‘It is difficult to get a man to understand something, when his salary depends on his not understanding it.’
—Upton Sinclair
It was too good not to believe it.
New Zealand was coronavirus-free for 102 days. We were leading the world. Gadflies gloated over their comparative freedoms on social media. To dine out. Walk the beach. And even pasted maps of our large islands across the European continent.
This is no small country beating this virus!
Source: Helen Clark on Twitter
Wishful thinking
Of course, we believed New Zealand was coronavirus-free.
Just as those investors in Enron believed the business was going well. It was a great company!
And this is the mistake we make as investors. As analysts. As ordinary citizens. We have a vested interest in believing what we want to happen. If in believing makes it so.
Wishful thinking, my mum used to call it.
From speaking with people in the UK, it’s clear many get COVID-19. They do not get tested. They recover. Some are not even sure they’ve had it. But they may have…
How many of you, feeling possible symptoms of COVID-19, would immediately report that? Some people would prefer to lay low. Or again, on the wings of desired belief, doubt their ailment could be corona when their dear country was COVID-free!
So we got led into thinking that, because no cases presented in 102 days, we were all living in a COVID-free paradise.
Chaos and queues at testing centres. Source: NZ Doctor
Rude awakening
Suddenly, a dozen cases have emerged. And most telling — testing sites got swamped with traffic and snaking queues. I’m really not sure we were ever totally coronavirus-free.
Perhaps logically many of us knew that. This is a porous country. Auckland is one of the most diverse and linked cities in the world. For years, we have believed that our economic success comes from throwing the gates open to the world. With net migration several times higher than most of the OECD. Rather than focusing on the exports we have to sell. And being more selective on the skills we need.
But that is another story. As is the fiasco of those imbeciles who escaped quarantine. And potentially re-infected the community.
If we cannot contain coronavirus, what is the reason for renewed and severe lockdowns?
Curves in Europe seem to be flattening. Life is resuming some normality. The financial markets are up thick and fast. And much of the population there now has a benefit we do not — herd immunity.
But our approach has saved lives. That cannot be refuted. And we needed it more than others.
You see, if you look at the numbers, our hospitals are not resourced for the virus.
New Zealand has 4.2 ICU beds per 100,000 people. The United States has 29.4. And Germany 38.7.
Health officials here cannot afford this virus to spread.
Debt shock
But this elimination approach is also deadly expensive.
A short, sharp lockdown eliminating coronavirus forever. This is what we wanted to believe. Our salaries depended on that.
Now we’re hoping a new, strict lockdown in Auckland can restore that belief.
And the government, alongside Treasury, is looking at another extension of the wage subsidy.
Such lockdowns make this necessary to ensure businesses can survive.
Yet the current round of subsidies has cost the country over $13 billion.
It is extremely expensive for the government to attempt to pay the populace. We put that figure in perspective back in our May Budget Update article.
$13 billion could have been redeployed this way:
- Building 65,000 homes and resolving the ongoing accommodation shortage.
- Three additional Auckland harbour crossings (approx. $4 billion apiece) to get this city moving.
- A carbon-clean nuclear power plant that could power the entire North Island.
- A world-leading cancer research centre, plus several new hospitals.
Some of these suggestions are facetious. But you get the picture on how far $13 billion can go. And the importance of considering whether cash is just being spent or invested.
You can’t put the toothpaste back in the tube
The money is spent. Tomorrow’s taxpayers will face the debt. New Zealand still has corona. Now we’re on to lockdown round 2.
But we will believe this next lockdown can wipe the virus out. And make us totally safe again.
Yes, I’m sure it will.
My point? As investors, as analysts, the key mistake we will make is believing something to be true. Because it aligns with our interests.
One of the best things you can do in your portfolio and in your trading decisions is to run a sharper ruler. You may like a company. And its prospects. Analysts have a ‘STRONG BUY’ rating on it. It’s a market darling. Events will conspire to fuel its price. Dividends will always flow. It’s bigger than Europe…
Stop. Remember Enron. COVID-free New Zealand. And P. T. Barnum’s apt remark.
‘There’s a sucker born every minute.’
So we will continue to do what we can. Wear the mask. Play the game fair.
Remain vigilant.
Meanwhile, if you want to see a portfolio of listed companies that we’ve run this sharp ruler over, come join us in our Lifetime Wealth Investor research.
Regards,
Simon Angelo
Editor, Wealth Morning