Tuesday, 29 April 2008

Quick news: NZ$, Distribution network sale, Immigration and ANZ bailouts

Tuesday, April 29 2008:

New Zealand exchange rate to keep plunging

It looks like the NZ dollar is to keep falling. And the current falls are only caused by the omission of the word 'significant' in Bollard's speech. What is going to happen when he actually stops tightening and releases his interest rate grip? The NZ dollar will plunge. This is a result of the NZ dollar being over valued as a result of the carry trade (borrowing in low interest rate currencies, such as the Yen, and lending in high interest rate currencies, of which the NZ dollar is the first world's highest); the Japanese housewives and Belgian dentists don't have a large risk appetite and they will lose a lot if the currency falls, so they get out of their NZ dollar investments which in turn precipitates further declines of the NZ dollar.

Not that a lower exchange rate is of itself a bad thing, it will help exporters. But inflation will skyrocket (caused by more expensive imported goods), and I am picking the speed at which it falls will cause a mini crises of confidence.

Vector sale of Wellington electricity distribution network

Apparently the sale of the Wellington electricity distribution network will go ahead:

"Dr Cullen's office said yesterday that his advice was that the network was not on sensitive land, so it did not have to pass many of the hurdles facing the Auckland Airport sale."
Why is it not on sensitive land? What makes the parcel of land that Auckland Airport is on more 'sensitive' then every piece of land the various parts of the Wellington network are on? The new regulations would be infinitely better, although still not good, if investors knew in advance what was going to be affected (i.e. stopped) by the new regulations. The article continues:

"The Hong Kong buyers of the network will instead be judged on whether they have experience and acumen relevant to the asset, whether they are of good character and have a financial commitment to the asset."

This seems sensible right? That is because it is. If you are going to have a restriction on foreign investors (which I disagree with), this is criteria that should be used to measure the foreign investor against; the measure should not be related to what the asset is. And where do these criteria come from? From the Overseas Investment regime that was in place before Cullen changed the rules.

A few other points:
  • Helen said she had no particular view on the electricity network, but noted that it had been in foreign ownership twice before. Can I just ask how this is different to AIAL which is already 35% owned by foreigners? And why should any of it matter?
  • NZ First said it was a pity that another asset was passing from local hands into foreign ownership. Once again, why does it matter? Woolerton (nor Winnie) have not given any reason why it should matter. And, to jump on the dredging up the past bandwagon, Winston sold AIAL in the first place into, among others, foreign ownership. As for the worry that the new owners will bring in competing workers from China under the recent Free Trade Agreement, I doubt it, the workers can only come in where NZ is lacking in skills.
  • And as for the Greens saying prices will rise. They won't. The distribution network is highly highly regulated, particularly when it comes to prices. And do the Greens think that Vector were operating without debt? The very reason they are selling the network is to reduce debt. Prices will not rise.
  • Finally, also on the Greens, saying that the NZ Super Fund should buy it, what rational economic explanation can they give for the NZ Super Fund to do this? If all of its investments were made on the basis of preventing local assets falling into foreign hands I certainly would not want to grow old in NZ. Fortunately I probably won't.

NZ Politics: Immigration scandal

National is calling for the people who authorised the preferential immigration treatment to be exposed. Now usually I would say that the people within a ministry or government department are just doing their jobs and should suffer for bad direction caused by their superiors (the ministers and department heads). But if, as stated in the independent report (produced by former Justice Secretary David Oughton; a quick Google search turned up nothing of note), the immigration head was completely blameless, then those who are to blame should be outed or lose their jobs. It is situations like this that undermine the confidence in the immigration service and half arsed solutions (like an independent report that clears the department head but doesn't reveal the culprits) do not do anything to restore it.

ANZ Bailing out failing Australian stock lenders

ANZ is suffering a reputational hammering due to its handling of the Opes Prime affair (see my previous posts here, here, here and here). It has it seems taken a different tack with the other stock lending brokers whose business models are failing (see this post for more on stock lending in Opes Prime). Tricom and now Chimaera Capital have been bailed out by ANZ injecting equity into them rather then enforcing ANZ's securities or selling the shares ANZ has been lent.

Now I obviously don't know what ANZ knows about Chimaera, but is it really worth buying into Chimaera to avoid the trouble its been having with Opes? The damage has been done and the particular business model that Opes and Chimaera have been running is flawed, ANZ should enforce its security and sell the share it has and let Chimaera sink.

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