November 9, 2025 • 41 mins
The Reserve Bank shocked a lot of us last month when it cut the OCR by 50 basis points down to 2.5%.
Analysts have said that the RBNZ was reading the room and giving kiwis a much needed breather after years of high rates.
Early signs are showing it's starting to have an effect - with the GDP estimate for the September quarter pointing to 0.6% growth and many banks forecasting an optimistic remainder of the year.
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Speaker 1 (00:05):
You're listening to the Weekend Collective podcast from News Talks.
Speaker 2 (00:09):
B oh yeah. Loving the tunes. By the way, these
(00:44):
all I think all the music we've been hearing this
aftener has been courtesy of my producer Tyra Tyra Awards.
It's her playlist and I think for some of someone
of such tender years, she's got some quite nice retro
rocks and a taste. I think, so good on you're Tyra.
Keep it coming anyway, has nothing to do with the
art that's coming up, although we do like to get
(01:05):
into the little bit of energy. This is smart money.
I'm Tim Beverage and welcome back. If you, by the way,
that don't forget our podcast on you can go and
check it out on on iHeartRadio look for the Weekend Collector.
But right now we want your calls on eight hundred
eighty ten eighty in text nine two nine two for
this hour of smart money and now. So the Reserve
Bank shocked us, shocked, us shocked, surprised when it cut
(01:30):
the ocr by fifty basis points down to two and
a half percent. And I guess maybe it was a
surprise because it just seemed until then it was going
to be point two five two five two five all
of a sudden. Fifty analysts have said that the Reserve
Bank was reading the room and giving Kiwis a much
needed breather after years of high rates and early shot.
(01:51):
Early signs are showing apparently that it's starting to have
an effect, with the gdpsmate for the September quarterback pointing
to zero point six percent growth and many banks are
having optimistic forecasts for the rest of the year. But
the question is has our economic recovery begun or is
this just a false upteck. But the the other question
(02:14):
is when are you What is it going to take
for you to feel that there's an economic recovery underway?
Because I guess if you're just working for set wages,
what is it it's going to make you feel that
things are getting a bit better? Anyway to discuss that
and a broad range of issues around New Zealand's and
economic economic economy and recovery got him all over the place.
(02:34):
He is head of multi asset and Global Investments. I
do think it's probably one of the flasher things to
put in your business card. And he's Hamish Pepper and
is it harbar resset matter are you going?
Speaker 3 (02:45):
Oh, hi, Tim, I'm good. I wish we still had
business cards. We just don't do that these days.
Speaker 2 (02:49):
I think, because if you're going to hand over a
business card saying Hamish Pepper, head of Multi Asset and
Global Investments, you almost sound like a James Bond villain.
Speaker 3 (03:00):
Follow through. I think there might be quite a bit
of disappointment when they look from that business card and
see me. But it's a lovely, lovely thought.
Speaker 2 (03:12):
Hey. Anyway, So I've heard a bit of discussion in
Hosking has had a few people talking about the economy
and how things are looking up. Although for the average punter,
I guess it's one thing to read of the economy
doing a little bit better. But what's your take on
where the New Zealand economy is at? I guess where
(03:34):
have we been and where do we think we're going? Now?
Where are we at?
Speaker 3 (03:40):
Yeah? Look, and don't get me wrong, it is very
very early stages in the recovery and we're coming out
of a big hole.
Speaker 4 (03:47):
You know.
Speaker 3 (03:47):
Part of the reason that GDP estimate you mentioned for
Q three is a point six is because of the
point nine percent contraction that you had in the in
the second quarter of the year, so usually following something
like that, it's not difficult to then have a bit
of a bounce. So what we're really looking at is
these early signs in perhaps construction, perhaps into housing that
(04:13):
are telling us that these lower interest rates and lower
than many had assumed that they would get to are
starting to have the beginnings of an impact on the economy,
and the housing market is going to be the first
place to look and should be the first place to respond.
So the summer is going to be important.
Speaker 2 (04:31):
How meaningful is it that the property market's the first
one to respond, Because if I put on the hat
of maybe some of my listeners who we hate the
idea that property seems to be the place where we
make or lose money, what can you put that in
some sort of context, because what we really want surely
(04:53):
is business investment and ideas and exports and activity, rather
than just we're selling houses for a bit more.
Speaker 3 (05:00):
Yeah, look, look, I would agree. I think most people
blank sheet of paper, would look for an economy that
had perhaps a bit more balance to it, that wasn't
driven so importantly by the housing market by construction. But
I think the fact is we've got around about two
thirds of the population that own their own home. Half
of those will own it outright and won't have a mortgage,
(05:22):
and the other half will. And so what happens is
as you get two things going on. One, the servicing
of the debt becomes easier as interest rates for mortgage rates. Four,
you've got that cohort starting to feel a bit better,
bit of freed up cash flow. And then you've got
the other cohort who don't have any debt that's financing
the home, but they are observing the value of that home.
(05:43):
If that starts to lift up, they feel a bit
more confident and are more willing to go out and spend.
So that really is the answer that it's the engine
of the economy because of so much exposure that the
average person has to it.
Speaker 2 (05:58):
Of course, I've got a bunch of questions already. Actually,
how do people I just think in my own house,
I don't know how much it's worth. The council tells
me it's worth something, which I think is ridiculous, so
that you can charge me more rates. But how would
I be tracking my own house value just out of
I know this is not quite your your your ballpark.
But I mean do you track your own house value
(06:20):
as well? If so, where do you do that?
Speaker 3 (06:22):
Yeah? I mean I think a popular one has become
homes dot cot ordiens ed. I think one roof is another. Yeah,
so I think there's several that have popped up in
sort of recent years, particularly when we had that big
sort of upswing to all time highs and then we've
come off since then. So yeah, there is a real
time way. It's not quite what you're get In Australia.
I think they've got some indices there that allow you
(06:44):
to track your home on a daily or weekly basis.
It's kind of crazy, but yeah, there is the way
to do it. But for those that are not observing
it in that way, it's probably through conversation. You know
that they're starting to pick up on if there is
some improvement in the housing market. They're hearing about it
from people that might be selling a home, might be
(07:05):
buying a home. That's another way in which that message
gets out there.
Speaker 2 (07:09):
Okay, and now there was something you touched on before,
and I probably flogged this horse perform, but I'm always
amused that we talk about growth and then that you
talked about previously we'd had a zero point nine percent contraction,
which is an interesting piece of It's an interesting language,
isn't it, because contraction sounds not too bad as opposed
(07:29):
to what would the other word we might be contraction
would be fall.
Speaker 3 (07:37):
Yeah. I suppose we have a tendency to to choose
these words to, you know, just to see the narrative
at times. But I think the probably the better answer
to that is that these are very much these are
at the margin changes. At the end of the day,
you know, our economy is quite large. You know, we're
(07:57):
producing something in the region of four hundred billion dollars
worth of output each year, so call that one hundred
billion dollars a quarter, and so yeah, for that to
fall by less than a percent, there's still an awful
lot going on in the economy, you know, I guesse
We all know that, right, It's quite intuitive. So it's
trying to balance that. Yes, these these things do matter
(08:21):
for things like you know, managed policy other things, but
at the end of the day, the economy hasn't ground
to a halt. There is there's still an awful lot
of activity that's going on, but just not as much
as we would.
Speaker 2 (08:32):
Like because I focused on the terminology because the other
word you used was bounce, And as soon as you've
said bounce, I thought dead cat bounce only because it's
it's something that popped up, you know, and I thought,
what a what a cute little adjective. Any chance that
the bounce that we've got at the moment might be
one of those? And I hope not, because that wouldn't
be good with it.
Speaker 3 (08:53):
No, I think there was a higher chance of the
dead cat version of the bounce when when the Irby
and Z perhaps were expected to continue to go relatively
slowly in terms of the easing, and so the acceleration
that we've had from them recently, and you highlighted the
latest meeting which was the larger fifty basis point cut,
(09:14):
but it speaks to are more general urgency that is
coming from the central Bank to provide a bit more support,
and the market has taken note of that. Mortgage rates
have come down another leg lower. And this is the
bit that I think means that we can expect more
of a genuine improvement, genuine bounce and activity from here,
but it still is going to take time and there
(09:36):
is still some risk. But it's looking early early stages
looking good.
Speaker 2 (09:41):
So is that fifty basis point cut on there? Is
that really intended to drive some energy into driving some
more recovery? Is it like it's a really it's not
just we're not just going to trim it a bit
to make our homeowners feel a bit better. Where we're
going to go for that extra bit because we really
want to make the point. We want people to, you know,
to feel that we get we're focused on energizing the economy.
Speaker 3 (10:03):
Yeah, it was hunder percent deliberate. I knew exactly the
fact that the market would be surprised and would therefore
move on the decision. It was unanimous in terms of
there was no dissenters in the Munici Policy Committee, which
would have taken a bit of the energy away, I suppose.
