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An Open Letter to John Key and Bill English

10 Nov 2008 12:10TraderF

Congratulation on your win, we New Zealanders have great expectations of you both.  I am sure you are going to get a lot of advice over the next few weeks, so here is mine.

 

I am hearing a lot of very sensible talk from you both but there is one word I am not hearing and that word is “Opportunity”.  One could look at the current financial environment as a “Glass half empty” but of course a glass half empty is also a glass half full.

 

I am impressed that Bill English is talking about getting the balance right.  The balance between tax cuts, fiscal policy and stimulus packages is an important one. However it does not directly address how we are going to pay back the debt when this is all over.  This is where “Opportunity” must be added to the mix to get the balance just right.

 

We are seeing unprecedented falls in asset values and all who are involved with the markets knows this will be over done.  Considerable thought needs to go into acquiring cash earning assets at bargain prices over the next year.  If the people of New Zealand are going to be collectively put into debt (In order to fix their household debt) there must be investments made that returns cash.

 

Infrastructure, while providing a domestic stimulus does not directly enable us to repay future debt.  It must be an important part of the package however it should not be overstated.  New Zealand is largely in this position because we insist on selling the same housing stock to each other and delude ourselves that we are better off.  The same mistake will grip this nation if we continue to invest in non cash earning assets.  A wise business sage once said to me “I don’t care what you own, how much cash have you banked this week.”  New Zealand must not create an enormous debt without specific plan on where the cash is going to come from to pay it back.  The infra structure argument that the country will earn more is not specific enough.  Infra structure does increase efficiency, and that is good, but ultimately the debt can only be paid with cash.  The infra structure argument relies on a greater tax take in the future which can not be guaranteed without increasing taxes.

 

In New Zealand there has been much talk about the “Knowledge Economy” and there was a lot talked about IT.  In truth the real “Knowledge Economy” is our farming know how.  I would recommend that we use this “Window of Opportunity” to establish New Zealand as true global player in the dairy industry.  This may take to form of buying cheap equity in major international dairy businesses, or buying cheap land in countries of similar climates.  NZ Farming Systems have a very enlightened approach earning New Zealand foreign exchange from offshore farming.

 

The world’s great investors like Warren Buffet and Richard Branson understand that buying in gloom is always a winning strategy.  If New Zealand invests in areas where we have genuine expertise we can turn this episode in our history into Opportunity.

 

John and Bill I wish you well, but I urge you to add “Opportunity” to the mix to get the balance just right.

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