OnPoint by Keith Ng

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OnPoint: The Super Fun(d) Shell Game

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  • DPF,

    Keith if you are going to pretend to fisk, you shouldn't make som may silly errors yourself.

    First your so called fisking:

    1) The $8 billion is a Treasury projection. The same sort of projection that said we were in surplus a year ago. Projections are risky. Anyone who has been in business will understand the difference between guaranteed return and risk. You also overlooked what a credit downgrade will do to the difference between borrowing and saving.

    You are guilty of the same thing as Rob - knee jerk conservatism. If there was no Super Fund today, and Bill English proposed borrowing an additional $2 billion a year, while already borrowing $10 billion a year for the operating deficit, I have no doubt you would condemn it.

    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?

    3b) You are comparing the cost of borrowing to the economy as a whole, not the Government which is fundamentally dishonest as in 3a) you only look at government debt. So in your nonsense fisking you compare debt to the Govt's debt only (instead of the much much larger NZ debt) but you compare the deficit to NZ GDP instead of Crown Core Income. The $10,000 deficit on $60,000 income example is very close to the Crown account of a $10B deficit on $60b of income.

    3d) Even heard of a threatened credit downgrade?

    Wellington, New Zealand • Since Nov 2006 • 74 posts Report Reply

  • Russell Brown,

    DPF --> Keith

    You are guilty of the same thing as Rob - knee jerk conservatism.

    No offence to either of you, but I'm going to frame that one.

    Auckland • Since Nov 2006 • 18824 posts Report Reply

  • ConorJoe,

    I'm not feeling it Pengo. Nice work Mr Ng

    iPredict stocks in 'Curia backs budget' r wobbly.

    And Penguin: this is from yr first line in this thread 'you shouldn't make som may silly errors yourself'.

    I'll frame that one Russell.

    EastCoast • Since Sep 2008 • 10 posts Report Reply

  • Russell Brown,

    If you persist in name-calling Joe, I will be displeased with you. Please don't.

    Auckland • Since Nov 2006 • 18824 posts Report Reply

  • Gary Hutchings,

    Keith: the kicker is the receiving a credit downgrade is not simply $hits and giggles, Treasury estimated that it would add $600 million a year to govt expenditure based on pre 2009 budget debt projections, which ceteris paribus would worth around 13 billion over the time period you are talking of out to 2031.

    Plus, debt costs for the rest of the economy would also rise and that would not have a positive impact on other numbers in budget forecasts

    wellington • Since Nov 2006 • 108 posts Report Reply

  • Rob Hosking,

    Adding to what Gary said... 1.5% increase on current interest rates if we get a credit downgrade, because we're a bigger risk. On our current debt level, that's about $3.75 billion a year in extra interest payments, by govt, businesses and households. Depending on which GDP measure you want to use, that's around 2% of GDP.

    A lot of the commentary around the credit downgrade issue infantile and petulant, often from people who should know better.

    South Roseneath • Since Nov 2006 • 802 posts Report Reply

  • Amy Gale,

    There is a problem with this post.

    Namely, it's missing an internal anchor next to the analogy-of-the-analogy so that one can point one's friends directly to it while commenting 'OMFG this is genius'.

    tha Ith • Since May 2007 • 457 posts Report Reply

  • Rich of Observationz,

    Things appear worse than we thought:

    - according to the Dom Post GDP per capita will "shrink by the equivalent of $10,500 per person per year until 2014".

    Since the current figure for this is $42,089, then GDP will reach zero in 2013 and be down to negative $10k by 2014.

    We'll be poorer than Burundi, the Congo and Zimbabwe. English will be the first finance minister in history to achieve negative GDP. He'll be able to go to economic destruction conferences with Gideon Gono. People will marvel at this country where each person destroys $200 in wealth every week.

    I'm kinda assuming that the economist said something else. Like DPF's witterings above, it just goes to show they should teach them to use a calculator at Auckland Grammar, or wherever they try and learn Tories to add up.

    Back in Wellington • Since Nov 2006 • 4444 posts Report Reply

  • Rob Hosking,

    Rich: The press release said just that. Which is why I didn't use it.

    South Roseneath • Since Nov 2006 • 802 posts Report Reply

  • Nathaniel Wilson,

    People will marvel at this country where each person destroys $200 in wealth every week.

    And with the resulting tourism spin-offs we'll be back above the Congo in no time. Sure it'll re-collapse our economy, but it will be sustainable.

    Auckland, New Zealand • Since May 2009 • 35 posts Report Reply

  • Rich of Observationz,

    True, Rob.
    I found it.

    With a graph which doesn't show that at all.

    Back in Wellington • Since Nov 2006 • 4444 posts Report Reply

  • Angus Robertson,

    Keith,

    This is a very well thought out post and better than DPFs, but it still deals with only the cost half of the equation.

    This SF has lost $4billion in the last 12 months. Why should we invest $billions in a fund that has delivered such apalling losses? Sure Treasury is picking the SF to earn a $billion in 09/10, but if we were to look back at Treasury projections from 07 we would see that those projections were woefully inaccurate. Perhaps now is not the best time to be leveraging ourselves into aquiring an investment in the Super Fund.

    Auckland • Since May 2007 • 984 posts Report Reply

  • Sam F,

    Not up to the headliners' level of fisking, but I found this rather odd.

    Members of the former Todd Taskforce on Superannuation have spoken out to reassure New Zealanders that pensions remain sustainable despite the Government's decision to suspend payments to the Superannuation Fund.

    ...Jeff Todd, who chaired the taskforce which assessed superannuation in 1993 and 1997, says it concluded at the time that the country's pension system was affordable, and says this will still be the case in 2040 when super payments are set to peak.

    However, he warns the age of entitlement is likely to rise, while pensions may be trimmed.

