State of the Market

The question we are most commonly asked currently is some variation on “where is the market going?”. Rather than launch into a technical response encompassing interest rates, historical trends and the impacts of bureaucratic and political incompetence, it’s easier to just say that we will better know once the election and the Rugby World Cup are in the past.

But, for those who are interested, here is a viewpoint that has not been paid for by the Labour government’s “public interest journalism fund”. This was the $55 M fund the government handed out in return for news media organizations promoting Labour’s political propaganda. We didn't apply to that fund.

There is a widely quoted story (or perhaps myth) about a frog in cold water. The story goes that the frog in cold water cannot sense a slow change in the temperature of the water, and that it will slowly cook to death if the temperature of the water is slowly raised to boiling. But if you plunge the frog into boiling water it will immediately jump out.

The comparison with our market is that over numerous years our market went up and up. We all accepted that. Then when it changed so quickly (in many people’s minds) we saw the equivalent behaviour of the frog being plunged into boiling water. Investors unable to adapt to the changed environment, jumped right out of the market. Which is why we currently have multiple cases of extreme commitment phobia. Deals are taking extra-ordinary lengths of time to consummate as purchasers struggle to adapt to the new normal of interest rates and yield. Not that we have not seen these before – it is just that they are outside of the memory of many buyers.

We don’t dismiss the potential impact of the looming election. All the evidence of the last few years should point to a landslide change of government. But of course the handout largess of the incumbent (and incompetent) current government has grown a base of dependent voters – many of whom will want to protect their way of life by voting for more of the same. We don’t hold with polls worldwide. The last few years have shown just how inaccurate they can be. We sometimes think that often responses are given just to play with pollsters heads. How else would Chloe Swarbrick appear on a recent poll as a “preferred Prime Minister?"

The lingering doubt that the election may not go the way logic would suggest is an excuse some with “commitment phobia” will use to defer a decision. And then they will be pre-occupied with the Rugby World Cup. Another reason to put off making a decision. But there is increasing evidence that vendors are accepting the new normal for pricing – 5% for A grade and 6% for the rest, and that purchasers are accepting that there will not be a host of fire sales at giveaway prices. That acceptance has taken a while to sink in – and in the meantime deals have not been done. But there is pent up demand, and we would expect the period after the RWC, and before Christmas, to be characterized by a flurry of activity.

Unless of course Chloe Swarbrick does become Prime Minister. In which case flights to Australia will be harder to book than spots in MIQ during the pandemic.