Dead Cats & Vicious Bears 2: The Cat Bounces Higher

Back on March 24 I wrote about the dead cat bounce that had been the "stockmarket recovery" up to that time:

Stocks like Fletcher Building [FBU.NZ] are up more than 20% on recent lows, Mainfreight [MFT.NZ] up by nearly 20%, Sky City Entertainment [SKC.NZ], Goodman Fielder [GFF.NZ], Briscoe Group [BGR.NZ], Hallenstein Glasson [HLG.NZ] and Ryman Healthcare [RYM.NZ] all up over 10%. The NZX is up nearly 200 points, 43 of them today. Markets around the world are up dizzying amounts over the last week and a half, the DOW alone leaping around 1000 points off 13 year lows. It gained nearly 500 points today in the third highest ever percentage gain in the indexes history.

Since then the NZX has added another 250 points plus, the DOW is up a further 1000 points to close at over 8500 last Friday and there have been incredible gains on a wide range of stocks listed on the New Zealand bourse, I mean really incredible gains of more than 50% in some cases, all in the space of a mere two months! 

Gee whiz it is like a bull market! (can you feel the sarcasm?)

Retail stocks seem to be among the biggest gainers, as they were the biggest losers when the economy started to fall apart last year

Pumpkin Patch [RYM.NZ] up from 80c to 1.38, Ryman Healthcare [RYM.NZ] up from less than $1.20 to $1.72, Briscoe Group [BGR.NZ] 55c to 94c and Restaurant Brands[RBD.NZ], that serial loser that runs the KFC franchise, up from the high 50s to nearly a buck!

The stocks I mentioned in March have gained considerably, with Ryman Healthcare[RYM.NZ] alone putting on an additional 30% in share price.

What has fundamentally changed though?

A B-I-G fat nothing.

Market sentiment has surely done a 180, but sentiment should be set aside for old Meg Ryan movies, not buying stocks as they go up in price.

Who was buying when they were going South?

Nobody, but market fundamentals were the same then as they are now, terrible!

Makes no sense to me and I think sentiment might come back into the market when investors getting in on rising stocks start blubbing when they realize that sentiment can quite easily change in markets.

A dead cat bouncing even higher means there is further for it to fall and it is going to hurt.


Recent Share Investor Reading

• Are you experienced?
• Sky City share offer confusing and unfair for smal...
• Fisher & Paykel Appliances future looking bleak
• Warren Buffett faithful ready for big Weekend in ...
• Kirin bid for Lion Nathan undervalues brewer
• Bank Guarantees: The Return of Bryce

Discuss this topic @ shareinvestorforum.com




c Share Investor 2009

David Shearer: A Wolf in Sheeps Clothing?

I haven't watched "Q & A" on TV One on Sunday because I cant stand Paul Holmes, especially when he sweats like a fat German with a sausage up his arse in a sauna, but I took a look quickly last Sunday and it gave me a belly laugh.

Holmes asked John Tamahere what he thought of David Shearers prospects in the Mt Albert Bye Election and Johnny Boy answered thus:

"Lets tick the boxes,

He's straight, he's married, he has a family"

I would have added that he is a male and white but of course that would be sexist and racist so I wont.

Funny how Shearer appears to be everything that the typical Labour MP isn't?

c Political Animal 2009

Private Eyes

In the wake of a police whitewash over emails stolen from Don Brash's computer a few years back, probably by Labour insiders, we see the latest stoop in dirty politics by Labour happen in the Onehunga Electorate office of National MP Peseta Sam Lotu-Iiga.

Former Labour MP Richard Northey has been seen by several witnesses "riffling through" Mr Lotu-Iiga's office.

Like the incident from a few years ago Northey has denied the accusations but similar to the incident a few years ago the finger can only be pointed in one direction.

Labour and its leader were unable to compete on level footing on policy last year before the general election and were left to wade in the filth and muck that they tried to scrape up on their opposition using taxpayer dosh but were left with the blowback on their own faces.

It seems they haven't learnt from that lesson and are repeating the same gutter politics this year in the Mt Albert Bye Election

Melissa Leigh, National's prospect for the Mt Albert Bye Election needs to keep her private papers private, least they fall into Labours hands, again.

c Political Animal 2009

Are you experienced?

