For the Love of Money
My parents sold our family farm for a huge price back in the eighties, just before Rogernomics came in, and not so very long afterwards the farm's value had at least halved and interest rates were in excess of 20%.
With my father having left in half the money as a first mortgage, it became an awful scenario that inflicted intense emotional and phycological damage on both him and the lovely family that had brought the farm.
My Dad took me along to one of the meetings between all parties and the banks when I was sixteen as he said he wanted me to understand the reality of financial consequences. I sat in that very unpleasant meeting, and I definitely learnt something.
Many years later, during the GFC(Great Financial Crisis) I had my own experience as the credit market changed overnight leaving me very exposed with few options.
On top of that I also had a very difficult parting of ways with two business associates that ripped away the little financial security that I had left.
During the next few years, I learnt some of my own lessons, painful lessons, about poverty, hardship, and the reality of financial consequences.
Very recently I spoke to a nice young guy who was getting ready to invest in property. “There’s never been a better time to get into the property market,” he said. “With a housing shortage prices can only go up”.
That worried me. “Be very cautious” I said. “Markets are complex beasts!”.
I have been a student and an avid follower of the markets and the economy my entire life, and especially since the lessons of the GFC,
I have observed and experienced first-hand the reality of financial consequences.
My thoughts on our current economy are as follows.
1. I am unconvinced that high house prices are the result of supply and demand as much as they are the result of low-interest rates. Be cautious.
2. I believe interest rates are going to rise in the mid to long term, not fall as everyone seems to be predicting. Be cautious.
3. Banks love you when times are good but not when times are bad. They look after you the best during the times you don’t really need looking after. They can treat you the worst at the times you most need their help. Be cautious.
4. Be cautious about taking financial advice from someone young who has never been burned. Young and burned is fine, but not young and unburned. Wisdom is different from intelligence and seldom learnt in a textbook.
5. The two drivers and precursors of the boom and bust cycle in any market always seem to be fear and greed. Both cause people to be irrational. When you see greed be very cautious. When you see fear be only slightly less cautious. At the moment I see greed. Be very cautious.
My personal prediction is that there is very probably a slowdown coming in the next year to eighteen months, that our tourism sector may slow or even contract a little, that interest rates are going to start to rise, that stock markets will at best be stagnant, and perhaps most scary of all, we may find out (albeit to late) that access to easy money has created asset prices that are unrealistic and unsustainable.
I guess we will see. Be cautious.