Taking Stock 15 January 2026

ONLY a few weeks ago, Taking Stock suggested to our investment clients that an investment return in 2026 of 5% might not be ambitious, but it could be achieved in New Zealand with little risk, and considerable daily visibility of progress.

Only a few days ago the democratically-elected president of the world’s strongest economy, Donald Trump, foreshadowed his plans to make the US stronger.

He introduced new risks that no New Zealand investor would have foreseen and that, to date, have not had a financial market response.

1) He declared it lawful, and outside the checks and balances of government, to bomb a foreign country as part of a procedure to arrest its president and his wife.

2) He declared it a legitimate strategy to use force to take over another country (Greenland) and foreshadowed a plan to “deal to” Colombia, Cuba and Mexico.

3) He stated that the controller of his plans was not US or international laws or procedures, but his own personal morality, measured by himself – judge and jury. His goals included reducing global oil prices, evicting governments that are corrupt, and preventing the entry to the US of dangerous drugs and illegal immigrants, as well as dictating bank lending rates.

Effectively, if all his plans were executed that would mean the world order had been handed to one US president.

To the World Health Organization, the United Nations, the World Trade Organization, the Climate Change Accord and the International Monetary Fund would be added NATO, the European organisation that has successfully curbed bellicosity in Europe since it was established in 1949. Trump would have dealt to them all.

All these organisations or agreements aimed at maintaining peace would need to go forward without American cooperation.

You can see easily why the first week in January this year will have provided a picture of new risks that cannot easily be weighed.

Yet the new risks affected no asset prices. Markets were either asleep or indifferent to what these changes will mean to the global order, and to asset prices, though oil, gold and silver prices rose.

If you believe this was a response calmly considered by financial markets everywhere, you must assume the world has endorsed Trump as the boss of everything, with the military might to do as he pleases.

For New Zealanders, the start point of any dissenting views may be to consider what effect Trump and the US is having on our own financial markets.

We read (from KiwiSaver managers) that the value of KiwiSaver accounts is predominantly influenced by US stocks, with some 70% of investor money allocated to those managed funds that are dominated by US stocks.

We know that 40% of the US S&P500 is made up of 10 stocks, most of which have borrowed hundreds of billions to invest in Artificial Intelligence. AI is an exciting concept but yet to be successfully monetised. Clearly our KiwiSaver returns are heavily dependent on the successes of those who will seek to monetise AI.

What we may not know might be the underlying short-term signals that seem to suggest the US is headed for an inflationary boom that is inevitably followed by an inflationary bust. AI will not be immune to that risk.

What will those phenomena do to the prices of the sort of assets that sit in the NZ$120 billion managed with a varying range of skills by our various KiwiSaver managers? We do know:-

1) That Trump’s tax cuts begin in 2026. These cuts will be relevant to high-income people. They invest their surplus savings.

2) That hundreds of billions have been borrowed to leverage the returns should AI be successfully monetised. (There are varying views on the likely time frame of monetisation. Some say many years, and not before some fallout.)

3) China seems to match AI progress at much lower costs than the US. Will the “Magnificent Seven” remain immune to competition?

4) The US and Russia are spending hundreds of billions of tax money, or borrowed money, to gain dominance in their areas of interest, like Ukraine, the Middle East and Latin America.

5) That the US and virtually every other country is running fiscal deficits, lifting debt levels, and relying on very low interest rates to ensure debt can be serviced. Put that another way – most relevant economies, including New Zealand, are spending larger sums on debt servicing and rely heavily on the savings of other countries to fund their government spending. If more debt fuels inflation, debt servicing will make a bigger hole in government nett revenue.

But we also know of the following internal conditions in the economy over which Trump resides, constrained only by what he describes as his personal “morals” but not constrained by long-established checks and balances (like Congress and the courts).

Read this carefully.

We know that:-

1) In 75% of the past 50 years, the US S&P500 index has risen. Rarely has it risen for four consecutive years. If it rises this year, it would be the fourth consecutive year.

2) Of 21 Wall Street analysts, 21 (100%) are forecasting the S&P5000 will rise in 2026. The average of all their forecasts is a rise of 10.29%. Of the big names, Deutsche Bank forecasts 16.3%, Morgan Stanley 13.4%, Goldman Sachs 10.49%, and Bank of America 3.22%.

3) The S&P500 relies on the technology sector. Year on year it is up 11.8%, while the manufacturing sector figure is 1.5%.

4) Consumer spending is up 2.6%, but disposable income has risen 1.5%. Is the spending based on use of long-term savings or on ever-more consumer debt?