Further to yesterday's rant about how confusing and unfair I thought the Share Purchase Plan (SPP) and top up offer for Sky City Entertainment [SKC.NZ] I can add a bit more meat to the bones after having spoken to my broker at ASB Securities, Bruce MacDonald, in charge of investor relations at Sky City and the hacks at Computershare, the company acting on behalf of Sky City for the small shareholder capital raising.

ASB Securities

This broker had received many inquiries over this top up offer as to qualifications that made investors eligible to apply under that offer, specifically what "experienced investor" and "wealthy" meant in terms of eligibility.

From Securities Amendment Act 2004

• “(2CC) For the purposes of subsection (2CB), a person is an eligible person if the person is 1 or more of the following:

  • “(a) wealthy (as defined in subsection (2CD)):

  • “(b) experienced in investing money (as defined in subsection (2CE)):

  • “(c) experienced in the industry or business to which the security relates (as defined in subsection (2CE)).

• “(2CD) For the purposes of subsection (2CC)(a), a person is wealthy if an independent chartered accountant certifies, no more than 6 months before the offer is made, that the chartered accountant is satisfied on reasonable grounds that the person—

  • “(a) has net assets of at least $2,000,000; or

  • “(b) had an annual gross income of at least $200,000 for each of the last 2 financial years.

“(2CE) For the purposes of subsection (2CC)(b) and (c), a person is experienced in investing money or in the industry or business to which the security relates (as the case may be) if—

“(a) an independent financial service provider is satisfied on reasonable grounds that the person to whom the offer is made, as a result of having experience of that kind, is able to assess—

• “(i) the merits of the offer; and

• “(ii) the value of the security; and

• “(iii) the risks involved in accepting the offer; and

• “(iv) that person's own information needs; and

“(v) the adequacy of the information given by the person making the offer...


I found out when I rang my broker that I don't qualify as an "experienced investor" (even though I thought I was!) as alluded to in the top up offer documents. I would have to have "traded more frequently. and derived an income from those activities and/or have a larger portfolio than my current one.

It seems that these requirements are inserted to protect the "smaller less sophisticated investor", a category which I apparently don't meet either in terms of my Sky City holding and confirmed by both Computershare and Bruce Mac Donald.

Bruce MacDonbald (Sky City Entertainment Investor Relations)

Bruce reiterated much of the above, especially the looking after smaller shareholders part and that the company was restrained by securities law by being unable to offer shareholders like me a large enough parcel of shares as to fully protect from dilution of my shareholding.

This is in reference to the SPP where I can only apply for a maximum of $12500 worth of shares, already short of stopping dilution, and then I may not get the maximum because over subscriptions will mean a scaling down.

So if you own a smaller amount of shares your dilution effect will either be nil or infinitesimal.

Bruce pointed out that the applicable securities law, the Securities Amendment Act 2004 and as far as I can tell the Securities Act 1978 and subsequent amendments(of which there are many)means in effect that the issuer of the shares "must look after the largest number of smaller shareholders possible" and because people like me are somewhere in the middle we sit in some kind of financial black hole (my words) between the small shareholders and larger institutions who participated in the April $230 million placement.

When I pointed out that I was getting shafted Bruce told me SKC simply could have done an institutional placement and forgotten about everyone else but stressed again that "they wanted to be fair to the largest number of shareholders that they could". My counter to that would have been why didn't Sky simply have a rights issue if it had came into my head at the time.

In effect I am getting it from the front and the rear.

Computershare

Computershare pointed out in their usual unfriendly and grudging manner most of the above and added that the way the Sky City offer was structured was the same as Fletcher Building in terms of definitions of eligible investors.

Conclusion

Although paying down sky City debt with he proceeds of the capital raising will lead to higher profits due to less interest paid, the amount I shares I receive under the SPP is unlikely to get me back to pre-capital raising dilution and I have no choice in that at all.

What is a positive though is that I have learnt something over the last few days and every little extra tool in the financial toolbox helps.

Recent Share Investor Reading

• Sky City share offer confusing and unfair for smaller shareholders
  
• Fisher & Paykel Appliances future looking bleak
• Warren Buffett faithful ready for big Weekend in ...
• Kirin bid for Lion Nathan undervalues brewer
• Bank Guarantees: The Return of Bryce

Discuss this topic @ Shareinvestor.net.nz

Related Amazon Reading


Raising Capital for Dummies by Joseph W. Bartlett
Buy new: $22.49 / Used from: $2.90
Usually ships in 24 hours

c Share Investor 2009