September 15, 2024 • 41 mins
Many people who own large assets or investments have one question at the front of their minds - where are interest rates headed?
Shane Solly from Harbour Asset Management joins Tim Beveridge on The Weekend Collective to discuss this and more.
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Speaker 1 (00:05):
You're listening to the Weekend Collective podcast from News Talk
sed B.
Speaker 2 (00:20):
Jennie is a good, Jennie is.
Speaker 3 (00:33):
A love them and welcome back to the Weekend Collective.
I'm Tim Beverage and this is Smart Money. By the way,
if you missed any of our previous hours, we interviewed
David Seymour about the Treaty Principles Bill and away without
getting too dramatic about it to believe it or not,
despite all the drama around the country about it. And
we also had to chat with Mark Mitchell about the
decreasing crime statistics which is good news, and violent crime
(00:55):
in Auckland CBD, among other things. You can check that
out and the feedback we got if you go to
our podcast, just look for the Weekend Collective at iHeartRadio.
But now it is time for Smart Money and my
guest is from Harbor Asset Management. He's a director and
portfolio manager and research analyst and his name is Shane Solly.
Good afternoon, Yeah, Hey Tim, How are you going all right?
(01:18):
How are you doing this weekend?
Speaker 4 (01:20):
Dad?
Speaker 3 (01:20):
Excellent? So yes, if you have any kind of if
you're interested in money basically and understanding how the world works,
when it comes to money and assets and investments. We'd
love to have me. Just we'll stick with us because
we're going to get into well, let's we'll get right
into it, shall we, Shane. The first thing is central
banks cutting official interest rates. And when we were in
(01:43):
central banks, we're just talking in New Zealand context as well.
Speaker 4 (01:47):
Yeah, that's a really good question because I think you
know central banks. That's people like the Reserve Bank in
New Zealand, but it's also things like the US Federal Reserve,
the Bank of England, the European Central Bank. And look,
it's really interesting. We've had central banks increasing interest rates.
So the last few is post COVID to try and
help get on top of inflation, and now they're going
(02:07):
the other way. So we've seen central banks neutralizing official
interest rates as this inflation falls and as economic lead
indicators suggest that economic growth starting to slow and they're
actually starting to worry about unemployment. So the risk has
gone from inflation to growth. And we're expecting this week Wednesday,
the US vigil Reserve is expected to join other central banks,
(02:30):
including the Reserve Bank and New Zealand and actually cutting
official rates. So yeah, it's an interesting time. You know,
certainly this inflation, the mix between inflation interest rates. Certainly
the inflation sits the trajectory how fast or can the
central banks cut? Well that economic growth that really sort
of sits the pace and the magnitude. So inflation says
(02:52):
yess you should be cutting. But growth is the key
to how fast. And certainly we know in our economy
here it's time, right, it's time for rate cuts here.
Speaker 3 (03:00):
How urgently would you be wanting to cut rates because
we've gone from if you might to go where Adrian
Are's rhetoric even said I was thinking about maybe even
putting them up, but I'm going to leave them the same.
And finally, there's a slight drop. I'm guessing from just
the energy and your voice around that you'd like to
say a bit more of a fall, a bit quicker.
Speaker 4 (03:19):
Well, I think we need consecutive right cuts. I think
there's the door has been open. They need to keep
this momentum going or let the economists decide whether it
was done early enough or not. But certainly from the
real economy, you know, we know that unemployment is going
to creep. But that's the thing I'm worried about. Tim
to be honest with you, there's a you know, we
could come into this first quarter, second quarter here in
(03:40):
New Zealand with unemployment up above five percent, maybe even
hitting six six and a half, and that gets pretty painful.
So fighting inflation lots of different tools. They used a sledgehammer.
It helped. There's as of other things that helped as well.
Speaker 3 (03:56):
Actually, just to understand context around the Reserve Bank's decisions.
Of course, my immediate question I wrote down is how
much blame do they have for the inflation that they
had to get under control? And one might suggest quite
a substantial chunk. You can answer that now if you like.
Speaker 4 (04:12):
Yeah, look, I think there's lots of different factors. I
don't think the Reserve Bank was the sole determinant there.
In fact, they were quite a way down the list
of things. And that's the same with all the central
banks globally. But I think the thing we can look
back with hindsight and say, during COVID, all the central
banks globally, including the Reserve Bank, we're pretty keen to
keep the economies afloat, and so we probably made it
(04:33):
a bit easy. So we've gone from one side of
the boat to the other and now we're getting back
to this neutral level. And I think there's supply chains
were a big part of this whole. You know, where
did the inflation come from? And so yeah, no, it's
not I don't think it's reserve banks that are. They
have not the ones that they have been doing the
right thing in terms of getting on top of it.
So they've done the job. There have been the police
(04:54):
person out there trying to control things.
Speaker 3 (04:57):
For context, our Reserve Bank did have a duel remit,
which was heavily criticized at one stage, wasn't it? They
were put in charge of controlling inflation, but when they
also it's changed now I think, hasn't it. But they
were also tasked with keeping on top of unemployment, and
there was a lot of criticism around the time off
I record correctly that one wasn't really compatible with the
(05:19):
core job of the bank. You know, the employment wasn't
really compatible, was that right?
Speaker 4 (05:24):
I look at it like it's a bit like having
your foot on the accelerator and the brakes at the
same time.
Speaker 3 (05:27):
And that's the one, thank you.
Speaker 4 (05:29):
It's a tough point, and I think this is what
we've got. The US Federal Reserve has a jewelry in it.
So this is the why, the many reasons why the
US figure Reserve is now looking to release the brakes
in terms of reducing interest costs because they're seeing risk
around and unemployment creeping. But yeah, I think it's it's
time and we're going to be a little bit careful
(05:50):
about it, right, Why we're going to be careful about
why central banks are actually cutting rates, you know, the
cutting rates because there's a reduction and economic activity, this
lower growth, rising unemployment, so there is it's god, you know,
that's a bit of a flag for some of the
more economic sensitive parts of the of the country and
(06:11):
the economy. It's a bit of guess work.
Speaker 3 (06:12):
But what our reserve bank react would be behaving slightly
differently if it's still had that remit of having to
keep and unemployment down. Because there was a time, I
mean adrian oas literally talked about there's going to be
some pain. There's going to have to be some pain,
and that pain as people losing their jobs among other things,
wasn't it.
Speaker 4 (06:31):
Yeah, And I think you know, this is the lagged
impact of policy changes. It takes time for policy to
work its way through and now we're seeing it. There's
a few other things that are certainly contributing to that.
The pressure point we've had an energy prices lately has
perhaps accelerating some of the process. Seemingly a lot of
businesses out there are facing some reset to try and
(06:53):
improve profitability, and of course the government looking at being
more efficient is alwayso creating a bit of uncertainty and
employment of was the look. I think, you know, the
moves by the central Bank to increase rates have helped
to get inflation down yea, And now we've got the
trickle down by the parts in.
Speaker 3 (07:13):
Terms of their decisions on how much further they cut
and how quickly. Of course they look at they look
at the data, but the data sort of responds to
their decisions. Is it a bit chicken and egg?
Speaker 4 (07:26):
Yeah. One of the one of the things about the
data team is, as you know, you can get a
lot of the readings can be in a very short term.
They can be against each other, so you can get
out a bad number one month and a better number
the next month. So it's a matter of reading through
the data and smoothing it out. And I think that's
a tough job at the moment. You know, we are
still seeing some unusual data coming through and the post
(07:50):
COVID world doesn't help when we've got things like the
Red Sea supply chain issues. You know, obviously that's creating
problems as well. So there's some unusual stuff still washing through.
But yeah, the data, they've got to think about it
on a sort of a smooth basis and so certainly
the evidence is the air to support for the cups
and so that's very much where we and capital markets
(08:12):
are thinking.
Speaker 3 (08:13):
The Red Sea supply shoes just remind me there's that
when hes Balara, you know, there's some dangerous places and
ship ships having to go the long way around, and
where are we at actually actually out with that. You've
been tracking that quite closely.
Speaker 4 (08:23):
Man, We're still got issues here. Yemen is obviously who
the controlled, and that's meaning ships are at risk when
they go through the Red Sea and many shipping companies
have taken the choice to go the long way around.
And you know, the good users supply chains are in
reasonable order. That it's just taken a bit longer that
we're actually not seeing huge supply problems. In fact, a
(08:46):
lot of businesses got ahead of this, some of the
newsy on. Businesses that we know and love got plenty
of inventory in early on and we haven't seen the
issues that we might have otherwise. But there's been a
cost and longer trips and a little bit more air freight.
So as consumers and as business this is we are
we are occurring some of that cost. And that's some
(09:08):
of the sticky stuff there is of from a central bank. Again,
is this a one off? Or is it going to
keep going forever? So tough tough gig being a banker
all the time, but he shouldn't tough at them in the.
Speaker 3 (09:19):
Moment, ah, those poor bankers. No, I don't know if
you're going to get to many people shedding tears with
you on that one. Not that you are, of course,
are you actually Just there's a because when we go
through a list of things that we've we want to
discuss this this afternoon, there's the thing about growth data,
(09:40):
and there's how does it what does it look like?
