web analytics

What would Key the Investor do?

Written By: - Date published: 10:27 am, May 11th, 2009 - 15 comments
Categories: economy, national/act government, superannuation - Tags:

Here’s a question for Mr Key but you can play along too.

What if you could buy into an asset that performs well usually but had a very bad year last year? Because of that bad year, the price is now at historically low levels but the outlook over the short and long term is very good. In fact, it has made about 16% in just over two months.

It may dive and rise again but prices are still low now and in the long-term the price will regain its normal levels. Bascially, its a classic chance to buy low and sell high later at the time of your choosing.

To make the investment you have to borrow but at a special low rate. Plus, you’re a smart investor and you tend to outperform the market average by quite a way. Should you buy?

I know what Key would have done when he was at Merril Lynch. He would have bought in a heartbeat.

Right now he faces exactly this choice, as Prime Minister. Should he continue contributions to the Cullen Fund?

Of course he should. The markets are recovering, and Key himself has repeatedly said he thinks the outlook for the would economy is good. Stocks and other assets are still at lowish prices and rising. The Fund has made $1.75 billion in a last two months, half the losses from the recession are already recovered. There’s literally been no time like the present to buy.

The only excuse for not investing is that it will mean more borrowing and that could lead to New Zealand’s credit rating being downgraded. Well, that’s not really a good reason. Moody’s says we’re unlikely to be downgraded. Cancelling the tax cuts and a lower new spending track will be enough to get deficits in the outyears tracking down.

No. If National cancels contributions to the Cullen Fund now, while it is making megabucks and buying assets up cheaply, the only real reason will be ideological.

– the mathemagician

15 comments on “What would Key the Investor do? ”

  1. Rich 1

    Probably.

    Although one could compare returns on the Cullen Fund with the cost of government borrowing (maybe 4% average?). If you think the current slump has a way to go, then maybe pausing payments for a year or so might work out. OTOH, the call is hard to make and the temptation is to never restart payments.

    Also, the drop in the NZ dollar has mostly cancelled out the fall in overseas markets for an NZD investor – which explains some of the funds resiliance.

  2. bilbo 2

    “To make the investment you have to borrow but at a special low rate.”

    Can you provide some more information on this special low rate we can borrow at.

    What’s the rate and will it affect our credit rating ?

    Would you be prepared to forgo some public spending and have the funds put into the fund instead ?

  3. Tim Ellis 3

    Interesting question, mathemegician, but I disagree with your logic.

    Market price is determined by perceived market price. If the market decided that an asset was significantly undervalued, it would move accordingly and increase the price.

    What you are suggesting is that Key should second-guess the market, and that somehow he knows better than the market does, and throw a lot of money at it. That might be an appropriate response for his own money, where he’s prepared to accept much higher levels of risk for a higher return; or even for his investors’ money, when they have the risk explained to them and can choose whether or not to invest with him.

    Taxpayers don’t have any such choice. It is all very well to for you to say that asset prices will bounce back in the next year, but I would much rather that the government took a lower risk strategy with taxpayers’ money.

  4. Gareth 4

    This line of argument is as bad as that given by supporters of stopping contributions because unit fund values have dropped.
    It’s not about timing markets or guessing when it will be best to invest. It’s about ongoing investment until 2022 at which point the Fund is a net contributor – any prudent investor over that time does it with regular contribution and only extreme circumstances with well explained reasoning should allow for lowering that.

    Don’t make the Super Fund about timing the market. It’s poor investment management.

  5. Pat 5

    Fair enough Gareth, but do you agree that Cullen intended the Super fund contributions to come from surpluses rather than borrowed money?

  6. Maybe they are just following Cullens edict of only putting money in from surpluses?
    Mind you he bought rail so his edicts may not be up to much.

  7. Gareth 7

    Pat, I believe Cullen commented that way, but no, the Act has nothing to do with relative Government fiscal position. It has to do with funding a percentage of GDP.

  8. As Tim points out, timing the market isn’t nearly as easy as saying ‘stock prices will go up’ and thus buying them. The efficient market hypothesis might not be strongly true, but the market still does react to information – if it seems like the market will recover, that is likely to be (at least) partially reflected in the price you pay for shares now, unless Key has some sort of data that no-one else has.

    Perhaps if you are so confident shares are under-priced, you should invest large amounts of your own money in them, and make the ‘megabucks’ you say are out there.

  9. Lew 9

    Bah, lost my comment. Here’s a brief reprise.

