The Dim-Post

April 28, 2013

Chart of the day, dead Wood edition

Filed under: finance — danylmc @ 3:07 pm

I’ve just watched the Q & A section on the Labour-Greens power policy, in which Susan Wood agonised over the massive financial destruction the announcement visited on all the ordinary New Zealanders who have investments in KiwiSaver (and, indirectly, in the Cullen Fund and ACC), so have lost hundreds of millions of dollars over the last week because of the massive market crash.

This is a talking point the government’s shills have been throwing around all week – Hooton claimed the total loss was in the ‘billions’ on National Radio – so I thought I’d take a look and see how the NXZ has actually been performing recently. The red line is April 18th, the day Labour and the Greens launched their announcement.

nzxapril

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52 Comments »

  1. The horror…

    Comment by simian — April 28, 2013 @ 3:10 pm

  2. Now that I have my KiwiSaver in my bank account I can see how the value changes whenever I want. I was interested to see if it went down after the Labour/Green announcement and it did for a few days. But now it is right back up. i imagine lots of other NZers who take an interest in KiwiSaver would have had the same experience and won’t be panicking just yet.

    Comment by LucyJH — April 28, 2013 @ 3:25 pm

  3. So go and look at an actual energy company, say Trustpower, and tell us what happened on the 19th.

    JC

    Comment by JC — April 28, 2013 @ 3:28 pm

  4. As a Kiwisaver investor, JC, I don’t care about what happened on the 19th because I didn’t sell on the 19th. My investments are for 25 years. I care about the long-term not the knee-jerk attention span of reef-fish.

    Comment by MeToo — April 28, 2013 @ 4:00 pm

  5. But I trust that Kiwisaver has a broader portfolio than one power co.

    Comment by northshoreguynz — April 28, 2013 @ 4:00 pm

  6. So go and look at an actual energy company, say Trustpower, and tell us what happened on the 19th.

    Amazing how the “value” of a company apparently not earning super-profits from its participation in an unbalanced market fell on the back of a promise to in the future pay it cost-plus-fair-rate-of-return-on-capital for the power it produces.

    Comment by Flashing Light — April 28, 2013 @ 4:24 pm

  7. Other companies, which currently buy power at inflated rates, will become more profitable. Think about it as creative destruction.

    Comment by George D — April 28, 2013 @ 4:37 pm

  8. To any decently diversified investment portfolio even a major long-term fluctuation in one particular stock is pretty neglible.

    Comment by Hugh — April 28, 2013 @ 5:03 pm

  9. A picture (or graph) speaks louder than words. And, is worth a thousand words…. at least that many must have been spent on this issue to little point.

    Comment by Spitfire — April 28, 2013 @ 5:43 pm

  10. “The red line is April 18th, the day Labour and the Greens launched their announcement.”
    Heh, I guess the market don’t yet believe that the policy will come to fruition anytime.

    Comment by Clunking Fist — April 28, 2013 @ 9:19 pm

  11. All that will happen is that Kiwisaver Funds will come out of energy companies and go in to other companies, something that should have happened more, sooner, given the huge debate over asset sales. One could argue that the Labour/Greens announcement was a good thing for Kiwisaver investors (but not so much a good thing for the rich, regardless of what the media spinners are saying).

    Comment by Dan — April 28, 2013 @ 9:32 pm

  12. Dead Wood – the Boag mantra

    Comment by CnrJoe — April 29, 2013 @ 7:18 am

  13. You can’t really deny that the regulation of an industry is going to adversely affect the incomes and therefore the shareprices of the big players in that industry.

    Government shills are definitely employing some hyperbole in their arguments, but their arguments have a fairly solid fundamental point. The green shills (such as yourself, Danyl) either don’t understand that fundamental point, or are deliberately discounting it.. if it’s the latter, I’d like to know why.

    Comment by Andrew M — April 29, 2013 @ 8:27 am

  14. The green shills (such as yourself, Danyl) either don’t understand that fundamental point, or are deliberately discounting it.. if it’s the latter, I’d like to know why.

    How is saying “any loss in value suffered by investors in an industry that extracts superprofits from consumers is acceptable” equivalent to “deliberately discounting” the “adverse[] affect [on] the incomes and therefore the shareprices of the big players in that industry”?

    Plus, Danyl’s point is that while the share price of some gentailers may have fallen (although they still remain at relatively high levels), the wider sharemarket is remarkably unaffected by the announcement. So, you know … perspective.

    Comment by Flashing Light — April 29, 2013 @ 8:39 am

  15. “…Amazing how the “value” of a company apparently not earning super-profits from its participation in an unbalanced market fell on the back of a promise to in the future pay it cost-plus-fair-rate-of-return-on-capital for the power it produces…”

    This. If the market loses some money because it can no longer extract monopoly rents from hard working ordinary Kiwis then I care less than this —> .

