Welcome To The Mimentum Blog...

We've been going since 2006 - completely free speakers, tackling consumer issues, current affairs and other issues and injustices that arise. Based in Australia and New Zealand we enjoy the privaledge of free speech without the threat of the Chinese Communist Party's Green Dam, Iranian Government, the USA's "Homeland Security" thought police, CIA (so much for "Land of the Free!"), and almost all the other fruitloops in the world who can't handle some constructive criticism.

Thinking ahead – Real life example

Posted By on March 7, 2017

I had been made redundant. The pay out disappeared rapidly and finding a job was proving difficult. I was forced to do Temp work just to put food on the table. When I had work, times were good but holidays, with no pay quickly taught me I needed to have some strategy to save some of my income for the lean times. On the advice of my (recently fired) finance consultant, I had increased the insurance cover on my superannuation. Without regular wage contributions, the balance was going down. I needed to find some way of investing my money in irregular small amounts, other than my stupid banks so-called “high interest account” which was not keeping pace with inflation. I still had shares on the ASX but the market was at an all time low but I was sure it would pick up later.

To be perfectly honest, I had resigned myself to the fact I was financially screwed but on a whim, I Googled, “investing small amounts” and came up with several search results. Of course there were the usual obvious scams like “Christchurch Mum buys Ferrari after one month…” and Forex ads where you pay $5,000 for a course to show you how to lose $50,000 a week. But one was something I had never heard of ; Peer to Peer lending.

It’s where a group all put in a small amount into a pool that is loaned out to people, much the same as the banks do, with personal loans. The difference is, there’s no banking corporation with branches, staff and super rich executives dipping their sticky fat fingers into the honey pot, taking out profits before you get to see them. The organisers take out a tiny fee and you get the rest.

P2P lending is something the banks don’t want to become common knowledge and here’s why:

Let’s say you put $25 into an investment account at the bank:

  • You’ll get around 3% to 4% interest per annum (per year). If we work on their top rate of 4%, that’s 0.33 % or a third of 1% per month. In the first month you will have your $25.00 and interest of $0.0825 or 8 cents because they round it off. You’ll have an account balance of $25.08.
  • Meantime the bank will lend your $25 at anywhere from 16% to 10% on a personal loan. We’ll assume the lower rate of 16%. That’s 0.013% per month. In the first month they will make 35.5cents on your money but only pay you 8 cents, keeping 27.5 cents, over twice as much as they pay you. Sadly most of that 27.5 cents will go to people who are already wealthy – shareholders and corporate honchos.

Let’s take $25 and put it into P2P lending :

  • Your $25 will be loaned out at a rate of anywhere from 9.9% to 39.9%, depending on the level of risk you choose. Let’s be very fair and say you are extremely cautious and go for the lowest risk at only 9.9% (that’s 0.825% per month). That’s 20.6 cents interest in the first month, so your $25 will earn $25.20.
  • A service fee will come out but it is around 2 cents, leaving a balance of $20.18

So already you are ahead of the banks by 10 cents. It might not sound much but that’s 10 cents every month compounding at 9.9% (rather than 4%). There’s the trap – very few people understand compound interest. We usually see it working against us and seldom understand how it works when it’s in our favour.

Using the bank example, at 4% interest, after 5 years your $25 would become $30.52.

That same $25.00 put into P2P lending at the lowest rate of 9.9% it becomes $40.93. And don’t forget that was their lowest rate, at their highest rate it would become over $177.00!

Just like I discovered with the Finance Advisers, superannuation funds and investment trusts, the killer in any investment is the people all taking their fees and commissions out of the investment before you get it, usually at the input end. This reduces your small investment before it’s even invested!

I decided to try one note – a $25 share in a loan but first I needed to see if they were legitimate. And this is something I suggest you do too:

  1. Google for “complaints with …..”, “problems with ……” and “Is ….. a scam?” I found nothing alarming, just others asking the same questions.
  2. Send a question to their contact or help page contact and see how long they take to respond. This is important because if something goes wrong, you want help fast. Shady schemes rarely employ customer service staff and will reply only by email. I spoke to a human in New Zealand too!
  3. Find their business address.
  4. Read ALL of the Terms and Conditions. Even if it takes several days, you need to know there’s nothing concealed in the fine print.

The next step was to invest a small amount, just to see if it worked as well as they claimed.