When we're getting back on an even keel, Because at
the moment, I guess, and I'm a complete lay person,
so I feel free for me to I can, I
feel free to ask the dumb questions. But it feels
that there's still a lot of focus. Everyone's looking at
what the Reserve Bank is doing, and it's almost like
businesses hold holds its breadth for those decisions. Is there
(10:02):
a point where actually people become less fixated on that
and we know things are getting healthier because we're actually
starting to look at other factors like, oh, look, this
is doing really well, and we better get cranky again
because everyone else is as opposed to keeping an eye
on the Reserve Bank all the time.
Speaker 4 (10:19):
Yeah, look, we're at We're kind of at that point
now that the capital markets where the fixed interest rates
have moved are already it's already baking in a lot
of the interest rate cuts from the Reserve Bank. So
if I'm borrowing as a business or even as a
potentially borrowing for a home, the interest rates that are
being offered are already reflecting the potential for more cuts. Look,
(10:42):
I think this further further from them to fall. So
some of that pressures come out and then we go
back to cost structures. And one of the things that
businesses have been Batlan has been a sharp increase in
costs eighteen months ago, two years ago is labor costs
getting people, the cost of paying people to retain them.
It's been interest costs. We've just talked about that sort
of hitting a top on coming back down. Labor costs
(11:05):
have hit the top when are starting to stabilize, and
things like insurance are even starting this with stabilize and
it's sticky things like council rates. Those have been stopping
businesses from getting positive about what do we go from now.
In the meantime, a bunch of them have put some
pretty useful strategies in place they're implementing now to basically
(11:26):
get their businesses more productive. So, yeah, eighteen months fought
much more positive potential environment. So you know, we do
have to look over the horizon. We're kind of in
a dark, deep cabin at the moment, and there's some
sunlight coming. We're just got to be such timing. And
so New Zealand's actually in a different cycle from the
rest of the world while other economies are slow and
(11:48):
we're kind of basing out. Makes it pretty interesting.
Speaker 3 (11:52):
Okay, So are you a bit more optimistic for us
ahead of some of the other big economies in the world,
are you?
Speaker 4 (11:58):
Yeah? Look, I think when we look at the rate
the change rate of change. It's a change and the change.
New Zealand has been going down earlier and harder than
many other economies. Now we're starting to be less negative,
and I've got to be careful because you know, the
lead indicators, things like the purchasing manager indicies, they get
talked about a lot. Our pmis we're below fifty, and
(12:20):
below fifty says you're still your economy is slow, but
we're not as low as we were. We had a
reading last week that was higher, it was better, but
it was still less than fifty, whereas others are above fifty,
for example the US, and they're dropping and this is
why their central bank are starting to respond. It's definitely
(12:40):
I think you know too early to talk about our
economy on the way back up. But certainly we've taken
the hard medicine. I think you talked about Governor raw
talking about the hard medicine. While it's been pretty bitter medicine,
and it's going to be a little bit more bitter
like the course of you know, like all medicines, you've
got to run the whole course of the medicine to
make sure it works. We've got probably another six to
twelve months of that medicine to wash through.
Speaker 3 (13:02):
You're talking about PMIS and other data. How good is
our day? And when it comes to telling us where
we're at?
Speaker 4 (13:07):
Yeah, look, I think pm I is again there a survey,
so what it is. It goes out to surveys a
number of different businesses, So it's about you and I,
for example, and how do we feel, how do we
think about it? It's good indicative stuff, but just becives.
It's a very directional trend, and I think you know,
it is correlated, so there is some It does have
some relationship with activity, so it's not to be ignored.
(13:29):
But I think you know, we can see a bounce
around a bit, and certainly we have seen a bounce
around it, but the bounce is more positive recently here
and more negative than other economies. We've just had some
data out of China unfortunately that that economy that the
data continues to look pretty soft, eye down. They're facing
disinflation still, right, So everywhere else in the world we've
(13:51):
been battling inflation. In China's disinflation unfortunately, that's a big
trade partner for us. Still.
Speaker 3 (13:55):
Yeah, so interest rates falling. I was wondering how does
that play out? Because obviously I guess your money is
worth less and less when inflation's on the rampay. But
we had a chat with I'm not sure if it
was you or Chris, we had a chat with about
the bond markets. Yep, yep, how the where are we
at with what the bond markets was? Because it's one
(14:18):
of those least sexy sort of investments, isn't it. But
I got the feeling from you guys that there was
a nice little window there where you're like, actually, you
know what, bonds are not a bad thing to look at.
Speaker 4 (14:28):
Yeah, looks you know. Again, just to remind particularly government
bonds of lent money to the government. They pay me interest,
they pay me an income stream for that, and at
the end of the period they pay the capital back.
So it's return on that capital and return all of
that capital. So we use it within capital markets, it's
the we build up from from cash is the lowest risk,
(14:50):
lowest return, then we build up to turn deposits and bonds.
And so at the moment we've seen bond year is
full by more than one percent last little while. So
if you look at a government bond year it's around
high threes, low fours, and so you know, we've seen
those interest rates come along. That's been really profitable when
I measure the capital value, so if I go from
(15:10):
five to four, then I actually collect a capital gain.
There's more potential to come through. You know, we're certainly
seeing that as as it's been a healthy place to visit,
and as we see these official interest rates continue to fall,
then we continue to see some capital gains there. You
certainly a lot of people here quite right, they've been
(15:32):
sitting and things like turn deposits. Unfortunately, when they go
to roll those term deposits, because the problem with turn
deposits is every three months, six months, twelve months, whatever
the term is, you've got to reset them. The rates
there you don't really going to be lower.
Speaker 3 (15:47):
So where do you see New Zealanders putting their money?
In terms of obviously, when the when the economy starts
to recover, the shear market probably looks a bit more
appealing than the local share market. I mean, there's always
we've seen some spectacular games and the tech tech market overseas,
But where do you see New Zealanders putting their money?
And I'll just make one other comment as part of
(16:07):
the question. We had Ashley church on yesterday talking about
property and I was putting to him the idea that
New Zealanders feel that the degree of difficulty in the
property market is higher than it's been before, and I
wonder where, you know, what do you see the flow
of capital going when it comes to investment.
Speaker 4 (16:24):
Yeah, no, great point. So the key thing is, as
I say, we're going to be a little bit wary
about you know, why are central banks cutting interest rates?
It's because the economy is slowing, so certainly that is there.
That cut is there to kickstart, provide a cushion and
then drive growth in the medium term. So sheer markets
(16:46):
tend to look forward. So we've been spending the last
three years looking at GEZ. The economy is going to
slow down. It's resk to earnings, and we just come
through earnings reporting season that actually confirmed that it was
a tough earnings reporting season. Earnings generally missed versus expectations,
and we saw more cuts to forecasts. So we're starting
from a low base and now we're starting to think forward.
(17:08):
You know what happens is those interest rates start to
wash through his economy. It starts to come off the ground.
And what we did to see is shar markets act
earlier than the rest of the capital market, so we
can expect to see a recovery in our market. We've
actually seen a pretty good rally even month today know,
New Zealand shar markets up just under three percent, which
(17:28):
is pretty helpful. But really turn if we go back
to the last time they said the last time we
saw rates being cut by the Reserve Bank was back
in twenty fifteen, back in May, and it doesn't seem
like that long ago. But what we saw early on
the SHAR market New Zealand had had a good rally.
It was up sort of fifteen sixteen percent in that
first twelve months, but it wasn't until after that two
(17:51):
or three years later on that it really kicked on.
So from middle of twenty fifteen through the December betweeny nine,
just before ning before COVID, the New Zealand SHAR market
actually went up one hundred percent. It doubled in what
period from twenty fifteen May twenty fifteen to December tweenty
nineteen lid double, I know, but it was slow to
(18:13):
start with. So this is the purity we're in right now.
We don't know if that's going to happen again, right
there's other conditions are quite different, but there's definitely so
our little sleepy market has actually got some fantastic businesses.
We don't have the tech semiconductor stocks that there are
other economies, and that's why it's really helpful to invest
(18:34):
in global shoes as well to get exposure to these
really big growth sectors. But we have got some fabulous
businesses that actually are really great wealth creators. So we're
an interesting point. We're at that time where it's we've
taken another look. I think just picking up on real
estate definitely again commercial property. This is things like office industrial,
(18:57):
retail malls, even things like data seeers. They can also
do quite well in this turning point, which is a
bit depending on supplying demond, how much new builder is
coming through. Is the economy slowing down, So again, interest
rate cuts can be quite helpful for commercial and again
residential interest rate helpful. That we're going to be mindful
(19:18):
of unemployment as you are a bit worried about your job,
makes it tough to have the confidence to go and
buy a house or even to get lending so I
think there is different assets work at different times. Bonds
as we start at the top of the discussion form
pretty well got some more in it. Good place to be,
but it certainly the other growth theresets, but interesting here too.
Speaker 3 (19:39):
Gosh, I think there'd be a few people in your
unassuming way when you mentioned one hundred percent growth in
three years. There might have been a few people listening going,
hang on, come again.
Speaker 4 (19:47):
What was that?
Speaker 3 (19:48):
So we might talk a touch more about that before
we move on to other things like the effect on
the US selection and all that sort of thing. But
we'll do that after the break. It's twenty six past five.
But if you are listening and you'd like to pick
Shane's brains, we won't give specific financial of vice, but
if you've got something you want to un by me
he might have been. He will have a well considered,
measured response and comment for you which will add to
(20:11):
your wisdom. Give us a call on eight en eighty.
