A solution for Clayton

July 5th, 2012 at 4:00 pm by David Farrar

has said:

Buying shares in the Government’s sell-off of state assets would break the bank for most New Zealanders says Labour’s State Owned Enterprises spokesperson Clayton Cosgrove.

His comment follows an analysis of figures which show the median Kiwi household has only $1700 in savings and would be struggling to buy shares in Mighty River Power, the first of the SOEs to be floated.

I have an easy solution, based in fact on Labour Party policy. Labour have spent three years attacking the Government for not borrowing more money from overseas, to give to the to invest in shares and bonds.

Using Labour’s logic, then obviously the solution is that every Kiwi household should go out and borrow $2,000, so they can buy shares in Mighty River Power. It’s a win-win.

Now some of you may say it is daft to borrow money to invest in shares. I might even agree. But that is what Labour spent three years advocating, so I am sure they want households to go out and do it. Plus that way, more shares will stay in local hands!

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30 Responses to “A solution for Clayton”

  1. UpandComer (522 comments) says:

    That’s exactly right DPF. It beggars belief that they want to borrow money to invest on international stock markets. Basically their rationale for this profligacy is that ‘the government’s different to a household because it’s other peoples’ money and we’re looking at a 20 year time frame’. Well if that’s the case, then being a young guy I should go out right now and borrow 50 thousand dollars to buy these shares. I won’t do that however, because it’s a stupid stupid thing to do. There is no guaranteed high return, and within that 20 year period is every variable under the sun which might suddenly curtail my ability to make sufficient interest payments or receive a sufficient return. So why is this the muppet’s bedrock and frankly only financial policy apart from shitting on small investors with a capital gains tax and shitting on anyone whose made sth of themselves with 1970′s industrial law and high marginal tax rates?

    I’m impressed with that savings figure. Thanks for that information.

    It cracks me up that Labour have such an impressive silence on the fate of these shares. They won’t buy them back, because like Bill English says, they know the alternative is worse. The hypocrites have argued like faux impassioned idiots against the sale for months and months, but won’t buy them back, because they actually are being disingenuous. They know that the alternative to the sale going ahead is worse then the sale, borrowing billions from shady large international corporates and hedge funds, and instead of sending money into kiwi’s bank accounts, they’ll be sending it to Chinese hedge fund managers!

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  2. KiwiGreg (3,211 comments) says:

    Note the statistics cited are from 2006.

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  3. berend (1,673 comments) says:

    If NZers have only $ 1,700, wouldn’t that be a good argument to reduce taxes so we can built up some equity?

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  4. mikenmild (11,246 comments) says:

    Why would it not be sensible to borrow money to invest? Don’t individuals, companies and countries do that all the time?

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  5. Alan Johnstone (1,077 comments) says:

    If the average kiwi household had a AA+ sovereign credit rating and could borrow money as cheaply as the state can then this might have some merit. They don’t so it doesnt

    I’m buying shares though.

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  6. Grizz (536 comments) says:

    Most people entered into a Kiwisaver scheme are likely to end up with some form of ownership when Kiwisaver funds buy up a huge chunk of the IPOs. After the NZ superfund and Managed Funds get their share, there is likely to be less than 20% avaliable to the general public. Of those 20%, some are likely to want to sell existing assets to buy SOE shares as they think this is a better investment for their money. I suspect these IPOs (with the exception of Air NZ as you would have to be mad to want to own an airline) will be well over subscribed.

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  7. UpandComer (522 comments) says:

    People borrow money to invest in a business perhaps. They don’t do it to invest in volatile international equity markets.

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  8. ZenTiger (425 comments) says:

    People might not borrow money to invest in volatile share markets, but super funds love the concept of using OPM (Other People’s Money) to invest, knowing that after fees are taken out, losing it simply means a government bail out at some point, which comes again from OPM.

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  9. Grizz (536 comments) says:

    “Why would it not be sensible to borrow money to invest? Don’t individuals, companies and countries do that all the time?”

    Borrowing money to invest increases your risk. You have to be prepared to cover your losses or you may face a troublesome margin call. As share prices are volitile, you degree of leverage will be called into question far more often than property investors. Also, remember that companies borrow to raise revenue for their activities so hence have a degree of debt risk already. Borrowing to buy shares in that company only multiplies the risk your investment carries with this company. You essentially become a speculator rather than an investor.

    As for countires borrowing money, take a look at Europe. Greece is only the worst of a bad bunch.

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  10. thedavincimode (6,589 comments) says:

    milkymughead

    You say that after what has been happening in global markets over the last four years and what is going on right now? Besides, NZ Inc is already borrowed to the extent of the Super Fund. And then there is all the other stuff about balance sheets and implications for marginal funding costs (credit rating), risk-adjusted returns, FX and so on and on …

    But you go borrow to buy shares if you want to. I gather from your comment that you’ll only be picking winners.

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  11. Pauleastbay (5,035 comments) says:

    Mono brow is an idiot as we all know.

    Its not like we are buying in to an start up by two 19 year olds.

    These shares are just about gold plated the only problem I can see is over subscription.