I decided to try one note (as they call a share in a loan) at $25.00. That went well, within 24 hours my account showed I had invested in one note. I called their help centre again with a question and the attendant was very helpful. He saw I had bought one note and explained that if that one loan went bad, I was totally exposed, Whereas if I had 5 notes and one went bad, the interest on the others would cover my loss and conserve my investment outlay. I was waiting for the close, “would you like to commit to…” but it never came. There was no sales pitch, just the simple explanation.

That week I was able to buy another nine notes – I was on a Temp contract at the time. The next month I saw the repayments coming in, exactly as promised. They took tax out and withheld it as arranged, so what I was seeing was all mine.

Since March last year, I have squirreled away another 52 notes at $25 each. Eleven notes have been repaid early (there’s no early payment penalty) and the funds have been reinvested. Along with the repayments, I have reinvested, I have 61 notes in action today. That’s not much for almost a year but I’ve had an operation and three months off work since then. If I take the average of the monthly repayments, I need 107 notes before it starts snowballing – that’s my next target.

Considering what a crappy year it’s been, financially, I have still built my investment portfolio. I couldn’t have done that any other way I know of.

Thinking Ahead – Look for alternatives

Posted By on February 24, 2017

Back in 2010, I had a well paid job and decided to look at investing some money. I engaged the services of financial advisers. After all they know best right?

I had an interview where they asked me where I wanted to be in 5 years time and where I was now. Two weeks later I received a shiny folder with a professional looking plan. A month later I received my investment statement and their fee.

Unfortunately, coming from an I.T. Background, I recognized it was just a classy Word document with my answers inserted into the appropriate slots and a few pivot tables and charts. There was no advice and nothing I hadn’t already thought of. I heard of a fund looking for investment and a couple of start ups and called my financial adviser, only to find the one I spoke to had left and the replacement was away on leave for a week. When I finally spoke to him, he had no idea about the fund and suggested I Google the start-ups. It soon became obvious from his responses, he wasn’t any wiser than I was. After several similar calls I started to wonder what was I paying for?

Along the way I received emails from them about new shareholdings but they came after the emails from the ASX about the same offers and frankly my shares were doing better anyway. With the Global Financial Crisis and China’s economic misinformation, I felt the share market was not the best place to invest in, anyway. Time has proven me right on that score.

The clincher was their next statement with a $500 fee for … well, nothing. I had a broker for my shares, I was depositing money into a managed fund (and my finance advisers were not the managers), so what was the $500 fee really for?

The business I worked for went bust and my income plummeted, so I terminated the finance adviser’s services. My investments continued to compound without new contributions but my superannuation shrunk as the investment funds were used to pay for the insurance cover, my adviser had recommended I increase. In hindsight the only investments that had withstood this set back and were still earning, were those I had invested myself. I decided, in future if it was going to be, it was up to me.

So to cover my backside – please note I am not a finance adviser, nor do I aspire to be one. Other than experience, I have no formal qualifications or registrations etc. in the field. I’m simply describing what happened to me personally, so others can avoid the mistakes I made.

I’m not saying Finance Advisers are fake or con artists but I have doubts that they can offer value to small investors who do not have large lump sums of money to invest, those average wage earners who can only spare a little each pay. I believe, like me, you’d do better to do a little research yourself and save the fees – invest them instead.

Try searching for topics like alternative investments, investing small amounts, low cost investing, investing without a lump sum, etc., like I did. I discovered “investing in P2P lending”. These are loans sourced to borrowers outside of banks. Look for organisations that credit check their customers and have a collections policy for defaulters. They will often accept small deposits. Mine accepts any amount and deposits it into an account. When you have $25.00 you can invest in a share of a loan. There are a lot of unique advantages of this type of investing we’ll look at in the next installment.

Thinking Ahead – Retirement Worries?

Posted By on February 12, 2017

For many of us, retirement probably feels a long way off – too far to think about today. Unfortunately we have memories of our Grandparents spending time with the Grand kids and travelling, and assume that we’ll retire the same way. Sorry to burst your bubble but that’s highly unlikely.

In 1938, Michael Joseph Savage, introduced the Social Security Bill into New Zealand Parliament, creating the first universal old age pension for people over 65 years old. The concept was, people would all have a portion of their taxes invested on their behalf, by the government to create a fund that would pay for their living expenses after they were no longer able to work. Those taxes came from people in jobs. That was almost 80 years ago.