This is News Talks, You'll be smart Money. Twenty seven
past five. Let's welcome back to the weekend collective. This
(20:35):
is smart Money. My guest is director, portfolio manager and
research analyst at Harbor Asset management. His name is Shane Sally.
Let's take some calls and we're going to get on
to by the way, looking ahead to the US election
and what either result might mean for us as well.
And I'm sure there'll be plenty of people who be
keen to know at Shane's take on that, right, Pauline, Hello.
Speaker 5 (20:58):
Yes, good afternoon. Very interesting talk, Tim, And about the money.
I'm just thinking, Shane, and if you are gonna borrow money,
you're gonna ask yourself how you get I'll just turn
the radio down.
Speaker 3 (21:12):
Hang on, there we go. Oh, she's she's going across
the room to do that. Okay, she's coming back. Okay,
let me tell you what. I might just put put
Nauline on hold there because she seems to be taking Tyra.
(21:34):
I've just put Pauli in on. I'll just say, just
talk to her so we can work out when she's ready.
If she's turned the radio down. Because Shane, just before
we get back to Pauline, my ears did prack up.
And I think it's dangerous to put too much on
into this, but I was I didn't realize that there
was such a dramatic growth in the n Z ED.
Was it the top fifty for she is in the
(21:55):
stock exchange. The the abbreviation is the NZI S fifty
f G. What does that stand for. It's gros and dick,
so it isn't is the keeper of it. And so yeah,
look I think between that May twenty fifteen through the
December twenty nineteen, and look, we've got to be really
care for right, there's just one data point. You can't
(22:18):
use that as this is going to happen again. It's
only indicative of what happens when the economy changes.
Speaker 4 (22:24):
Direction from going down to actually turning. And I think
it's you know, we probably underestimate just the attraction and
quality of some of our businesses to private wealth people.
Here in New Zealand attractive place. If I've had money
sitting in turn deposit and they turn deposits falling and
maybe the income yield off New Zealand bonds, government bonds,
(22:45):
we talk about it and shares starts to look interesting.
But also it's lots to look interesting for global investors.
Were at least a dozen really attractive global businesses that
are based here in Zeale, and when our economy turns,
they start to spend time and that's what we're seeing
right now. And you know, so we've had a bit
of a recovery, a little of a bounce at the bottom,
(23:08):
but so we've got a little bit of work to do,
and it is about earnings that changing direction of profitability
and the handbreak of interest rates not being on is helpful.
Speaker 3 (23:17):
Do you look at the visuals of graphs of what's
happened in history and you see the line going up
and down on a certain do you look on that
basic level for patterns that you think, I might actually
just have a look at this period and see if
the data is supporting what I think might be happening.
Speaker 4 (23:31):
Look only to I understand historically, why did that happen
their time? Why was there a blips through there? And
I think history is a pretty good teacher for us,
and wider economies do what they did, and wider markets
to what they did.
Speaker 3 (23:45):
Past performance is no guarantee your future, it is not.
Speaker 4 (23:47):
Unfortunately, and I think we're to do our homework. It's
as hard yards, it's not a straight line.
Speaker 3 (23:55):
Out of curiosity. Back in that time when all those
companies to do well, were there particular industries that stood
out that that were part of that one hundred percent
growth over the years.
Speaker 4 (24:04):
Yeah, look, you know it's again we're going to be
careful about using history as to what it was, but
certainly we saw a recovery and some of the things
like tourism travel was quite helpful through that period of time.
We definitely saw some of the smaller companies have a
bit of a lift because in New Zealand a lot
of those companies tend to be more sensitive to the economy.
There was actually quite a broad range, you know. There
(24:27):
was no one sector or no one grouping that really
drove it, and so there was more about the individual
businesses that were in there. So yeah, I think I've
got to be careful about trying to draw.
Speaker 3 (24:40):
More partially the way I dug into it actually because
it got my attention when you talked about because it's
a dramatic amount of growth. But I know people to
be listening going, oh that's good. Maybe it's time to
get stuck in, and I thought, well, we better dig
into it a bit more to get that caveat from
you about well hang on, you know, it's not a
cycle where you used to be able to say with
property it doubles every eight years because that changes as well.
Speaker 4 (25:02):
Yeah, that's right. I think that's We're definitely in a
point where it's worth people doing a bit of homework. Again,
there is a different earning as a bone, but I
think there's no doubt, you know, it is not as
I say, the reference point in there is to start with,
early on the market had a bit of a bounce
and then it went, oh, geez, we've got to get
(25:22):
through this tough economic period. And it wasn't until later
on that really took off. You know. One of the
things that we know from history is that viatility is
kind of normal. Markets and asset prices do go up
and down, and that problem for investors is having the
patients to look through that bailing out when things are tough. Unfortunately,
(25:44):
as gingerly a pretty that destroys value in the.
Speaker 3 (25:47):
Middle, lock on your loss basically, yeah, you bet.
Speaker 4 (25:50):
And so if you can have the time and the
patience to let it roll, it's very clear that, you know,
we see it time and time again to let the
capital markets do the job. And the compounding you talked about,
you talked about for real estate eary eight years.
Speaker 3 (26:05):
It's changed obviously, Yeah, yeah.
Speaker 4 (26:06):
But you know, but this is the power of investing
is compounding, right that I'm getting five, six, seven, eight, nine,
ten percent every year year now. But the thing that
people don't talk about some years it's twenty some years
it's zero. So on average it might be ten. It's
and you're just going to ride the average game.
Speaker 3 (26:25):
I think the biggest, the biggest tragedy for any investor
is when they can't afford to hang on to that loss,
you know, because they're just in such straightened circumstances. Hence
the mortgage sales. It's such you know, I mean, it
gets lost over and sort of fairly euphemistic language by
people where they talk about this a little bit of
pain in the market, but actually personally, for it's real
visual it's agony. It's agony. Yeah. Look, I think Pauline
(26:46):
has managed to make it across turning radio down with
you pay Pauline.
Speaker 5 (26:52):
Yeah, yeah, I am now a Shane and yourself are
very interesting. Now. If a person borrows money, they've got
to say to themselves, how am I going to pay
that back? Well, I'm an old dog on eighty five
and I always always learned that if you borrow, how
are you going to pay it back. I started working
in December nineteen fifty four and my wage was two
(27:15):
pound ten. I put a pound away into the post
office when the banks were open on Friday nights, and
I gave a pound board and I had ten shillings
to spend, and I knew how to how many beans
make five? And I know there's a recession. Mom and
Dad talked about the recession in the thirties. That was
(27:35):
before the World War Two. I was born in thirty
nine and things were pretty tough even when I was
a kid. There was coupons, I rationing and that. But
I think we're going through a bit of hard yards
at the moment. But you have got to watch your spending,
whichever age you are. I'm on the pension.
Speaker 3 (27:53):
Are are you calling with a little bit of advice
for those who are listening from the years of your experience.
Speaker 5 (27:59):
Well, it's just what I've been through, and I've just
managed it. I mean, I've got my own home and
you've just got to be very careful with money. What's
the matter what age you are, that's the.
Speaker 3 (28:09):
Toughest time you ever went through, Pauline, Well.
Speaker 5 (28:13):
I think when I was very young during the war years.
You know, mum was hard up and she the oldest
child was born in nineteen thirty. The second one was
born thirty two, and then she had a gap, and
I was born in thirty nine. The war was on,
and you know, we just got what we were given
and Mum cooked good meals. But I managed to sell
a few lemonade bottles on after school and got the
(28:37):
old man's old beer bottles and sold them up at
the milk bar. And then I here and you learned
to you learned to save and be thrifty.
Speaker 3 (28:47):
Good on you. Hey, thanks for your court Pauline, Actually.
Speaker 4 (28:50):
Just gold Pauline, thank you so much for sharing that
that is Yeah, that's so many people need to hear
this stuff.
Speaker 3 (28:55):
Yeah. Actually she would have been pretty young to be
selling the lemonader if she's born in thirty nine. Well,
I guess your compassmentus by the time you're three or four.
But it's amazing she members those times. Hey, look, it's
time to just take a quick moment. We'll be back
in just to tick because one of the other big
questions we're gonna have a chat with Shane about is
(29:16):
what does the well, basically, why does the US election
matter for New Zealand, and I don't mean in terms
of well, maybe global security, but when it comes to money, money, money,
We'll be back and just tick. It's twenty one minutes
to Sex News Talks. He'd be yes, welcome back. I've
got bills. Well, we're not talking about bills so much.
(29:36):
This is smart Money on the weekend, collecting my guest
Shane Soley, who's the director and portfolio manager and research
analyst at Harbor Asset Management. By the way, if you
want to check out harbor Asset and the work they
do and the funds that they manage, and but there's
a whole lot of stuff on their website, it's harbor
Asset dot code at NZ, isn't it, Shane, It's the one. Okay,
let's talk about it. The US election. Look, it's great theater.
(29:57):
I swore I wouldn't watch the debate, but let's talk
about what the US election actually means for New Zealand
when it comes to capital market and does one president
mean different things? Does a Harris mean different things to
a Trump?
Speaker 4 (30:12):
Yeah, great question, Tim. We have got to sort of
try and fight our way through the as you say,
the entertainment theater. Really what we're looking for is policy
change risk. You know, does impact economic activity, things like
inflation and where the US government directs its vast resources.
