Sunday, June 7, 2009

Another reason to ignore Rod Oram

Make no mistake Rod Oram is a mad bugger. I loathe his socialistic/political slant on business and economics and quite frankly a third form economics student who is deaf, dumb, blind and insulated from reality with a 100 mile layer of pink batts would know more than him about the subject he thinks he is so proficient at.

The man buys carbon credits to offset his "carbon footprint" for goodness sake!

The reason for my vitriol this time?

His nonsensical piece on National deferring payments into the Cullen Fund in Stuff today.

This master of economic sleight of hand wants our Government to borrow billions to fund pensions:

They are wrong on both points. This is a once-in-a-generation time to be investing, particularly if you are an entity with low debt, secure cashflow and a long-term strategy. The great global economic contraction has savaged prices of shares, property, businesses and other assets. Buyers might have to ride out some short-term corrections but they can reasonably expect handsome long-term gains.

Oram would have us borrow to buy investments? Its a MAD, MAD, MAD MAD ... plan! In these current times debt must be lowered. Oram is 100% correct when he says people should buy assets when they are beaten down in value. I have over the years but not with borrowed money Rodney! Higher debt to fund this scheme will increase interest rates for New Zealand borrowers.

In addition to this Oram is really making a mountain out of a molehill on the decision to defer payments to the scheme. What he fails to mention is that the scheme funds a very tiny portion of what is needed for retirees:

Connecting it with superannuation, though, was entirely political. Even Dr Cullen made clear there was no link to future entitlements and future taxpayers were always going to have to meet 89% of costs.

Bill English’s decision not to borrow for the fund will increase that by just 3%.

Moreover, in national-income terms, Mr English’s decision relates to just 0.2% of GDP from 2030.

It is ridiculous to worry about such a number. The smallest economic shock over the next two decades – positive or negative – could double or eliminate it, as could small productivity changes. Matthew Hooton, NBR 2009.

The vast bulk of retirement funding then will come from the tax base at the time and that is where growing the economy comes in and is clearly vastly more important than taxing workers heavily now to fund such a small addition to retirees income in 20 years time.

The best solution of course is for individuals to save and pay for their own retirement. With a taxpayer funded scheme payments are subject to interference from all political colours and with the tiny contribution from the Cullen Fund that is subject to inefficient bureaucracy and cost and inexperienced individuals investing money on your behalf - something that Rodney skirts over without nary a whisper- there is no guarantee that any money will be there when you retire anyway.

Labour would have deferred payments into the fund. That economic dipstick Michael Cullen designed the fund for such economic circumstances as we are suffering under now.

Oram's columns have been quoted by Labour in Parliament ad nauseum recently so it is clear Labour are taking their playbook from commentators like Oram or vice versa:

Hon PHIL GOFF: It made $1.75 billion. There is nobody in this House who does not understand that the best time to invest funds is when the market is at, or close to, the bottom. By the National Government’s theory, New Zealand homeowners should be selling their house now and buying it back when the prices have risen! That is National’s philosophy. Kiwis know that it makes no financial sense, so why cannot the Prime Minister and the Minister of Finance see that? Parliamentary Budget Debate, May 2009.

It doesn't really make allot of sense now does it? Would you borrow right now to buy shares?

The answer, if you are sane, is a clear NO.

Both Labour and Lefties like Oram are politically motivated and economically illiterate. We cant borrow and hope, we must instead grow the economy and accept personal responsibility for funding our own retirement.

Any other way is dishonest and as history has shown us will fail.

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Tell 'em "That's MY Money You're Messing With!": Retirement Funding: Untold risk and mismanagement and how to avoid it
Tell 'em "That's MY Money You're Messing With!": Retirement Funding: Untold risk and mismanagement and how to avoid it by Gordon W Bell
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c Share Investor 2009

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