Back in 1938, production relied predominantly on human labour. Today it relies more on mechanisation and technology, with computers and electronics. Just to give some comparison, if we took every computer in commercial use, today and looked at the number of employees that used to do that same function, you would find that each computer replaced 7 employees. Factor in technologies like the compact disc, digital camera and fuel injection and the resulting loss of whole industries, and that figure rises to an alarming: 1 computer costs 9.7 jobs. So since 1938, as a society, we have lost approximately 10% of our employment to technology.

In 1938, the population was different in terms of ages. The Great War had reduced the adult population that would have now been entering retirement. The Spanish epidemic flu had arrived just in time to catch a lift to the far corners of the planet, with returning soldiers and wiped out millions around the world. The elderly were the most vulnerable. The result was a population with fewer people reaching retirement age. In a young nation with demand expected to exceed supply for generations to come, a universal pension was easily attainable. Compounding this problem was the return of service people after the second world war, into a world of new technologies that gave us leisure time and new found wealth. The result was the baby boom, a huge surge worldwide in childbirths, creating a generation, a population surge, that would all reach retirement age within the same decade or two.

Back in 1938 the life expectancy of a person was less than today. Cancer and heart attacks were a death sentence. Today they are treatable, if not curable, treatments can prolong life for decades. The average life expectancy back then was around 65 for men and 67 years old for women. Today if someone dies at 67 years old we feel their life was cut short. Medicine has prevented many epidemics, which would have hit older people, with their reduced immunity, harder than the working populace.

Add all these factors together and we have fewer jobs, less people in the workforce and therefore less taxes to fund these pensions. On the other side of the retirement equation, we have a larger proportion of population ageing, compared to those employed and paying taxes, who will live longer. A vastly different scenario from 1938.

But wait, it gets worse!
Successive governments world wide have looked at those retirement funds and seen them as reserves for economic use, rather than investment. Those investment funds Michael Joseph Savage envisaged back in 1938 have been squandered by short sighted politicians ever since.

In an effort to halt this looming pension disaster, governments introduced national superannuation schemes. An amount, separate from taxes, was withdrawn from an employees pay and paired with a similar amount from the employer, then invested in a high interest investment account. At the time it seemed like the perfect solution but these investments were handled by private enterprise. By the time board members and shareholders took their cut, there wasn’t much left from the predicted profits. The profits were decimated by international events like the US Prime Market crash, the Global Financial Crisis and a host of other reversals.

The sad reality is, the retirement we envisage, based on what we saw our Grandparents have, will not be there unless we personally do something about it.

Today we live in an age where, as long as we invest in someone else’s scheme, whether government or private, there will be too many pigs dipping into the trough, for us to end up with enough to fund the lifestyle we expect. Pensions currently do not allow retirees to live in comfort unless they already have their homes fully paid off. They are supplements, no longer incomes.

If we want to retire in comfort, we need to take matters into our own hands and create our own investment schemes, without greedy fund board members, directors, CEOs and parasitic financial advisers, all dipping into the honey pot. It’s not as hard as it sounds. It’s actually quite fun, once you see your money start to grow. In the next article we’ll look at one simple method, that you can control.

Is Trump the shake-up we need?

Posted By on February 3, 2017

While the Western world has used diplomacy and political correctness, countries like North Korea, Iran and hostile groups like ISIS have used threats and abuses of human rights. The United Nations has admonished governments for abuses of human rights, genocide and corruption but this has had little effect. People wanted a change and the outspoken Donald Trump appeared an alternative. People felt it was time to put someone in the drivers seat who spoke their mind.

With China seeking to claim the South China Sea as it’s own (and therefore all the oil and gas field beneath) and control all the shipping to and from it’s neighbors, we needed someone who would speak openly when they saw injustice and bullying, maybe someone willing to do a bit of bullying back, not just another simpering diplomat.