    Essentially the NZSF like other sovereign wealth funds (including the Australian Federal Government’s Future Fund which not coincidentally is managed by Paul Costello, who ran the Cullen Fund, and is established on a similar model), intends to use its cash-rich position to cherry-pick investments which are undervalued but which other investors lack the cashflow to buy. This is a sound strategy – the problem is that while the fund is cashed-up, it’s cashed-up on the basis of government debt, which bears the risk of a credit downgrade, and that’s a possibility the mathemagician has failed to include in this reasoning. Sure, there’s plenty of opportunity in the market, but the risk of a downgrade means it’s not all sunshine, buttercups and rainbows if we continue the contributions.

    L

  10. StephenR 10

    http://www.kiwiblog.co.nz/2009/05/the_cost_of_a_downgrade.html

    600 million is quite a bit. Sooo…cut something?

  11. Gareth 11

    The borrowing (and any related downgrade) is an outcome of the overall Government revenue and spending positions. So the contribution to our future Superannuation entitlements has as much to do with the borrowing as the decided tax rates or any other spending.
    It’s case of prioritising spending in the vastly tax reduced revenue situation we find ourselves (especially if planned tax changes go ahead).

  12. edoze 12

    You sir are a fuckwit!

    [lprent: Are you talking to me? The poster? The last comment? I’ll assume it is me and add you to auto-moderation until I get an explanation. In the meantime, I suggest you read the policy ]

  13. inpassing 13

    Most if not all of the above presupposes on-the-table investment/s.. would you be surprised to know how margin is still being made off-the-table.. and attracts its very own kind of investor.. of which the aforementioned Mr Key may be one.. though at this juncture one could not be sure of access to such margin-making for public money.. to wit the self-limiting nature of privatized profit-taking.. which aint for public entities anyway..!