(30:32):
Has an impact on the rest of the world, including
New Zealand. It influences things like interest rates, foreign exchange,
you know, with how much the New Zealand dollars with
the US dollar, share markets, even things like crypto. So
the election still polling pretty closely, but you know there
is a sort of range of different outcomes still potential. Well,
(30:56):
it seems like Harris is pulling a little bit better
and we're still a long way out a couple of months,
and so you know, picking winners from losers. You know,
there is definitely different outcomes for New Zealand and things
like trade tariffs. You know, if there is a change
in trade teriffs, particularly for example, against China, then that
has implications for New Zealand in terms of supplying good
(31:19):
or bad into China. Well, if the tariffs go up,
then that may slow some of our activity down too, right,
so we're gonna be really careful with that. Some parts
of our economy and might actually do okay, other parts
will do badly.
Speaker 3 (31:33):
So, uh, well we're going to be just from a
consumer level, what is it. I mean, this is not
quite what you're talking about. But if you if China
can't sell it's goods or if it's getting whacked a
huge tariff, then it might Does that mean it diverts
goods to other parts of the world, it's right, and
being a bargain for us.
Speaker 4 (31:51):
That's right, And I think you're being on there. But
you know, one of the things that it's not just
about China. Of course, the Republic and mister Trump is
talking about putting tariffs even on friends everyone. You know, yeah,
we're all going to get a bit of a dough
and so you know, that does change the value proposition
of our products and services to American consumers, which are
(32:13):
still really significant. But you're right, it does wash through
and maybe we get a bit of a supply. There
is some evidence that Chinese manufacturers in particular have already
moved a lot of product to the US and advance
of the risk. You know, where do we get a
supply over supply? I'm not sure they might have already
moved it to try and get ahead. So it's one thing.
Environmental policies obviously quite different outcomes, migration policies, very different
(32:37):
outcomes technology, semiconductors who get access to technology, and then
we can go to really interesting things like you know,
is Harris or Trump better for crypto? But you know,
certainly what we've seen since the debate is the Harris beneficiaries,
if you like, have seen a bit of a better outcome.
So for example, some of the sustainable green energy companies,
(33:02):
they've had a bit of a blip, they've gone up
since the debate, and certainly, you know, we're seeing some
of the Harris winners if you like, to do better.
But generally capital markets, whether it's bond markets, interest rates effects,
aign exchange or markets don't really like elections. Pre election
(33:22):
period quite volatile. So I think when for a bit
of a bumpy couple of months going into election.
Speaker 3 (33:27):
What sort of what sort of industries or markets have
a sort of subtle betting on the outcome, You see
shifts because of what they're anticipating is going to happen.
How much, how man how much does that really happen?
Speaker 4 (33:39):
Well, it is certainly at the margin we're seeing as
I say, you know, one area is the sustainability industry
where the Democrats have this thing called the Inflation Reduction
Act the IRA, and it has actually really stimulated some
amazing solar and wind development across the US. Interestingly, many
(34:00):
of the Republican heady states have actually benefited from this.
So it's one of the ones where about getting energy independents,
about getting reducing inflationary impacts from energy. That what the Republicans,
led by mister Trump have said is they're going to
basically stop those policies that are support of the other.
One of cause is tax and mister Trump is looking
(34:22):
to cut tax rates. Democrats are not. In fact, they're
looking to increase some taxes. And one near term issue
for sheer markets in the US is there's actually some
tax reductions due to roll off that some of the
tax policies. Mister Trump put it had a time period
and that time periods are that to come up. So
Republicans don't get control. And of course, what does control
(34:44):
mean in a US government. You can control the Senate
in the House, you can be you can be the president,
but you don't control the government. It's a very it's
a convoluted governmental structure, but it works for them.
Speaker 3 (34:56):
He actually in a way that sort of allays some
of the femal angry people do. Because there is quite
a tension in the balance power between the Senate and Congress,
and Senate and the presidency. I mean how much Actually
this is a dumb question for Meuse Actually I don't know
the answer. I realized in terms of setting tax rates
and all that sort of stuff. How much power does
(35:17):
the president have because they've got executive orders, But doesn't
all that have to go through Senate and Congress or.
Speaker 4 (35:22):
Yeah, that's right. This is the thing about the US governments.
There were checks and balances to actually make sure you
don't end up with particularly outcomers that are generally negative.
It does make it look quite odd externally, but as
I say, it does stop somewhere. So there are certain
things that the president can push through, just like our
prime minister can do, but generally it needs the support
(35:44):
of the rest of government as well.
Speaker 3 (35:46):
Yes, so I Paris says, Look, I'm going to give
a tax break for businesses and stuff. I mean, unless
she gets Congress and Senate to agree to it, then
it's not going to happen, is it.
Speaker 4 (35:54):
Well, there's a budget, right, I've got it. Just giving
the money away where am I going to fund that from?
Where does that come from? And I think one of
the things that when we look at it as an
investment community is and this is both governments, they're going
to have big budgets right there. It just depends on
what they're going to do with it. Where is the
money going to go? And so they're coming back to
(36:15):
know is there winners or losers out of this? Yes
there will be, but really until we find out who
their government is, it's hard to make a call.
Speaker 3 (36:23):
The gut reaction for me would say that the Trump
tariff position is the one that's potentially the least desirable,
simply because he wants to tax the hell out of
our exporters and that is bad for New Zealand's economy.
Speaker 4 (36:36):
Yeah, it does create a head wind for parts of
our economy. And I recently talked to one of the
amazing people that produces some fabulous wine here in New Zealand,
and they are exporting a lot of product into the US.
They've worked really hard to get that product in there.
This will be an issue for them, so quite rightly
they've gone, hey, we've got to develop other markets. But
(36:57):
actually we've just got to absorb it. We're just going
to have to absorb the cost through the supply chain
and our profitability will be lower. But we've got to
go to take take the hit. And I think you know,
as I say, that's when it gets real. For New
Zealand and the US has actually been a very strong economy.
It's been a good tail wind for a lot of
our businesses, some of our you know, we are rock
(37:19):
stars and new ze On sheer market. Things like fish
and buckle, health care and main freight have quite large
and growing businesses in the US, so that that economy
isn't meaningful, and even things like travel and tourism. The
US travelers have been taking advantage of the ability to
get down here and have a good time. So yep,
it's worth watching, but we get to beet careful about
(37:40):
getting too negative about it all. To your point, potential
presidents can say lots of things, but whether they can
do much is another story.
Speaker 3 (37:51):
That's the other one and the market, so the markets
are probably more aware of that than the average punter.
Speaker 4 (37:55):
I guess, well, it can be a little bit concerning
when you see these statements that are pretty brash, and
you go, we.
Speaker 3 (38:01):
Could always go. We've always strike sporting cat meat to
job joking. Sorry, just bad jokes, bad jokes. Hey, just quickly,
this is a trivial question. But you know the guy
Allan You might have heard of Alan Lexman, the guy
who has the thirteen keys, and he's predicted every election
for the past forty odd man a long time. When
he comes out with the predictions, because he's now called
the election for Harris, do the markets have any little
(38:23):
blip in them according to their behavior, because that's a
that's a powerful little piece of information for many people.
Speaker 4 (38:29):
Markets will use any little nugget they can get hold
of to drive directions, right, and we're looking for as
many nuggets we can to make an ingot. So you
will take that and we'll take you every So it's
the markets, Kevil. Markets are watching the swing states right,
the battle states where it's in decis So those are
the ones that people are really focused on. But as
(38:51):
we know here in New Zealand, you've got to be
really careful about the polls. They can say one thing
and do another. Look. I think you know, if it's
more of the same, then certainly that as you know,
we've had a nine to nine I think a change
to republic and we'd see more inward looking activity, which
(39:12):
actually may be good for the US economy, less good
for the rest of the world.
Speaker 3 (39:17):
Yeah, okay, right, let's let's take a moment. We'll be
back and just tickets eight minutes to six news talks.
It'd be yes, welcome back to the weekn in collective words,
welcome back to sort of say goodbye. But if you
haven't missed any of the previous hours, you can go
check out our podcast and Shane solely from harbor Asset Management.
If people want to check you out, they can go
to harbor Asset dot co dot nz. And what have
(39:37):
you got coming up this week, Shane? Anything interesting you're
focusing on?
Speaker 4 (39:41):
Yeah, look, I think to the big watch for capital
markets this week will be the better the use fital
Reserve comments on Wednesday, and the key here is that
the market has been expecting a zero point five percent
quarter percent cut. Some have been talking about a half
a percent. The data is really not there to support that.
It'll be the tone. It'll be about how many cuts
(40:01):
and how fast. But then we get that bookended on
Friday by the Danka Japan who have been increasing rates
and they shocked us all early last month. Increasing rates
have been expected in the market. Didn't like it, so
it'll be part of the that'll be the big focus
this week.
Speaker 3 (40:20):
When Adrian or opens his mouth, they have a chat
about things, but the US Federals there slightly a few
more eyes on that one. Excellent. Hey, thanks Shane, thanks
so much for your time, and Daniel, enjoy the rest
of the evening. That's that's. That's Shane solely from Harbor
Asset Management. Do check out their website harbor Asset dot
cut and thank you to my producer Tire Roberts. Looking
(40:40):
after me again this weekend. We'll look forward to your
company at the same time on Saturday and Sunday from
three to six. Check out the podcast. Go to The
Weekend Collective on iHeartRadio. Sunday at six is next and
we'll look forward to your company again soon. Ketchup, catch up,
bye bye.