5) Hiring is at a 15-year low. Firing is at a 5-year high. Workers are being pushed into part-time jobs, obscuring the real employment rate. Fulltime jobs are up 0.6%. Part-time jobs are up 6.6%. What does this imply for average incomes? Unemployment for those 25 years and older is at 3.7%. For those aged 20-25 the rate is 8.3%. Young people are struggling in the US, as they are here in New Zealand.

6) The labour share of national income is at an all-time low of 55%. Historically, that figure was nearer 70%. Investors get a much higher share of national income at the expense of the workforce.

7) For seven straight years, the US fiscal deficit has exceeded 5% of GDP, despite tariffs. Debt compounds exponentially.

8) Wage growth is up 3.5%. S&P earnings growth is up 23%. The inequality divide is growing at speed. Those dependent on wages are watching asset prices soar.

Do these facts paint an optimistic picture of the world’s largest economy? Perhaps they point to the accelerating rate of inequality. Perhaps that points to the stress leading to the changes to democracy and the world order which Trump and other messianic leaders seek to use in their quest to hold onto power, in a highly-stressed world.

Can democracy deliver a solution?

One of New Zealand’s deep-thinking business leaders recently posed this question: What would be the outcome if the workers in a company voted for the chief executive’s role, choosing the person who promises to borrow the most in order to pay the workers more?

Is this what “democracy” eventually encourages?

NZ investors are bound to observe these developments. Some will seek to align their investments with those outcomes that investors can reasonably observe.

A month ago our chairman, James Lee, suggested in Taking Stock that most investors should limit their risk to the strategies that have a high probability of delivering a 5% after-tax return.

He noted the risks in New Zealand were visible and could be assessed within reason, and for that reason suggested that 5% target made sense for investors in 2026.

The Wall Street people see 10% as their target. One wonders what Trump will do to deliver that, in a year when there are mid-term elections to decide whether Congress supports Trump or makes him a lame-duck president (or is it lame goose?).

Surely, one day, an adult in the room will call a stop to borrowing, booming inflation, and bust. As a strategy to maintain power, it might work if democracy is exercised by the self-focused.

As a strategy to deliver a better country, or world, it seems, to a cricketer, like Bazball on amphetamines. Madness.

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LAST week’s Taking Stock offered the government a way forward to stop the misuse of the law aimed at delaying progress on important projects.

I suggested the law should require a bond to accompany any attempt to use judicial reviews to delay approved projects.

The bond would have to be large enough to cover court costs and compensation, should the judicial review fail.

I referred to this bond as a “sustainable tariff”, intending to bring home the cost of delays caused by small, unelected platoons of people with no financial commitment, seeking to block approved major projects.

Major projects are what will deliver productivity gains, better paid employment, real tax revenue growth, higher exports, and thus real recurring income to pay for social services. Surely such a strategy is more desirable than further debt.

One hopes that Shane Jones is ruminating on the prospect of imposing bond conditions on protest groups.

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THE surging price of gold, up 70% in the past 12 months, has been explained by recent statistics.

Central governments are now buying gold more enthusiastically than they buy Treasury notes.

Graphs show that many large countries are building their gold reserves.

What we also learn is that Russia, India, China, Brazil and South Africa are planning to introduce a new global digital currency backed by gold, oil and other commodities.

Gold is intended to be 40% of the backing.

The world produces a little more than 2000 tonnes of gold each year, some of it consumed by electronic products.

Governments are buying much more than 2000 tonnes. The reconciliation between production and demand is based on the sales of stored gold, by nations who will sell - at a price.

Footnote: some producing countries like Canada, Australia and even New Zealand do not store gold in vaults. Those countries can mine gold providing their laws allow it.

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BNZ Bank – 5 Year Senior Note Offer

BNZ Bank (BNZ) has announced its intention to issue a new 5 year senior fixed rate note.

Although the interest rate for these notes has not yet been announced, we anticipate a rate of approximately 4.20% per annum, based on current market conditions.

BNZ will not cover the transaction costs for this offer. Therefore, brokerage will be charged to clients.

If you would like to register your interest, pending further details, please contact us promptly with the amount you wish to invest and the CSN you plan to use.

Please note that indications of interest do not constitute any obligation or commitment to invest.

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Travel

21 January – Wellington – Fraser Hunter

23 January – Wairarapa – Fraser Hunter

27 January – Christchurch – Fraser Hunter (FULL)

28 January – Auckland (Albany) – Edward Lee29 January – Auckland (Ellerslie) – Edward Lee

12 February – Lower Hutt – David Colman

13 February – Blenheim – Edward Lee

Chris Lee

Managing Director

Chris Lee & Partners Ltd