Links to post

Recent Comments

Recent Posts

  • Government support screen industry with funding for sound stages in West Auckland
    Auckland Film Studios in West Auckland has received funding for a major expansion through the Government’s Infrastructure Reference Group’s (IRG) COVID-19 Response Fund. The Government is investing $30 million of a total $35 million project to construct two 2,000sqm sound stages and development of further workshops and offices, to expand ...
    BeehiveBy beehive.govt.nz
    11 hours ago
  • Protecting unique land for generation next
    The Government is boosting legal protection for critically important natural habitats on private land, Minister of Conservation Kiri Allan says. “An $8 million investment over four years will see Queen Elizabeth II National Trust Ngā Kairauhī Papa (QEII) work with government agencies, councils and others to provide legal protection of ...
    BeehiveBy beehive.govt.nz
    13 hours ago
  • New Zealand’s support for Fiji’s COVID-19 response continues with vaccine delivery, operational ...
    Foreign Minister Nanaia Mahuta has announced further support for Fiji, including funding support for nursing staff and 100,000 doses of vaccines due to arrive in country today. “Our thoughts remain with Fiji during this incredibly challenging period,” Nanaia Mahuta said. “New Zealand has funded 100,000 doses of the AstraZeneca vaccine ...
    BeehiveBy beehive.govt.nz
    14 hours ago
  • Poroporoaki: Dr Hōhepa (Joe) Mason
    Ko koe tēnā e te hurumanu e Hōhepa, te tōwenetanga a te iti, te māpihi herenga mahara o te tini, ka tauawhi tonuhia koe e to iwi ki te uma pupuri ai. Me pēhea he kupu kia koutou kua puta i nga ākinga a nga tau kua hori, kua waia ...
    BeehiveBy beehive.govt.nz
    17 hours ago
  • Finance Minister and RBNZ Governor agree to update MOU on macro-prudential policy
    Finance Minister Grant Robertson and Reserve Bank Governor Adrian Orr have updated the Memorandum of Understanding (MoU) on macro-prudential policy to further protect the financial system and support the Government’s housing objectives. “This change will ensure that the Reserve Bank has the flexibility to respond to emerging financial stability risks ...
    BeehiveBy beehive.govt.nz
    18 hours ago
  • Government commits further assistance for drought and flood-affected rural communities
    Farmers and growers affected by this year’s drought or floods in Marlborough, Tasman, West Coat, Canterbury, Otago and the Chatham Islands will have access to Rural Assistance Payments (RAPs) from today, Social Development and Employment Minister Carmel Sepuloni has announced. “The Government is committed to easing the financial pressures on ...
    BeehiveBy beehive.govt.nz
    1 day ago
  • Cook Islands youth lead Language Week
    The Cook Islands Language Week theme for 2021 highlights the vital role language plays in maintaining young people’s links to their Pacific home, said Minister for Pacific Peoples Aupito William Sio.  “The Epetoma o te reo Māori Kūki ‘Āirani – Cook Islands Language Week – theme is ‘Ātuitui’ia au ki ...
    BeehiveBy beehive.govt.nz
    1 day ago
  • Government offers formal apology for Dawn Raids
    A formal and unreserved apology for the Dawn Raids The Government will offer education scholarships as part of the apology Manaaki New Zealand Short Term Scholarship Training courses Support Pacific artists and historians to develop a comprehensive written and oral account of the Dawn Raids Prime Minister Jacinda Ardern has ...
    BeehiveBy beehive.govt.nz
    2 days ago
  • Speech to Dawn Raids Apology
    Tēnā koutou katoa, Kia orana kotou katoatoa, Fakaalofa lahi atu ki mutolu oti, Tālofa nī, Mālō nī koutou, Ni sa bula vinaka, Fakatalofa atu, Noa'ia 'e mauri, Kam na mauri, Malo e lelei, Sioto'ofa, Mālō lava le lagi e mamā ma le soifua maua, Oue tulou, tulou atu, tulouna lava ...
    BeehiveBy beehive.govt.nz
    2 days ago
  • Bridging the gap – last piece of Northcote Safe Cycle Route now complete
    The opening of two bridges over Auckland’s Northern Motorway is the last link of a cycling and walking route which provides a safe, active alternative for students and commuters, Transport Minister Michael Wood said today. Michael Wood cut the ribbon for the completion of the Northcote Safe Cycle Route, at ...
    BeehiveBy beehive.govt.nz
    3 days ago
  • Progress in establishment of Aged Care Commissioner
    Recruitment for an Aged Care Commissioner will start next month, to ensure greater oversight of New Zealand’s aged care sector. “This sector is responsible for supporting a large and often vulnerable population. While most people are able to access quality care, there have been cases where that care has fallen ...
    BeehiveBy beehive.govt.nz
    4 days ago
  • New record number of homes consented
    In the year ended June 2021, the actual number of new dwellings consented was 44,299, up 18 percent from the June 2020 year. In June 2021, the seasonally adjusted number of new dwellings consented rose 3.8 percent. In June 2021, 4,310 new dwellings were consented, an increase of 3.8 per ...
    BeehiveBy beehive.govt.nz
    5 days ago
  • Communities backed to tackle wilding pines
    Twelve community projects across New Zealand will receive a share of $2 million to carry out wilding pine control, Biosecurity Minister Damien O’Connor announced as part of Biosecurity Week. “Wilding pines are a serious problem that threaten many of the unique landscapes that New Zealanders value. Community groups and trusts ...
    BeehiveBy beehive.govt.nz
    5 days ago
  • Health Minister Andrew Little responding to the New Zealand Nurses Organisation's rejection of ...
