OnPoint by Keith Ng

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OnPoint: The Super Fun(d) Shell Game

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  • Rob Hosking,

    I would hope that diversification would mean that the Cullen Fund wasn't just investing in stock markets, as they all tend to fall over at the same time.

    NO they don't. If they had. we wouldn't be discussing the Nikkei having been so bad for so long while other equity markets boomed.

    They have done, recently, but this hasn't happened since the '30s. Even '87 wasn't universal...(and most recovered quite quickly, although of course ours didn't).

    But on your wider point...yep the Cullen fund doesn't just invest in stock markets. 50% of it is currently invested in global equities.

    South Roseneath • Since Nov 2006 • 805 posts Report Reply

  • Kyle Matthews,

    2) Treasury does not include tax on the NZSF Fund as a net gain for the economy as if the money was not invested in the fund, it would have been invested in other taxable activities. You really think you can just invent tax revenue?

    David, surely the opportunity cost of not borrowing an additional $2 billion and investing it in the Super Fund and then earning the taxation on its earnings is not borrowing the money at all? English said that by cutting contributions to the fund he was reducing our future debt, he didn't say "the money will instead be going into health, education, housing".

    Since Nov 2006 • 6205 posts Report Reply

  • Gareth Ward,

    Magnificent. Just... magnificent.

    I was actually awake at 2am last night thinking through key points for how to rebut the general absurdity of the "borrowing to save" and the "YOU do it then" lines.

    I'd written the following this morning on a notepad to try and create a story around it:
    - NZ Super operational costs = super payments + capital contribution (i.e. contributions are part of the surplus or deficit, not subsequent to)
    - If we're not borrowing now, then we have to borrow later to pay for this. But apparently it's only borrowing if you do it now
    - Borrowing to invest in productive fund > borrowing for direct spending??
    - Funding (through tax or debt) in 2030 is going to have a bunch more pressure on it because of the baby boomers. Not just super, but health as well.
    - Contributions go up in 2020 such that we only pay $6.5b (?) less with this "holiday"


    Then I popped in here and you'd done it all for me! Perhaps I should lie awake at 2am thinking about winning Lotto...

    Auckland, NZ • Since Mar 2007 • 1721 posts Report Reply

  • Rich of Observationz,

    I think a lot of the problem with the Nikkei reflects the fundamentals of the Japanese economy. They are very good at making anything that can be put in a crate. Unfortunately, so are lots of other countries, these days.

    With a few exceptions though (like Playstations), Japan hasn't delivered much growth in the knowledge economy. So their companies haven't grown, and hence their stock market has languished.

    Back in Wellington • Since Nov 2006 • 4463 posts Report Reply

  • Danielle,

    I only ever understand about 10% of Keith's posts, because I do not grok Teh Maths. But after reading his particularly righteously-phrased deconstruction-of-economics-stuff pieces, I always feel like I should be standing behind him as a hype-person, with one white towel over my shoulder, going 'yeeeeah!' and 'DAMN right!'

    It's kind of inspirational.

    Charo World. Cuchi-cuchi!… • Since Nov 2006 • 3661 posts Report Reply

  • Joshua Arbury,

    Bill English is sure putting all his eggs in the basket of "things will be much much better in 10-15 years time than they are now".

    One just needs to quickly think about Peak Oil to be highly sceptical of that approach.

    Auckland • Since May 2009 • 217 posts Report Reply

  • giovanni tiso,

    One just needs to quickly think about Peak Oil to be highly sceptical of that approach.

    But then after Peak Oil there will be Peak Water and we have plenty of that, so we're going to be rich. Rich, I tell you! Like one of those middle eastern states that sit on all the oil.

    Oh, shit.

    Wellington • Since Jun 2007 • 7386 posts Report Reply

  • Gareth Ward,

    I always feel like I should be standing behind him as a hype-person, with one white towel over my shoulder, going 'yeeeeah!' and 'DAMN right!'

    If Keith would just kneel on the steps of Parliament you could cape him (ala Bobby Byrd) and lead him off stage shaking with mathematical exhaustion, before he shakes it off and runs back shouting "can I get a statistical assumption up in this m**%^f(*&r!"

    Auckland, NZ • Since Mar 2007 • 1721 posts Report Reply

  • Kyle Matthews,

    Then I popped in here and you'd done it all for me! Perhaps I should lie awake at 2am thinking about winning Lotto...

    While I'd be quite happy if Keith won Lotto, I doubt he'd share it around us all.

    Since Nov 2006 • 6205 posts Report Reply

  • Gareth Ward,

    While I'd be quite happy if Keith won Lotto, I doubt he'd share it around us all.

    Yes, that is one fatal flaw in my otherwise flawless plan.

    Auckland, NZ • Since Mar 2007 • 1721 posts Report Reply

  • Damian Christie,

    I agree with Geoff. Of course there was exactly the same amount of risk in the stockmarket (probably more) when Cullen decided to set up the superfund. He invested when it was doing really well, right? Hadn't crashed for aaaaaaaaages. What could possibly go wrong?

    I don't think Treasury's forecasts are worth shit, the idea they can even begin to say it will be worth an extra 5.75% or whatever the figure was in 20 years' time just shows how deluded they are in their own ninja accounting skills (or more kindly, simply that it's their job to come up with some sort of figure, regardless of how worthless it might be).

    Since I wrote my blog about investing in shares a couple of months back I've had an 80% return on my admittedly very modest investment (thanks in no small part to Fisher & Paykel's new Chinese overlord!). If only English had trusted me when I offered to let him go in with me, New Zealand would be sweeet as.