    Comment by Sanctuary — April 29, 2013 @ 9:05 am

  16. I wonder how many shares you would need to have before the lost gains outweighed the electricity saving?

    Mighty River, Contact and Trustpower will be about 15% of the NZX if the float happens as expected. The NZX has gone from 4000 to 4500 over the last 5 years, a 2.5% annualised gain. If we assume that NZ Power will cause the power companies to collapse in value by say 2/3, then that would drop to a 0.5% annual gain (not allowing for their reduction in weighting, which would increase the index gain).

    So a loss of 2% a year for shareholders. For that to outweigh the power saving of $350, you’d need to have $17,500 in shares. I don’t think most people have anywhere near that (the average Kiwisaver holding is about $5k)

    Comment by richdrich — April 29, 2013 @ 9:10 am

  17. an industry that extracts superprofits from consumers

    Back up a second… is there actually any proof of this?
    I mean, cut the hyperbolic nonsense out from both sides of the debate and you’re not left with any meaningful facts or figures coming from, as far as I can tell, anyone. For banks, for instance, a return on Equity of 15-20% is fairly common here and in Australia. I haven’t seen any figures comparing ROE across industries to see where our power companies sit. Anyone else?

    Comment by Phil — April 29, 2013 @ 9:32 am

  18. Can someone point me to the super profits being earned that keeps getting mentioned – and at the same time if you have evidence please forward it to the Commerce Commission http://www.comcom.govt.nz/ and in particular the regulated industries team (electricity) see http://www.comcom.govt.nz/electricity/ they would love to see this information – at a minimum it would go into the input methodologies for electricity distribution http://www.comcom.govt.nz/electricity-distribution/

    PS its worth noting that the graph above is for the entire market – when you look at individual changes post the annoucement you might notice that non-electricity entities are doing well whilst the electricity entities – TrustPower, Vector and Contact are all down.

    Comment by WH — April 29, 2013 @ 10:09 am

  19. Anyone else?

    In the US, dividend yields have fluctuated between 7% and 4% over the last 20 years or so, trending down and fairly much in line with 30-yr bond yields.
    Also, utility P/E tends to be in the range of 6 – 8 I understand.

    All of this tends to be specific to markets so I’m not sure what you can draw from it.

    Comment by Gregor W — April 29, 2013 @ 11:02 am

  20. Given the limited ability of Kiwisaver funds to be exposed to the electricity gentailers, I expect my portfolio’s outlook has, if anything, markedly improved on the basis of cheaper energy input costs…

    Comment by garethw — April 29, 2013 @ 11:20 am

  21. The Stats NZ Annual Enterprise Survey has done the hard yards. The electricity industry doesn’t appear to be making any greater or lesser profit that the rest of the economy.

    Return on Equity

    All Industries:
    2006: 10.7%
    2007: 11.5%
    2008: 8.9%
    2009: 6.2%
    2010: 7.9%
    2011: 6.6%

    Electricity and Gas Supply:
    2006: confidential
    2007: 8.4%
    2008: 8.0%
    2009: 6.2%
    2010: 8.9%
    2011: confidential

    By way of comparison, the Manufacturing industry is doing pretty well with an ROE of 13.2% on average over the last three years. Others are:
    Construction: 27.5%
    Finance and Insurance: 7.2%
    Healthcare: 18%
    Professional services (Lawyers, Accountants, Architects etc) : 25.1%

    http://www.stats.govt.nz/browse_for_stats/businesses/business_finance/annual-enterprise-survey-info-releases.aspx

    Comment by Phil — April 29, 2013 @ 12:29 pm

  22. Sanc says: “If the market loses some money because it can no longer extract monopoly rents from hard working ordinary Kiwis then I care less than this —> .”
    Monopoly? Well, you should consider supporting the sell-offs so that these companies start competing properly against each other, eh?

    Comment by Clunking Fist — April 29, 2013 @ 1:00 pm

  23. Well, you should consider supporting the sell-offs so that these companies start competing properly against each other, eh?

    Though I partly agree with you CF – inasmuch as there cannot be transparency while there is a single shareholder owning about 80% of the generation capacity – competition cannot exist unless retailers are separated from generators.

    Unfortunately, that is not a precondition of the de-regulation process so market opacity will continue unabated.

    Comment by Gregor W — April 29, 2013 @ 1:20 pm

  24. Mighty River, Contact and Trustpower will be about 15% of the NZX if the float happens as expected.

    With the NZX as a privately-owned company, I am kinda puzzled when people talk about the obligation on the government to prop it up.

    Comment by herr doktor bimler — April 29, 2013 @ 1:26 pm

  25. @Phil: return on equity falls when the equity is revalued upwards. If the equity for a hydro station was calculated on the basis of historic capital investment (minus depreciation) then the return would be enormous.

