Tasmanian Times

The individual has always had to struggle to keep from being overwhelmed by the tribe. If you try it, you will be lonely often, and sometimes frightened. No price is too high for the privilege of owning yourself. ~ Friedrich Nietzsche

The individual has always had to struggle to keep from being overwhelmed by the tribe. If you try it, you will be lonely often, and sometimes frightened. No price is too high for the privilege of owning yourself. ~ Friedrich Nietzsche

Economy

Being positively negative

*Pic: Image from here

Over emphatic negatives always suggest that what is being denied may be what is really being asserted. Jonathan Raban

First published June 29

Being negative can be positively difficult sometimes, especially when spin doctors and the power of positive thinking people get to twist our grammar and language.

What got me thinking was the strategy of ‘negative gearing,’ when it comes to property investment. ‘Negative gearing,’ actually means ‘losing money’. Friends sometimes boast that they have bought an investment property and are ‘negative geared’. Good oh, I can’t see much clever about that. I can lose money as proficiently as the next bloke, but I am yet to see losing money as being a successful way to make money. Of course I am not being sceptical; I am just being ‘negatively constructive.’

Sure, I realise that if house prices go up you can get a tidy capital gain but if house prices drop you are stuck with an investment property that can, and will, leave you up the creek. Apart from paying less tax it beats me as to why losing money is a good thing, but who am I to question the million or so Australians who reckon that ‘negative gearing’ is a wonderful way to create wealth.

When I question this strategy I am usually met with a finger in ears la, la, la, la reaction. ‘House prices always go up,’ they will say. Well no, actually they don’t. You wouldn’t want to be one of those left holding the mortgage papers if property prices halved for example.

The term negative gearing leads onto other phrases that imply the opposite to what is really transpiring. Apparently at some schools, when students don’t pass an exam they haven’t failed, it is just ‘deferred success’. Yeah, right.

It seems that the US economy has been experiencing a condition economists are referring to as ‘negative growth.’ What they are experiencing is the opposite of expansion but ‘negative growth’ sounds so much more positive that using words like ‘decline,’ or ‘contraction’.

Media commentators and economists in general are supposed to provide, shall we call it, ‘negative clarity’ when discussing certain aspects of a country’s true state of economic affairs.

It would be wonderful if we all adopted these delusional descriptions when it comes to all sorts of things. For example America could have had a ‘negative victory’ in Vietnam. It sounds much better than saying that they were beaten.

The American author, John Michael Greer, reckons that it won’t be too long before the following could happen. ‘I’m sorry, ma’am,’ the doctor says, ‘but your husband is negatively alive.’

Another wonderful opportunity is to use this twisted-meaning approach is when it comes to sport. When a sporting team is behind during a game what they really have is a ‘negative lead’. This will come in really handy for us St Kilda Football Club supporters who are used to experiencing ‘negative wins’. We embrace ‘negative wins’. Of course our players are not hopeless or pathetic, they are just ‘unconstructively skilled’ which of course is much better.

The emperor has got no clothes? Of course not, he is just negatively dressed.’

*Steven French is a Tasmanian farmer, photographer and writer – and sort of retired. Steven lives at Whitemore in northern Tasmania, where his family have been farming since 1865. His grandchildren now make seven generations on the same property. Steven started his photographic career as a rural photographer working for mainly for Tasmanian Country and Stock and Land. During this time Steven’s photo captions keep getting bigger and bigger until he was writing more than photographing. He finished up being employed for several years solely as a journalist. In 1978 Steve and his wife opened Reflections Photographic Studio which went on to become the largest photographic studio in the state. Steven is a former runner-up for the Tasmanian Professional Print of the Year Award and took out the People’s Choice Award in the same year. In more recent times Steven has worked as a photo/journalist/editor for several glossy publications. During the early 2000’s he was publishing/editor of Tasmanian Life Magazin. In 2010 Steven photographed and wrote the book Hand Made in Tasmania which was on the state’s best seller list for several weeks. Steven work has been published widely throughout Australia and overseas. He has had several solo photographic exhibitions and been part of group exhibitions on the mainland. His work has also been hung at the prestigious Menzies Gallery in Melbourne. Currently Steven has a weekly spot on Chris Wisbey’s Weekends radio show and is editor of Australian Sheep Magazine.

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3 Comments

3 Comments

  1. Christopher Eastman-Nagle

    June 29, 2018 at 1:13 am

    Re #2 … Yes Lynne, the post war boom has only been interrupted by relatively brief set backs. So as long as one were a reasonably careful investor and didn’t get too greedy in the good times, one could ride out the bad ones.

    I suppose hefty leveraging worked well, as long as not too many people did it. By the time the drover’s dog knows that borrowing heaps is the way to riches beyond even the pleasures of Smackos, it doesn’t just leverage personal wealth, but drives up the prices of the asset base in a cycle of ballooning borrowing and price rises that has to end very badly for everybody.

    And towards the end, it corrupts the lenders too in a self-fictionalising adolescent consciousness bubble that trades on moral and economic exceptionalism; that the old rules no longer apply .. and the manic performance targets have everyone running on speed and death defying acts of folly .. which isn’t hard because a lot of the customers are debt junkies and economic space cadets.

    Remember 1890, folks …

  2. Lynne Newington

    June 28, 2018 at 10:40 pm

    Negative gearing worked for some Christopher…..especially in the work place back in the 90’s.

  3. Christopher Eastman-Nagle

    June 28, 2018 at 7:40 pm

    Negative gearing is not so much about saving on tax as getting control of more assets for less personal capital outlayed.

    Of course this kind of ‘long’ leveraging works just as fast negatively, as it does positively. It is not a game for the faint hearted or fools.

    It is a vehicle for controlling assets (shares or property) that over time are anticipated to grow in value faster than the costs of holding them, even where the income from them is less than that cost. The tax benefit simply reduces the cost of the hold by your marginal tax rate.

    The problem with such a mechanism is that the investor has to be able to take the bad times with the good, and if one is heavily leveraged that means having deep enough pockets to ride out the inevitable periodic market downers. In 1989-90, Melbourne real estate prices dropped as much as 30%, and interest rates were at a minimum of 18%.

    No one rings a bell when a market begins to slide and the inevitable panic and distress selling starts, as the amateurs and the over-committed face the awful prospect of ruin and their day in the bankruptcy court.

    Fortunately for the deep pocketed and savvy investor, panic selling is an opportunity because downturns do not last forever … in normal times. Things were noticeably starting to improve by 1993.

    However, and this is the warning, the nominal value of the real estate market recovery from the 1890 depression in Melbourne took until 1917, and Sydney financial institution stocks not until 1923 to reach parity and probably did not reach inflation adjusted parity until the 1950s.

    Even the deepest pockets wouldn’t have been big enough for that one … and it could very easily happen again in the not far distant future. The 2008 crisis, the subsequent unreconstructed behaviour and lack of re-regulation of financial institutions worldwide, and the enormous growth of debt generally over and above real economic growth, do not bode well for the future.

    You would have to be pretty ‘brave’ these days to have a negatively geared portfolio, no matter how high your tax rate was. It is but a short jump from negative gearing to negative assets … or if you like, positive liabilities, which sounds a bit better … if you are financially distressed and every night dreaming of being tortured by bankers.

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