Debt lessons to learn in this wild market
By Stephen Mayne
January 25, 2008
The sharemarket is going through a wild patch, but here at the Mayne Report we've been buying with our ears pinned back whilst predicting doom and gloom for those that have taken on too much debt. Here's a wrap of the situation.
Trying to be a shareholder activist can be an expensive business. We want to make money on the market but also need to own shares in anything that is vaguely interesting so we can keep track of what they are telling shareholders.
You can see a full list of our 2008 purchases here, along with the entire $200,000 portfolio of more than 600 stocks which is currently showing a paper loss of about $37,000.
We also need to be able to hold companies to account for corporate governance failings and that is often best done from a position of actually having personally lost money on a stock.
Before getting into the detail of our losses with the financial engineers, let's look at some of the things we've been saying, starting with two hard-hitting radio interviews about the meltdown on Tuesday.
Go here for the lead story on Crikey as the sell-down reached its peak on Tuesday. Earlier market-related stories on Crikey include:
RBA's super fund risks - Monday, January 21
Allco crunched as debt contagion spreads - Monday, January 21
If Howard was so hot, why aren't we bailing out Wall Street? - Thursday, 17 January 2008
Wall Street's Big Six now worth only $US606bn - Wednesday, 16 January 2008
How the financial engineers are getting punished
The absolute bottom line of this 20% global correction in share prices is that the western democracies have taken on too much debt. We're living beyond our means, consuming more than the income we generate.
Australia has almost $600 billion in foreign debt and about $850 billion in mortgages on houses and both of these figures have tripled since John Howard came to office in 1996.
The very simple explanation of our problems is that those corporates and citizens which are saddled with too much debt are now getting clobbered.
Here is a summary of the over-geared property stocks which have produced some of my biggest losses. Interestingly, many of them also have poor governance structures and disclosure accompanying their stretched balance sheets.
APN Property: bought 175 at $2.85 on July 30, 2007
Abacus Property: bought 285 at $1.785 on November 22, 2007.
Centro Properties: bought 56 at $9 on March 18, 2007.
Centro Retail Trust: bought 295 at $1.77 on June 8, 2007
City Pacific: bought 120 at $4.31 on May 24, 2007.
Cromwell Property Group: bought 400 at $1.25 on September 10, 2007.
FKP: bought 71 at $7.17 on June 12, 2007
HFA Holdings: bought 200 at $2.50 on August 2, 2007.
Macquarie DDR: bought 410 at $1.235 on July 10, 2007
Macquarie Office: bought 305 at $1.645 on July 10, 2007
Mariner Financial: bought 650 at 77.5c on May 29, 2007
MFS: bought 105 at $4.96 on March 5, 2007
MFS Living & Leisure: bought 600 at 84c on August 15 , 2007
MFS Diversified Trust: bought 575 at 87.5c on June 20, 2007
Prime Retirement Trust: bought 540 at 94.5c on September 17, 2007
Record Realty: bought 590 at 85c on August 15, 2007
Rubicon Europe: bought 645 at 78c on November 5, 2007
Rubicon America: bought 500 at $1 on August 15, 2007
Tishman Speyer: bought 190 at $2.64 on March 21, 2007
Trinity Group: bought 203 at $2.50 on September 10, 2007
Valad Property Group: bought 260 at $1.945 on June 27, 2007
Whilst the correction is being characterised by global equities falling, the epicentre has been the crashing US housing market and Australian commercial property is increasingly taking centre stage because as a sector it took on too much debt.
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