    @WH: those enormous returns are not illegal so don’t bother the ComCom with them.

    Comment by jps — April 29, 2013 @ 2:07 pm

  26. “competition cannot exist unless retailers are separated from generators.”

    Eh? Can you explain how that is so, please?

    Comment by Clunking Fist — April 29, 2013 @ 2:26 pm

  27. Because the wholesale energy auction is not adequately separated from the retail market.

    Retailers who are generators certainly know their owns cost of production, and likely know these cost of everyone else’s production costs given the product is non-substitutable.

    Retailer / generators – being significant players in both areas in terms of generation share and retail market share – know both ends of the market and can price accordingly. If there were 50 generator / retailers this wouldn’t be a problem. But there are 5 that control 95% of generation and about 97% of retail.

    Therefore even if everyone is acting with the best intentions, the spectre of collusion is always present – even if the pricing is “fair” it makes any competition illusory.

    Comment by Gregor W — April 29, 2013 @ 2:44 pm

  28. Or you could setup a competitive wholesale market

    Comment by Wimmy — April 29, 2013 @ 6:21 pm

  29. Just an FYI guys: “superprofits” (amazing you don’t even need to hyphenate that anymore) and “monopoly rents” equals hyperbole.

    Comment by Swan — April 29, 2013 @ 7:43 pm

  30. Swan – I suspect that is because the term is applied to be ‘more than normal profits’ without analysing what is ‘normal’ or taking a Marxist interpretation of how superprofits arise.

    Wimpy – the government would tell you we already have a transparent and competitive wholesale market.

    Comment by Gregor W — April 29, 2013 @ 7:55 pm

  31. The criticism of National’s approach to welfare has partly been that it’s an attempt to demonise in a destructive manner certain groups for political gain.

    The Labour and Green policy is exactly that but applied in a different setting.

    The centre left is just as prone to this sort of negative tribalism as the centre right. And one gets the same bizarre rationalisations.

    Shearer said black was white so it’s now an articles of faith – the state owned power companies have been degreed, as from a week or so ago, Bad.

    Comment by NeilM — April 29, 2013 @ 8:12 pm

  32. Gwegor, that’s nice dear.

    Comment by Wimmy — April 29, 2013 @ 8:14 pm

  33. Therefore even if everyone is acting with the best intentions, the spectre of collusion is always present – even if the pricing is “fair” it makes any competition illusory.

    Tricky word “fair”.

    The Greens’ proposal is for a certain base kW hours to be provided to households at a “fair” price ie relatively low. Above that the price will be “full” ie higher.

    That couldn’t very well call the price of extra power “unfair” – which would be logical and consistent since people would then wonder why I they can make some cost “fair” then why not all.

    And the reason for that is the Greens would ensure a lower cost, whatever the economic downside, as it’s actually an internal subsudy that will lower the price – which they could never do for the entire market.

    It’s not necessarily a bad idea for helping the less well off. Pity it’s going to those that aren’t as well.

    But the sell is that the State owned power companies have been ripping us all off and Labour and the Greens have suddenly discovered this.

    Comment by NeilM — April 29, 2013 @ 8:41 pm

  34. And the reason for that is the Greens would ensure a lower cost, whatever the economic downside, as it’s actually an internal subsudy that will lower the price – which they could never do for the entire market.

    This only holds true if you assume :
    (i) that the “lower cost” does not equal cost price + operating margin. There is no specific “economic downside” if the SOE is operated in this fashion, other than no excess revenues for state coffers.
    (ii) that the purpose of an SOE only extends to making a profit (i.e. does not exist for some form of social good, keeping market competitors honest).

    Comment by Gregor W — April 30, 2013 @ 12:47 am

  35. You are grasping at straws.

    1) what about capital reinvestment
    2) govt depts do that so well ha ha

    Comment by Wimmy — April 30, 2013 @ 5:09 am

  36. what about capital reinvestment

    See operating margin.

    Comment by Gregor W — April 30, 2013 @ 8:41 am

  37. The government built and operated basically all of the major generating plant so there is a historical precedent of government achieving this.

    The historical precedent of private companies running energy infrastructure? Enron.

    Comment by Rob — April 30, 2013 @ 10:26 am

  38. The historical precedent of govt running energy infrastructure? Pike River. See, I can do selective nonsense, too.

    Comment by Clunking Fist — April 30, 2013 @ 2:58 pm

  39. The historical precedent of govt running energy infrastructure? Pike River.

    PRC was a private company. They also weren’t an energy company.

    Try again.