While we stuck to our freedom of religion ethics, Muslims wreaked terror the world over. Maybe it was time to speak out or at least shut the door and prevent any more of them entering, while we sorted out the ones we had already. Yes there’s thousands of “moderate” Muslims who were no trouble at all. But the sad fact is, the one common denominator for most of these terror attacks was they followed Islam. Some are black, some white, some are Asian even. They come from Islamic countries but some also come from within our own countries too. The recurring theme is Islam and they are sheltering behind our freedom of religion ethic. Maybe it’s time we changed the rules a little. Let’s not ban their religion but let them know, if you don’t want to fit in, then go elsewhere, like back to the land your warmongering brothers, killing each other on religious grounds, made untenable.

If we look at Islamic history, their records repeatedly document internal wars and a deep rooted hatred between the two Islamic factions. Even after conquering most of their known world, their empire fell apart, not from outside invasion but from murderous infighting that divided them, to the extent they became targets for lesser armies. You could argue a similar schism in history between the Catholics and Protestants but the difference is we got over it. The Muslims never have. Today, many centuries later, the Sunni and Shiite Muslims are still trying to slaughter each other. When they got leaders who were corrupt and begged the rest of the world to step in, to stop the genocide, the killing never stopped because the two factions of Islam couldn’t get their act together to form a stable government afterwards.

If a group of Christians were running around giving the Catholic or Anglican faiths a bad name, I’m pretty sure the “moderate” Christians would be doing something about it – a bit more than the “moderate” Islamic people are doing today. We’d be drowning governments in protests world wide and our heads of religion would be pushing to resolve the issue. I don’t see a concerted effort from the Islamic leaders.

Meantime we step in and cop the wrath and abuse from both sides who were intent on killing each others followers. Perhaps this is a case for changing the U.N’s charter to contain these wars within their home country and let them fight it out. It’s not the kindest action but if we keep going with our current charter, we end up fighting wars that cannot be won. There was some truth in Trump’s appraisal of the U.N. as being a waste of time.

Unfortunately the outspoken Trump we saw, was only half of it. What wasn’t on display, was the braggart egotist bigot that formed opinions without weighing all the facts. While we heard Donald Trump was prepared to speak his mind, what he didn’t tell us, was he often speaks when his mind is not engaged.

Unfortunately, solutions are not that simple. It doesn’t matter if you have the most toys in the sandpit, acting like a spoiled brat will isolate you and lose your allies – now who’s got all the power?
Sure you can be best buddies with Russia, but for all their sabre rattling, don’t forget they couldn’t pay a large part of their army’s wages. I recall reports that there were concerns about the decrepit state of their navy and the risk it posed from poorly maintained nuclear powered warships. Then there’s the Kurst – the submarine that was leading Russian technology – shame they didn’t think to use that same technology to design a rescue vessel. And there’s Chernobyl – the world’s worst disaster the Russians tried to pretend never happened. You get to that stage where the only kids who will play with you in the sand pit, are the deceitful ones no-one wants to be friends with.

But let’s not be too negative, after all the US presidential elections have taught us quite a few lessons:

It is true what they say, that anyone can become president of the USA – even spoiled brats who never grew up.

American Democracy is a sham. It boils down to whoever has the most money, wins. There’s “votes” and “popular votes” and neither count for the result.

You can’t fool all the people, all the time but you can fool all America most of the time that it takes for an election.

The USA is the only country in the world that is democratic and protests when someone is democratically elected.

American politics is like a game of Bridge with cheaters. You might have the only Trump in the game but your still a loser.

An “alternative truth” in the USA, is not lie. It’s an illogical conclusion supported by conflicting facts.

I never thought I’d ever feel sorry for the USA until now but I guess when to sit back and let a bunch of fat cats stuff up your voting system, you deserve what you get.

Super Bugs and antibiotics.

Posted By on January 16, 2017

There’s a whole range of apocalypse movies out there, each one trying to paint a more grisly, dramatic picture than the last. They tout meteor collisions, exploding suns, super storms and diseases that reduce people to brain eating zombies.

If you are into that world ending apocalyptic stuff, a small article in The Telegraph on the 13th of January probably went unnoticed. For the some, it should scare the stuffing out of us.

A 70 year old woman passed away in a Nevada hospital recently – (nothing particularly newsworthy there). She died from a bacterial infection – (not too uncommon either). The bacteria was resistant to every known antibiotic, so much so that the CDC ( USA’s Center for Disease Control ) deemed the lady’s condition incurable. (now we’re getting into the Hollywood stuff).

