July 27, 2025 • 40 mins
The Consumer Price Index over the June quarter was lower than expected at 2.7%, and it could mean a rate cut by the Reserve Bank next month.
So is the New Zealand investment winter over?
Shane Solly is a director at Harbour Asset Management and he joins Tim Beveridge for Smart Money.
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Speaker 1 (00:05):
You're listening to the Weekend Collective podcast from News Talks edb.
Speaker 2 (00:11):
Soon News.
Speaker 3 (00:15):
It's co DECI in world stay stay talk at the
bar or by our sols.
Speaker 4 (00:34):
But I'm here for some.
Speaker 2 (00:36):
One and welcome back to the Weekend Collective on Tim Beverage.
Speaker 3 (00:54):
We you can we this is where we want your
cause of course, for these hours on one hundred eighty
ten eighty and text nine nine two. This is smart
money and we're going to be being a chat about
well money. But the consumer price index over the June
quarter was lower than expected at two point seven percent,
could mean a rate cut by the Reserve back next month.
(01:14):
And the question I guess we're going to explore is
is the New Zealand investment winter over? Can our asset
values finally joined the global melt up? Which I'm pretty
sure is the expression that has been coined or at
least put into the conversation by Well. He's a director
and portfolio manager and research analyst at Harbor Asset Management.
His name is Shane Solly and he's with us now
(01:37):
for Smart Money.
Speaker 4 (01:38):
Shane, goodall, Tim, how are you?
Speaker 3 (01:40):
I'm pretty good? Thanks? What's been keeping you out of
mistress lately, well, capital.
Speaker 4 (01:46):
Markets in indition markets its ccerely been pretty interesting, that's
for sure. But we certainly seeing the melt up you mentioned. Yeah,
it's the sort of a grudged rally we're seeing global
share markets, and it really has been the earnings have
driven that up in markets have rallied and investors have
been pretty weary about it. You think it the backdrop, right,
We've seen wars, We've seen all sorts of problems, and
(02:09):
this melt up as occurred.
Speaker 3 (02:10):
Well, I guess as winds, but I mean, of course
people will relate it to the winter in New Zealand,
but of course in the northern hemisphere while it's it's summer.
What what's been you know, the general global investment winter,
if we're going to use that term, and what's caused
it because you know, we're going to a certain president
of the White House, has been unpredictable, the specter of
(02:32):
tariff's coming going not happening, Global conflict Ukraine. You know,
I'm not sure how much Israel and Gaza. It's the
global economy. But anyway, so where where what have we seen.
Speaker 4 (02:44):
The guest few months, very very complicated investment world? I
think one of the points you raised there is tariffs,
and you know, this has been an unusual stance by
this new US government led by mister Trump. They've certainly
thrown this global trade structure that we've gotten used to
for twenty plus years around, and so I think that's
(03:05):
really been a challenge for investment markets. If these policies
are fully implemented, then they may actually lead to higher inflation,
and of course we've just come out of a period
of battling inflation, and so this is also and also
the other side could impact lower growth. So this mix
has really been a struggle for a capital markets. But
(03:26):
against it all, against it all, you know, certainly we've
seen a strong rally, and particularly led by the US
technology stocks because they have quite some quite amazing technology
that is really leading to strong profit growth, much stronger
than we all expected, and that has dragged the markets up.
So despite all this uncertainty and central banks, right, who
(03:50):
would want to be a central banker at the moment
You've got this potential for inflation to go up, so
you're holding back from cutting rates even though inflation is
lower or within your target bands.
Speaker 3 (04:00):
It's a tough one, right, even be you guys at
this time and this it's been the most hides same time.
Speaker 4 (04:05):
But this is interesting, It is actually fantastic. It's very
it's the challenging market creates opportunities and that's what we're
here to do, look after our investors and turn this
environment into a great return outcome.
Speaker 3 (04:18):
But you want to be right, don't you. I mean
Chaine slowly when he does his investment, When you do
your research or analysis and stuff, you want to be right.
I would imagine that the potential to be wrong. I mean,
how do I know this is a broader question than
what we're going to talk about, but how do you
how do you get your job right in the environment
(04:39):
we've seen in the last few months.
Speaker 4 (04:41):
Well, it's about being patient, doing the research, understanding where
they're making investments relative on a risk adjusted basis. You know,
it's it's an opportunity, which is you know, it's a
bit like sports, right people talk about you know, people
get lucky. The opportunities or their lucky is generally built
on are years of training, years of development and skills,
(05:03):
and that's what we do. So we've I've spent We've
got a very established team that's been around in many
cases for more than three decades in capital markets. This
is not the same as what we've seen in the past.