    Comment by Gregor W — April 30, 2013 @ 3:06 pm

  40. Goddamit, you are right! (And I almost called it Cave Creek, too, which would have been total shit for brains.)

    Comment by Clunking Fist — April 30, 2013 @ 3:31 pm

  41. Shell, Solid Energy, PRC ARE energy companies!

    Comment by Clunking Fist — April 30, 2013 @ 3:33 pm

  42. PRC was not an energy company.
    They were a coal-mining company run as an offshoot of an oil exploration / development company (NZOG).
    They mostly sold coking coal to China for steel manufacturing.

    Comment by Gregor W — April 30, 2013 @ 5:38 pm

  43. Gregor W,

    But coal is a SOURCE of energy! As is grass. Which means that Landcorp is an energy company. See! The state can run energy companies perfectly well.

    Comment by Flashing Light — April 30, 2013 @ 7:41 pm

  44. You are a cockhead flushing blight.

    Comment by Wimmy — April 30, 2013 @ 10:16 pm

  45. (ii) that the purpose of an SOE only extends to making a profit…

    That one’s not merely assumed, it’s been an article of ideological faith for a couple of decades now – hence the outrage at Labour breaching that faith.

    In fact, that assumption is the nub of this issue. If it’s an article of faith that SOEs exist only to make profits for the govt, of course it makes sense to privatise them – the govt shouldn’t be in competition with the country’s own businesses. If you don’t share that faith and instead believe SOEs exist to provide some social good, it makes no sense to privatise them – the govt shouldn’t be trying to reduce social good.

    Comment by Psycho Milt — May 1, 2013 @ 6:27 am

  46. You are a cockhead flushing blight.

    I am but a mirror reflecting my surrounds, wimpy.

    Comment by Flashing Light — May 1, 2013 @ 7:57 am

  47. Whats the point in a pathetic Strawman blog post? The market is up, therefore there is no impact from the NZ Power announcements.

    That is pathetic, and I would’ve expected better, even from a site as lowbrow as this.

    Comment by AntoniusB — May 1, 2013 @ 3:24 pm

  48. ClunkingFist Fail.

    Fact is the taxpayers built and paid for the plant that these soon-to-be-privatised SOE’s now control. This plant was state run until Bradford’s crackpipe “reforms” too.

    I’m told the green/labour proposal has been pretty much lifted from what was introduced into California after their foray into electricity market deregulation totally fucked the state over (Enron).

    What I struggle to understand is why freemarketists are so cool with letting a privileged few investors squeeze money out of the economy by way of having it over a barrel via control of the electricity supply. Surely these towering economic geniuses with their impeccable critical-thinking skills can see how this creates a major power (as in control) imbalance in the economy and rewards relatively unproductive activity with excessive profits.

    Cheaper power benefits everyone (including business!!111omg).

    Comment by Rob — May 1, 2013 @ 9:55 pm

  49. Blerg, the above should be fixed:

    ‘This plant was run by a single state-controlled organisation until Bradford’s crackpipe “reforms” too’

    Comment by Rob — May 1, 2013 @ 9:59 pm

  50. I’m told the green/labour proposal has been pretty much lifted from what was introduced into California after their foray into electricity market deregulation totally fucked the state over (Enron).

    “The California electricity crisis, also known as the Western U.S. Energy Crisis of 2000 and 2001, was a situation in which California had a shortage of electricity caused by [a number of factors, including] capped retail electricity prices” Rob Fail?
    I like how “capped retail prices” and “deregulated” can be used by lefties in the same sentence without blushing.

    Comment by Clunking Fist — May 2, 2013 @ 12:37 pm

  51. Seeing as you saw fit to trim the wikipedia entry I thought I’d just post it in full:
    from http://en.wikipedia.org/wiki/California_electricity_crisis

    “The California electricity crisis, also known as the Western U.S. Energy Crisis of 2000 and 2001, was a situation in which California had a shortage of electricity caused by market manipulations, illegal shutdowns of pipelines by Texas energy consortiums, and capped retail electricity prices.”

    Enron even gets it’s own section:

    http://en.wikipedia.org/wiki/California_electricity_crisis#Involvement_of_Enron

    I must admit I’m surprised you’ve never read The Smartest Guys in the Room.

    Yeah yeah market wasn’t “totally free” and all that.. but trying to blame Enron’s unethical corporate psychopathy on price caps is a bit of a stretch though.

    Enron employee #1 “He just fucks California, he steals money from California to the tune of about a million.”
    Enron employee #2 “Will you rephrase that?”
    Enron employee #1 “OK, he, um, he arbitrages the California market to the tune of a million bucks or two a day.”

    Comment by Rob — May 2, 2013 @ 8:18 pm

  52. “but trying to blame Enron’s unethical corporate psychopathy on price caps is a bit of a stretch though.”

    Eh? I was trying to show that NZ is not in the situation that California was, so really doesn’t need the LabGreen nuclear solution.

    Comment by Clunking Fist — May 4, 2013 @ 5:50 pm


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