    I was advised last night that the result of the ballot of Tōpūtanga Tapuhi Kaitiaki o Aotearoa New Zealand Nurses Organisation members have rejected the latest proposal to settle their collective agreement. Let me be clear: the proposal was one they put to the Government. The Nurses Organisation rejected their ...
    BeehiveBy beehive.govt.nz
    5 days ago
  • Conversion Practices Prohibition Legislation introduced to Parliament
    Legislation has been introduced to Parliament to protect against practices intended to change or suppress someone’s sexual orientation, gender identity, or gender expression. Introducing the Conversion Practices Prohibition Legislation Bill, Minister of Justice, Kris Faafoi, said the measures proposed were aimed at ending conversion practices which don’t work, are widely ...
    BeehiveBy beehive.govt.nz
    5 days ago
  • New kaupapa Māori mental health and addiction services to support people in central North Island
    New mental health and addiction services rolling out across the central North Island will improve outcomes and equity for Māori, Associate Minister of Health (Māori Health) Peeni Henare says. Today the Minister met with providers of the new kaupapa Māori primary mental health and addiction service, Poutama Ora, which will ...
    BeehiveBy beehive.govt.nz
    5 days ago
  • New school site for booming West Auckland
    The Government will build on a new school site in West Auckland to cope with rapid population growth in the area, Education Minister Chris Hipkins says. The Ministry is working with existing local schools to determine how the 1.5-hectare site at 279 Hobsonville Point Road will be used to support ...
    BeehiveBy beehive.govt.nz
    5 days ago
  • Trans-Tasman travel window to close at midnight tomorrow
    A further 500 MIQ rooms released for managed returnees from NSW Further Government actions announced today are balanced to provide more certainty for Kiwis wanting to return from Australia, while continuing to protect New Zealand from COVID-19, acting Minister for COVID-19 Response Ayesha Verrall says. The actions were foreshadowed last ...
    BeehiveBy beehive.govt.nz
    5 days ago
  • Govt investing millions in Hawke's Bay and Tairāwhiti schools
    Napier Boys’ and Girls’ High Schools are among those set to benefit from a $16.5 million investment in the Hawke's Bay and Tairāwhiti region, Economic and Regional Development Minister Stuart Nash announced today. The Government has set aside money in Budget 2021 to accelerate five projects in Napier, Hastings, Havelock North ...
    BeehiveBy beehive.govt.nz
    6 days ago
  • Game changing Jobs for Nature investment for Northland
    Conservation Minister Kiri Allan has announced Jobs for Nature funding for a portfolio of projects that will create ‘game changing’ gains for nature and communities across Northland/Te Tai Tokerau as part of the Government’s acceleration of the economic recovery from COVID. “This portfolio of 12 projects will see over $20 ...
    BeehiveBy beehive.govt.nz
    6 days ago
  • Third COVID-19 vaccine receives provisional approval
    New Zealand’s regulatory authority Medsafe has granted provisional approval of the AstraZeneca COVID-19 vaccine for individuals 18 years of age and older, Acting Minister for COVID-19 Response Dr Ayesha Verrall announced today. New Zealand secured 7.6 million doses (enough for 3.8 million people) of the AstraZeneca COVID-19 vaccine through an ...
    BeehiveBy beehive.govt.nz
    6 days ago
  • Bowel-cancer screening programme is saving lives
    More than 1000 New Zealanders have had bowel cancer – New Zealand’s second-most-common cause of death from cancer - detected under the Government’s National Bowel Screening Programme, Health Minister Andrew Little said today. More than 1200 New Zealanders died from bowel cancer in 2017. The screening programme aims to save ...
    BeehiveBy beehive.govt.nz
    6 days ago
  • Govt welcomes draft report on the retail grocery sector
    The Commerce Commission’s draft report into the retail grocery sector is being welcomed by Government as a major milestone. “I asked the Commerce Commission to look at whether this sector is as competitive as it could be and today it has released its draft report for consultation,” Commerce and Consumer ...
    BeehiveBy beehive.govt.nz
    6 days ago
  • Christchurch’s Youth Hub ‘set to go’ thanks to further Government funding
    Construction of New Zealand’s first, purpose-built centre for youth well-being is ready to get underway thanks to an extra $2.5 million of COVID-19 response funding, Housing Minister and Associate Minister of Finance, Megan Woods announced today.  “The Christchurch Youth Hub is about bringing together all the things young people need ...
    BeehiveBy beehive.govt.nz
    6 days ago
  • Next step to protect Milford Sound Piopiotahi
    Expert group lays out plan to better protect iconic UNESCO World Heritage site Milford Sound Piopiotahi and its surrounds Funding confirmed for dedicated unit and Establishment Board to assess the recommendations and provide oversight of the process from here Milford Opportunities Project a test case for transformational change in tourism ...
    BeehiveBy beehive.govt.nz
    7 days ago
  • Funding for projects to reduce waste from construction and demolition
    The Government has announced funding for projects in Auckland and the lower North Island to help reduce construction and demolition waste. “Construction is the main source of waste sent to landfill, and much of this could be reduced, reused and recovered,” Environment Minister David Parker said. “The Government is funding ...
    BeehiveBy beehive.govt.nz
    7 days ago
  • Speech at the launch of the National Hepatitis C Action Plan
    Tēnā koutou katoa. Thank you Anglesea Pharmacy and Te Manawa Taki for hosting this event. As a doctor, I saw first hand the impact of hepatitis C. I met Moana in 2019; she came to the infectious diseases outpatient clinic at Wellington Hospital having tested positive for hepatitis C. Like ...
