion on those companies who would simply ship their goods to a third party, like Guatemala, where no tariffs exist, allowing Guatemala to on-ship to the USA.

I record this to acknowledge the great uncertainty about the President’s executive orders, and add that many parties are confused about his plans, and his policy switches/reversals.

Given the US GDP – around NZ $50 trillion – is still the world’s largest, the USA behaviour naturally affects global markets.

Trump is undoubtedly correct in recording the cost to the US of its longstanding “peacekeeper” role, the cost of its proactive self-serving “interventionist” role, and he is right to observe that the USA has large trade deficits with many countries, some of which impose high tariffs on US goods.

Especially its auto industry looks threatened by the new era of high-quality, low-cost Chinese vehicles.

Trump and his action man, Elon Musk, seem determined to rid America’s public sector of hundreds of thousands of the nearly six million employed by the federal government. Many anticipate painfully large cuts in the budgets of social welfare, health and education.

At very least these possible actions should put investors on alert.

Equally important will be the trajectory of the US dollar.

In amongst this uncertainty is Wall Street, the home of the world’s biggest share market, of critical importance because of the reliance of its workforce on 401k pension funds, which have extremely high exposure to US stocks.

If these uncertainties led to a much lower US share market value, the globe’s most lauded investor, Warren Buffett, will not be surprised.

He has built a US$350 billion cash fund, to be spent only when he sees value, and in recent days he has sold out of the S&P 500 index tracker that he has previously trumpeted.

Should NZ investors do as the salesmen preach, that is, do nothing, or should they review their risk settings, taking into account their age and their tolerance for potentially extreme long-dated volatility, quite possibly leading to many years of losses?

Every client-focussed fund manager/adviser would be acknowledging the heightened risk, would be aware of similar periods in history, and would be putting aside any focus on the lower fees/bonuses that would follow a switch from growth funds to capital secure funds.

Readers of Taking Stock should be aware that the media never filters out blatant salesmen’s guff. The regular salesmen plea to investors, to stay invested in growth stocks, will continue to appear in the undiscerning media.

Salesmen – fund managers etc – buy advertising space.

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THE owner of The NZ Herald, radio stations and other advertising platforms, is NZME.

Led by Fletcher Building chairwoman, Barbara Chapman, NZME may be about to see its board of directors overthrown by a group of shareholders who want to see NZME news platforms address a “wider audience”.

For “wider audience”, read a more “centre-right” audience. These will be people willing and able to buy newspapers and advertise on NZME platforms if NZME redirects its current editorial policies away from the public bar, to a less raucous audience that resists any attempt by the media to set the nation’s agenda.

The new group is not intending to build another Fox News, thankfully.

Those who will be impacted by the NZME job losses can hardly claim to be gobsmacked. They have watched:

1. Falling circulation

2. Falling advertising revenues

3. Falling public trust in the mainstream media

4. Falling staff numbers

The new intervention has been initiated by a Canadian, now a citizen of NZ. He wants to see much more focus on news, including real world news, much less space given to the opinions of (largely undistinguished) journalists, and much fewer cheap shots of the type of which both The NZ Herald and Stuff cartoonists seem to specialise.

The journalists who have currently retained their job might take a hint from the approach of The NZ Herald’s Business Desk, which increasingly eliminates silly comment from its reporters in favour of reporting news, and interviewing decision makers; that is directors and chief executives, not reporters’ typewriters. Business Desk still does produce some teenage dross but has definitely moved to higher ground than the non-business reporters.

Sadly, The NZ Herald’s general news pages remain littered with the views of reporters who form their opinion without the experience, accomplishments or accountability that give the gravitas to the views of real leaders, whose knowledge can be respected.

Some such articles are simply banal. Recently one so-called award-winning reporter wrote a piece condemning the concept of public private partnership to build infrastructure, asserting that foreign based companies had a much higher cost of capital than NZ. This was nonsense. He compared NZ 10-year bond rates with NZ corporate borrowing rates. The offshore contenders will be borrowing at cheaper rates than our government pays, by a margin, China as an example providing debt at rates nearer 2%.

There are media people who understand why their opinions are not relevant. Mark Sainsbury, a retired media presenter, displayed wisdom when asked if he would be a candidate for a local body leadership role (replacing a totally unsuitable mayor).

