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


    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.


  10. StephenR 10


    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

  • Prime Ministers’ meeting reaffirms close trans-Tasman relationship
    Prime Minister Chris Hipkins and Australian Prime Minister Anthony Albanese today held their first bilateral meeting in Canberra. It was Chris Hipkins’ first overseas visit since he took office, reflecting the close relationship between New Zealand and Australia. “New Zealand has no closer partner than Australia. I was pleased to ...
    BeehiveBy beehive.govt.nz
    8 hours ago
  • Immediate humanitarian support to Türkiye and Syria following earthquakes
    New Zealand will immediately provide humanitarian support to those affected by the earthquakes in Türkiye and Syria, Foreign Minister Nanaia Mahuta announced today. “Aotearoa New Zealand is deeply saddened by the loss of life and devastation caused by these earthquakes. Our thoughts are with the families and loved ones affected,” ...
    BeehiveBy beehive.govt.nz
    12 hours ago
  • Pākinga Pā site to be gifted back to local hapū
    An historic Northland pā site with links to Ngāpuhi chief Hongi Hika is to be handed back to iwi, after collaboration by government, private landowners and local hapū. “It is fitting that the ceremony for the return of the Pākinga Pā site is during Waitangi weekend,” said Regional Development Minister ...
    BeehiveBy beehive.govt.nz
    14 hours ago
  • New initiatives to unlock Māori science and research resources
    The Government is investing in a suite of initiatives to unlock Māori and Pacific resources, talent and knowledge across the science and research sector, Research, Science and Innovation Minister Dr Ayesha Verrall announced today. Two new funds – He tipu ka hua and He aka ka toro – set to ...
    BeehiveBy beehive.govt.nz
    16 hours ago
  • Advancing our relationship in India
    Foreign Minister Nanaia Mahuta departs for India tomorrow as she continues to reconnect Aotearoa New Zealand to the world.  The visit will begin in New Delhi where the Foreign Minister will meet with the Vice President Hon Jagdeep Dhankar and her Indian Government counterparts, External Affairs Minister S. Jaishankar and ...
    BeehiveBy beehive.govt.nz
    3 days ago
  • Government Northland housing investment to spark transformational change
    Over $10 million infrastructure funding to unlock housing in Whangārei The purchase of a 3.279 hectare site in Kerikeri to enable 56 new homes Northland becomes eligible for $100 million scheme for affordable rentals Multiple Northland communities will benefit from multiple Government housing investments, delivering thousands of new homes for ...
    BeehiveBy beehive.govt.nz
    5 days ago
  • Government investment safeguards Waitangi Treaty Grounds
    The Government is supporting one of Aotearoa New Zealand’s most significant historic sites, the Waitangi Treaty Grounds, as it continues to recover from the impacts of COVID-19. “The Waitangi Treaty Grounds are a taonga that we should protect and look after. This additional support will mean people can continue to ...
    BeehiveBy beehive.govt.nz
    5 days ago
  • Battle of Ohaeawai remembered
    A memorial event at a key battle site in the New Zealand land wars is an important event to mark the progress in relations between Māori and the Crown as we head towards Waitangi Day, Minister for Te Arawhiti Kelvin Davis said. The Battle of Ohaeawai in June 1845 saw ...
    BeehiveBy beehive.govt.nz
    5 days ago
  • More Police deployed to the frontline
    More Police officers are being deployed to the frontline with the graduation of 54 new constables from the Royal New Zealand Police College today. The graduation ceremony for Recruit Wing 362 at Te Rauparaha Arena in Porirua was the first official event for Stuart Nash since his reappointment as Police ...
    BeehiveBy beehive.govt.nz
    5 days ago
  • Further support for upper North Island regions hit by significant weather
    The Government is unlocking an additional $700,000 in support for regions that have been badly hit by the recent flooding and storm damage in the upper North Island. “We’re supporting the response and recovery of Auckland, Waikato, Coromandel, Northland, and Bay of Plenty regions, through activating Enhanced Taskforce Green to ...
    BeehiveBy beehive.govt.nz
    6 days ago
  • The Princess Royal to visit New Zealand
    Prime Minister Chris Hipkins has welcomed the announcement that Her Royal Highness The Princess Royal, Princess Anne, will visit New Zealand this month. “Princess Anne is travelling to Aotearoa at the request of the NZ Army’s Royal New Zealand Corps of Signals, of which she is Colonel in Chief, to ...
    BeehiveBy beehive.govt.nz
    6 days ago
  • Government and horticulture sector target $12b in exports by 2035