And then all of the media communications that followed from
(10:26):
the various NBC members really reiterated the message. And so
with all of that, I think that gave banks the
confidence to cut mortgage traits, but also the market of
course too, rice a continuation of the easing.
Speaker 2 (10:40):
Just on that RBN said, you know, the reading the
room thing, does it actually does it make a difference
to what they do when they listen to all commentators
think oh, I think it's just going to be twenty five,
it'll be another twenty five and then maybe another one.
And they listen to that and they think, Okay, we've got
a feeling that everyone's expecting this, and so that helped
(11:00):
them make the decision of what they were going to
Like if everyone was saying, I'm expected in fifty basis point,
I'm expecting fifty basis point, might they have surprised us
with something else?
Speaker 3 (11:10):
Yeah, I think the preference would be, just from the
observed behavior is unless there is a great deal of urgency,
pausing volatility by surprising the market is probably not the preference.
The exception this time was this greater sense of urgency
that was felt and therefore you can generate. We feel
(11:34):
more comfortable generating that volatility because it is taking you
in the direction that you think you need to go,
and that is lower interest rates. So normal times, I
think you probably don't want to cause that kind of
dynamic unless it's necessary, And this was one of the
cases where it was.
Speaker 2 (11:51):
So where to So where do you think? You know, Actually,
we're better take some calls in just a minute. But
so this anticipated is it an anticipated point six percent growth?
Speaker 3 (12:03):
I think we might have talked about last time. A
new thing that the Reserve Bank in New Zealand are
doing and producing a sort of a real time estimate
of where the next GDP release will print. So the
next time we get GDP it will be for the
third quarter. We won't get it till pretty much Christmas,
so just before. But that's actually been something that I
(12:24):
think the market has benefited from as well as others,
to know what is the best guess as we get
data that come in that contribute to that number or
give us an indication of that number. Yet we can
get at least the Arbenz's view of where it might be.
And there's other bank estimates. Westpac for example, started doing
(12:44):
their one. But it's a real it's a good development
rather than just sort of you know, waiting three months
and you know the economist might come out with a
forecast the week before or something.
Speaker 2 (12:55):
So okay, now we want your cause as well. I
know one hundred eighty ten eight if you want to
pick Hamrish's brains or give your opinion on where things
are at. But if there is a some I love
the cliches. If there are some perhaps green shoots, what
will it take for you to feel them? Give us
a call on one hundred and eighty ten eighty. If
you want to pick Hamish's brains about where we're at,
(13:17):
then give us a call. We'd love to hear from you.
And we've got We'll started off with.
Speaker 5 (13:21):
Peter greeting well the GDP. If you go overseas with
your credit card, that will add to GDP. If you
have met medical misadventures, spend more on your health, that's
going to increase GDP. So GDP really isn't a great
measure for all the negative things of spending money for
like being burgled or whatever, compared to other things. So
(13:44):
if you look at interest rates, you've got Russia on
twenty percent, you've got the bonds in the UK, I
think they're looking at about five percent that there. Politicians
can't agree on the boatt to cut back. The Americans
have got their tariffs and everything else, so they are
and financial straight. So and France is looking like an
(14:04):
eye if bail out. So I've never seen the economies
look so fragile. And the current government didn't sort of
take the opportunity of adding real value in the sense
of getting better ferries and better infrastructure.
Speaker 2 (14:18):
Are you saying, Peter that the global economy looks a
bit stuffed at the moment and therefore we shouldn't get
too excited or what's your How do I sum up
what your point is?
Speaker 4 (14:27):
Well?
Speaker 5 (14:28):
I think the West has finished the bricks. You know
that the Russia, China, India, Iran training mechanism I think
has a great future and the West has done their
thing and they're going to have to buy gold to
not lose the value of their currency.
Speaker 3 (14:42):
Is that right?
Speaker 2 (14:43):
Ah? Well, I don't know. Hamish might have a take
on this. What do you reckon? Hamish?
Speaker 3 (14:48):
I'm probably going to sound a bit more optimistic and
don't necessarily think that the West is doomed. I think
what is happening, though, is that there is a higher
level of uncertainty globally, and some of it's coming from geopolitics,
some of it is coming from outright policy.
Speaker 1 (15:07):
Right.
Speaker 3 (15:07):
Trump is a good example, And so when we think
about what that means for financial markets and investment decisions
that we make, we probably need a greater degree of
certainty before we go and step in and make an
investment on behalf of our clients. I think that's the
dynamic here. And so look, has it meant that global
(15:31):
growth is creatoring, No, it's moderating. We should still see
the global economy grow the best part of three percent
next year and then should pick up from there. So
the base case is one where the global economy is fined.
But I'm not going to pretend that uncertainty hasn't been lifted.
Speaker 2 (15:49):
Okay, thanks for your call, Peter. I don't know what
was he talking about with Russia with twenty percent offering
bonds at twenty percent. I don't even understand what that
was about.
Speaker 3 (15:58):
I think it's just a general observation that, yeh, interest
rates in emerging market countries are almost structurally higher that
they are in development I.
Speaker 2 (16:06):
Think Peter, I think Peter was selling that is a
good thing, and I was thinking that doesn't sound like
a good thing to me.
Speaker 3 (16:11):
But it's not usually a good side if you're having
to pay that much to borrow.
Speaker 2 (16:15):
No, no, indeed, anyway, what like your calls eight hundred
and eighty ten eight, We're going to dig into how
things are going, but also we should actually have a
chat about you know the global economy and how that's
looking in terms of how it's going to how it's
going to impact on us because compared to some of
the larger economies, we are just like a goldfish in
terms of our size. That might be an unfair compared adjective,
(16:38):
but anyway, you can ad your thoughts. Will give Hamish
Pepper a call. Oh, eight hundred eighty ten eighty, it's
twenty three past twenty three past five. That's my guest
is Hamish Pepper for Smart Money. He's head of multi
asset and Global Investments Investments at Harbor Asset harbor Asset
dot cod at in Z. By the way, if you
want to go and check out the website. Let's take
some more calls on where the economy is at, where
(16:59):
we're headed. Bruce, Hello, Yeah.
Speaker 1 (17:02):
Guys, interesting, interesting conversation. Just a preface of the background.
I've been involved in property and property investment. We're involved
in setting up the very first property investors Association back
in the eighties and so I've been involved in it
(17:22):
both here and in Australia. I'm currently involved in at
the moment and I'm bearing heavy losses. But that's another
story because I actually anticipated a different rise when there
was a change of government, and yeah, I wasn't aware
of just actually how much damage had been done to
(17:44):
the economy, because you know, I was anticipating the capital
gains tax coming off, and you get I'm in the
in the far North and I've got a holding up here,
and I was anticipate we're anticipating in influx from the
north when when you know, when the investors sold out
and came back up here and as it used to
(18:04):
be in the olden days, because properties have always been
undervalued up here. But I'm looking at the situation now
from from a supply and demand perspective, and New Zealand's
always been a consumption economy, and you know, the drivers
of our economy have always been on the supply and
(18:26):
demand side to drive consumption, which you know, which is
which is good up to a point. But I think
we're full. We've we've gone through the boom days of
a lot of immigrants which are wanting to buy houses,
which are you know, this is a demand there for properties,
so so that fuels it and properties went very high
(18:48):
and in fact, in my opinion, they've all Aucklant has
always been high even back in the seventies and eighties.
You know, I was in the provinces doing properties there,
and you know we we were we were buying for
sixty five in those days and renting for one hundred
and fifty a week and we were getting ten percent
return and we were able to buy really good, solid houses.
(19:11):
But those were the good old days.
Speaker 2 (19:15):
So what's hip? Yeah, well, now where you go? You back?
That's the question?
Speaker 1 (19:19):
Yep, carry on, Okay, So what's happened now is that
the supply side has dropped. We're not getting to demand
from immigrants that are coming and cashed up and have
the fear of missing out, and they're looking, oh gee,
the market's rising, We've got to get in.
Speaker 2 (19:35):
So are you Are you suggesting that whatever's happening, it's
all going to be for a while.
Speaker 1 (19:40):
Well, I think it's over. I think I think over today.
The house prices continually to rise in New Zealand, and
that underpinning our economic recovery because they can't rise any
high in relation to our wages and our cost of
living and our rates. And I think people are slowly
(20:00):
starting to realize that the equation is really at about
when you look at what you're buying, what you got,
and then the council rates the damage they're doing to
the actual consumption mentality of the average KIWI and myfe
cannot be overstated because they can just every year. You
(20:24):
can't control it.
Speaker 2 (20:25):
That's a good point, Bruce. Actually, let's bring on Hamish
makes some interesting points there that he reckons it's still
out of balance and we're not going to really see
any significant growth. I'm guessing in the property market, what
do you reckon?