Every time it's different, But every time there's a surprise
or there's a shock, we do know these are the
sorts of investments that do well in that environment. These
are the sorts of investments that don't do well. So
(05:25):
it's about making sure we steer the ship to avoid
some of the problems and to clear awater. So yeah,
I think it's a great point you raise, and you know,
there's an investing people have to be patient. You do
need to take a long what's a long term view?
Three years is short, five years is not. We're really
starting it going, it's like five years plus, as we
(05:47):
should think about when you're making investments in growth thesets
in particular. So that's what we think about, Tim.
Speaker 3 (05:52):
I was listening to some news I listened to a
range of news sources when I'm on my way, and
it was talking about, you know, some of the recent
growth and how markets have sort of overcome some of
the uncertainty around Trump, and then it also talked about
quite a few companies that have experienced some significant growth
in terms of earnings and income, and actually that the
(06:15):
words earnings and income or revenue revenue and earnings. That's right,
but they were treated as two different things. Of what
am I missing there?
Speaker 4 (06:22):
They are different things. There's a really good point, particularly
with some of these really fast growing technology businesses that
are driving sheer markets, particularly the US. They don't necessarily
make a bottom line after tax profit, right, there's got this,
but in many cases they are on the growing their revenue,
which is the income they earn from providing services, includes
(06:45):
faster than expected. And in many cases the profit margin
before paying tax is actually growing faster than expected. And
this is what's called operating leverage. So the revenue is
growing much faster than my costs are, and that is
actually what's really surprising. That we're about the way through
the US reporting season for the second quarter tom and
(07:10):
generally the numbers are coming in better, but it's driven
by a small you know, the technology businesses in particular.
We've got about forty percent of the US market reporting
this week, some really big technology names things like Amazon, Meta, Microsoft,
so this is a big week. But what we're looking
at is we're starting to see some of this margin growth.
I was talking about before about this operating leverage our
(07:32):
marker here in Zealand. We've lagged right, We've left being
left behind, and what we are starting to see is
this profit margin starting to drive back up. So that's
really when you come back to the winter that we've
seen in New Zealand, and we have been in the winter,
that's where the opportunity is. We're seeing an improving profit margin.
So yeah, it's a big difference between revenue and profit.
(07:53):
Great point.
Speaker 3 (07:53):
So how have how have investment investment markets evolved pardon me,
with the impact of tariffs and things now, are they
sort of are they still sensitive to tariff talk or
are they just sort of soldiering on?
Speaker 4 (08:09):
Yeah, well, look you asked me what I've been spending
my time on lately this weekend. It's about watching to
see what Trump tariff announcements come out. And mister Trump
loves to throw out stuff on his truth social media
on a Sunday night, so he's probably just browing up
a few ideas right now. But coming back, so terriffs
(08:32):
has been interesting. We've actually seen a little bit of
so it's a capital markets or in listmer markets still
pretty weary about what that means what their inflation risk is,
what the growth down risks. But what we're actually seeing
is some of the actual tariff outcomes have been slightly
better than expected. We've seen a few deals that come through,
(08:52):
and I'm mindful that last this time last year to
there were no tariffs capital markets finel thing. For example,
this week, we've just seen the deal that the US
is done with Japan, and Japan was looking at a
twenty five percent tariff and it's ended up at fifteen percent.
It's still higher than ten percent. It's still a lot
higher than zero percent it was six months ago, but
(09:15):
that's not as bad as what capital market said priced.
And we've also seen a lot of government spending stimuls
or potential government spinning stimulus that offsets somewhere the tariff
spin in the US. This one big beautiful bell, which
is an interesting name. We'll see you quite a lot
of stimulus, quite a lot of tax breaks in the US,
(09:38):
and it provides a bit of an off site to tariff.
So on the one hand, we've got the potential risk
around tariff. On the other side, we've got the Chinese
government stimulating activity, not hugely, but enough to keep their
economy heading five percent, European Union stimulating activity predominantly through defense,
and then the US government saying, hey, look we're going
(09:59):
to give you a tax break. That's providing an opposite.