Speaker 1 (41:09):
For more from the Weekend Collective, listen live to News
Talk ZEDB weekends from three pm, or follow the podcast
on iHeartRadio.
You're listening to the Weekend Collective podcast from News Talk
sed B.
Speaker 2 (00:20):
Jennie is a good, Jennie is.
Speaker 3 (00:33):
A love them and welcome back to the Weekend Collective.
I'm Tim Beverage and this is Smart Money. By the way,
if you missed any of our previous hours, we interviewed
David Seymour about the Treaty Principles Bill and away without
getting too dramatic about it to believe it or not,
despite all the drama around the country about it. And
we also had to chat with Mark Mitchell about the
decreasing crime statistics which is good news, and violent crime
(00:55):
in Auckland CBD, among other things. You can check that
out and the feedback we got if you go to
our podcast, just look for the Weekend Collective at iHeartRadio.
But now it is time for Smart Money and my
guest is from Harbor Asset Management. He's a director and
portfolio manager and research analyst and his name is Shane Solly.
Good afternoon, Yeah, Hey Tim, How are you going all right?
(01:18):
How are you doing this weekend?
Speaker 4 (01:20):
Dad?
Speaker 3 (01:20):
Excellent? So yes, if you have any kind of if
you're interested in money basically and understanding how the world works,
when it comes to money and assets and investments. We'd
love to have me. Just we'll stick with us because
we're going to get into well, let's we'll get right
into it, shall we, Shane. The first thing is central
banks cutting official interest rates. And when we were in
(01:43):
central banks, we're just talking in New Zealand context as well.
Speaker 4 (01:47):
Yeah, that's a really good question because I think you
know central banks. That's people like the Reserve Bank in
New Zealand, but it's also things like the US Federal Reserve,
the Bank of England, the European Central Bank. And look,
it's really interesting. We've had central banks increasing interest rates.
So the last few is post COVID to try and
help get on top of inflation, and now they're going
(02:07):
the other way. So we've seen central banks neutralizing official
interest rates as this inflation falls and as economic lead
indicators suggest that economic growth starting to slow and they're
actually starting to worry about unemployment. So the risk has
gone from inflation to growth. And we're expecting this week Wednesday,
the US vigil Reserve is expected to join other central banks,
(02:30):
including the Reserve Bank and New Zealand and actually cutting
official rates. So yeah, it's an interesting time. You know,
certainly this inflation, the mix between inflation interest rates. Certainly
the inflation sits the trajectory how fast or can the
central banks cut? Well that economic growth that really sort
of sits the pace and the magnitude. So inflation says
(02:52):
yess you should be cutting. But growth is the key
to how fast. And certainly we know in our economy
here it's time, right, it's time for rate cuts here.
Speaker 3 (03:00):
How urgently would you be wanting to cut rates because
we've gone from if you might to go where Adrian
Are's rhetoric even said I was thinking about maybe even
putting them up, but I'm going to leave them the same.
And finally, there's a slight drop. I'm guessing from just
the energy and your voice around that you'd like to
say a bit more of a fall, a bit quicker.
Speaker 4 (03:19):
Well, I think we need consecutive right cuts. I think
there's the door has been open. They need to keep
this momentum going or let the economists decide whether it
was done early enough or not. But certainly from the
real economy, you know, we know that unemployment is going
to creep. But that's the thing I'm worried about. Tim
to be honest with you, there's a you know, we
could come into this first quarter, second quarter here in
(03:40):
New Zealand with unemployment up above five percent, maybe even
hitting six six and a half, and that gets pretty painful.
So fighting inflation lots of different tools. They used a sledgehammer.
It helped. There's as of other things that helped as well.
Speaker 3 (03:56):
Actually, just to understand context around the Reserve Bank's decisions.
Of course, my immediate question I wrote down is how
much blame do they have for the inflation that they
had to get under control? And one might suggest quite
a substantial chunk. You can answer that now if you like.
Speaker 4 (04:12):
Yeah, look, I think there's lots of different factors. I
don't think the Reserve Bank was the sole determinant there.
In fact, they were quite a way down the list
of things. And that's the same with all the central
banks globally. But I think the thing we can look
back with hindsight and say, during COVID, all the central
banks globally, including the Reserve Bank, we're pretty keen to
keep the economies afloat, and so we probably made it
(04:33):
a bit easy. So we've gone from one side of
the boat to the other and now we're getting back
to this neutral level. And I think there's supply chains
were a big part of this whole. You know, where
did the inflation come from? And so yeah, no, it's
not I don't think it's reserve banks that are. They
have not the ones that they have been doing the
right thing in terms of getting on top of it.
So they've done the job. There have been the police
(04:54):
person out there trying to control things.
Speaker 3 (04:57):
For context, our Reserve Bank did have a duel remit,
which was heavily criticized at one stage, wasn't it? They
were put in charge of controlling inflation, but when they
also it's changed now I think, hasn't it. But they
were also tasked with keeping on top of unemployment, and
there was a lot of criticism around the time off
I record correctly that one wasn't really compatible with the
(05:19):
core job of the bank. You know, the employment wasn't
really compatible, was that right?
Speaker 4 (05:24):
I look at it like it's a bit like having
your foot on the accelerator and the brakes at the
same time.
Speaker 3 (05:27):
And that's the one, thank you.
Speaker 4 (05:29):
It's a tough point, and I think this is what
we've got. The US Federal Reserve has a jewelry in it.
So this is the why, the many reasons why the
US figure Reserve is now looking to release the brakes
in terms of reducing interest costs because they're seeing risk
around and unemployment creeping. But yeah, I think it's it's
time and we're going to be a little bit careful
(05:50):
about it, right, Why we're going to be careful about
why central banks are actually cutting rates, you know, the
cutting rates because there's a reduction and economic activity, this
lower growth, rising unemployment, so there is it's god, you know,
that's a bit of a flag for some of the
more economic sensitive parts of the of the country and
(06:11):
the economy. It's a bit of guess work.
Speaker 3 (06:12):
But what our reserve bank react would be behaving slightly
differently if it's still had that remit of having to
keep and unemployment down. Because there was a time, I
mean adrian oas literally talked about there's going to be
some pain. There's going to have to be some pain,
and that pain as people losing their jobs among other things,
wasn't it.
Speaker 4 (06:31):
Yeah, And I think you know, this is the lagged
impact of policy changes. It takes time for policy to
work its way through and now we're seeing it. There's
a few other things that are certainly contributing to that.
The pressure point we've had an energy prices lately has
perhaps accelerating some of the process. Seemingly a lot of
businesses out there are facing some reset to try and
(06:53):
improve profitability, and of course the government looking at being
more efficient is alwayso creating a bit of uncertainty and
employment of was the look. I think, you know, the
moves by the central Bank to increase rates have helped
to get inflation down yea, And now we've got the
trickle down by the parts in.
Speaker 3 (07:13):
Terms of their decisions on how much further they cut
and how quickly. Of course they look at they look
at the data, but the data sort of responds to
their decisions. Is it a bit chicken and egg?
Speaker 4 (07:26):
Yeah. One of the one of the things about the
data team is, as you know, you can get a
lot of the readings can be in a very short term.
They can be against each other, so you can get
out a bad number one month and a better number
the next month. So it's a matter of reading through
the data and smoothing it out. And I think that's
a tough job at the moment. You know, we are
still seeing some unusual data coming through and the post
(07:50):
COVID world doesn't help when we've got things like the
Red Sea supply chain issues. You know, obviously that's creating
problems as well. So there's some unusual stuff still washing through.
But yeah, the data, they've got to think about it
on a sort of a smooth basis and so certainly
the evidence is the air to support for the cups
and so that's very much where we and capital markets
(08:12):
are thinking.
Speaker 3 (08:13):
The Red Sea supply shoes just remind me there's that
when hes Balara, you know, there's some dangerous places and
ship ships having to go the long way around, and
where are we at actually actually out with that. You've
been tracking that quite closely.
Speaker 4 (08:23):
Man, We're still got issues here. Yemen is obviously who
the controlled, and that's meaning ships are at risk when
they go through the Red Sea and many shipping companies
have taken the choice to go the long way around.
And you know, the good users supply chains are in
reasonable order. That it's just taken a bit longer that
we're actually not seeing huge supply problems. In fact, a
(08:46):
lot of businesses got ahead of this, some of the
newsy on. Businesses that we know and love got plenty
of inventory in early on and we haven't seen the
issues that we might have otherwise. But there's been a
cost and longer trips and a little bit more air freight.
So as consumers and as business this is we are
we are occurring some of that cost. And that's some
(09:08):
of the sticky stuff there is of from a central bank. Again,
is this a one off? Or is it going to
keep going forever? So tough tough gig being a banker
all the time, but he shouldn't tough at them in the.
Speaker 3 (09:19):
Moment, ah, those poor bankers. No, I don't know if
you're going to get to many people shedding tears with
you on that one. Not that you are, of course,
are you actually Just there's a because when we go
through a list of things that we've we want to
discuss this this afternoon, there's the thing about growth data,
(09:40):
and there's how does it what does it look like?
When we're getting back on an even keel, Because at
the moment, I guess, and I'm a complete lay person,
so I feel free for me to I can, I
feel free to ask the dumb questions. But it feels
that there's still a lot of focus. Everyone's looking at
what the Reserve Bank is doing, and it's almost like
businesses hold holds its breadth for those decisions. Is there
(10:02):
a point where actually people become less fixated on that
and we know things are getting healthier because we're actually
starting to look at other factors like, oh, look, this
is doing really well, and we better get cranky again
because everyone else is as opposed to keeping an eye
on the Reserve Bank all the time.