Speaker 3 (20:36):
I pretty much agree with Bruce. I think I think
the thing I would add is there hasn't just been
the pressure from counsel rates, but insurance as well, and
the two of them have been a really negative force,
particularly for investors. I think maybe the one piece to
add is just this is part of what the Aarbiens did,
I think have realized in terms of them accepting that
(20:59):
they may need to do a bit more that because
of as you describe, you've got population growth moderating, You've
got the labor market still, you know, fairly weak, the
unemployment rate is really high, and so then the only
lever you have is to continue to push interest rates lower,
which flows through to mortgage rates. But is this going
to result in you know, ten percent perannum increases in
(21:22):
house prices. No, would be the answer for most people,
most forecasters, including the rbiens in and I love the
way that you brought back in your framework. You know,
what is the way in which house prices could you know,
increase a lot? And it would only be if you
have those wages being able to keep pace, because I really,
I really believe that, and I think it.
Speaker 2 (21:43):
Will rampant migration.
Speaker 3 (21:44):
For rents of course, all else equal, of course, yeah,
and rampant migration is not something that many people are forecasting,
if any. So yeah, look, I think interest rates are
going to help to bring back A moderate rate of
increase in house prices would be the main sort of
base case for most forecasters. That's enough to allow the
(22:07):
economy to recover. But it's not going to be a
fast recovery. You know, we are in a big hole.
You know, we've talked before on the show about how
to measure that. We've talked about output gaps. I mean
that output gap in terms of the amount of output
being produced is still sitting something like two percent below
where the economy can do that without generating inflation, and
(22:30):
so you're going to have a long period of time
before you actually completely remove that sphere capacity. And so
another way to think about it is, you know, when
the unemployment rate starts to look more like four percent
rather than five, it's going to take time. But housing
can have some role, some role in the recovery, is
what I would say. But I'm largely nodding my head.
(22:51):
As you went through your argument, there was generally agreeing.
Speaker 2 (22:56):
Yeah, good on you, Bruce.
Speaker 1 (22:58):
You appreciate that.
Speaker 2 (22:59):
No, actually it takes, and I sometimes do think it
takes a little bit of this is overstating it, but
courage to actually still say I still think the property
market's out of whack because there is this emotional urge.
I think with people who you know, we ride the
waves of property, you know, booms and busts and everything,
(23:23):
but there seems to be this sort of well, we've
had a tough time. We saw the peaks of twenty
twenty one or twenty two, and then it fell off
because interest cheap money and over long was cheap, and
it's like there's this emotional need to say, well, okay,
the falls over. Now the property market that's going to
get moving, and then it's going to really get moving.
And what Bruce is saying, and I guess, to be honest,
(23:45):
I believe I agree with him as well. I don't
really think we're going to see a whole of a
lot of action because we still are out of whack.
Speaker 3 (23:52):
Yeah. Now, I think this is where you look at
some of those long term kind of valuation metrics. You know,
the number of times your income household income you need
to buy a house. I mean, that's still a relatively
elevated level relative to history. Then you look at say financing,
as we're talking about the way in which interest rates
(24:14):
can help in terms of affordability. But you know, for
an average home, for an average kind of deposit, call
it twenty percent, you're still talking about more than half
of your household disposed income that's going to service that debt,
according to our estimates. And so you know, that's down
(24:35):
from maybe sixty sixty five percent at the peak of
unaffordability on that metric, but it's definitely not low, and
so these forces are still at play.
Speaker 2 (24:45):
Does that mean we can expect more cuts? Do you think?
With ever? I mean just I mean, you know, we're
lingering on Bruce's call. But and look, as I say,
property is not the being on the end all of
the economy. But does it mean that we could anticipate
further cuts? Do you think? Because a lot of the
rhetoric has been like, well, that's it, we've had a
point five, you know, make the most of it. Get
(25:06):
on there.
Speaker 3 (25:07):
Yeah, I think one more is the markets for in
a couple of weeks time the November meeting. But in
perhaps recent days there's been sort of a thoughts of
perhaps one more large one. Maybe that's sitting at something
like a ten percent chance at the moment that there's
another fifty because remember we've talked before about the sort
(25:29):
of summer break or the long time between meetings for
the RB and Z. They won't meet again until the
nineteenth of February. After that November meeting, new governor by
then Bremen. So yeah, I think that's where some of
the some of the arguments are coming. Look, get the
(25:49):
work done before Christmas, set it up well for her,
and then she's got a bit of an easier beginning
in her role. That's part of the logic. So yeah,
it's definitely in the market pricing that we're not done
completely just yet.
Speaker 2 (26:06):
Bruce again touched on rates rises and insurance costs and
you know other things like that. I mean, they can
really rain on the parade of people because you know,
if your rates have I mean I've heard some rates
bills from some callers who are in Hamilton and Wellington.
Of course their rates have gone through the roof. How
much of that is a real wet blanket on what
(26:27):
the Reserve Bank aims to achieve with interest rate cuts.
Speaker 3 (26:31):
Well, it's something they have to take into consideration, and
they have increasingly done that. You know, I think they've
been very clear about the way in which they think
about that. I mean it's a bit like a tax
in a way. You know that that lifting of council
rates and insurance right, yeah, And so what you have
(26:54):
to do as that changes is then feed that into
your models. And you know, the interest rate decision that
they make will be partly related to that downward impact
on activity that comes from those forces. But the real niggle,
tim is the fact that it adds to your inflation.
So they're then having to think, okay, well can I
(27:16):
abstract from those things when I'm thinking about where policy
needs to go because I want to perhaps provide more
support to the economy. But these two things feed directly
into inflation. Council rates and insurance do.
Speaker 2 (27:30):
They sort of have to separate those out, though.
Speaker 3 (27:33):
Increasingly they know it's hard to ignore because the risk
you run by doing that is people's expectations of inflation
will be partly determined by what they're observing with insurance
costs and with council rates. Not completely, of course, but
that's the risk. If you completely ignore that stuff, then
(27:55):
you end up sort of allowing those inflation expectations to lift,
and they can be very, very difficult to sort of
get that inflation expectation genie back in the bottle once
it goes. That's that's the tricky bit.
Speaker 2 (28:06):
Yeah, right, Gosh, this is a merry dance, isn't it,
You know, trying to juggle all these things with different
types of inflationary pressures and cash rates and what it's
going to mean for the economy. Let's dig into it
a bit more after the break though it is twenty
two and a half minutes to six. We want your
calls on eight hundred and eighty ten eighty this news talks.
It'd be Tim beverage with them. I guess Hamish Pepper,
(28:27):
he's head of multi asset and global investments at Harbor
Asset Management. Has the New Zealand economic recovery begun? And
how excited should we do we feel about it? And
it's a fascinating conversation with so many different things to
take into account. Almost wonder if I could reset my
economics one oh one and get better than a C
minus after listening to some of our callers. But anyway, John, Hello,
(28:51):
how are you doing good? Thanks good John.
Speaker 4 (28:55):
Hey, I'm at the gym and I've been listening intently
to the words of wisdom for me too, and I
thought i'd better my far five Bob.
Speaker 2 (29:03):
Wisdom is from I just chip in with some cheap
comments where you.
Speaker 4 (29:07):
Go, Okay, I'm a little less negative than what I've
been picking up with a discussion. I think the thing
you ought to think about is inwards capital flows into
New Zealand via the Golden Visa incentive. And I don't
know if you noticed last week there was a dairy
(29:30):
farm in mid Canterbury went for wait for it, eighty
seven thousand dollars per hector. One dairy farm changed hand
we was going to change hands for beauty four million
dollars and you've got to say, Wow, something's happening here
because we all expect now the payout to go down.
(29:51):
So why are people paying up the dairy farms. That's
the thing that's hang on.
Speaker 2 (29:59):
We going to stop you. I was just going to
say that that does introduce the farmers into the equation
as well, which is my next question before you accord,
and so you carry on.
Speaker 4 (30:06):
John, So we're getting a two dollars a share stimulus
from the sale of mainland products, so that sort of helps,
and that will circulate in the economy. But there's a
lot of things I don't actually understand in New Zealand.
You know, there's some talk earlier about oversupply of certain
housing categories. In Auckland. Here we see people like precinct
(30:29):
properties and simplicity wading into building apartments and you kind
of go, guys, what are you doing? Because you look
around town here and you know the Chinese have got
a half built bloody pyramid in the middle of Auckland here,
and you know rents are going down, not up. So
I think the environment's quite complicated. But I think it's
(30:54):
such that it's very dangerous to be bearish.
Speaker 2 (30:59):
I think we were. I think I would before I've
just jump in for hamish. I think the word we
were being was measured as opposed to negative.
Speaker 4 (31:07):
Which I think, move your up a bit.
Speaker 2 (31:10):
Okay, how much what do you reckon?