So yeah, when we go back this US economy, No,
it's a very resilient economy and we're not seeing expectations
of recession. So that's a really important point. So while
we're weary about tariffs, it's not coming through the recession. Look,
businesses are being careful about spending on capex, consumers are
(10:21):
being careful. That really from a capital market investment point
of view, what it's doing ter they stopping sort of
keep containing long term government bond you its. There's they
caught in a bit of a range because on the
one hand, the central banks are weary about tariff's are
not cutting, but they actually should be given where inflation is,
(10:43):
will they cut? Won't they cut? As an impact on
the cost of borrowing for governments and by definition the
cost of borrowing for you and I.
Speaker 3 (10:51):
What is We've got to move on to the domestic
side of things soon, but I just want to dig
into a couple more things with regard to the US.
You know, the big beautiful bill and the tax brakes
that are coming. There's going to be I saw the
headline that of how many trillion it's going to add
to you debt. We see Donald Trump hanging out at
the Federal Reserve building with Jerome Powell. If I've got
the names right again, all that extra money sloshing around
(11:15):
surely would be inflationary. That does any of that factor
into sort of the view that you're taking of what
stocks are doing, you know, the potential for inflationary pressures
at US indebtedness or do we think that the as
I say, the stock markets just sail on regardless.
Speaker 4 (11:35):
Look, we don't sail on regardless. It is. It is
something that will be a continuous There'll be jolts, There'll
be periods of time where people get anxious about this
learning debt. In the way that the US current US
government is really trying to engineer things is to drive
and and really grow their way out of it, right,
to stimulate their economy to produce growth and then they
(11:59):
can pay down the debt. It's a pretty aggressive stance,
you know, withect Well, time will tell.
Speaker 3 (12:06):
Time will as inflation the problem potentially.
Speaker 4 (12:10):
It isn't at the moment, it isn't at the moment.
As a result, it could be yes, yeah, we could
get parts of the economy having you know, where the
pricing power is higher. And so I think we're going
to be weary of it. And that's certainly something people
are keeping a very watchful look, looking over their shoulder regularly.
So what that means is certain parts of you know,
(12:31):
we talked about bond you as for example, and they're
sort of four and a halfish in the long term bonds.
They're kind of stuck there trading around, and so that's
telling you where investment markets are weary about it. The
other end of the spectrumers, of course, as you touched
on this pressure on the US Federal Reserve. They meet
this week late this week Thursday, they're out and markets
(12:56):
aren't expecting cuts by the Central Bank. But you know,
we saw last week some pretty heavy pressure going on
your own power. You know, he's got he's got a spine,
he's he's ballsy.
Speaker 3 (13:09):
That guy he stood next to Trump at that when
Trump said, oh, you've got to blow out on this,
and he's like, I haven't heard of that. And Trump's like, yeah,
I've got it. Here and he goes, no, No, you've
taken into account the wrong building.
Speaker 4 (13:21):
His impressive right, guys, he's he's tough ass. So I've
got a lot of respect from mister mister power. So
you know, we know his terms, you know, running the
clocks running down, and look, I think he's going to
do the thing that he sees his best. Remembering he's
only one of a member. It's a committee, right, so
he's not making the decision, he's disfronting it. So there's
(13:42):
no expectations of a rate cut this week. So they
were saying that four and a quarter type range, you know,
so higher than here. We're out in New Zealand where
threeish and they're fourish, and so you can understand why
he's under a bit of pressure from me.
Speaker 3 (13:55):
Actually, that steadfastness that he demonstrates, does that actually quite
a positive thing in terms of just the signal that
sends to everyone else who relies on the Reserve holding
its ground, the Federal Reserve sort of having a policy
that's uninfluenced by the President.
Speaker 4 (14:10):
Yeah, totally. And I think this is one of the
things that the feed is very focused on being trusted
that they can rely We you and I can rely
on well went on in the US capital markets, investment markets.
Think about that as a start point for investing. It
remains still you know, the lowest risk considered the lower resk.
(14:31):
Not necessarily these other things to invest as well, but
that's where we start from. So his resolve and the
committee's resolve is important if they seem to capitulate. But look,
you know there is definitely you know, we will see
It's likely we will see some rate cuts later this
year from the US for the Reserve, and perhaps one
(14:52):
or two next year as well. So it's going to come.
It's just the timing. And so mister Power was sort
of saying, I'm just got to look at the data,
and the data doesn't give me the year.
Speaker 5 (15:02):
Yeah.
Speaker 3 (15:03):
Hey, just before we go the break now, I started
by mentioning the word melt up. Is that one of
your expressions, by the way, or is it I'll buy it?