Speaker 4 (10:19):
Yeah, look, we're at We're kind of at that point
now that the capital markets where the fixed interest rates
have moved are already it's already baking in a lot
of the interest rate cuts from the Reserve Bank. So
if I'm borrowing as a business or even as a
potentially borrowing for a home, the interest rates that are
being offered are already reflecting the potential for more cuts. Look,
(10:42):
I think this further further from them to fall. So
some of that pressures come out and then we go
back to cost structures. And one of the things that
businesses have been Batlan has been a sharp increase in
costs eighteen months ago, two years ago is labor costs
getting people, the cost of paying people to retain them.
It's been interest costs. We've just talked about that sort
of hitting a top on coming back down. Labor costs
(11:05):
have hit the top when are starting to stabilize, and
things like insurance are even starting this with stabilize and
it's sticky things like council rates. Those have been stopping
businesses from getting positive about what do we go from now.
In the meantime, a bunch of them have put some
pretty useful strategies in place they're implementing now to basically
(11:26):
get their businesses more productive. So, yeah, eighteen months fought
much more positive potential environment. So you know, we do
have to look over the horizon. We're kind of in
a dark, deep cabin at the moment, and there's some
sunlight coming. We're just got to be such timing. And
so New Zealand's actually in a different cycle from the
rest of the world while other economies are slow and
(11:48):
we're kind of basing out. Makes it pretty interesting.
Speaker 3 (11:52):
Okay, So are you a bit more optimistic for us
ahead of some of the other big economies in the world,
are you?
Speaker 4 (11:58):
Yeah? Look, I think when we look at the rate
the change rate of change. It's a change and the change.
New Zealand has been going down earlier and harder than
many other economies. Now we're starting to be less negative,
and I've got to be careful because you know, the
lead indicators, things like the purchasing manager indicies, they get
talked about a lot. Our pmis we're below fifty, and
(12:20):
below fifty says you're still your economy is slow, but
we're not as low as we were. We had a
reading last week that was higher, it was better, but
it was still less than fifty, whereas others are above fifty,
for example the US, and they're dropping and this is
why their central bank are starting to respond. It's definitely
(12:40):
I think you know too early to talk about our
economy on the way back up. But certainly we've taken
the hard medicine. I think you talked about Governor raw
talking about the hard medicine. While it's been pretty bitter medicine,
and it's going to be a little bit more bitter
like the course of you know, like all medicines, you've
got to run the whole course of the medicine to
make sure it works. We've got probably another six to
twelve months of that medicine to wash through.
Speaker 3 (13:02):
You're talking about PMIS and other data. How good is
our day? And when it comes to telling us where
we're at?
Speaker 4 (13:07):
Yeah, look, I think pm I is again there a survey,
so what it is. It goes out to surveys a
number of different businesses, So it's about you and I,
for example, and how do we feel, how do we
think about it? It's good indicative stuff, but just becives.
It's a very directional trend, and I think you know,
it is correlated, so there is some It does have
some relationship with activity, so it's not to be ignored.
(13:29):
But I think you know, we can see a bounce
around a bit, and certainly we have seen a bounce
around it, but the bounce is more positive recently here
and more negative than other economies. We've just had some
data out of China unfortunately that that economy that the
data continues to look pretty soft, eye down. They're facing
disinflation still, right, So everywhere else in the world we've
(13:51):
been battling inflation. In China's disinflation unfortunately, that's a big
trade partner for us. Still.
Speaker 3 (13:55):
Yeah, so interest rates falling. I was wondering how does
that play out? Because obviously I guess your money is
worth less and less when inflation's on the rampay. But
we had a chat with I'm not sure if it
was you or Chris, we had a chat with about
the bond markets. Yep, yep, how the where are we
at with what the bond markets was? Because it's one
(14:18):
of those least sexy sort of investments, isn't it. But
I got the feeling from you guys that there was
a nice little window there where you're like, actually, you
know what, bonds are not a bad thing to look at.
Speaker 4 (14:28):
Yeah, looks you know. Again, just to remind particularly government
bonds of lent money to the government. They pay me interest,
they pay me an income stream for that, and at
the end of the period they pay the capital back.
So it's return on that capital and return all of
that capital. So we use it within capital markets, it's
the we build up from from cash is the lowest risk,
(14:50):
lowest return, then we build up to turn deposits and bonds.
And so at the moment we've seen bond year is
full by more than one percent last little while. So
if you look at a government bond year it's around
high threes, low fours, and so you know, we've seen
those interest rates come along. That's been really profitable when
I measure the capital value, so if I go from
(15:10):
five to four, then I actually collect a capital gain.
There's more potential to come through. You know, we're certainly
seeing that as as it's been a healthy place to visit,
and as we see these official interest rates continue to fall,
then we continue to see some capital gains there. You
certainly a lot of people here quite right, they've been
(15:32):
sitting and things like turn deposits. Unfortunately, when they go
to roll those term deposits, because the problem with turn
deposits is every three months, six months, twelve months, whatever
the term is, you've got to reset them. The rates
there you don't really going to be lower.
Speaker 3 (15:47):
So where do you see New Zealanders putting their money?
In terms of obviously, when the when the economy starts
to recover, the shear market probably looks a bit more
appealing than the local share market. I mean, there's always
we've seen some spectacular games and the tech tech market overseas,
But where do you see New Zealanders putting their money?
And I'll just make one other comment as part of
(16:07):
the question. We had Ashley church on yesterday talking about
property and I was putting to him the idea that
New Zealanders feel that the degree of difficulty in the
property market is higher than it's been before, and I
wonder where, you know, what do you see the flow
of capital going when it comes to investment.
Speaker 4 (16:24):
Yeah, no, great point. So the key thing is, as
I say, we're going to be a little bit wary
about you know, why are central banks cutting interest rates?
It's because the economy is slowing, so certainly that is there.
That cut is there to kickstart, provide a cushion and
then drive growth in the medium term. So sheer markets
(16:46):
tend to look forward. So we've been spending the last
three years looking at GEZ. The economy is going to
slow down. It's resk to earnings, and we just come
through earnings reporting season that actually confirmed that it was
a tough earnings reporting season. Earnings generally missed versus expectations,
and we saw more cuts to forecasts. So we're starting
from a low base and now we're starting to think forward.
(17:08):
You know what happens is those interest rates start to
wash through his economy. It starts to come off the ground.
And what we did to see is shar markets act
earlier than the rest of the capital market, so we
can expect to see a recovery in our market. We've
actually seen a pretty good rally even month today know,
New Zealand shar markets up just under three percent, which
(17:28):
is pretty helpful. But really turn if we go back
to the last time they said the last time we
saw rates being cut by the Reserve Bank was back
in twenty fifteen, back in May, and it doesn't seem
like that long ago. But what we saw early on
the SHAR market New Zealand had had a good rally.
It was up sort of fifteen sixteen percent in that
first twelve months, but it wasn't until after that two
(17:51):
or three years later on that it really kicked on.
So from middle of twenty fifteen through the December betweeny nine,
just before ning before COVID, the New Zealand SHAR market
actually went up one hundred percent. It doubled in what
period from twenty fifteen May twenty fifteen to December tweenty
nineteen lid double, I know, but it was slow to
(18:13):
start with. So this is the purity we're in right now.
We don't know if that's going to happen again, right
there's other conditions are quite different, but there's definitely so
our little sleepy market has actually got some fantastic businesses.
We don't have the tech semiconductor stocks that there are
other economies, and that's why it's really helpful to invest
(18:34):
in global shoes as well to get exposure to these
really big growth sectors. But we have got some fabulous
businesses that actually are really great wealth creators. So we're
an interesting point. We're at that time where it's we've
taken another look. I think just picking up on real
estate definitely again commercial property. This is things like office industrial,
(18:57):
retail malls, even things like data seeers. They can also
do quite well in this turning point, which is a
bit depending on supplying demond, how much new builder is
coming through. Is the economy slowing down, So again, interest
rate cuts can be quite helpful for commercial and again
residential interest rate helpful. That we're going to be mindful
(19:18):
of unemployment as you are a bit worried about your job,
makes it tough to have the confidence to go and
buy a house or even to get lending so I
think there is different assets work at different times. Bonds
as we start at the top of the discussion form
pretty well got some more in it. Good place to be,
but it certainly the other growth theresets, but interesting here too.
Speaker 3 (19:39):
Gosh, I think there'd be a few people in your
unassuming way when you mentioned one hundred percent growth in
three years. There might have been a few people listening going,
hang on, come again.
Speaker 4 (19:47):
What was that?
Speaker 3 (19:48):
So we might talk a touch more about that before
we move on to other things like the effect on
the US selection and all that sort of thing. But
we'll do that after the break. It's twenty six past five.
But if you are listening and you'd like to pick
Shane's brains, we won't give specific financial of vice, but
if you've got something you want to un by me
he might have been. He will have a well considered,
measured response and comment for you which will add to
(20:11):
your wisdom. Give us a call on eight en eighty.
This is News Talks, You'll be smart Money. Twenty seven
past five. Let's welcome back to the weekend collective. This
(20:35):
is smart Money. My guest is director, portfolio manager and
research analyst at Harbor Asset management. His name is Shane Sally.