He said he would enjoy the role but has never run a business, never employed people, and had no experience in leadership, so would not be a suitable leader of a council. He was kind enough not to record that the mayor was not much different from him in useful experience.

Sainsbury scored a perfect 10 for his self-analysis.

Frankly, I regard the almost certain changes to NZME’s governance and editorial cleansing as a sign of hope for NZ.

That a wealthy person, supported by institutions, cares about the media is almost a miracle in the era when the opinions of the public bar seem to matter more than a presentation of the facts.

Billionaire Jim Grenon, the Canadian who is leading the push for change, says he believes the media needs to reduce or expunge reporter opinion and replace it with real news. He sees it as the owner’s responsibility to filter out content that is not based on facts.

Perhaps he sees, as I see, that the potential buyers of media content, and potential advertisers, want to see content that attracts adults, and especially adults with the resources to provide the media with revenue.

The low level of public respect for editorial slant is reflected in surveys, newspaper circulation, and television audiences.

It is a cliché to say that if a fading business keeps making the same mistakes, then it will continue to endure the same results.

Unlike Britain, with its dreadful papers like The Sun, NZ does not have the population to provide a sufficient audience by targetting the public bar.

I expect NZME to soon have a refreshed board and the likes of The NZ Herald and The Post (in response) to be searching for reporters with a thirst for the facts, and the intelligence to recognise that their opinions are not the news, and not remotely of interest to most readers.

The new breed will also know that “gotcha” journalism is celebrated at the journalist’s local watering hole but rarely succeeds in eliciting useful information from interviewees.  Even more rarely does it attract an adult audience.

Will NZME adapt in time to take on primacy in our media offering? It has the potential to be our only national paper, bought in all cities, respected by adults, able to pay well those with high standards as reporters.

Does it take a Canadian to deliver such a standard?

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THE field trip to Cromwell last week to observe and listen to progress with the proposed Bendigo-Ophir mine will have increased the impatience of the investors in the group.

Santana Minerals files its consent application in coming weeks, not months, attaching to the application extensive and widespread technical and practical information relating to its plans to make the project the world’s best example of a modern mining operation.

Cromwell clearly is impatient for the project to begin, judging by the clamour to consult with the information bureau manned by directors at the very recent A&P Show in nearby Wanaka.

The consenting process might take some months, but the quality and depth of the research provided will surely streamline the process.

Our clients will have received a report with much detail of the visit last week by a group of investors, and our analysis of that information.

If consent is granted, action follows immediately, but the processing plant will not be extracting gold for around 12 months from the date of consent.

Santana has received more than 800 applications to work at the mine, most of the applicants living within 50 kilometres of the site, but it has yet to begin its search for the roughly 350 people it will employ directly.

Contrary to some poorly researched articles in the media, if the mine proceeds and produces gold at current prices, the overwhelming winners, in order, will be the NZ Government, several hundred staff, Cromwell businesses, and thousands of NZ shareholders.

One contributed article written by a poorly informed lawyer, using research that could most kindly be described as “lazy”, claimed the spoils would all go to Australia. The true breakdown of the spoils would be something like $180m per year to the Crown, $20m via Australian shareholders to the Australian government.

The contributed article was so factually wrong it should not have been published.

Four years ago Santana Minerals, before buying into the project, had a market capitalisation of $11 million. Today that market cap exceeds $400 million, with New Zealanders owning around 40% of the company.

Ultimately a producing mine would have a market cap measurable in billions if it achieved annual gold sales of around 150,000 ounces at the low costs that come from high grades of non-refractory gold.

The two founding explorers/geologists, Warren Batt and Kim Bunting, both New Zealanders, might more deserve knighthoods than some of those issued to much lesser contributors to the country’s welfare.

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Travel

Christchurch – 15 April – Fraser Hunter

Ashburton – 16 April – Fraser Hunter

Timaru – 17 April – Fraser Hunter

Tauranga – 15 April – Johnny Lee

Hamilton – 17 April – Johnny Lee

Lower Hutt – 29 April – Fraser Hunter

Auckland – 1 May – Edward Lee

Auckland – 2 May – Edward Lee

Christchurch – 7 May – Johnny Lee

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

Chris Lee

Chris Lee & Partners