    And Clayton you dolt $2000 is only 200 packs of cigarettes, 100 foils or 83 boxes of beer

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  12. Viking2 (11,242 comments) says:

    PEB, I’m impressed with your knowledge of fair trade. :lol:

    Of course once this Govt puts up booze prices and tobacco prices once more that will probaly make the foils a bargain. Perhaps for sale on Groupon at a half price deal.

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  13. Other_Andy (2,486 comments) says:

    “And Clayton you dolt $2000 is only 200 packs of cigarettes……”

    Where do you get your cigarettes Paul?
    From the back of a truck?

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  14. Pauleastbay (5,035 comments) says:

    Its been a while O-A

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  15. tas (596 comments) says:

    Bahahaha. WIn!

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  16. philu (13,393 comments) says:

    what this figure confirms is that contrary to the ‘mum ‘n dad’-spin…this isn’t being done in the interests of the average new zealander..

    ..but is a (commonly-owned) asset-transfer to the richest…

    ..phillip ure whoar.co.nz

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  17. Cricklewood (21 comments) says:

    I dunno if the cost of capital is lower than the roi it’s quite clever. I know a few that did very nicely investing their student loans back in the day.

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  18. Bevan (3,965 comments) says:

    Why would it not be sensible to borrow money to invest? Don’t individuals, companies and countries do that all the time?

    You see, that all depends mike on whether the return is more or less than the debt servicing cost, if its a loss then it comes down to can you write the total loss off against your tax?

    In layman’s terms:
    If the answer is yes to the first, then who cares about the second cause you have made a profit which is then taxed.
    If the answer is no the first, but yes to the second then in basic terms you’re keeping your head above water.
    If the answer is no to both, then you’re fucked.

    When everyone started loosing their homes in 2008, its because they fell into the no to both category.

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  19. James Stephenson (2,083 comments) says:

    Borrowing $2k to buy Mighty River shares? Seems like a much better idea than borrowing $2k on a credit card to buy a flat screen TV…and I bet the “average” kiwi family has a bigger and flatter TV than the 26″ CRT I see no reason to replace…

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  20. mikenmild (11,246 comments) says:

    Thanks Bevan. It seems to me that an entity with access to cheap credit, such as the NZ government, could comfortably borrow to invest in copper-bottomed enterprises such as power generation and make on the deal with very little risk. Have I got that wrong? Is there an analysis that demonstrates the fiscal advantage of selling these assets?

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  21. SBY (121 comments) says:

    You failed to mention that it’s no longer Labour policy. And I’m pretty sure Labour has never advocated increasing private debt levels to buy shares, since private debt levels are already way too high (unlike public debt, which is under control)

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  22. hmmokrightitis (1,566 comments) says:

    A spewing forth of crap”this isn’t being done in the interests of the average new zealander..”

    Let me guess TGM, youre average? Define average, go on. What does that stupid statement actually mean? You really do come forth with some ill-conceived shite.

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  23. Geoff (10 comments) says:

    Bevan – your comment about when to raise a loan to invest shows why selling the assets is silly. They earn more than debt servicing costs so selling them to reduce debt is plain stupid. In fact so stupid that I’m more inclined to believe the reason is as some commentators have said – to reinvigorate the share market. All that says is that after a) nearly 30 years of neoliberal economic policies and b) being consistently rated as one of the easiest countries to do business, the private sector has largely failed to deliver the the goods. So we are looking to the state to provide wealth creation opportunities. Either New Zealand’s private sector business leadership is crap and cannot create wealth in one of the easiest places in the world to do business, or the model itself has failed. Massive fail.

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  24. adam2314 (377 comments) says:

    Pearls of wisdom from clayton cosgrove ????..

    Bhwaaahhaaaaaaa..

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  25. Mark (1,416 comments) says:

    If they are such a stunning investment as some of you suggest why would the government sell them?

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  26. mikenmild (11,246 comments) says:

    Yes Mark, could you explain the rationale for the sale please?

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  27. Mark (1,416 comments) says:

    Mikenmild
    If the NPAT is significantly higher than the cost of debt then the only possible commercial reason to sell is because the goverent considers that the risk of owning the assets is too great and the rate of return does not compensate for the risks associated with owning them or that there is in the future going to be such a demand for new capital investment by these companies that the goverent cannot afford to remain the sole shareholder.

    I don’t buy either of these arguments but could be convinced if someone can demonstrate that infrastructure assets such as power generators are a particularly high risk play.

    I think the sale is more ideological than necessary for the
    economy. Certainly it will add some market cap to a woeful NZX but one has to ask whether that is the job of the government.

    Personally I ambivalent about selling these minority interests. I do however have significant reservations about the timing given the low cost of NZ sovereign debt and the volitile equity markets

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  28. mikenmild (11,246 comments) says:

    Thanks Mark. It doesn’t seem to me that there is much of an economic case for a sale at this time.

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  29. Bob R (1,355 comments) says:

    ***It doesn’t seem to me that there is much of an economic case for a sale at this time.***

    Didn’t Treasury actually reach a similar conclusion? I haven’t seen the report but recall that being reported recently?

    I suspect National would be under considerable pressure from its major donors to privatise.

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  30. mikenmild (11,246 comments) says:

    Surely they would be privatising only if it were in the interests of all taxpayers, not just some, right?

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