This is not the first incurable case reported by the CDC either. The CDC reported a previous case of another bacteria that was also un-treatable but the bacteria themselves were not very infectious, so the risk of contagion was deemed very low. This latest case is a more transmittable bacteria.

But it gets worse – there’s a casual mention of a protein, NDM (New Delhi metallo-beta-lactamase) that when present in bacteria makes them resistant to most antibiotics.

Now hold that though a minute. We were terrified when Ebola struck in Zaire. It was scary because it was a very grisly ending from a disease that was incurable. It was caused by a virus – a single organism we could aim all our disease fighting skills at. As a result, today it is serious but not a death sentence.

However, now we have a protein, not a single organism, that could appear in any or many different organisms, making them resistant to our entire range of antibiotics. We’re not fighting an organism now, this is a protein that could appear in any organism with the right mutation.

When we think of bacteria and similar micro organisms, we forget that they are not all bad guys. We have a host of good bacteria in our intestines, in yogurt, in cheese and on everything we touch and eat. Any one of these could mutate to produce the NDM protein.

If antibiotics no longer work, we have to come up with some other method of attack. Vaccination is an option but only works when people are vaccinated prior to contracting the infection. Meantime we have to use antibiotics more sparingly and wisely, to delay the inevitable until we can come up with another solution.

Today all we can do is isolate the victims, to reduce spreading the contagion and make their last hours as comfortable as possible.

Christmas and Compound Interest

Posted By on January 1, 2017

In the true spirit of Christmas we have given gifts, with good will, to friends and family. However, it might surprise you to know the most expensive gift you probably gave this Christmas, was to neither friends nor family.  In fact it was to some faceless people already wealthy, who know you only as a number. uncaring, devoid of any compassion or milk of kindness and you didn’t even have them on your Christmas list.

Every year when Christmas comes around, we spend up large, usually more than we have saved. The extra money comes from our credit card account. According to last years statistics, every person in Australia owes just over $3073 in credit debt. That’s not including any credit debt that will be paid off before it accrues interest. Many people will repay that debt at the minimum rate their credit cards publish and there lays the trap. The minimum payment amount will pay the interest and reduce the balance by around 2% to 3%. (Originally it was only 1% but the government made the credit card companies increase their minimum payment amount). What people don’t realise is the effect of compounding interest on their credit balance and how much they will actually end up repaying.

For example, let’s assume we have a credit card with an interest rate of 17.31%, with a credit account balance of $3,073.00. If we paid the minimum payment, we would pay only $62.00 a month. By the time the account was repaid in full, in 24 years time, we would have paid back an extra $6,000 in interest. Effectively we gave the credit providers a gift not only for this Christmas but for the nest 23 years!

If we had added another $50 a month to that minimum payment, the credit card account would be repaid in 3 years and we would have paid only $867.00 in interest, saving $5,133.00.

We tend to think that the minimum payment is what we should pay off our credit card and of course that’s what the finance companies want us to think because it makes them a fortune.

If you really want to get into the spirit of Christmas, add a bit extra onto your credit card repayments and give something to those who deserve it most – yourself. After all you earned it, in every sense of the word.

P2P Lending (7) Is it right morally?

Posted By on December 26, 2016

“Sure they might be ethical but are they right morally. Is it right to charge 20% interest when the banks are charging only 3%?”

That’s what a sceptical friend posed to me, at a meeting one day. I have to admit I had a slight niggling feeling about the morals of it all but when we are making money, it’s amazing how we can rationalise away out morals. I came back with the usual responses like, “Well no-one is forcing you to borrow it. You don’t say that about the tax man when he takes a whopping 33% and shells it out to politicians.”

Then another member of the group spoke up and what he said changed the whole perspective for all of us:

“My wife and I have been paying off our home loan for 6 years now. It has a redraw facility that allows us to top up the loan and draw out some of the money we’ve repaid. We decided to get a better car and looked at using some of that equity to purchase it. We needed about ten thousand dollars. At first it seemed like a good idea to use the equity in the home loan. After all, variable rates are so low now and it’s only 6% p.a.. The alternative was to get finance for a car loan at 19%.”

The whole group agreed. It made sense to make use of a lower interest rate. But the next sentence stopped us in our tracks.

“Yes! You see you’re sucked in, just like everyone else. Fooled by the magic of compounding interest. I nearly was too!”

We all looked at each other trying to see what we had missed. No way could a loan at 19% be better than a loan at 6% right?