    BeehiveBy beehive.govt.nz
    7 days ago
  • Plan to eliminate hepatitis C as a major health threat by 2030
    A plan to eliminate hepatitis C in New Zealand, reducing liver cancer and the need for liver transplants, has been released today by Associate Minister of Health Dr Ayesha Verrall. “Around 45,000 New Zealanders have hepatitis C, but only around half know they have it,” said Ayesha Verrall. “Symptoms often ...
    BeehiveBy beehive.govt.nz
    7 days ago
  • School upgrades and new classrooms for West Coast, Tasman and Canterbury
    A funding injection from Budget 2021 to complete four shovel ready projects and new classrooms at six schools and kura will provide a real boost to local communities, Minister Dr Megan Woods announced today. “This Government has committed to providing quality fit for purpose learning environments and 100,000 new student ...
    BeehiveBy beehive.govt.nz
    7 days ago
  • Warmer Kiwi Homes smashes annual target
    The Government's highly successful insulation and heating programme, Warmer Kiwi Homes, is celebrating a key milestone with the completion of more than 38,000 insulation and efficient heater installs in the year to the end of June, smashing its target of 25,000 installs for the year. “The Warmer Kiwi Homes scheme ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • Exemption granted for Wallabies to enter NZ
    Bledisloe Cup rugby will be played in New Zealand after the Australian rugby team received an economic exemption to enter New Zealand. Travel between Australia and New Zealand was suspended on Friday for at least eight weeks following the worsening of the COVID outbreak across the Tasman. New Zealanders have ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • Minister of Foreign Affairs makes three diplomatic appointments
    Foreign Affairs Minister Nanaia Mahuta today announced three New Zealand Head of Mission appointments. They are: Mike Walsh as Ambassador to Iran Michael Upton as Ambassador to Ethiopia and the African Union Kevin Burnett as Ambassador to Indonesia Iran “Aotearoa New Zealand has a long-standing and constructive relationship with Iran, despite a ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • Enhanced Task Force Green Approved for West Coast and Marlborough
    The Government has activated Enhanced Task Force Green (ETFG) in response to the West Coast and Marlborough floods, Social Development and Employment Minister Carmel Sepuloni announced today. “To assist with the clean-up, up to $500,000 will be made available to support the recovery in Buller and Marlborough which has experienced ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • Govt support for upgrade of Eden Park players facilities
    Minister for Sport and Recreation Hon Grant Robertson has announced funding to upgrade the players facilities at Eden Park ahead of upcoming Women’s World Cup events. Eden Park is a confirmed venue for the Rugby World Cup 2021, the ICC Women’s Cricket World Cup 2022, and a proposed venue for matches of ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • More jobs and quicker public transport motoring towards West Auckland
    Work to improve public transport for West Aucklanders and support the region’s economic recovery by creating hundreds of jobs has officially kicked off, Transport Minister Michael Wood announced today. Michael Wood and Auckland Mayor Phil Goff this morning marked the start of construction on the Northwestern Bus Improvements project. It ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • Government backs critical health research
    Research into some of New Zealanders’ biggest health concerns including cancer, diabetes, and heart disease is getting crucial support in the latest round of health research funding, Health Minister Andrew Little announced today. The funding, awarded through the Health Research Council of New Zealand, covers 31 General Project grants ($36.64 ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • New Bay of Islands hospital facilities to bring services closer to home
    Prime Minister Jacinda Ardern and Health Minister Andrew Little have joined a ceremony to bless the site and workers for Phase Two of the redevelopment of the Bay of Islands Hospital in Kawakawa today. The new building will house outpatients and primary care facilities, as well as expanded renal care ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • Raukokore re-imagined with ‘smart’ relocatable rent to own housing
    Iwi, Crown Partnership Relocatable, fully insulated housing, connected to a new solar plant Provides a pathway to home ownership New housing in the remote eastern Bay of Plenty community of Raukokore shows how iwi and Crown agencies can work together effectively to provide warm, dry, energy efficient homes in a ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • Cabinet accepts Turkish authorities’ request for the managed return of three NZ citizens
    Cabinet has agreed to the managed return of a New Zealand citizen and her two young children from Turkey, Prime Minister Jacinda Ardern announced today. The three have been in immigration detention in Turkey since crossing the border from Syria earlier this year. Turkey has requested that New Zealand repatriate ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • Govt delivers more classrooms so children can focus on learning
    Extra Government investment in classrooms and school building projects will enable students and teachers to focus on education rather than overcrowding as school rolls grow across the country, Prime Minister Jacinda Ardern and Associate Education Minister Kelvin Davis say. The pair visited Ruakākā School in Whangārei today to announce $100 ...
    BeehiveBy beehive.govt.nz
    1 week ago