The question that comes as obviously that's a response to
talking about we've had the meltdown. Now we've got the
melt up, which does sound very bullish to me. What
(15:24):
what is it? And I guess you know markets price
and bolishness, don't they or not.
Speaker 4 (15:30):
That's right. So there's a few bit of optimism baked
and particularly the US market at the moment, you know,
less so by the markets, but particularly the US market.
And that's why this profit reporting season that we can't
in is so crucial. If the companies don't deliver enough,
you know, whatever period where the market doesn't like it.
You know, I'm not saying we're going to see a
(15:51):
massive pullback, but it will just be vitile. And so yeah,
you know this potential, but we actually see that the numbers,
as to say, the numbers are doing the work for
us in the beating expectations. So got to run with
the numbers.
Speaker 3 (16:05):
Do you like volatility?
Speaker 4 (16:07):
Look, I think it's part short tuned, you know, long long,
short term volatility can create long term opportunities. I don't.
I won't caught excitement. I just call it, you know,
it's just what we have to deal with. So, you know,
things that can appear very wiltile and the short term,
you know, and shears go up and down in the
short term are actually long term potentially the best protectors
(16:29):
of wealth in that they tend to grow faster than inflation.
That's really important for all of us, particularly putting away
some capital for when we don't earn income.
Speaker 3 (16:40):
Yeah, take a quick moment. I'm with Shane Soly's director.
He's a portfolio manager and research Jannalist at hard Brasset Management.
We're going to bring the conversation closer to home with
what's going on with our reserve bank and what we
can expect. Are we going to have a bit of
a melt up ourselves in the domestic markets here? And actually,
if you want to join the conversation, look, Shane's a
(17:02):
wealth of knowledge. If you've got questions from if you've
got an opinion, because there are a lot. Everyone is everyone.
I think everyone's predicting that we're going to have further
interest cut rate rate cuts, possibly in August. What do
you reckon and what does it mean for your financial
plans as well? You give us a call on one
hundred and eighty ten eighty. But as I say, I'm
(17:23):
with Sean and we'll be continue our Shane, Sorry, Shane,
we'll be continue our conversation. Sorry about that, sewn. Shane
Sure is.
Speaker 4 (17:33):
Fine. Sure.
Speaker 3 (17:34):
Shoran is my is my producer's new husband. And that's
why that name was on my mind because you just
got married, and your Shane, and we're going to be
back with you, Shane and just a moment. News Talks
B twenty four past five. Yes, welcome back. I'm with
the director of portfolio manager and research analyst at Harbor
Asset Management, Shane Sally, and we're going to dig into
our own market and just a month. We're going to
(17:54):
take some calls. By the way, we've got a couple
of callers we're going to go to in just a sec.
But basically, if I were you, if you ever want
to run your theory or pick someone's brains about what's
going on in our economy or in our markets and
things like that, this is pretty much the perfect opportunity.
It's like having got into the elevator and Shane can't escape,
and he's going to take your cause. So jump into
the elevator and we'll close the doors and he'll be
(18:16):
stuck and taking your cause. I know, one hundred and
eighty ten eighty terrible analogy. I just made that up, Shane,
but I think it's the point across anyway, right, let's
go to Ross. Hello, Oh yeah.
Speaker 6 (18:27):
I can and Shane, Yeah, yeah, you're here.
Speaker 3 (18:33):
Yep, Yep, we're all here. I think we're there, aren't we. Shane, Yeah, yes, gotchah.
Speaker 4 (18:38):
Yeah.
Speaker 6 (18:38):
I was just wondering about the theory about she is
showing up by steercase and coming down by elevator. I
just recently bought rocket Lab shoots and oh, I'm not sure,
maybe six seven months ago there were twenty two dollars
this year, and then I'll see they jumped out to
about twenty eight. I mean, I've got Jepps and buy some.
(18:58):
So I bought some and now I see they've done
a bit of a height. But I'm just wondering because
of the market.
Speaker 3 (19:07):
Or I saw the rocket Lab shares have gone pretty well.
Shane Ross has made a goodbye there at the moment,
isn't he.