Let's take some calls and we're going to get on
to by the way, looking ahead to the US election
and what either result might mean for us as well.
And I'm sure there'll be plenty of people who be
keen to know at Shane's take on that, right, Pauline, Hello.
Speaker 5 (20:58):
Yes, good afternoon. Very interesting talk, Tim, And about the money.
I'm just thinking, Shane, and if you are gonna borrow money,
you're gonna ask yourself how you get I'll just turn
the radio down.
Speaker 3 (21:12):
Hang on, there we go. Oh, she's she's going across
the room to do that. Okay, she's coming back. Okay,
let me tell you what. I might just put put
Nauline on hold there because she seems to be taking Tyra.
(21:34):
I've just put Pauli in on. I'll just say, just
talk to her so we can work out when she's ready.
If she's turned the radio down. Because Shane, just before
we get back to Pauline, my ears did prack up.
And I think it's dangerous to put too much on
into this, but I was I didn't realize that there
was such a dramatic growth in the n Z ED.
Was it the top fifty for she is in the
(21:55):
stock exchange. The the abbreviation is the NZI S fifty
f G. What does that stand for. It's gros and dick,
so it isn't is the keeper of it. And so yeah,
look I think between that May twenty fifteen through the
December twenty nineteen, and look, we've got to be really
care for right, there's just one data point. You can't
(22:18):
use that as this is going to happen again. It's
only indicative of what happens when the economy changes.
Speaker 4 (22:24):
Direction from going down to actually turning. And I think
it's you know, we probably underestimate just the attraction and
quality of some of our businesses to private wealth people.
Here in New Zealand attractive place. If I've had money
sitting in turn deposit and they turn deposits falling and
maybe the income yield off New Zealand bonds, government bonds,
(22:45):
we talk about it and shares starts to look interesting.
But also it's lots to look interesting for global investors.
Were at least a dozen really attractive global businesses that
are based here in Zeale, and when our economy turns,
they start to spend time and that's what we're seeing
right now. And you know, so we've had a bit
of a recovery, a little of a bounce at the bottom,
(23:08):
but so we've got a little bit of work to do,
and it is about earnings that changing direction of profitability
and the handbreak of interest rates not being on is helpful.
Speaker 3 (23:17):
Do you look at the visuals of graphs of what's
happened in history and you see the line going up
and down on a certain do you look on that
basic level for patterns that you think, I might actually
just have a look at this period and see if
the data is supporting what I think might be happening.
Speaker 4 (23:31):
Look only to I understand historically, why did that happen
their time? Why was there a blips through there? And
I think history is a pretty good teacher for us,
and wider economies do what they did, and wider markets
to what they did.
Speaker 3 (23:45):
Past performance is no guarantee your future, it is not.
Speaker 4 (23:47):
Unfortunately, and I think we're to do our homework. It's
as hard yards, it's not a straight line.
Speaker 3 (23:55):
Out of curiosity. Back in that time when all those
companies to do well, were there particular industries that stood
out that that were part of that one hundred percent
growth over the years.
Speaker 4 (24:04):
Yeah, look, you know it's again we're going to be
careful about using history as to what it was, but
certainly we saw a recovery and some of the things
like tourism travel was quite helpful through that period of time.
We definitely saw some of the smaller companies have a
bit of a lift because in New Zealand a lot
of those companies tend to be more sensitive to the economy.
There was actually quite a broad range, you know. There
(24:27):
was no one sector or no one grouping that really
drove it, and so there was more about the individual
businesses that were in there. So yeah, I think I've
got to be careful about trying to draw.
Speaker 3 (24:40):
More partially the way I dug into it actually because
it got my attention when you talked about because it's
a dramatic amount of growth. But I know people to
be listening going, oh that's good. Maybe it's time to
get stuck in, and I thought, well, we better dig
into it a bit more to get that caveat from
you about well hang on, you know, it's not a
cycle where you used to be able to say with
property it doubles every eight years because that changes as well.
Speaker 4 (25:02):
Yeah, that's right. I think that's We're definitely in a
point where it's worth people doing a bit of homework. Again,
there is a different earning as a bone, but I
think there's no doubt, you know, it is not as
I say, the reference point in there is to start with,
early on the market had a bit of a bounce
and then it went, oh, geez, we've got to get
(25:22):
through this tough economic period. And it wasn't until later
on that really took off. You know. One of the
things that we know from history is that viatility is
kind of normal. Markets and asset prices do go up
and down, and that problem for investors is having the
patients to look through that bailing out when things are tough. Unfortunately,
(25:44):
as gingerly a pretty that destroys value in the.
Speaker 3 (25:47):
Middle, lock on your loss basically, yeah, you bet.
Speaker 4 (25:50):
And so if you can have the time and the
patience to let it roll, it's very clear that, you know,
we see it time and time again to let the
capital markets do the job. And the compounding you talked about,
you talked about for real estate eary eight years.
Speaker 3 (26:05):
It's changed obviously, Yeah, yeah.
Speaker 4 (26:06):
But you know, but this is the power of investing
is compounding, right that I'm getting five, six, seven, eight, nine,
ten percent every year year now. But the thing that
people don't talk about some years it's twenty some years
it's zero. So on average it might be ten. It's
and you're just going to ride the average game.
Speaker 3 (26:25):
I think the biggest, the biggest tragedy for any investor
is when they can't afford to hang on to that loss,
you know, because they're just in such straightened circumstances. Hence
the mortgage sales. It's such you know, I mean, it
gets lost over and sort of fairly euphemistic language by
people where they talk about this a little bit of
pain in the market, but actually personally, for it's real
visual it's agony. It's agony. Yeah. Look, I think Pauline
(26:46):
has managed to make it across turning radio down with
you pay Pauline.
Speaker 5 (26:52):
Yeah, yeah, I am now a Shane and yourself are
very interesting. Now. If a person borrows money, they've got
to say to themselves, how am I going to pay
that back? Well, I'm an old dog on eighty five
and I always always learned that if you borrow, how
are you going to pay it back. I started working
in December nineteen fifty four and my wage was two
(27:15):
pound ten. I put a pound away into the post
office when the banks were open on Friday nights, and
I gave a pound board and I had ten shillings
to spend, and I knew how to how many beans
make five? And I know there's a recession. Mom and
Dad talked about the recession in the thirties. That was
(27:35):
before the World War Two. I was born in thirty
nine and things were pretty tough even when I was
a kid. There was coupons, I rationing and that. But
I think we're going through a bit of hard yards
at the moment. But you have got to watch your spending,
whichever age you are. I'm on the pension.
Speaker 3 (27:53):
Are are you calling with a little bit of advice
for those who are listening from the years of your experience.
Speaker 5 (27:59):
Well, it's just what I've been through, and I've just
managed it. I mean, I've got my own home and
you've just got to be very careful with money. What's
the matter what age you are, that's the.
Speaker 3 (28:09):
Toughest time you ever went through, Pauline, Well.
Speaker 5 (28:13):
I think when I was very young during the war years.
You know, mum was hard up and she the oldest
child was born in nineteen thirty. The second one was
born thirty two, and then she had a gap, and
I was born in thirty nine. The war was on,
and you know, we just got what we were given
and Mum cooked good meals. But I managed to sell
a few lemonade bottles on after school and got the
(28:37):
old man's old beer bottles and sold them up at
the milk bar. And then I here and you learned
to you learned to save and be thrifty.
Speaker 3 (28:47):
Good on you. Hey, thanks for your court Pauline, Actually.
Speaker 4 (28:50):
Just gold Pauline, thank you so much for sharing that
that is Yeah, that's so many people need to hear
this stuff.
Speaker 3 (28:55):
Yeah. Actually she would have been pretty young to be
selling the lemonader if she's born in thirty nine. Well,
I guess your compassmentus by the time you're three or four.
But it's amazing she members those times. Hey, look, it's
time to just take a quick moment. We'll be back
in just to tick because one of the other big
questions we're gonna have a chat with Shane about is
(29:16):
what does the well, basically, why does the US election
matter for New Zealand, and I don't mean in terms
of well, maybe global security, but when it comes to money, money, money,
We'll be back and just tick. It's twenty one minutes
to Sex News Talks. He'd be yes, welcome back. I've
got bills. Well, we're not talking about bills so much.
(29:36):
This is smart Money on the weekend, collecting my guest
Shane Soley, who's the director and portfolio manager and research
analyst at Harbor Asset Management. By the way, if you
want to check out harbor Asset and the work they
do and the funds that they manage, and but there's
a whole lot of stuff on their website, it's harbor
Asset dot code at NZ, isn't it, Shane, It's the one. Okay,
let's talk about it. The US election. Look, it's great theater.
(29:57):
I swore I wouldn't watch the debate, but let's talk
about what the US election actually means for New Zealand
when it comes to capital market and does one president
mean different things? Does a Harris mean different things to
a Trump?
Speaker 4 (30:12):
Yeah, great question, Tim. We have got to sort of
try and fight our way through the as you say,
the entertainment theater. Really what we're looking for is policy
change risk. You know, does impact economic activity, things like
inflation and where the US government directs its vast resources.