    A new Government and industry strategy launched today has its sights on growing the value of New Zealand’s horticultural production to $12 billion by 2035, Agriculture Minister Damien O’Connor said. “Our food and fibre exports are vital to New Zealand’s economic security. We’re focussed on long-term strategies that build on ...
    BeehiveBy beehive.govt.nz
    7 days ago
  • Cost of living support extended for families and businesses
    25 cents per litre petrol excise duty cut extended to 30 June 2023 – reducing an average 60 litre tank of petrol by $17.25 Road User Charge discount will be re-introduced and continue through until 30 June Half price public transport fares extended to the end of June 2023 saving ...
    BeehiveBy beehive.govt.nz
    7 days ago
  • More Kiwis in work as rising wages match inflation
    The strong economy has attracted more people into the workforce, with a record number of New Zealanders in paid work and wages rising to help with cost of living pressures. “The Government’s economic plan is delivering on more better-paid jobs, growing wages and creating more opportunities for more New Zealanders,” ...
    BeehiveBy beehive.govt.nz
    7 days ago
  • Government boosts fund for Auckland flooding
    The Government is providing a further $1 million to the Mayoral Relief Fund to help communities in Auckland following flooding, Minister for Emergency Management Kieran McAnulty announced today. “Cabinet today agreed that, given the severity of the event, a further $1 million contribution be made. Cabinet wishes to be proactive ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • New Cabinet focused on bread and butter issues
    The new Cabinet will be focused on core bread and butter issues like the cost of living, education, health, housing and keeping communities and businesses safe, Prime Minister Chris Hipkins has announced. “We need a greater focus on what’s in front of New Zealanders right now. The new Cabinet line ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • Prime Minister to meet with PM Albanese
    Prime Minister Chris Hipkins will travel to Canberra next week for an in person meeting with Australian Prime Minister, Anthony Albanese. “The trans-Tasman relationship is New Zealand’s closest and most important, and it was crucial to me that my first overseas trip as Prime Minister was to Australia,” Chris Hipkins ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • Government makes first payment to Auckland Flooding fund
    The Government is providing establishment funding of $100,000 to the Mayoral Relief Fund to help communities in Auckland following flooding, Minister for Emergency Management Kieran McAnulty announced. “We moved quickly to make available this funding to support Aucklanders while the full extent of the damage is being assessed,” Kieran McAnulty ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • Government steps up to assist Auckland during flooding
    As the Mayor of Auckland has announced a state of emergency, the Government, through NEMA, is able to step up support for those affected by flooding in Auckland. “I’d urge people to follow the advice of authorities and check Auckland Emergency Management for the latest information. As always, the Government ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Poroporoaki: Titewhai Te Huia Hinewhare Harawira
    Ka papā te whatitiri, Hikohiko ana te uira, wāhi rua mai ana rā runga mai o Huruiki maunga Kua hinga te māreikura o te Nota, a Titewhai Harawira Nā reira, e te kahurangi, takoto, e moe Ka mōwai koa a Whakapara, kua uhia te Tai Tokerau e te kapua pōuri ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Enhanced Task Force Green Approved following Cyclone Hale
    Carmel Sepuloni, Minister for Social Development and Employment, has activated Enhanced Taskforce Green (ETFG) in response to flooding and damaged caused by Cyclone Hale in the Tairāwhiti region. Up to $500,000 will be made available to employ job seekers to support the clean-up. We are still investigating whether other parts ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • General Election to be held on 14 October 2023
    The 2023 General Election will be held on Saturday 14 October 2023, Prime Minister Jacinda Ardern announced today. “Announcing the election date early in the year provides New Zealanders with certainty and has become the practice of this Government and the previous one, and I believe is best practice,” Jacinda ...
    BeehiveBy beehive.govt.nz
    3 weeks ago
  • Prime Minister Jacinda Ardern announces resignation
    Jacinda Ardern has announced she will step down as Prime Minister and Leader of the Labour Party. Her resignation will take effect on the appointment of a new Prime Minister. A caucus vote to elect a new Party Leader will occur in 3 days’ time on Sunday the 22nd of ...
    BeehiveBy beehive.govt.nz
    3 weeks ago