Speaker 3 (31:12):
Yeah, it's good that John's brought up the external sector
because it is a bright spot for sure, and it
goes beyond Dery too. I think she even bee farmers
are still doing quite well horticulture as well. So yeah, look,
I think that's totally one of the ways in which
the recovery is supported that farmers do feel confident despite
(31:33):
the fact that the payout may well end up being
not quite as high in the current season we're in
than it was last season. But there's these other aspects,
as you say, sale of the consumer business for Fonterra shareholders.
So look, I think yes, they will be important to
the extent they do start to be comfortable to take
on a bit more debt and to spend, because what
(31:54):
we're observing in the data is that they have been
for a long time or you know, several months through
to the first part of the year, reducing the debt
that they had. This is as the whole agricultural sector,
but driven by dairy and they've been accumulating cash balances
in bank deposits. That is starting to change in recent
months and that's encouraging. If that continues, then they very
(32:16):
much will be part of the way that the economy
gets out of the hole that it's in and delivers
some decent growth.
Speaker 4 (32:23):
Just one thing in closing, what was of interest if
you went back four months ago, the last record payment
per hectar for a dairy farm in the South Island
was seventy thousand dollars per hectar. On this latest part
eighty seven?
Speaker 2 (32:41):
Was it your farm?
Speaker 3 (32:41):
Was it?
Speaker 2 (32:42):
John?
Speaker 4 (32:43):
I worship what?
Speaker 3 (32:45):
Hey?
Speaker 2 (32:45):
Actually, I'll keep you can stay on the line if
you want, John. I think I throw this question to
Hamis because I think intuitively a lot of the New Zealanders, well,
we know about the mainland retail business and the huge
payout and magnificent payout for farmers, and good on them.
I guess the question is, and you can add your
tuppets on this too, johint if you like a lot
of people feel they wonder where that boost to that
(33:10):
side of the economy makes a difference for everyone else.
Speaker 4 (33:13):
And well, it's interesting because you know, a lot of
the commentators are saying, oh, yes, a lot of that
will down to debt reduction and new tractors. But I
just think the structure of dairy farming or dairy farmers
has changed because you know, we're leaving in the rear
vision mirror all the lunacy of years ago buying all
(33:34):
this international crap which didn't work out so well, back
into the straight and narrow of just really maximizing milk
and cows and exporting volume product.
Speaker 6 (33:45):
What do you reckon hamersh Yeah, I mean I think, look,
it may well be the case that a portion do
choose to use that capital return related to the sale
of the consumer business to reduce debt, and that you know,
that's the end of it.
Speaker 3 (34:00):
But I think overall you're going to have some of
it flow into the economy. It's not all one way though,
right you take the tractor example, there's a big imported
component of that that the New Zealand economy doesn't necessarily
benefit from, but the the dealership you are buying that
tractor from will benefit and the people that work for
that dealership and that's probably the more sort of tangible
(34:24):
way I suppose in which an external lead recovery plays out.
It's through the supporting services into these parts of the economy,
into these external you know areas, and that's the dynamic.
So we should see in areas that are very dairy
focused and concentrated, you know, job prospects should be better,
(34:47):
just for example, and wage growth should be better. And
so that's that's the way in which the economy can Hey.
Speaker 2 (34:53):
Thanks for you call. John.
Speaker 4 (34:55):
Just one thing in closing, Yeah, with precinct, by a precinct,
precinct and simplicity wading into building more apartments. That suggests
to me in immigration is going to go up next year.
Speaker 2 (35:08):
Okay, you reckon that they know something we don't exactly. Okay, cheers, John,
had good call. I mean, look, thanks John, that's surprisingly
fascinating conversation, some of this economic stuff, even though you
know you've passed all the jargon and things, but yeah,
it is. It's and I think that question around where
(35:28):
how long you describe how that the payout to farmers
and the fact that industry, that side of the economy
is doing well. It's how long do you think it
takes before it filters through to parts of the economy
and that are not so closely related to it, such
as you know, obviously we know that people who sell
tractors for a crude analogy, they're going to be feeling
(35:49):
quite good about things. But when do people who work
and just in other parts of the economy not so
closely connected. How long does it take to filter throat?
Do you think?
Speaker 3 (35:57):
Yeah, I think that's a longer process because already we
have had these stories and you would have had other
people talk about it too, that you know, the regions
are generally doing much better than the centers. You know,
people have said, if I'm going to come into the
main centers, then you know, Wellington's probably the bottom given
the dynamic and the public sector. You know, Auckland is,
(36:19):
you know, somewhere in the middle, and christ Church might
be the better of the three main centers. But what
almost everybody is saying is that out in the regions,
maybe Nelson is a bit of an exception at the moment,
but you know, regional New Zealand is ending to do
better because of that exposure to the expert side of
our economy. So then your question, how long does it
(36:40):
take for the main centers to feel it. I mean, look,
we haven't really so far, have we. We're honest. I
think it's probably a story for the middle to second
half of next year before we start to see anything
all that different in terms of that channel. And so
what it means is that you come back to the
way in which interest rates can have that broader effect
(37:03):
and help to lift.
Speaker 2 (37:05):
And I guess and that's in fact, that's the role
one of the big roles the Reserve Bank has because
that when when they're addressing all these factors and working
out what they do with the cash rate, that's how
they feed on the benefits to everyone by at least
saying well, hey, next time you fix your mortgage, you
might have another Actually, what's it worth? What's a fifty
percent basis cut on the average mortgage worth? I'm not
(37:27):
going to I'm missus zero Hamish. They were not do
it live.
Speaker 3 (37:33):
But what I think I would say is and just
don't forget about the saver side. And you know, I
think there is a deliberate purpose here is to make
saving less attractive. As a big part of what the
RBNZ are doing, make servicing your debt and borrowing money cheaper,
but also make saving less attractive, so people are more
(37:55):
inclined to spend. So it's going to work through both channels,
the way in which policy, monetary policy engineers this recovery.
Speaker 2 (38:05):
We've got a fascinating conversation. Right, let's go. We'll come
back with gosh, what time has flowing? It is nine
and a half minutes to six News Talk zed B.
It's News Talks EDB. Thanks for all your texts and feedback.
It's been a fascinating our just discussing how the New
Zealand economy is maybe turning in the corner, but what
it's going to look like with Hamish Pepper of Harbor
Asset Management. Hamish, I guess, okay, here's here's a way
(38:28):
of getting into it. I've got a little bit of
money sitting in a wise account in euros, and through
indecision and not putting it back into a savings account,
I've actually done better than if I'd been using it
for savings because the exchange rate has not gone well
for the New Zealand dollar. What's what's going on there
with the New Zealand dollar and what we expect it
to do.
Speaker 3 (38:49):
Yeah. I mean, I think it's a reflection of our
economy in terms of you know, the whole that we've
been talking about that we're coming out of. We've depreciated
against the US dollar just there's probably one that maybe
people have in their mind a little more than the Euro.
But you know, we're down at the bottom of sort
of a multi decade range. Really. The only time that
(39:10):
we've meaningfully been lower is in the global financial crisis
in two thousand and eight two thousand and nine, so
very low levels and does reflect that. You know, we've
obviously had our interest rates dropping, but that's been a
broader story of economic weakness. So you know, as we
come out of this, you know, it's not unreasonable to
expect there to be the ability for us to recover.
(39:34):
That's what many forecasters expect. The interesting thing more recently, though,
in a bit worrying to him, is that our currency
usually likes when global equities, global share prices are going up,
and they've been doing that. But what's been happening through
that time is our currency has been sort of plumbing
these lower and lower levels, and I think that's an
(39:55):
interesting dynamic, you know, should that stay around that we
don't have any sensitivity there. Then it's it's not so
clear where we might go because it's some sort of
regime change. But at the moment, yeah, I mean, I
think the average expectation out there is that we can
recover in the currency as the economy recovers so slowly.
(40:19):
I think that's probably the forecasters expectation. Yes, And there's
this added uncertainty which we've probably spoken about before when
it comes to mister Trump in terms of what he
does to the credibility or otherwise of holding US dollars.
We had a moment earlier in the year, of course,
with Liberation Day, and there was a real questioning of
(40:40):
whether you do want that US dollar exposure or not.
So that's another uncertainty. It harks back to the early
part of our conversation that we have to deal with.
Speaker 2 (40:49):
Gosh, fascinating conversation and no doubt it'll continue next time
we catch up. How much, Thanks so much for your time, mate,
Really appreciate it.
Speaker 3 (40:55):
Cheersay, thank you man. Thanks for all the calls.
Speaker 2 (40:57):
That was great, good stuff. That's how much paper from
Harbor Asset Management. You can go check out all this
what they're about on harbor Asset dot code at NZ
and thanks for my producer Tyre Award. Check out the podcast,
go to the Weekend Collective anything you've missed it will
be there soon and Sunday sex Us next. Enjoy the
rest of your evening. Catch you soon.