(30:32):
Has an impact on the rest of the world, including
New Zealand. It influences things like interest rates, foreign exchange,
you know, with how much the New Zealand dollars with
the US dollar, share markets, even things like crypto. So
the election still polling pretty closely, but you know there
is a sort of range of different outcomes still potential. Well,
(30:56):
it seems like Harris is pulling a little bit better
and we're still a long way out a couple of months,
and so you know, picking winners from losers. You know,
there is definitely different outcomes for New Zealand and things
like trade tariffs. You know, if there is a change
in trade teriffs, particularly for example, against China, then that
has implications for New Zealand in terms of supplying good
(31:19):
or bad into China. Well, if the tariffs go up,
then that may slow some of our activity down too, right,
so we're gonna be really careful with that. Some parts
of our economy and might actually do okay, other parts
will do badly.
Speaker 3 (31:33):
So, uh, well we're going to be just from a
consumer level, what is it. I mean, this is not
quite what you're talking about. But if you if China
can't sell it's goods or if it's getting whacked a
huge tariff, then it might Does that mean it diverts
goods to other parts of the world, it's right, and
being a bargain for us.
Speaker 4 (31:51):
That's right, And I think you're being on there. But
you know, one of the things that it's not just
about China. Of course, the Republic and mister Trump is
talking about putting tariffs even on friends everyone. You know, yeah,
we're all going to get a bit of a dough
and so you know, that does change the value proposition
of our products and services to American consumers, which are
(32:13):
still really significant. But you're right, it does wash through
and maybe we get a bit of a supply. There
is some evidence that Chinese manufacturers in particular have already
moved a lot of product to the US and advance
of the risk. You know, where do we get a
supply over supply? I'm not sure they might have already
moved it to try and get ahead. So it's one thing.
Environmental policies obviously quite different outcomes, migration policies, very different
(32:37):
outcomes technology, semiconductors who get access to technology, and then
we can go to really interesting things like you know,
is Harris or Trump better for crypto? But you know,
certainly what we've seen since the debate is the Harris beneficiaries,
if you like, have seen a bit of a better outcome.
So for example, some of the sustainable green energy companies,
(33:02):
they've had a bit of a blip, they've gone up
since the debate, and certainly, you know, we're seeing some
of the Harris winners if you like, to do better.
But generally capital markets, whether it's bond markets, interest rates effects,
aign exchange or markets don't really like elections. Pre election
(33:22):
period quite volatile. So I think when for a bit
of a bumpy couple of months going into election.
Speaker 3 (33:27):
What sort of what sort of industries or markets have
a sort of subtle betting on the outcome, You see
shifts because of what they're anticipating is going to happen.
How much, how man how much does that really happen?
Speaker 4 (33:39):
Well, it is certainly at the margin we're seeing as
I say, you know, one area is the sustainability industry
where the Democrats have this thing called the Inflation Reduction
Act the IRA, and it has actually really stimulated some
amazing solar and wind development across the US. Interestingly, many
(34:00):
of the Republican heady states have actually benefited from this.
So it's one of the ones where about getting energy independents,
about getting reducing inflationary impacts from energy. That what the Republicans,
led by mister Trump have said is they're going to
basically stop those policies that are support of the other.
One of cause is tax and mister Trump is looking
(34:22):
to cut tax rates. Democrats are not. In fact, they're
looking to increase some taxes. And one near term issue
for sheer markets in the US is there's actually some
tax reductions due to roll off that some of the
tax policies. Mister Trump put it had a time period
and that time periods are that to come up. So
Republicans don't get control. And of course, what does control
(34:44):
mean in a US government. You can control the Senate
in the House, you can be you can be the president,
but you don't control the government. It's a very it's
a convoluted governmental structure, but it works for them.
Speaker 3 (34:56):
He actually in a way that sort of allays some
of the femal angry people do. Because there is quite
a tension in the balance power between the Senate and Congress,
and Senate and the presidency. I mean how much Actually
this is a dumb question for Meuse Actually I don't know
the answer. I realized in terms of setting tax rates
and all that sort of stuff. How much power does
(35:17):
the president have because they've got executive orders, But doesn't
all that have to go through Senate and Congress or.
Speaker 4 (35:22):
Yeah, that's right. This is the thing about the US governments.
There were checks and balances to actually make sure you
don't end up with particularly outcomers that are generally negative.
It does make it look quite odd externally, but as
I say, it does stop somewhere. So there are certain
things that the president can push through, just like our
prime minister can do, but generally it needs the support
(35:44):
of the rest of government as well.
Speaker 3 (35:46):
Yes, so I Paris says, Look, I'm going to give
a tax break for businesses and stuff. I mean, unless
she gets Congress and Senate to agree to it, then
it's not going to happen, is it.
Speaker 4 (35:54):
Well, there's a budget, right, I've got it. Just giving
the money away where am I going to fund that from?
Where does that come from? And I think one of
the things that when we look at it as an
investment community is and this is both governments, they're going
to have big budgets right there. It just depends on
what they're going to do with it. Where is the
money going to go? And so they're coming back to
(36:15):
know is there winners or losers out of this? Yes
there will be, but really until we find out who
their government is, it's hard to make a call.
Speaker 3 (36:23):
The gut reaction for me would say that the Trump
tariff position is the one that's potentially the least desirable,
simply because he wants to tax the hell out of
our exporters and that is bad for New Zealand's economy.
Speaker 4 (36:36):
Yeah, it does create a head wind for parts of
our economy. And I recently talked to one of the
amazing people that produces some fabulous wine here in New Zealand,
and they are exporting a lot of product into the US.
They've worked really hard to get that product in there.
This will be an issue for them, so quite rightly
they've gone, hey, we've got to develop other markets. But
(36:57):
actually we've just got to absorb it. We're just going
to have to absorb the cost through the supply chain
and our profitability will be lower. But we've got to
go to take take the hit. And I think you know,
as I say, that's when it gets real. For New
Zealand and the US has actually been a very strong economy.
It's been a good tail wind for a lot of
our businesses, some of our you know, we are rock
(37:19):
stars and new ze On sheer market. Things like fish
and buckle, health care and main freight have quite large
and growing businesses in the US, so that that economy
isn't meaningful, and even things like travel and tourism. The
US travelers have been taking advantage of the ability to
get down here and have a good time. So yep,
it's worth watching, but we get to beet careful about
(37:40):
getting too negative about it all. To your point, potential
presidents can say lots of things, but whether they can
do much is another story.
Speaker 3 (37:51):
That's the other one and the market, so the markets
are probably more aware of that than the average punter.
Speaker 4 (37:55):
I guess, well, it can be a little bit concerning
when you see these statements that are pretty brash, and
you go, we.
Speaker 3 (38:01):
Could always go. We've always strike sporting cat meat to
job joking. Sorry, just bad jokes, bad jokes. Hey, just quickly,
this is a trivial question. But you know the guy
Allan You might have heard of Alan Lexman, the guy
who has the thirteen keys, and he's predicted every election
for the past forty odd man a long time. When
he comes out with the predictions, because he's now called
the election for Harris, do the markets have any little
(38:23):
blip in them according to their behavior, because that's a
that's a powerful little piece of information for many people.
Speaker 4 (38:29):
Markets will use any little nugget they can get hold
of to drive directions, right, and we're looking for as
many nuggets we can to make an ingot. So you
will take that and we'll take you every So it's
the markets, Kevil. Markets are watching the swing states right,
the battle states where it's in decis So those are
the ones that people are really focused on. But as
(38:51):
we know here in New Zealand, you've got to be
really careful about the polls. They can say one thing
and do another. Look. I think you know, if it's
more of the same, then certainly that as you know,
we've had a nine to nine I think a change
to republic and we'd see more inward looking activity, which
(39:12):
actually may be good for the US economy, less good
for the rest of the world.
Speaker 3 (39:17):
Yeah, okay, right, let's let's take a moment. We'll be
back and just tickets eight minutes to six news talks.
It'd be yes, welcome back to the weekn in collective words,
welcome back to sort of say goodbye. But if you
haven't missed any of the previous hours, you can go
check out our podcast and Shane solely from harbor Asset Management.
If people want to check you out, they can go
to harbor Asset dot co dot nz. And what have
(39:37):
you got coming up this week, Shane? Anything interesting you're
focusing on?
Speaker 4 (39:41):
Yeah, look, I think to the big watch for capital
markets this week will be the better the use fital
Reserve comments on Wednesday, and the key here is that
the market has been expecting a zero point five percent
quarter percent cut. Some have been talking about a half
a percent. The data is really not there to support that.
It'll be the tone. It'll be about how many cuts
(40:01):
and how fast. But then we get that bookended on
Friday by the Danka Japan who have been increasing rates
and they shocked us all early last month. Increasing rates
have been expected in the market. Didn't like it, so
it'll be part of the that'll be the big focus
this week.
Speaker 3 (40:20):
When Adrian or opens his mouth, they have a chat
about things, but the US Federals there slightly a few
more eyes on that one. Excellent. Hey, thanks Shane, thanks
so much for your time, and Daniel, enjoy the rest
of the evening. That's that's. That's Shane solely from Harbor
Asset Management. Do check out their website harbor Asset dot
cut and thank you to my producer Tire Roberts. Looking
(40:40):
after me again this weekend. We'll look forward to your
company at the same time on Saturday and Sunday from
three to six. Check out the podcast. Go to The
Weekend Collective on iHeartRadio. Sunday at six is next and
we'll look forward to your company again soon. Ketchup, catch up,
bye bye.
Speaker 1 (41:09):
For more from the Weekend Collective, listen live to News
Talk ZEDB weekends from three pm, or follow the podcast
on iHeartRadio.
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