    Wellington • Since Nov 2006 • 1130 posts Report Reply

  • Sacha,

    make som may silly errors

    Muy silly errors, surely - David's been watching Jon Stewart about that new supreme nominee, innit.

    Ak • Since May 2008 • 16771 posts Report Reply

  • Joshua Arbury,

    The interesting thing about Japan is that while their economy hasn't grown like crazy in the last 10-20 years, and their sharemarket is 25% of what it used to be, the people there still have one of the highest standards of living anywhere in the world.

    Is Japan really that bad? Or do they show us the future where you can have a high standard of living without an obsession of "growing the economy" all the time?

    Auckland • Since May 2009 • 217 posts Report Reply

  • Gareth Ward,

    I don't think Treasury's forecasts are worth shit

    At which point, there assumptions around the cost of borrowing to pay for that super bulge are equally shit. As are their assumptions around fiscal position in 2030. As are...

    They have to make the best call with what they know. Obviously there are risk management assumptions around that as well, but investing the money (please note that it's NOT "in the stockmarket, it's balanced across multiple asset classes) based on realistic assumptions is just as valid as making a decision to debt-fund it down the track.

    Auckland, NZ • Since Mar 2007 • 1721 posts Report Reply

  • Tom Semmens,

    While I'd be quite happy if Keith won Lotto, I doubt he'd share it around us all.

    Yes, that is one fatal flaw in my otherwise flawless plan.

    Just get a baby boomer minister to tell him we are defering payment of his prize for eleven years, and pretend we will still have the money then or we'll resign.

    Auckland • Since Nov 2006 • 1811 posts Report Reply

  • giovanni tiso,

    Is Japan really that bad? Or do they show us the future where you can have a high standard of living without an obsession of "growing the economy" all the time?

    They fret greatly about an unemployment rate having reached 4.4% and the possibility it could climb as high as 5.5%. Meanwhile, the Euro Zone is at 9.2% and climbing. Nonetheless, if we're talking about investing money for a super fund, and for that you need growth, not a high standard of living in the economies in which you are investing.

    Wellington • Since Jun 2007 • 7386 posts Report Reply

  • Sacha,

    Don't recall where it was in our local blogosystem, but someone pointed out that government borrows a certain proportion of its total income and that it is misleading to say any one expenditure item is all funded from borrowing while another is totally funded from tax, etc.

    I am not an economist so may have it completely wrong for all sorts of reasons, but it made sense to me when I read it. On that scale, talking about borrowing money to pay for Super Contributions but somehow not for personal tax cuts is just bollocks and spin.

    Of course Gareth Morgan reckons we should just gut the Super Fund now and transfer it to compulsory KiwiSaver accounts... in funds like the one he makes money from managing.

    Ak • Since May 2008 • 16771 posts Report Reply

  • Gareth Ward,

    Of course Gareth Morgan reckons we should just gut the Super Fund now and transfer it to compulsory KiwiSaver accounts... in funds like the one he makes money from managing.

    Awful conflict of interest (yet again from that guy on Kiwisaver) but I actually agree with him.
    If you're going to gut it like that, now's the time to reinvest in Kiwisaver and that should be made compulsory at 4% of pay (given that the 2% from employers is already coming out of your pay increases under this Govt those already in it won't get a paycut)

    Auckland, NZ • Since Mar 2007 • 1721 posts Report Reply

  • Angus Robertson,

    Is Japan really that bad? Or do they show us the future where you can have a high standard of living without an obsession of "growing the economy" all the time?

    Their immigration policies are draconian and isolationist crap.

    Auckland • Since May 2007 • 984 posts Report Reply

  • Sacha,

    At least Morgan is being bold and.. ambitious.

    Ak • Since May 2008 • 16771 posts Report Reply

  • Kyle Matthews,

    I don't think Treasury's forecasts are worth shit, the idea they can even begin to say it will be worth an extra 5.75% or whatever the figure was in 20 years' time just shows how deluded they are in their own ninja accounting skills (or more kindly, simply that it's their job to come up with some sort of figure, regardless of how worthless it might be).

    I'd be quite confident that the forecasts are well off. Figures into excel does not a foolproof plan make.

    But I presume there are some relativities involved. If the returns on investments are down over the next 10 years due to the economy, then I presume that the cost of borrowing will also fall somewhat. So it might to some extent balance out relative to each other (but the final figures will end up well different).

    Since Nov 2006 • 6205 posts Report Reply

  • Kyle Matthews,

    Don't recall where it was in our local blogosystem, but someone pointed out that government borrows a certain proportion of its total income and that it is misleading to say any one expenditure item is all funded from borrowing while another is totally funded from tax, etc.

    While some of the actual dollars that you are investing might come from tax take, the question is really about opportunity cost.

    The difference between the two situations (investing 2 billion in the super fund or not investing it) is borrowing an additional two billion dollars. When making the decision to do it, those are the two things that should be compared.

    Since Nov 2006 • 6205 posts Report Reply

  • Gareth Ward,

    Kyle, the difference is borrowing an additional two billion dollars NOW. You still have to pay the piper at some point.

    Auckland, NZ • Since Mar 2007 • 1721 posts Report Reply

  • uroskin,

    The current and projected Government borrowing needs over the next few years is already causing 5 year mortgage rates to go up to around 7%. That must be the equivalent of a S&P downgrade causing similar rates - but without the Superfund. Sounds like a bad outcome now too and we should have stuck with the super fund contributions.

    Waiheke Island • Since Feb 2007 • 178 posts Report Reply

  • Sacha,

    Didn't Key say something during the election campaign about backing ourselves to do better over the next couple of decades rather than investing in the success of other countries?

    Ak • Since May 2008 • 16771 posts Report Reply

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