Speaker 1 (41:17):
For more from The Weekend Collective. Listen live to News
Talk sed Be weekends from three pm, or follow the
podcast on iHeartRadio
You're listening to the Weekend Collective podcast from News Talks.
Speaker 2 (00:09):
B oh yeah. Loving the tunes. By the way, these
(00:44):
all I think all the music we've been hearing this
aftener has been courtesy of my producer Tyra Tyra Awards.
It's her playlist and I think for some of someone
of such tender years, she's got some quite nice retro
rocks and a taste. I think, so good on you're Tyra.
Keep it coming anyway, has nothing to do with the
art that's coming up, although we do like to get
(01:05):
into the little bit of energy. This is smart money.
I'm Tim Beverage and welcome back. If you, by the way,
that don't forget our podcast on you can go and
check it out on on iHeartRadio look for the Weekend Collector.
But right now we want your calls on eight hundred
eighty ten eighty in text nine two nine two for
this hour of smart money and now. So the Reserve
Bank shocked us, shocked, us shocked, surprised when it cut
(01:30):
the ocr by fifty basis points down to two and
a half percent. And I guess maybe it was a
surprise because it just seemed until then it was going
to be point two five two five two five all
of a sudden. Fifty analysts have said that the Reserve
Bank was reading the room and giving Kiwis a much
needed breather after years of high rates and early shot.
(01:51):
Early signs are showing apparently that it's starting to have
an effect, with the gdpsmate for the September quarterback pointing
to zero point six percent growth and many banks are
having optimistic forecasts for the rest of the year. But
the question is has our economic recovery begun or is
this just a false upteck. But the the other question
(02:14):
is when are you What is it going to take
for you to feel that there's an economic recovery underway?
Because I guess if you're just working for set wages,
what is it it's going to make you feel that
things are getting a bit better? Anyway to discuss that
and a broad range of issues around New Zealand's and
economic economic economy and recovery got him all over the place.
(02:34):
He is head of multi asset and Global Investments. I
do think it's probably one of the flasher things to
put in your business card. And he's Hamish Pepper and
is it harbar resset matter are you going?
Speaker 3 (02:45):
Oh, hi, Tim, I'm good. I wish we still had
business cards. We just don't do that these days.
Speaker 2 (02:49):
I think, because if you're going to hand over a
business card saying Hamish Pepper, head of Multi Asset and
Global Investments, you almost sound like a James Bond villain.
Speaker 3 (03:00):
Follow through. I think there might be quite a bit
of disappointment when they look from that business card and
see me. But it's a lovely, lovely thought.
Speaker 2 (03:12):
Hey. Anyway, So I've heard a bit of discussion in
Hosking has had a few people talking about the economy
and how things are looking up. Although for the average punter,
I guess it's one thing to read of the economy
doing a little bit better. But what's your take on
where the New Zealand economy is at? I guess where
(03:34):
have we been and where do we think we're going? Now?
Where are we at?
Speaker 3 (03:40):
Yeah? Look, and don't get me wrong, it is very
very early stages in the recovery and we're coming out
of a big hole.
Speaker 4 (03:47):
You know.
Speaker 3 (03:47):
Part of the reason that GDP estimate you mentioned for
Q three is a point six is because of the
point nine percent contraction that you had in the in
the second quarter of the year, so usually following something
like that, it's not difficult to then have a bit
of a bounce. So what we're really looking at is
these early signs in perhaps construction, perhaps into housing that
(04:13):
are telling us that these lower interest rates and lower
than many had assumed that they would get to are
starting to have the beginnings of an impact on the economy,
and the housing market is going to be the first
place to look and should be the first place to respond.
So the summer is going to be important.
Speaker 2 (04:31):
How meaningful is it that the property market's the first
one to respond, Because if I put on the hat
of maybe some of my listeners who we hate the
idea that property seems to be the place where we
make or lose money, what can you put that in
some sort of context, because what we really want surely
(04:53):
is business investment and ideas and exports and activity, rather
than just we're selling houses for a bit more.
Speaker 3 (05:00):
Yeah, look, look, I would agree. I think most people
blank sheet of paper, would look for an economy that
had perhaps a bit more balance to it, that wasn't
driven so importantly by the housing market by construction. But
I think the fact is we've got around about two
thirds of the population that own their own home. Half
of those will own it outright and won't have a mortgage,
(05:22):
and the other half will. And so what happens is
as you get two things going on. One, the servicing
of the debt becomes easier as interest rates for mortgage rates. Four,
you've got that cohort starting to feel a bit better,
bit of freed up cash flow. And then you've got
the other cohort who don't have any debt that's financing
the home, but they are observing the value of that home.
(05:43):
If that starts to lift up, they feel a bit
more confident and are more willing to go out and spend.
So that really is the answer that it's the engine
of the economy because of so much exposure that the
average person has to it.
Speaker 2 (05:58):
Of course, I've got a bunch of questions already. Actually,
how do people I just think in my own house,
I don't know how much it's worth. The council tells
me it's worth something, which I think is ridiculous, so
that you can charge me more rates. But how would
I be tracking my own house value just out of
I know this is not quite your your your ballpark.
But I mean do you track your own house value
(06:20):
as well? If so, where do you do that?
Speaker 3 (06:22):
Yeah? I mean I think a popular one has become
homes dot cot ordiens ed. I think one roof is another. Yeah,
so I think there's several that have popped up in
sort of recent years, particularly when we had that big
sort of upswing to all time highs and then we've
come off since then. So yeah, there is a real
time way. It's not quite what you're get In Australia.
I think they've got some indices there that allow you
(06:44):
to track your home on a daily or weekly basis.
It's kind of crazy, but yeah, there is the way
to do it. But for those that are not observing
it in that way, it's probably through conversation. You know
that they're starting to pick up on if there is
some improvement in the housing market. They're hearing about it
from people that might be selling a home, might be
(07:05):
buying a home. That's another way in which that message
gets out there.
Speaker 2 (07:09):
Okay, and now there was something you touched on before,
and I probably flogged this horse perform, but I'm always
amused that we talk about growth and then that you
talked about previously we'd had a zero point nine percent contraction,
which is an interesting piece of It's an interesting language,
isn't it, because contraction sounds not too bad as opposed
(07:29):
to what would the other word we might be contraction
would be fall.
Speaker 3 (07:37):
Yeah. I suppose we have a tendency to to choose
these words to, you know, just to see the narrative
at times. But I think the probably the better answer
to that is that these are very much these are
at the margin changes. At the end of the day,
you know, our economy is quite large. You know, we're
(07:57):
producing something in the region of four hundred billion dollars
worth of output each year, so call that one hundred
billion dollars a quarter, and so yeah, for that to
fall by less than a percent, there's still an awful
lot going on in the economy, you know, I guesse
We all know that, right, It's quite intuitive. So it's
trying to balance that. Yes, these these things do matter
(08:21):
for things like you know, managed policy other things, but
at the end of the day, the economy hasn't ground
to a halt. There is there's still an awful lot
of activity that's going on, but just not as much
as we would.
Speaker 2 (08:32):
Like because I focused on the terminology because the other
word you used was bounce, And as soon as you've
said bounce, I thought dead cat bounce only because it's
it's something that popped up, you know, and I thought,
what a what a cute little adjective. Any chance that
the bounce that we've got at the moment might be
one of those? And I hope not, because that wouldn't
be good with it.
Speaker 3 (08:53):
No, I think there was a higher chance of the
dead cat version of the bounce when when the Irby
and Z perhaps were expected to continue to go relatively
slowly in terms of the easing, and so the acceleration
that we've had from them recently, and you highlighted the
latest meeting which was the larger fifty basis point cut,
(09:14):
but it speaks to are more general urgency that is
coming from the central Bank to provide a bit more support,
and the market has taken note of that. Mortgage rates
have come down another leg lower. And this is the
bit that I think means that we can expect more
of a genuine improvement, genuine bounce and activity from here,
but it still is going to take time and there
(09:36):
is still some risk. But it's looking early early stages
looking good.
Speaker 2 (09:41):
So is that fifty basis point cut on there? Is
that really intended to drive some energy into driving some
more recovery? Is it like it's a really it's not
just we're not just going to trim it a bit
to make our homeowners feel a bit better. Where we're
going to go for that extra bit because we really
want to make the point. We want people to, you know,
to feel that we get we're focused on energizing the economy.
Speaker 3 (10:03):
Yeah, it was hunder percent deliberate. I knew exactly the
fact that the market would be surprised and would therefore
move on the decision. It was unanimous in terms of
there was no dissenters in the Munici Policy Committee, which
would have taken a bit of the energy away, I suppose.
