Jamie Gray 's Opinion

Jamie Gray is a business reporter for the New Zealand Herald and APNZ wire agency

Stock takes: Fog of war

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Carl von Clausewitz, the Prussian military analyst, is credited with coming up with "the fog of war" to describe how things can go horribly wrong in the heat of the moment.

Apparently the theories of von Clausewitz, who lived from 1780 to 1831, still hold sway in today's military thinking, particularly as they apply to what soldiers should do when the fog descends.

In today's world, von Clausewitz could have found a job on the dealing room floor, because he probably would have had a better idea than most as to what to do when things go pear-shaped, as they did this week. World markets convulsed and the New Zealand dollar swung through ranges rarely seen in its 26 years as a free floating currency.

It was as if war had broken out between the optimists and the pessimists.

The pessimists even had their own index - gold - which hit another record high. The price of gold reflects people's lack of faith in stocks, bonds currencies, economies - you name it.

The optimists' own barometer - the Dow Jones industrial index - took a pounding. The conflict between the pessimists and the optimists has intensified. One day, the fog of war will lift. But not yet.

WHO TO BLAME

As we approach something that bears a disturbing resemblance to the start of global financial crisis of 2008, it is with great pleasure that Stock Takes can unveil a fun but not-so-new game called Point The Finger (PTF), starting with America's US$14.3 trillion debt mountain and credit rating downgrade.

Before Ronald Reagan, the US Government had just US$1 trillion in debt. Reagan splashed out a bit, adding US$1.9 trillion to the bill in his two terms. His successor, George H.W. Bush, who is careful to emphasise the "HW" these days, racked up US$1.5 trillion.

President Bill Clinton may well have been a hard dog to keep on the porch, as wife Hillary used to say, but he was fairly careful with the family finances, adding just US$1.4 trillion.

They do things big in Texas and and it was former state governor George W. Bush who made all the other presidents look like pathetic amateurs, racking up US$6.1 trillion, including US$1.5 trillion for wars in Afghanistan and Iraq, plus US$1.8 trillion in tax cuts.

The hapless President Barack Obama has added US$2.4 trillion - much of it on stuff he had nothing to do with.

But when it comes to the ratings agencies, that's when life gets interesting for PTF players. Much of today's market mayhem can be traced back to Standard & Poor's one-notch downgrade of America's highly coveted triple A credit rating.

This is the same outfit who, along with its contemporaries, gave triple A ratings to the fancy mortgage-backed financial instruments that turned toxic, destroying a few big banks along with the way, and bringing about the onset of the first global financial crisis.

But when it comes to Europe, that's when PTF players have several wildcards to choose from. There's Ireland, Greece, Portugal, Spain, Italy and now France, all with sovereign debt concerns. No surprises there.

The idea of a truly unified eurozone, with its members all marching to the beat of the same fiscal drum, has been elusive. Napoleon had a go at it, and look what happened to him. All up, there's plenty of material there for budding PTF players. Enjoy!

BNZ COVERED

The Bank of New Zealand has been an active player in the covered bond market over the past two years, to the point where they account for around 6 per cent of total total assets.

"Our plan is to undertake one more public covered bond transaction [probably next year] to take this to around 8 per cent, at which point we will step back from covered bonds and focus back on to senior unsecured funding," said BNZ treasurer Tim Main.

BLUE STAR REPRIEVE

Printing company Blue Star Group, which is majority owned by Australian private equity company Champ, has won a reprieve from what it said would be almost certain receivership after bondholders voted in favour of a debt restructuring.

The package involved bondholders agreeing to amend the terms of their bonds through a reduction in the face value to 64.7c in the dollar, participating in a pseudo-equity bond for the balance, and writing off accrued interest.

OCEANA DIPS

OceanaGold hasn't enjoyed the same run as other mining companies overseas, thanks mostly to the strong New Zealand dollar. The price of gold topped US$1800 an ounce yesterday, about double the level it was at just before the 2008 global financial crisis. Analyst Peter McIntrye from Craigs Investment Partners says there are other factors facing the company which mines on the West Coast and Otago and is developing a gold and copper mine at Didipio in the Philippines.

"Getting Didipio up to production is one of those issues but the last quarter showed that when transferring their returns to New Zealand dollars from US dollars it affects their overall performance," he said.

Oceana shares dropped from $3.56 around the time of the announcement to a low of $2.40 last week. They had traded as high as $5.08 last September. The closed up 5c yesterday at $2.70.

- Additional reporting: Grant Bradley

- NZ Herald

Jamie Gray

Jamie Gray is a business reporter for the New Zealand Herald and APNZ wire agency

Jamie Gray is a business reporter for the New Zealand Herald and APNZ wire agency. He has been a business journalist for 30 years, working for NZPA and, mainly, the Reuters news agency. He enjoys fast breaking business news stories but also likes to get to the bottom of complex issues. He is driven by telling readers what is going on but also has a soft spot for the occasional quirky business story which gets people talking. He has a special interest in Fonterra.

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