News } TBK Capital

Low Interest Rates, Business, and Property

Readers of my newsletters will know I’ve been a long-time fan of John Maudlin whose newsletters provide excellent commentary on the U.S. and international financial markets.

Date Created: 13/1/2016

Wait a minute, baby.
Stay with me awhile
Said you'd give me light
But you never told me about the fire.

Fleetwood Mac – Sara. 

Readers of my newsletters will know I’ve been a long-time fan ofJohn Maudlin whose newsletters provide excellent commentary on the U.S. and international financial markets.

Over the Christmas break I was reading his 20 December “Thoughts from the Frontline” which provided some very thought provoking comments on the continuing low interest rate environment in the U.S. It discusses the changes in the credit world, and the subsequent search by investors for returns on their money. It’s mainly an article about investment returns from bonds and fixed interest in the U.S., but also shows the investment shift – and the risks - U.S. investors are taking to get returns on their money.

A similar article out of the U.K. on 17 December says “The global policy graveyard is littered with central bankers who raised interest rates too soon, only to retreat after tipping their economies back into recession or after having misjudged the powerful deflationary forces in the post-Lehman world.”

And the Economist on 31 December posted an article entitled "Economists’ evolving understanding of the zero-rate liquidity trap" which sets out three possible scenarios for the American economy in 2016 in the aftermath of the Fed's first rate hike in more than nine years.

All these articles show the concern for any country is a rise in interest rates is fraught with risks. Accordingly it would be difficult to see how the world is going to quickly return to a high interest rate environment.  

New Zealand Interest Outlook

Here in New Zealand, while investment options are limited, fixed interest returns are at least positive.

We’ve seen a move to lower interest rates here since 2008 when the RBNZ reduced the Official Cash Rate from its high of 8.25% to 2.5% which is the rate now. It’s interesting to read the history of the OCR from when it was introduced in March 1999 at 4.5%.

You’d have to say history indicates the OCR won’t go any lower, and like the rest of the developed counties, we’re not going to quickly return to a high interest environment. (By the way the correlation between interest and exchange rates will confirm that view – but that’s another story we’re not going to get into here, other than say nothing about interest rates or exchange rates is simple.)

David Chaston, publisher of interest.co.nz, is seeking readers’ opinions about what is likely to happen in the year ahead - on anything that affects our economy. If you have a view you should participate in the survey. He says “My personal view is that 2016 will be a year that allows the US Fed to raise its rates four more times from the current 0.5% to 1.50%. I predict it will do that despite some bumps in the road and that markets will come to like the trend and find ways to profit from the moves.” He feels in New Zealand interest rates won't go any lower, and his guess is the RBNZ will be talking about raising them again toward the middle of this year.

Investment Options

While in New Zealand we still have nowhere near the choices investors have in the U.S., Europe, or even in Australia, it’s interesting to see where we’ve been putting our money.

According to recent research undertaken by Bayley’s Real Estate, in New Zealand property assets have beaten gold, bonds and shares to be the best investment of the past decade.

Business and Property

TBK Capital and our sister company Tabak Business Sales, do not give investment advice, but specialise in providing investors the opportunity to buy or invest in businesses. At TBK Capital we also provide property investment opportunities. TBK Capital’s offers are available only to qualified investors under the Financial Markets Conduct Act.

Recent research by the ASB bank shows - mainly as a  result of the ageing population – 5,000 medium sized business earning between $2 million and $25 million, and 190,000 smaller businesses, are predicted to be put up for sale in the next 5 years. This provides investment opportunities to buy businesses or participate in capital raising for their expansion.

For previous comments I’ve made on investing in property and businesses, see my May newsletter, “Redistribution of Capital into Productive Assets”, and the September newsletter “Business & Property – Both Looking Strong”.

Current Offers

In both those newsletters there were a number of examples of businesses seeking capital or cornerstone shareholders. So here’s some additions and updates to that list. The full list of offers we have available can be seen on our website under Projects and previous newsletters under News.

Property Investment Opportunity. A last minute before Christmas addition to our list of offers is the company that has acquired a pool of existing tenanted commercial properties in Auckland. The investment is for a maximum of 5 years and is expected to provide an 11% -14% return over that period. Reply or call me for summary of the offer. The Offer Document will be available soon.

Baboom. Streaming music is revolutionising the music industry. This is a high return investment set up for a “back door” listing on the ASX. Offer extended due to Christmas delays in Australia. Reply or call me if you’re interested.

Entek. This is a New Zealand software business that’s been providing cloud based business workflow automation and productivity software to kiwi businesses and institutions since 2013. Entek’s current client base mainly consists of medium to large businesses including Mighty River Power, Ministry of Social Development and Wellington City Council. A cornerstone shareholder is being sought to provide capital for expansion. Reply or call me if you’re interested. An Information Memorandum will be available soon.  

Skin Alive. Distribution now finalised in U.S.  New products KidsSkin, FarmersSkin and BuildersSkin have been launched. The business is looking for working capital to meet orders and expand international distribution. A cornerstone shareholder is now on board - but part of the offer still available. Reply or call me for copy of the Information Memorandum.

Kiwi Rider. This is a company formed to introduce a new, spectacular, and very profitable adventure tourism attraction to New Zealand and Australia. Similar businesses are already earning their operators substantial returns in the U.S., South Africa and throughout Europe. Capital raising has been held off while the business was awaiting certification by the New Zealand Civil Aviation Authority as an amusement ride. This has now been received. Reply or call me if you’re interested. An Information Memorandum will be available soon.  

Raising Debt Finance

On the matter of debt, at TBK Capital a core part of our service is raising loans for property and business. See my newsletter on Choosing the Best Loan and Lender, or for more information on debt finance reply to this newsletter or give me a call.

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The above investments are not offers of financial products that requires disclosure under the Financial Markets Conduct Act 2013 (Act) and are available only to wholesale investors as defined in Schedule 1 of that Act (other than any person who is only a "wholesale investor" under clause 3(3)(b)(i) or (ii) of Schedule 1 of that Act). They are intended for distribution only to selected people to whom, under the relevant laws, they can be lawfully distributed. They cannot be distributed in any other jurisdiction, or to any other people. They are not offers or solicitations in any jurisdiction in which such offers or solicitations are not authorised, or in which the person making such offers or solicitations are not qualified to do so, or to any person to whom it is unlawful to make such offers or solicitations. Any representation to the contrary would be unlawful. No action has been taken by any person that would permit a public offering in any jurisdiction where action for that purpose would be required.