And then all of the media communications that followed from
(10:26):
the various NBC members really reiterated the message. And so
with all of that, I think that gave banks the
confidence to cut mortgage traits, but also the market of
course too, rice a continuation of the easing.
Speaker 2 (10:40):
Just on that RBN said, you know, the reading the
room thing, does it actually does it make a difference
to what they do when they listen to all commentators
think oh, I think it's just going to be twenty five,
it'll be another twenty five and then maybe another one.
And they listen to that and they think, Okay, we've got
a feeling that everyone's expecting this, and so that helped
(11:00):
them make the decision of what they were going to
Like if everyone was saying, I'm expected in fifty basis point,
I'm expecting fifty basis point, might they have surprised us
with something else?
Speaker 3 (11:10):
Yeah, I think the preference would be, just from the
observed behavior is unless there is a great deal of urgency,
pausing volatility by surprising the market is probably not the preference.
The exception this time was this greater sense of urgency
that was felt and therefore you can generate. We feel
(11:34):
more comfortable generating that volatility because it is taking you
in the direction that you think you need to go,
and that is lower interest rates. So normal times, I
think you probably don't want to cause that kind of
dynamic unless it's necessary, And this was one of the
cases where it was.
Speaker 2 (11:51):
So where to So where do you think? You know, Actually,
we're better take some calls in just a minute. But
so this anticipated is it an anticipated point six percent growth?
Speaker 3 (12:03):
I think we might have talked about last time. A
new thing that the Reserve Bank in New Zealand are
doing and producing a sort of a real time estimate
of where the next GDP release will print. So the
next time we get GDP it will be for the
third quarter. We won't get it till pretty much Christmas,
so just before. But that's actually been something that I
(12:24):
think the market has benefited from as well as others,
to know what is the best guess as we get
data that come in that contribute to that number or
give us an indication of that number. Yet we can
get at least the Arbenz's view of where it might be.
And there's other bank estimates. Westpac for example, started doing
(12:44):
their one. But it's a real it's a good development
rather than just sort of you know, waiting three months
and you know the economist might come out with a
forecast the week before or something.
Speaker 2 (12:55):
So okay, now we want your cause as well. I
know one hundred eighty ten eight if you want to
pick Hamrish's brains or give your opinion on where things
are at. But if there is a some I love
the cliches. If there are some perhaps green shoots, what
will it take for you to feel them? Give us
a call on one hundred and eighty ten eighty. If
you want to pick Hamish's brains about where we're at,
(13:17):
then give us a call. We'd love to hear from you.
And we've got We'll started off with.
Speaker 5 (13:21):
Peter greeting well the GDP. If you go overseas with
your credit card, that will add to GDP. If you
have met medical misadventures, spend more on your health, that's
going to increase GDP. So GDP really isn't a great
measure for all the negative things of spending money for
like being burgled or whatever, compared to other things. So
(13:44):
if you look at interest rates, you've got Russia on
twenty percent, you've got the bonds in the UK, I
think they're looking at about five percent that there. Politicians
can't agree on the boatt to cut back. The Americans
have got their tariffs and everything else, so they are
and financial straight. So and France is looking like an
(14:04):
eye if bail out. So I've never seen the economies
look so fragile. And the current government didn't sort of
take the opportunity of adding real value in the sense
of getting better ferries and better infrastructure.
Speaker 2 (14:18):
Are you saying, Peter that the global economy looks a
bit stuffed at the moment and therefore we shouldn't get
too excited or what's your How do I sum up
what your point is?
Speaker 4 (14:27):
Well?
Speaker 5 (14:28):
I think the West has finished the bricks. You know
that the Russia, China, India, Iran training mechanism I think
has a great future and the West has done their
thing and they're going to have to buy gold to
not lose the value of their currency.
Speaker 3 (14:42):
Is that right?
Speaker 2 (14:43):
Ah? Well, I don't know. Hamish might have a take
on this. What do you reckon? Hamish?
Speaker 3 (14:48):
I'm probably going to sound a bit more optimistic and
don't necessarily think that the West is doomed. I think
what is happening, though, is that there is a higher
level of uncertainty globally, and some of it's coming from geopolitics,
some of it is coming from outright policy.
Speaker 1 (15:07):
Right.
Speaker 3 (15:07):
Trump is a good example, And so when we think
about what that means for financial markets and investment decisions
that we make, we probably need a greater degree of
certainty before we go and step in and make an
investment on behalf of our clients. I think that's the
dynamic here. And so look, has it meant that global
(15:31):
growth is creatoring, No, it's moderating. We should still see
the global economy grow the best part of three percent
next year and then should pick up from there. So
the base case is one where the global economy is fined.
But I'm not going to pretend that uncertainty hasn't been lifted.
Speaker 2 (15:49):
Okay, thanks for your call, Peter. I don't know what
was he talking about with Russia with twenty percent offering
bonds at twenty percent. I don't even understand what that
was about.
Speaker 3 (15:58):
I think it's just a general observation that, yeh, interest
rates in emerging market countries are almost structurally higher that
they are in development I.
Speaker 2 (16:06):
Think Peter, I think Peter was selling that is a
good thing, and I was thinking that doesn't sound like
a good thing to me.
Speaker 3 (16:11):
But it's not usually a good side if you're having
to pay that much to borrow.
Speaker 2 (16:15):
No, no, indeed, anyway, what like your calls eight hundred
and eighty ten eight, We're going to dig into how
things are going, but also we should actually have a
chat about you know the global economy and how that's
looking in terms of how it's going to how it's
going to impact on us because compared to some of
the larger economies, we are just like a goldfish in
terms of our size. That might be an unfair compared adjective,
(16:38):
but anyway, you can ad your thoughts. Will give Hamish
Pepper a call. Oh, eight hundred eighty ten eighty, it's
twenty three past twenty three past five. That's my guest
is Hamish Pepper for Smart Money. He's head of multi
asset and Global Investments Investments at Harbor Asset harbor Asset
dot cod at in Z. By the way, if you
want to go and check out the website. Let's take
some more calls on where the economy is at, where
(16:59):
we're headed. Bruce, Hello, Yeah.
Speaker 1 (17:02):
Guys, interesting, interesting conversation. Just a preface of the background.
I've been involved in property and property investment. We're involved
in setting up the very first property investors Association back
in the eighties and so I've been involved in it
(17:22):
both here and in Australia. I'm currently involved in at
the moment and I'm bearing heavy losses. But that's another
story because I actually anticipated a different rise when there
was a change of government, and yeah, I wasn't aware
of just actually how much damage had been done to
(17:44):
the economy, because you know, I was anticipating the capital
gains tax coming off, and you get I'm in the
in the far North and I've got a holding up here,
and I was anticipate we're anticipating in influx from the
north when when you know, when the investors sold out
and came back up here and as it used to
(18:04):
be in the olden days, because properties have always been
undervalued up here. But I'm looking at the situation now
from from a supply and demand perspective, and New Zealand's
always been a consumption economy, and you know, the drivers
of our economy have always been on the supply and
(18:26):
demand side to drive consumption, which you know, which is
which is good up to a point. But I think
we're full. We've we've gone through the boom days of
a lot of immigrants which are wanting to buy houses,
which are you know, this is a demand there for properties,
so so that fuels it and properties went very high
(18:48):
and in fact, in my opinion, they've all Aucklant has
always been high even back in the seventies and eighties.
You know, I was in the provinces doing properties there,
and you know we we were we were buying for
sixty five in those days and renting for one hundred
and fifty a week and we were getting ten percent
return and we were able to buy really good, solid houses.
(19:11):
But those were the good old days.
Speaker 2 (19:15):
So what's hip? Yeah, well, now where you go? You back?
That's the question?
Speaker 1 (19:19):
Yep, carry on, Okay, So what's happened now is that
the supply side has dropped. We're not getting to demand
from immigrants that are coming and cashed up and have
the fear of missing out, and they're looking, oh gee,
the market's rising, We've got to get in.
Speaker 2 (19:35):
So are you Are you suggesting that whatever's happening, it's
all going to be for a while.
Speaker 1 (19:40):
Well, I think it's over. I think I think over today.
The house prices continually to rise in New Zealand, and
that underpinning our economic recovery because they can't rise any
high in relation to our wages and our cost of
living and our rates. And I think people are slowly
(20:00):
starting to realize that the equation is really at about
when you look at what you're buying, what you got,
and then the council rates the damage they're doing to
the actual consumption mentality of the average KIWI and myfe
cannot be overstated because they can just every year. You
(20:24):
can't control it.
Speaker 2 (20:25):
That's a good point, Bruce. Actually, let's bring on Hamish
makes some interesting points there that he reckons it's still
out of balance and we're not going to really see
any significant growth. I'm guessing in the property market, what
do you reckon?
