The quality of NZ expertise - or its relevance

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Scientists study facts...from facts we derive values...but might their value judgements offer more value if they actually studied value systems, whether psychology, economics or philosophy. Perhaps we ought to stop seeking the opinions of people speaking outside of their expertise. So what does this 'scientist' do? He is a physicist. What would he know about these topics. Is NZ so bored as to care what someone of no 'moral authority' cares? The NZ Herald seems to think so.

Clearly some journalists at the NZ Herald are really impressed by scientists with PhDs. Perhaps they would be less impressed if they realised that the prequalifying characteristic for getting a PhD is a great deal of self-hate. Why would you pay huge amounts of money, waste an inordinate amount of time for a qualification to impress the same type of people as you. Oh, the pay off of this self-congratulatory system is that you win the praise of unthinking journalists.

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

High priced houses and slavery in NZ

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It is indeed a brave or silly person who takes on a 30-year mortgage in this environment. I would however suggest that these people will be fine. I actually don't expect the commodity producing countries like Australia and NZ to experience inflation...at least not at least whilst they allow their currencies to appreciate. The particular problem for NZ'ers though is that it is reliant on foreign savings. Maybe that makes them more vulnerable to the foreign cost of capital...but if bankers realise that NZ is offsetting foreign currency debasement with rising currency, then I see no reason for there to be such an imposition.

Having said that, I do think that it makes less and less sense to live in the city these days, or at least to pay a premium for it when increasingly people are living in rural areas because they have workplace and lifestyle flexibility. Why pay $300K for a crappy place in Auckland, when you can have a crappy place in Wanganui? The reality is that Wanganui cannot match the facilities of Auckland, but it has other benefits:

1. Access to outdoor activities

2. Proximity to everything

3. Easy living

Eventually those concerns will balance out....and there are bigger centres, or even the opportunity to live in more tourist i.e. growth-orientated places like Queenstown, which is already very expensive. The sad reality is that any 'growth story' is destined to be a basis for extorting higher prices by landowners with the sanction of government. Why? Smart landowners recognise that their land is more valuable if they can stop people subdividing theirs. So they campaign on the basis of 'anti-development', and in the process they get governments to sanction locking up the region from developers....under 'catch cries' like, we don't want the city people. i.e. Lifestylers. It does not even have to be about money...but usually it is. Their money, not yours. They think that because they were their first...they ought to have the right to control how things are. That is democracy people. It sux for everyone, but no one has the broader perspective to see it. They think that their is some redeemable feature to democracy. I will take all feedback. If you think democracy is good, let me know why, and I will repudiate it on my 'Democracy Sux' blog.

What the government is doing is locking people into mortgages for a lifetime. At the end of it, technology will have passed you buy, and you will be wondering why you were ever a slave to a mortgage? Why did you ever place yourself in such a place of vulnerability. We have lobbyists arguing that people cannot afford to buy a home. Lucky people! Its a prison sentence. Get the cheapest house you can buy and have the life you wanted to have. If that is a 'lifestyle' spend it, or save it, if you want to invest, better still, or set up a business. That is life. It gives you a sense of pride or efficacy. Being a slave to a house will lock you into a location you will probably not want to be, into a wife you no longer like, into a job you are scared to leave because of recession, and it will lock you into all manner of follies. The government loves it because:

1. You are always working and contributing to their spending power. The Tax Office loves women's rights, as it registered them as tax slaves as well.

2. You are supporting the welfare umbrella

3. You are establishing an asset base which they and the bank control.. They can always get you. You cannot funnel your assets offshore. That is getting harder anyway.

Read this story about a NZ family living the life of unhappy people. In 20 years, they will wonder why they ever bought the house...or maybe they will not wonder at all. 'Not thinking is the strongest form of sedative'.

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Sale of NZ state-owned assets

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John Key's National Party government has signalled that it will privatise state owned assets in its next term in government. The assets it has signalled for sale are mostly the power assets:

1. Might River Power

2. Solid Energy

3. Genesis Energy

It seems like the government intends to retain ownership of the hydro assets for the time being. A government has conducted a study of the value of these assets, and believes that Solid Energy is only worth half of the $3.5 billion attributed to the entity by Solid Energy executives. I tend to agree with Solid Energy. The company has some significant assets, though central and state ownership of those assets can only hinder their commercial value. Consider the projects:

1. Coal resources & Huntly power station - The power station must be worth $300mil alone.

2. Southland lignite resources - important source of feedstock for export coal business given recent developments in compressed coal bricks. I think this resource is very valuable, and the only reason to be conservative is the technology risk. It will assist the government to wait until this technology is proven in Vietnam, where a Vietnamese govt JV with the University of Melbourne is testing the technology on the Red River lignite deposits. I suspect Solid Energy will do its only testwork.

3. Coal seam gas potential - important given the declining availability of offshore resources. This could change however in the next 10 years. This potential is probably worth anywhere from $150 to $500 million.

I can agree that the valuation of Solid Energy is probably a little on the high side; but then it might have assets I am not aware of. There needs to be a closer look. I suspect the government had an accountant study it, and you don't do that. Accountants only look at cashflows and their prospect of being extended. They are too conservative. They cannot see over the horizon. They tend to be an anti-conceptual lot. I remember trying to sell a mining company to a fund manager. He was more interested in the 'advanced' project for which we had a cashflow model than the gold project with very exciting drilling intersections. Today, the 'advanced' project is still on the backburner, and the gold project is being constructed. Why? Because he had no idea about which way commodity prices were going, he had no ideas about technology/development risk, and he was suspicious of anything without a cashflow model. They need quantitative data. Whereas a geologist/mining engineer needs as little as a few well-placed drill holes and some structural information (at the least). Gold is going to $2500/oz. Does he believe it? No. People are sceptical of what they don't understand. Accountants enter the world only with a little life experience and quantitative analytical skills which are dependent upon conceptual knowledge. They are only 'half a brain' really. That is why I studied geology, mining engineering and accounting/finance. My lecturers praised my judgement. But really, it only reflected my life experience up until that point. I was visiting mind sites when I was 14 years old, and I was trading mining stocks since I was 11yo.

If you want to do your child a favour - buy them $1000 worth of stock each in Vital Metals (ASX.VML), MIL Resources (ASX.MGK) and Union Resources (ASX.UCL). Use a lottery game to distribute the stock, to create some competitiveness between them. Soon they will be wanting to get a newspaper run to raise more money to buy more stock. Of course, you could always buy these stocks yourself. You're never too old to learn 'money makes money'. The lesson of timing will take longer to learn. That requires studying charting (i.e. technical analysis).

Why am I suggesting that NZ'ers buy stocks in Australia? The reason is because over the next 15 years the NZD is going to be left behind. Thereafter it will probably start to close the gap, but not before more Kiwis will leave for Australia. The mining industry offers the best exposure to the Chinese/Indian boom, which will go for another 20 years. Why? Because they have a lot of under-utilised labour. That is fueling demand. It will take off again as soon as the global debt inventory is absorbed/recapitalised.

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com