He explained, “You see, while you see the interest rate, you are forgetting the term. The home loan will take that $10,000 at only 6% but for 19 years!  Sure the finance loan is a lot higher interest rate, at 19% but the term is only 4 years”.

We still could believe it was cheaper, so I pulled out my smart phone and set up the compounding interest formula. If he borrowed $10,000 at 6% compounding over 19 years, he would repay $31,178.99.

Then I did the calculation for the same amount at 19% for 4 years and discovered he pays only $21,255.83.  In other words by taking the high interest loan, he’d save a whopping $9,923.16.

The difference is the time the compounding takes or the term of the loan. Morally there is nothing wrong with lending at high interest rates provided they are only for short periods. The added advantage with P2P loans is they don’t charge whopping penalties for early repayment either, like the finance companies and banks do.

So Long Teflon John – Leaving before the storm?

Posted By on December 5, 2016

I just heard the Prime Minister of NZ, John Key, has resigned, citing family matters. Sorry, but when it comes to politicians, if their mouth is moving, they are lying and this is no exception. In politics, you always try to leave on a high, it guarantees a good price for endorsements and speaking engagements later.

Has John Key has done exactly that, especially considering what’s waiting around the corner?
Here’s what’s looming in 2017:

Kaikoura Earthquake
The coffers are empty after the Christchurch earthquake and insurers are screaming because the repairs done by the EQC were substandard and mainly cosmetic. Now property owners are looking at foundation problems and further insurance claims, especially if we have a hot dry summer causing ground shrinkage. There are still claims being argued from 6 years ago.

The insurers will be far tighter when it comes to claims this time. Teflon John has made a big splash with a fast handout, then jumped ship before the proverbial stuff hits the fan. They have to decide whether to quickly rebuild State Highway 1 or develop an alternative route. The alternative route through the middle of the South Island will cut off a lot of tourist sites. Repairing the existing road (what’s left of it) will cost probably more. It’s not as simple as removing rubble to clear the road and leveling it up, it hugs the shoreline beneath towering cliffs that are now unstable and will have to be secured or at least battered back to a safer angle. Then there’s the issue of where to dump the rubble removed.

There’s also the issue of Kaikoura itself. Extensive repairs are required to the township. The anchorage there is now above water in some places. Considering Kaikoura is billed as one of the worlds top places to view whales and seals, the anchorage plays a vital role not only in Kaikoura’s economy but also a slice of New Zealands tourist economy.

Housing
If Teflon John’s reign will be remembered for anything, it will probably be the sky rocketing house prices, in particularly Auckland and Wellington but also throughout the country. A decidedly average 3 bedroom home in Auckland is now around the $1,000,000.00 mark. To buy a home now means:

  • a huge mortgage or three,
  • having wealthy family back in China or India to fund you,
  • or using your string of substandard rental homes as collateral.
  • or all of the above.

The market has been rising so fast that property investors have been buying homes and leaving them empty, rather than letting them. The appreciation in price, outweighs the hassle of tenants. Rather than limit overseas investors, Teflon John’s lot pretended they didn’t exist by ignoring all the properties purchased by young students on study visas and temporary visas. (Of course they’re not really overseas investors – everybody knows that a Uni student on part time work can afford a 20% house deposit).

During Teflon John’s reign not only did we increase the homeless population in our capital cities, we created a whole new class of homeless; the sort of wealthy homeless who could afford a car to sleep in! In the Homeless section of the community, we now have two classes: Vagrants and Vangrants!

Employment

We are seeing a reduction in full time jobs both from technology and outsourcing jobs to countries where wages are lower. There is an increase in personal contract employment (a.k.a. temporary employment where the employee pays all taxes, super etc. out of a reduced weekly wage). A similar trend in Australia has created a new underclass,; the “Underemployed”. Add to this a low basic wage when factored against basic survival costs. This trend is contributing to a rise in personal debt, especially in the case of older workers in the over 40s category.

Personal Debt

Haven’t the papers been strangely silent on this one?

Not surprising considering New Zealand’s papers are usually loathe to criticize the incumbent government too much. But Teflon John’s resignation should flash “DANGER!” to anyone in finance. We have the conditions for a perfect storm looming and Teflon John has headed for the hills.

