I grew up in a small Canadian town a lot like Queenstown – very beautiful, loads of outdoor fun like skiing and hiking, but imagine more bacon. Like Queenstown, the seasons never failed, and no matter how much you tried to wiggle your way out of winter, summer always came of its own volition.
Seasons are cycles, and cycles are normal predictable patterns.
Shortly after the 9/11 attacks, there were lots of Kiwi’s coming home with their weighty savings, keen to purchase a home in Auckland and start a family. Banks were also ready to party. The subsequent property market orgy lasted from about 2002 to 2007 when it all ended with a thud. A classic boom and bust cycle.
Countries go through cycles in governments too – slightly right leaning for a season, then slightly left (or in our case we simply do a little dance in the middle).
Cultures go through cycles, relationships go through cycles, businesses go through cycles- there’s nothing new under the sun.
I regularly catch up with the banks and I was surprised recently upon hearing the term ‘cycle of the 10’s at one such meeting a couple of months ago. About 9 years ago was the last time I heard a bank mention this – it was the chief economist of one of our Aussie banks speaking at a breakfast shortly after the start of the global financial crisis (GFC). The economist remarked rather glibly, that every year ending with 7, watch out, for trouble follows the year after. This was possibly the only time I noticed a bank economist accurately depart from fundamental economics and discuss a sort of ‘technical analysis’ (reading tea leaves). It was weird, like as a kid when your old man tried to be cool in front of your friends, and I liked it.
The thing with seasons though is, whether it’s a season in life you’re going through or something more literal, it’s really hard to imagine the opposite of the season you’re presently in. In the dead of winter will the summer really come out again and dry us all out? Will I ever find true love again? Will this rash ever go away? The next season always comes, so it pays to be prepared and ready to act accordingly.
The cycle of 10’s gives me the heebee jeebees though. It’s actually a bit spooky that roughly every 10 years, there’s been some sort of event that sends us on a wee wobble. 5 years we’re growing, 5 years we’re struggling. 5 years we’re optimistic, 5 years we’re pessimistic. Where are we in the cycle of 10’s now?
So let’s learn some stuff (highly simplified don’t worry):
1967 ‘Wool Crisis’. In 1950, following on from the Korean War, the US went on a wool binge, as you do – what kind of free-thinking democracy wouldn’t go on a sweater gobbling frenzy in the act of war? The US and Britain devoured all the white fluff we could produce and then some in the mid 60’s. Wool prices increased, and so did our production – NZ’s sheep population hit the roof and built us a reputation worldwide we’d never live down. Wool prices started collapsing however in ‘67. 1967 saw Britain’s new relationship with the EEC (European Economic Community) really take hold – this all started to tear into our export earnings big time and a nasty recession followed.
1977 ‘Oil shock’. The oil shock started in ‘73 as a response by the Arab nations to the Yom Kippur war – this peaked in ‘77 culminating in higher freight costs, and higher retail prices which then led to inflation – your dollar today wouldn’t buy the same as a dollar tomorrow. It wasn’t happy days at this time and many a good Kiwi left for Australia to greener pastures – our very first ‘brain drain’. Symptoms didn’t fully resolve until ‘83.
1987 ‘share market crash’ and subsequent property market correction. NZ sharemarket dropped 60% in one very ‘black Tuesday’. Some old and some new money was instantly washed away. Most families, including mine, could point to at least one who’s lost a fortune in this stock or property market crash. As a kid growing up I remember this vividly – one weekend we had two boats, three cars, two houses and then the following weekend, we were moving into a rented apartment.
1997 ‘Asian crisis’ – this was like a mini GFC that started in Asia and threatened to spread. The Asian crisis lead us into a phase of pessimism – everyone either lost their job during this time or buggered off to Australia and England (the ones that were left!). The threat of potential financial contagion led to high levels of unemployment in NZ (up to 28%). This nasty as, unhappy super sad place, more or less lasted until 2001/02. Weirdly, America gets attacked in 2001 and the spell of pessimism ends.
2007 ‘The Global Financial Crisis (GFC)’. How close can we get to worldwide economic collapse, without the world actually collapsing? No matter which way you slice it, the banks screwed us during this time in some form or another, and for the most part, they got away with it. Our banks down here were actually in good shape thanks largely to more conservative banking practices compared to their overseas counterparts. In NZ, house prices dropped very briefly in Auckland, but really ‘corrected’ nationally – 5 years later though around 2013 the disco ball turned on again and thus began 5 years of aggressive bank lending and low-interest rates for the longest time – heck, they’re still low!
2017 – ‘The Donald effect’’. I find it somewhat ironic that Korea indirectly led to one of NZ’s greatest economic booms of the 1950’s which lasted over a decade, and it’s potentially happening again. When lunatics rise to the top like all poop, smelly things happen. It only takes one moron to trigger the insane actions of a latent moron, who could push the wrong button anytime now. The nastier it gets though, the more confusing things get, the more war, or rumours of war there are, the better it seems to get for God’s own – it’s like NZ is the ultimate worldwide ‘hedge’. If the whole world went to hell overnight, where do you think the wealthy, mobile elite, would migrate to? Where else in the world is as far as you can possibly get from danger? Where’s possibly the nicest spot on earth to live? Gimme an ‘N’…
So that’s history, did you spot the pattern? Since the 2007 GFC it appears as though events aren’t the sole catalyst for change, instead, it’s the pattern itself, that can be the catalyst. This isn’t hugely scientific I know and by no means is the above history lesson an exhaustive account of all the recessions to hit NZ, but there’s a cycle here and that cycle’s just reached full circle – should we be concerned?
Bankers are anything but mystics – but they’re aware of the cycle of 10’s and they’ve been preparing. They’ve been building larger cash reserves, they’ve dialled down their lending criteria (outside of forced regulation), and they’ve been selling (or in the process of selling) off their insurance businesses to get their house in order for a changing environment.
And here’s another fun fact you can confirm on your own if you’re an Aucklander – every 10 years in Auckland, since the 50’s, property prices have more or less doubled. Check the sales history of your property and you’ll see what I mean. Back in 1950 do you think they’d believe you if you said their $10k house would be worth $20k 10 years later? I doubt it. Well, guess what Auckland, in 10 years the average house price will be $2m!
So now the wee hairs on my cockles are truly getting cold and prickly – this could be a tad fringe, but if it’s true that we’re coming to a change in season, what’s a rational response here?
Some of my clients who’ve done the best financially, almost without exception, are the clients who ‘took ground’ just after the GFC. Purchasing property in 2008-2012 was not the thing to do back then. People were scared to death by the media and they simply couldn’t see that it was just a season, and that season would pass. Banks didn’t want to do business either during this time, so even if you had the balls to act, they weren’t making it easy. If you purchased during this time though you likely purchased at a fair price, without much competition. People who subsequently purchased another property (rental properties) did very well also. They didn’t know at the time that things were going to go crazy from 2013 but that’s the nature of seasons, it’s hard to imagine summer’s coming.
So what are you going to do? Take ground or hunker down?