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Do we oscillate between greed and fear?

The world has been through an unprecedented period of growth. This has spun off into the New Zealand economy and culture.

We have all been oscillating between greed and fear. We all want to make a fortune, but are fearful of getting it wrong. We say we will buy something, get all keen, do the research, complete the due diligence and yes it is all go, then fear creeps in – what if we get it wrong?, what if we can't meet the holding costs?, what if the IRD want tax? …

Fear is made worse by unsolicited comments from our network of friends who give unconsidered opinions. Then you go to your professionals for their opinion. Are they used to giving sound advice, or are they bound up in their own business and worries about fear and greed? How much opportunity have we all lost through bad unconsidered professional advice?

The world is awash with money, so credit is easy to get. Loans are cheaper and we are all encouraged to borrow, borrow, borrow. The banks are all on first security, but it is our risk capital that we will lose if there is a shift in the market. If the market reduces, then our equity will reduce.

The Reserve Bank has just put out the Financial Stability Report. It makes for very interesting reading, being both positive and negative. It could bolster up our greed feeling, or increase our fear.

The report tells us that New Zealanders are heavily dependent on foreign debt. Individual debt is high and if incomes are reduced, then our ability to service debts may be affected and subsequently prices may fall. Our current account debt is substantial at 9.5% of GDP and way ahead of the rest of the world; however, a slowing economy may improve this and the balance of payments may improve.

It was also stated that previous reports have highlighted the vulnerability of the rural sector. Credit growth to the sector has been supported by growth in land values. Fear could dominate now because it is quite clear that the availability of loan monies has encouraged us all to borrow, get bigger etc.

A commercial real estate agent, who has been in the business for 36 years, bravely went to print saying that he had seen many boom and bust cycles. He sighted 1970's (oil crisis), 1980's (Rogernomics), 1990's (Asian crisis). He asked the question: are we heading for another cycle?

So back to the farm, how does this oscillation affect us? We are trying to make the correct decisions based on the available information. There is a myriad of considerations to make. Fear will stop us dead in our tracks and keep us awake at night etc. Greed will have us signing contracts to buy more land and the next door neighbour's.

In summary, we as farmers who are in the property business oscillate between greed and fear. Get it right and we win, get it wrong and we lose.

Getting the right advices, focusing on the key issues and making logical and value decisions is the best way for us to get a more balanced view.


 

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