Firstly we have a population carrying a massive amount of personal debt. There are the huge home loans, the high cost of living for basics like petrol and food items on shelves at export prices. Add to this low wages being further eroded by the increase in private contracts, replacing full time employment. Here, we have very high accommodation costs (either large mortgages or high rents), coupled to a high cost basic necessities, further boosted by another 15% for GST, one of the world’s highest.

This means people are drawn towards borrowing rather than saving and as a population, carry an inordinate amount of personal debt. Payday loans, personal loans, car finance, shoppers cards and back cards are commonplace. For finance companies, one of the most common loan types is a debt consolidation loan – essentially where people take out a loan to pay loans with!

Economy

This is where it all comes to a focal point:

  1. The failure of the TPP will mean less exports for New Zealand. While it doesn’t actually close our markets, it doesn’t give us any preferential treatment or exemption to import duties, tariffs etc. We have higher transport costs than our competitors, competing for access to those markets. To export, we have to sell for less to allow for the higher transport costs.

  2. The housing market bubble will burst and prices will either drop or sales will slow to the point where sellers will have to take less or wait for ages to sell their properties. As property appreciation slips, investors will want to pull out of the market. Many of these “spec homes” are in a poor state of repair either as a result of being untenanted or let and poorly maintained. Overseas owners will not want to spend to get them repaired and will dump them on the market, further slowing the market.

  3. The banks will increase their lending margins, citing increased costs for overseas credit (because the dollar will drop) and “the cost of doing business” (a higher default rate for loans). This will raise interest rates across the board. With high mortgages, lots of personal debt (car loans, credit cards, personal loans, overdraft etc) and low income, this will boost the credit default rates further.

  4. Add to all this the costs from the Kaikoura Earthquake and a reduction in employment from a slowing economy (with less tax revenue and higher welfare costs).

When you add it up, 2017 is not shaping up to look like a great year. No wonder Teflon John threw in the towel!

Oh… and by the way…

Posted By on December 5, 2016

To all the US readers with their “kind thoughts” (sic) and threats – GFY!

You got Trump anyway, (nya nya!) so shut up, honour your own democratic process and give the guy a chance.

Just look at all the promises Obama and all the others made in their election campaigns. How many have actually happened?

It’s easy to play the idealist card, making promises you genuinely intend to keep. However, when you are sitting in the hot seat and get to read the whole file (not the redacted public version) there’s other factors in there you never knew about. Those idealist promises have to be modified.

At least this time we won’t have someone modifying them to put more money in old pockets.

P2P Lending (6) Free extra investments

Posted By on December 5, 2016

Einstein said “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”

I always thought I had a good handle on compound interest, so being a bit mathematically inclined, I decided to calculate how much one of my lowest interest P2P investments at 9.99% p.a. would make, on a 5 year loan. Using the compound interest formula, my $25.00 investment would return $41.11. That’s only $8.89 short of doubling my money!

Then I entered my “High Interest Savings Bank Account” interest at a whopping 3% into my equation and gagged when it said my $25.00 investment would return the princely sum of $29.04. Oh joy (not!) – Whoopee bloody Do! – don’t spend it all at once!

Across my whole portfolio my average interest rate is 21.15%. At that rate, over 5 years, I’d get $71.32 back for every $25.00 outlay over 5 years – only $3.68 short of tripling my money (this does not factor in any defaults, which to date are 1 out of 60 loans).

I industriously set up a spreadsheet that calculates the returns on every P2P loan investment, thinking at the end, I would be able to calculate how much I’d make from the entire portfolio. It turns out, that according to the formula, I’d invest $1,500 and get back $5,000 and a few extra dollars. I then computed tax on that and was so proud of myself, I had it all worked out.

Well, so I thought, until my daughter (who failed Maths by the way) pointed out that it didn’t take into account the repayments I receive that I reinvest, effectively creating free or un-funded investments, that I had never factored into my equations.

Unlike a bank who pays you back the lump sum from your investment at the end, in P2P lending, you get paid as the borrower pays back the loan. If you let these tiny payments (because you are only a small fraction of the total loan amount and therefore the repayments) accrue, they will add up to enough to buy another note – one you never factored for in your calculations.

As my daughter put it, “You’re sort of earning compound interest on your compound interest!”

Personally I believe, that unless the banks change their business model, P2P lending will see the death of the big banking system and frankly no great loss!