Speaker 3 (20:36):
I pretty much agree with Bruce. I think I think
the thing I would add is there hasn't just been
the pressure from counsel rates, but insurance as well, and
the two of them have been a really negative force,
particularly for investors. I think maybe the one piece to
add is just this is part of what the Aarbiens did,
I think have realized in terms of them accepting that
(20:59):
they may need to do a bit more that because
of as you describe, you've got population growth moderating, You've
got the labor market still, you know, fairly weak, the
unemployment rate is really high, and so then the only
lever you have is to continue to push interest rates lower,
which flows through to mortgage rates. But is this going
to result in you know, ten percent perannum increases in
(21:22):
house prices. No, would be the answer for most people,
most forecasters, including the rbiens in and I love the
way that you brought back in your framework. You know,
what is the way in which house prices could you know,
increase a lot? And it would only be if you
have those wages being able to keep pace, because I really,
I really believe that, and I think it.
Speaker 2 (21:43):
Will rampant migration.
Speaker 3 (21:44):
For rents of course, all else equal, of course, yeah,
and rampant migration is not something that many people are forecasting,
if any. So yeah, look, I think interest rates are
going to help to bring back A moderate rate of
increase in house prices would be the main sort of
base case for most forecasters. That's enough to allow the
(22:07):
economy to recover. But it's not going to be a
fast recovery. You know, we are in a big hole.
You know, we've talked before on the show about how
to measure that. We've talked about output gaps. I mean
that output gap in terms of the amount of output
being produced is still sitting something like two percent below
where the economy can do that without generating inflation, and
(22:30):
so you're going to have a long period of time
before you actually completely remove that sphere capacity. And so
another way to think about it is, you know, when
the unemployment rate starts to look more like four percent
rather than five, it's going to take time. But housing
can have some role, some role in the recovery, is
what I would say. But I'm largely nodding my head.
(22:51):
As you went through your argument, there was generally agreeing.
Speaker 2 (22:56):
Yeah, good on you, Bruce.
Speaker 1 (22:58):
You appreciate that.
Speaker 2 (22:59):
No, actually it takes, and I sometimes do think it
takes a little bit of this is overstating it, but
courage to actually still say I still think the property
market's out of whack because there is this emotional urge.
I think with people who you know, we ride the
waves of property, you know, booms and busts and everything,
(23:23):
but there seems to be this sort of well, we've
had a tough time. We saw the peaks of twenty
twenty one or twenty two, and then it fell off
because interest cheap money and over long was cheap, and
it's like there's this emotional need to say, well, okay,
the falls over. Now the property market that's going to
get moving, and then it's going to really get moving.
And what Bruce is saying, and I guess, to be honest,
(23:45):
I believe I agree with him as well. I don't
really think we're going to see a whole of a
lot of action because we still are out of whack.
Speaker 3 (23:52):
Yeah. Now, I think this is where you look at
some of those long term kind of valuation metrics. You know,
the number of times your income household income you need
to buy a house. I mean, that's still a relatively
elevated level relative to history. Then you look at say financing,
as we're talking about the way in which interest rates
(24:14):
can help in terms of affordability. But you know, for
an average home, for an average kind of deposit, call
it twenty percent, you're still talking about more than half
of your household disposed income that's going to service that debt,
according to our estimates. And so you know, that's down
(24:35):
from maybe sixty sixty five percent at the peak of
unaffordability on that metric, but it's definitely not low, and
so these forces are still at play.
Speaker 2 (24:45):
Does that mean we can expect more cuts? Do you think?
With ever? I mean just I mean, you know, we're
lingering on Bruce's call. But and look, as I say,
property is not the being on the end all of
the economy. But does it mean that we could anticipate
further cuts? Do you think? Because a lot of the
rhetoric has been like, well, that's it, we've had a
point five, you know, make the most of it. Get
(25:06):
on there.
Speaker 3 (25:07):
Yeah, I think one more is the markets for in
a couple of weeks time the November meeting. But in
perhaps recent days there's been sort of a thoughts of
perhaps one more large one. Maybe that's sitting at something
like a ten percent chance at the moment that there's
another fifty because remember we've talked before about the sort
(25:29):
of summer break or the long time between meetings for
the RB and Z. They won't meet again until the
nineteenth of February. After that November meeting, new governor by
then Bremen. So yeah, I think that's where some of
the some of the arguments are coming. Look, get the
(25:49):
work done before Christmas, set it up well for her,
and then she's got a bit of an easier beginning
in her role. That's part of the logic. So yeah,
it's definitely in the market pricing that we're not done
completely just yet.
Speaker 2 (26:06):
Bruce again touched on rates rises and insurance costs and
you know other things like that. I mean, they can
really rain on the parade of people because you know,
if your rates have I mean I've heard some rates
bills from some callers who are in Hamilton and Wellington.
Of course their rates have gone through the roof. How
much of that is a real wet blanket on what
(26:27):
the Reserve Bank aims to achieve with interest rate cuts.
Speaker 3 (26:31):
Well, it's something they have to take into consideration, and
they have increasingly done that. You know, I think they've
been very clear about the way in which they think
about that. I mean it's a bit like a tax
in a way. You know that that lifting of council
rates and insurance right, yeah, And so what you have
(26:54):
to do as that changes is then feed that into
your models. And you know, the interest rate decision that
they make will be partly related to that downward impact
on activity that comes from those forces. But the real niggle,
tim is the fact that it adds to your inflation.
So they're then having to think, okay, well can I
(27:16):
abstract from those things when I'm thinking about where policy
needs to go because I want to perhaps provide more
support to the economy. But these two things feed directly
into inflation. Council rates and insurance do.
Speaker 2 (27:30):
They sort of have to separate those out, though.
Speaker 3 (27:33):
Increasingly they know it's hard to ignore because the risk
you run by doing that is people's expectations of inflation
will be partly determined by what they're observing with insurance
costs and with council rates. Not completely, of course, but
that's the risk. If you completely ignore that stuff, then
(27:55):
you end up sort of allowing those inflation expectations to lift,
and they can be very, very difficult to sort of
get that inflation expectation genie back in the bottle once
it goes. That's that's the tricky bit.
Speaker 2 (28:06):
Yeah, right, Gosh, this is a merry dance, isn't it,
You know, trying to juggle all these things with different
types of inflationary pressures and cash rates and what it's
going to mean for the economy. Let's dig into it
a bit more after the break though it is twenty
two and a half minutes to six. We want your
calls on eight hundred and eighty ten eighty this news talks.
It'd be Tim beverage with them. I guess Hamish Pepper,
(28:27):
he's head of multi asset and global investments at Harbor
Asset Management. Has the New Zealand economic recovery begun? And
how excited should we do we feel about it? And
it's a fascinating conversation with so many different things to
take into account. Almost wonder if I could reset my
economics one oh one and get better than a C
minus after listening to some of our callers. But anyway, John, Hello,
(28:51):
how are you doing good? Thanks good John.
Speaker 4 (28:55):
Hey, I'm at the gym and I've been listening intently
to the words of wisdom for me too, and I
thought i'd better my far five Bob.
Speaker 2 (29:03):
Wisdom is from I just chip in with some cheap
comments where you.
Speaker 4 (29:07):
Go, Okay, I'm a little less negative than what I've
been picking up with a discussion. I think the thing
you ought to think about is inwards capital flows into
New Zealand via the Golden Visa incentive. And I don't
know if you noticed last week there was a dairy
(29:30):
farm in mid Canterbury went for wait for it, eighty
seven thousand dollars per hector. One dairy farm changed hand
we was going to change hands for beauty four million
dollars and you've got to say, Wow, something's happening here
because we all expect now the payout to go down.
(29:51):
So why are people paying up the dairy farms. That's
the thing that's hang on.
Speaker 2 (29:59):
We going to stop you. I was just going to
say that that does introduce the farmers into the equation
as well, which is my next question before you accord,
and so you carry on.
Speaker 4 (30:06):
John, So we're getting a two dollars a share stimulus
from the sale of mainland products, so that sort of helps,
and that will circulate in the economy. But there's a
lot of things I don't actually understand in New Zealand.
You know, there's some talk earlier about oversupply of certain
housing categories. In Auckland. Here we see people like precinct
(30:29):
properties and simplicity wading into building apartments and you kind
of go, guys, what are you doing? Because you look
around town here and you know the Chinese have got
a half built bloody pyramid in the middle of Auckland here,
and you know rents are going down, not up. So
I think the environment's quite complicated. But I think it's
(30:54):
such that it's very dangerous to be bearish.
Speaker 2 (30:59):
I think we were. I think I would before I've
just jump in for hamish. I think the word we
were being was measured as opposed to negative.
Speaker 4 (31:07):
Which I think, move your up a bit.
Speaker 2 (31:10):
Okay, how much what do you reckon?