    Erm... isn't it a bit of a stretch to claim that pensions will definitely remain 'sustainable' without further Cullen Fund contributions, but that we might just have to restrict eligibility and reduce the entitlements? I would have thought that possibly having to give less older people less money in the future would actually be an indicator of unsustainability, wouldn't it?

    Is this the weasel wording I think it is?

    Auckland • Since Nov 2006 • 1554 posts Report Reply

  • Stephen Judd,

    This SF has lost $4billion in the last 12 months. Why should we invest $billions in a fund that has delivered such apalling losses?

    1. Those losses are largely unrealised losses, caused by a decline in market prices for shares. Over the period of decades that the fund is supposed to invest for they are very likely to be recouped and more.

    2. If the price of an asset is depressed, but it yields an income, and you don't intend to sell it any time soon, who cares? Eg, to use an example we can all relate to, if your rental property is still tenanted, who cares whether the housing market is down at the moment or not? And furthermore, even if you have a paper loss on the current house, why wouldn't you buy another one? Assuming you are not leveraged to the hilt, this may make perfect sense.

    Wellington • Since Nov 2006 • 2948 posts Report Reply

  • Rich of Observationz,

    OTOH, if you believe that the capitalist system is doomed, then you wouldn't expect stock markets to go up any time soon and hence would want to get out of shares.

    It's an odd belief for the National Party to hold, though?

    Back in Wellington • Since Nov 2006 • 4444 posts Report Reply

  • giovanni tiso,

    Over the period of decades that the fund is supposed to invest for they are very likely to be recouped and more.

    Tell it to investors in the Nikkei.

    Wellington • Since Jun 2007 • 7357 posts Report Reply

  • Rob Hosking,

    And furthermore, even if you have a paper loss on the current house, why wouldn't you buy another one?

    You might if you had the money to do so. But if your income was dropping, and you had other demands on it, I doubt you would.

    South Roseneath • Since Nov 2006 • 802 posts Report Reply

  • Tom Semmens,

    Anyway, nice piece Mr. Ng! You've been on fire lately.

    The Farrar index of accuracy is that the accuracy of your post is exactly relative to the speed and size of his response - so it seems on that basis you are pretty much 100% right.

    Auckland • Since Nov 2006 • 1796 posts Report Reply

  • Stephen Judd,

    Tell it to investors in the Nikkei.

    I knew you would say that. But the fund is not supposed to invest in one share market, or even one asset class. So yeah, we can find examples of markets that never recovered, comparing the peak of a bubble to the present, but I don't think they prove much at the scale that the Cullen fund is supposed to operate at.

    Ironically the closest it's likely to come to something as foolish as putting everything in one basket is the proposed policy of putting 40% into NZ...

    Wellington • Since Nov 2006 • 2948 posts Report Reply

  • Jeremy Eade,

    The prosperity of market economys will depend a hell of a lot on those markets reorganisng and repairing themselves, making sure business is actually making profits at the market place and not in some badly run off the side get rich casino. National funnily enough feels ultra cautious about this happening in the next decade. That's more sad than funny.

    auckland • Since Mar 2008 • 1112 posts Report Reply

  • giovanni tiso,

    So yeah, we can find examples of markets that never recovered, comparing the peak of a bubble to the present, but I don't think they prove much at the scale that the Cullen fund is supposed to operate at.

    I've never heard of a compelling argument as to why what happened in Japan couldn't happen on the big Western markets as a whole. The standard explanation used to be: they had a dysfunctional, poorly regulated banking system and they allowed an insane property bubble to develop. Sound familiar?

    Also, by all means, let's not compare the peak of the bubble. Here's the historical graph for the Nikkei. If you bought in 1989 when it was at 38,000, well, you're probably jumping off a building right now. But let's say you bought *ten years* later, at 20,000. Now it's worth less than half that. And that's in absolute terms, add inflation and you've lost even more. Plus we're not even counting the companies that dropped off the market entirely.

    But in the end, the idea that diversification saves you is based on the fact that whatever Japan got, is not catching. I think that just remains to be seen.

    Wellington • Since Jun 2007 • 7357 posts Report Reply

  • giovanni tiso,

    Sorry, historical graph of the nikkei. Always preview the links, you drongo.

    Wellington • Since Jun 2007 • 7357 posts Report Reply

  • Kyle Matthews,

    But in the end, the idea that diversification saves you is based on the fact that whatever Japan got, is not catching. I think that just remains to be seen.

    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.

    Bonds, property, foreign currency, assets etc could all be part of diversification.

    (Keith hurt my head, I think I need to read his post again).

    Since Nov 2006 • 6164 posts Report Reply

  • David Haywood,

    If you're feeling depressed about NZ's economic woes, then you can always cheer yourself up with this story from the Guardian:

    Peace index ranks New Zealand the safest country in the world

    Mind you, as a NZer, you can cheer yourself up with any story from the Guardian about the British economy and political class.

    Dunsandel • Since Nov 2006 • 982 posts Report Reply

  • Geoff Pritchard,

    The big thing missing from this post is any consideration of risk. Borrowing to invest in sharemarkets might be a winner, or it might not - and the risk of a poor outcome is high enough to stop prudent people from doing it.

    The Super fund has the advantage of a long time horizon, which makes poor outcomes unlikely (at least if the experience of the 20th century is any guide to the 21st). But there are still bad scenarios. The next 20 years might see the Chinese economic miracle collapse, or a major war, or the peak-oilers proved right. And there's the problem: those bad scenarios for the Super fund are the very ones where it will be most desperately needed, because they are also bad for the NZ government's fiscal position. That's really what makes the risk intolerable.

    Auckland • Since Jun 2009 • 9 posts Report Reply

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