Weekly Wrap: Settle down for the drama

With the fate of capitalism allegedly hanging on the whims of few Good Ole Boys in the US Congress this week, the markets (and the ensuing media coverage) were a little volatile.

Friday, October 3rd 2008, 4:27PM

In a week where the Dow Jones drops almost 800 points one day and then bounces up 500 the next, most news was tinged with hysteria. While the NZ market was relatively subdued by comparison, it remained a rough ride.

The vote yesterday by the US Senate to pass the much-reviled Paulson ‘rescue package’ has calmed investor nerves for the time-being but its passage through the US House of Representatives – expected some time this Friday US time – will be eagerly watched.

Back in NZ this week, the strain of a year-long bear market showed up in two of the Crown’s biggest investment pools – the New Zealand Superannuation Fund and the Government Superannuation Fund – both of which reported heavy losses for the 12 months to the end of June.

The NZ Super Fund dropped almost 5% over the period – or a decrease in value of over $800m – while the GSF slumped by more than $260m.

Despite the hiding, both the GSF and NZ Super leaders remained sanguine about their respective performances – cushioned as they are by their relatively long-term investment timeframes.

In an understated fashion, Adrian Orr, NZ Super chief, said: "We are going through a significant and rapid rearrangement of the global financial system. These are dramatic and unsettling times.”

Orr though was already looking for the upside saying “the aggregate impact on the Fund, while not pleasant, is not outside the bounds of our long-term expectations to date. Investment opportunities for a long-term fund like ours are on the rise”.

It was more difficult, however, to put such a positive spin on the matter for lowly finance company investors. But Paul Wiggins, chief operating officer of Gould Wealth Management (the reformed Vestar), did his best.

As we reported on Tuesday, Wiggins was able to pass on the news to Gould investors that OPI Pacific debenture holders could expect another 7.64 cents payment this week.

Wiggins said that would bring the total return for OPI investors to about 20 cents in the dollar.

In other finance company news, Dominion was the second such NZX-listed entity to be rapped by the market operator in the space of a week. Dominion was publicly censured and fined $65,000 by the NZX for failing to file its annual report on time.

Last week the NZX fined Strategic $20,000 for disclosure irregularities.

Also this week, the in-moratorium Geneva Finance knocked back a call by the NZ Shareholders Association to remove directors, calling the suggestion “scurrilous”.

A health insurance story stirred up a minor controversy this week when Ian McPherson, head of Southern Cross, lambasted his rival at Sovereign for saying the sector was in trouble.

Simon Blair, Sovereign chief, had earlier claimed the health insurance industry was losing younger clients and needed a revamp to become viable.

We also have an interesting practice management piece from the Million Dollar Round Table on becoming a business.

Meanwhile, lobby group Finsia surveyed its members and discovered that what the financial services industry needs is... more government regulation.

Our Mortgage News section has been busy this week, with Asteron, Sovereign and other non-bank lenders withdrawing products from the market. Is it the end for fixed rates? Read more here.

One story in our mortgage section held better news. If the eight economists surveyed for the story are right, borrowers should feel the benefit of another 50 basis point drop in the official interest rate (from 7.5% to 7%) when Alan Bollard makes the big call on October 23.

The markets can hardly wait.

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