Speaker 3 (31:12):
Yeah, it's good that John's brought up the external sector
because it is a bright spot for sure, and it
goes beyond Dery too. I think she even bee farmers
are still doing quite well horticulture as well. So yeah, look,
I think that's totally one of the ways in which
the recovery is supported that farmers do feel confident despite
(31:33):
the fact that the payout may well end up being
not quite as high in the current season we're in
than it was last season. But there's these other aspects,
as you say, sale of the consumer business for Fonterra shareholders.
So look, I think yes, they will be important to
the extent they do start to be comfortable to take
on a bit more debt and to spend, because what
(31:54):
we're observing in the data is that they have been
for a long time or you know, several months through
to the first part of the year, reducing the debt
that they had. This is as the whole agricultural sector,
but driven by dairy and they've been accumulating cash balances
in bank deposits. That is starting to change in recent
months and that's encouraging. If that continues, then they very
(32:16):
much will be part of the way that the economy
gets out of the hole that it's in and delivers
some decent growth.
Speaker 4 (32:23):
Just one thing in closing, what was of interest if
you went back four months ago, the last record payment
per hectar for a dairy farm in the South Island
was seventy thousand dollars per hectar. On this latest part
eighty seven?
Speaker 2 (32:41):
Was it your farm?
Speaker 3 (32:41):
Was it?
Speaker 2 (32:42):
John?
Speaker 4 (32:43):
I worship what?
Speaker 3 (32:45):
Hey?
Speaker 2 (32:45):
Actually, I'll keep you can stay on the line if
you want, John. I think I throw this question to
Hamis because I think intuitively a lot of the New Zealanders, well,
we know about the mainland retail business and the huge
payout and magnificent payout for farmers, and good on them.
I guess the question is, and you can add your
tuppets on this too, johint if you like a lot
of people feel they wonder where that boost to that
(33:10):
side of the economy makes a difference for everyone else.
Speaker 4 (33:13):
And well, it's interesting because you know, a lot of
the commentators are saying, oh, yes, a lot of that
will down to debt reduction and new tractors. But I
just think the structure of dairy farming or dairy farmers
has changed because you know, we're leaving in the rear
vision mirror all the lunacy of years ago buying all
(33:34):
this international crap which didn't work out so well, back
into the straight and narrow of just really maximizing milk
and cows and exporting volume product.
Speaker 6 (33:45):
What do you reckon hamersh Yeah, I mean I think, look,
it may well be the case that a portion do
choose to use that capital return related to the sale
of the consumer business to reduce debt, and that you know,
that's the end of it.
Speaker 3 (34:00):
But I think overall you're going to have some of
it flow into the economy. It's not all one way though,
right you take the tractor example, there's a big imported
component of that that the New Zealand economy doesn't necessarily
benefit from, but the the dealership you are buying that
tractor from will benefit and the people that work for
that dealership and that's probably the more sort of tangible
(34:24):
way I suppose in which an external lead recovery plays out.
It's through the supporting services into these parts of the economy,
into these external you know areas, and that's the dynamic.
So we should see in areas that are very dairy
focused and concentrated, you know, job prospects should be better,
(34:47):
just for example, and wage growth should be better. And
so that's that's the way in which the economy can Hey.
Speaker 2 (34:53):
Thanks for you call. John.
Speaker 4 (34:55):
Just one thing in closing, Yeah, with precinct, by a precinct,
precinct and simplicity wading into building more apartments. That suggests
to me in immigration is going to go up next year.
Speaker 2 (35:08):
Okay, you reckon that they know something we don't exactly. Okay, cheers, John,
had good call. I mean, look, thanks John, that's surprisingly
fascinating conversation, some of this economic stuff, even though you
know you've passed all the jargon and things, but yeah,
it is. It's and I think that question around where
(35:28):
how long you describe how that the payout to farmers
and the fact that industry, that side of the economy
is doing well. It's how long do you think it
takes before it filters through to parts of the economy
and that are not so closely related to it, such
as you know, obviously we know that people who sell
tractors for a crude analogy, they're going to be feeling
(35:49):
quite good about things. But when do people who work
and just in other parts of the economy not so
closely connected. How long does it take to filter throat?
Do you think?
Speaker 3 (35:57):
Yeah, I think that's a longer process because already we
have had these stories and you would have had other
people talk about it too, that you know, the regions
are generally doing much better than the centers. You know,
people have said, if I'm going to come into the
main centers, then you know, Wellington's probably the bottom given
the dynamic and the public sector. You know, Auckland is,
(36:19):
you know, somewhere in the middle, and christ Church might
be the better of the three main centers. But what
almost everybody is saying is that out in the regions,
maybe Nelson is a bit of an exception at the moment,
but you know, regional New Zealand is ending to do
better because of that exposure to the expert side of
our economy. So then your question, how long does it
(36:40):
take for the main centers to feel it. I mean, look,
we haven't really so far, have we. We're honest. I
think it's probably a story for the middle to second
half of next year before we start to see anything
all that different in terms of that channel. And so
what it means is that you come back to the
way in which interest rates can have that broader effect
(37:03):
and help to lift.
Speaker 2 (37:05):
And I guess and that's in fact, that's the role
one of the big roles the Reserve Bank has because
that when when they're addressing all these factors and working
out what they do with the cash rate, that's how
they feed on the benefits to everyone by at least
saying well, hey, next time you fix your mortgage, you
might have another Actually, what's it worth? What's a fifty
percent basis cut on the average mortgage worth? I'm not
(37:27):
going to I'm missus zero Hamish. They were not do
it live.
Speaker 3 (37:33):
But what I think I would say is and just
don't forget about the saver side. And you know, I
think there is a deliberate purpose here is to make
saving less attractive. As a big part of what the
RBNZ are doing, make servicing your debt and borrowing money cheaper,
but also make saving less attractive, so people are more
(37:55):
inclined to spend. So it's going to work through both channels,
the way in which policy, monetary policy engineers this recovery.
Speaker 2 (38:05):
We've got a fascinating conversation. Right, let's go. We'll come
back with gosh, what time has flowing? It is nine
and a half minutes to six News Talk zed B.
It's News Talks EDB. Thanks for all your texts and feedback.
It's been a fascinating our just discussing how the New
Zealand economy is maybe turning in the corner, but what
it's going to look like with Hamish Pepper of Harbor
Asset Management. Hamish, I guess, okay, here's here's a way
(38:28):
of getting into it. I've got a little bit of
money sitting in a wise account in euros, and through
indecision and not putting it back into a savings account,
I've actually done better than if I'd been using it
for savings because the exchange rate has not gone well
for the New Zealand dollar. What's what's going on there
with the New Zealand dollar and what we expect it
to do.
Speaker 3 (38:49):
Yeah. I mean, I think it's a reflection of our
economy in terms of you know, the whole that we've
been talking about that we're coming out of. We've depreciated
against the US dollar just there's probably one that maybe
people have in their mind a little more than the Euro.
But you know, we're down at the bottom of sort
of a multi decade range. Really. The only time that
(39:10):
we've meaningfully been lower is in the global financial crisis
in two thousand and eight two thousand and nine, so
very low levels and does reflect that. You know, we've
obviously had our interest rates dropping, but that's been a
broader story of economic weakness. So you know, as we
come out of this, you know, it's not unreasonable to
expect there to be the ability for us to recover.
(39:34):
That's what many forecasters expect. The interesting thing more recently, though,
in a bit worrying to him, is that our currency
usually likes when global equities, global share prices are going up,
and they've been doing that. But what's been happening through
that time is our currency has been sort of plumbing
these lower and lower levels, and I think that's an
(39:55):
interesting dynamic, you know, should that stay around that we
don't have any sensitivity there. Then it's it's not so
clear where we might go because it's some sort of
regime change. But at the moment, yeah, I mean, I
think the average expectation out there is that we can
recover in the currency as the economy recovers so slowly.
(40:19):
I think that's probably the forecasters expectation. Yes, And there's
this added uncertainty which we've probably spoken about before when
it comes to mister Trump in terms of what he
does to the credibility or otherwise of holding US dollars.
We had a moment earlier in the year, of course,
with Liberation Day, and there was a real questioning of
(40:40):
whether you do want that US dollar exposure or not.
So that's another uncertainty. It harks back to the early
part of our conversation that we have to deal with.
Speaker 2 (40:49):
Gosh, fascinating conversation and no doubt it'll continue next time
we catch up. How much, Thanks so much for your time, mate,
Really appreciate it.
Speaker 3 (40:55):
Cheersay, thank you man. Thanks for all the calls.
Speaker 2 (40:57):
That was great, good stuff. That's how much paper from
Harbor Asset Management. You can go check out all this
what they're about on harbor Asset dot code at NZ
and thanks for my producer Tyre Award. Check out the podcast,
go to the Weekend Collective anything you've missed it will
be there soon and Sunday sex Us next. Enjoy the
rest of your evening. Catch you soon.
Speaker 1 (41:17):
For more from The Weekend Collective. Listen live to News
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