What is secure in this world right now – if anything, please tell me

We are seeing signs of blind panic in the investment markets at present, both the fixed interest and share markets. Folk are running scared, with much of the main stream media tipping fuel daily upon the already burned sensitivities of local savers and investors. 

Much quoted Warren Buffett has said huge wealth is to be gained as the impatient masses transfer their assets to the patient few at a discount to fair value - or words to that effect. This is never more apparent than right now.

Sadly folk are dumping investments, at discounts and in the main either putting the money under the metaphoric mattress, the main banks on term deposit, or now searching for high rated fixed interest of the listed variety.

We fully understand the impact of the appetite sapping diet of bad news, accurate or otherwise, we are being bombarded with it. Much of the data is not well referenced and by that I mean not translated to compare accurately with our New Zealand understandings and expectations.

When we see reports of 500,000 mortgagee sales in the US (or whatever huge number) and I’m sure WE consciously or unconsciously put that into the context of our local market, (about five years worth of total house sales - right). The reality is that New Zealand, as measured by population, is about 1.74% (that’s less than 2.00%!) the size of the USA - no wonder we are scared by these huge unadjusted numbers.

A concern we hold is that folk may be blindly entering into asset purchases that are little understood. Take for example a recent substantial fixed interest bond offering from a very recognisable organisation.

Paragraph two of the key features sheet states. ‘The Bonds constitute subordinated and unsecured obligations of the issuer, ranking equal with other subordinated debt (read term deposits), behind other senior creditors and ahead of shareholders’.

The message clearly is that these assets are unsecured – there is no obligation to repay - and you should know it. I hasten to say we have no real problem with this investment or many others similar, some even have an international credit rating which is fine also – just do not consider you are buying anything other than what is unsecured debt, just like a term deposit.

 

Original Article published February 2008