Speaker 4 (19:16):
Yeah? Yeah. Firstly, Ross, well done. You know, the the
rocket Lab team are doing an amazing job. So you know, firstly,
they are certainly doing something special. And it is one
of these companies that we're talking about before Ross with
about it's got lots of revenue yet to make a
bottom line profit. The market has got more comfort that
(19:38):
they're on track to continue to grow share. One of
the interesting elements of mister Trump and mister Musk falling
out of love is of course, mister Musk's business was
a competitor to rocket Lab, and you know, maybe that's
going to become a little bit more challenging. They have
to fight for a bit more shares. Hopefully rocket Lab
gets a bit more share, but it is driven by
(19:58):
the fact they're doing a great job in terms of
improving their productivity on their launchers and getting their cost
structurer Look I too, you know you look at rocket
lad the stock has literally been a rocket ross, so
you've you've picked it. Well, it's certainly that sweet spot
of is a bunch of businesses or a number of businesses,
(20:19):
and there's similar space, particularly in that defense sector that
have benefited from some of the change we've seen in
the last eighty months two years. But look, I can't
actually give you an advice either way on whether it's good,
better and different here to be honest with your ross.
But you know, look, I think the same as all
these things you do that you've obviously done the homework,
(20:39):
keep doing it. Be patient, you know there'll be ups
and downs.
Speaker 3 (20:43):
Have you got the speed wobbles lost? You've had the
stock you bought relatively cheaply and now it's worth quite
a lot more. Are you just a bit nervous that
like you're cheap as I need to get off before
this thing does something I don't expect.
Speaker 6 (20:55):
No, not at all, I say is twenty nineteen, and
I seek to themself well because a ten years to
get where to one, not to where I want not
to be. We have a stock, good stock. I bought
New Zealand was the name trade of course number fifty three.
But in twenty twenty two they went up to ninety actives,
which I thought they go to one hundred, but they
obviously don't know.
Speaker 3 (21:16):
Well, sorry if you're disappointment Ross, I think Ross was
just ringing up to brag.
Speaker 4 (21:20):
I think, well, kudos to Ross. We you know Ross,
we own main Fred two. We were we we own
a reasonable wedge of the business. Did you to come
out with an update on Wednesday? It might be a
little bit sort of New Zealand might be a bit
titchy for them, a bit tough. And so that's something
that the shop prices. You know, you talked about it
(21:41):
sort of going up and down, and you're right at days,
but it generally goes up over time or has done
live by great great a series of great managers and
great board and they know when to go and when
not to go, and so they're very good at using capital.
And that's one of the reasons we like them. They
know they value the fact that we as investors need
a decent return, and so they invest as if their owners,
(22:04):
because they are the owners. That's what we really like.
So Wednesday, keep your eyes open, Osie could be quite
good for them USLB. That maybe another that makes one
that they've got plenty of growth there potentially.
Speaker 3 (22:17):
Just and I don't want to keep sidetracking the conversation,
but you know, Ross mentioned as rocket Lab shares and
that was maybe one of the things I heard about
and read about in terms of this the growth, and
it wasn't actually because they haven't. You know, they haven't,
they're not making the profits yet. But how much of
the growth is simply because people are interested in the
shares are seeing they're getting this number of launches off,
(22:37):
they're becoming more and more credible on the launch space,
and so people just see because they're following a bit
more than nuts and bolts of what rocket Lab do
rather than the data around money, how much of it's
based on just looking at well they're doing X, Y
and z, that's going to convert into something really quite promising.
Speaker 4 (22:53):
Yeah, Like, I think the point you're raising to them
is what we would look at is called secular investing,
So we're looking at what the business is doing driven
by the industry structure. Yeah, these guys can grow or
maybe not. They're less sensitive to what the broader economy
is doing. So the economy can be going down and
these guys can or this, these types of businesses can
(23:16):
continue to grow because they've got these secular tailwinds and
certainly we're seeing increased activity in that space sector and
so as a result, Rocket Labs is in the right place.
So they've put themselves here. That's the cool thing, right,
these guys have they just haven't done whatever they've they've
done the right thing. So certainly I think that's what
(23:36):
when you're looking for these longer term businesses, these secular
growth that don't depend on the economy, you've got to
have a longer term view. Takes time, they don't go
that doesn't go in a straight line, and you've got
to be focused on what actually triggers this upside. So yeah,
they're they're certainly improving their own game, and they're in
(23:56):
a game that doesn't depend on the economy to the
same extent.
Speaker 3 (24:00):
Okay, let's take another call David High.
Speaker 5 (24:04):
Yeah, yeah, sure, Shane, Shane and things have got screwed
up there and somehow. But anyway, it's been hard to differentiate.
But yeah, it's good to listen to this. We should,
we should have a bit more time on the subject.
But I want to ask a question of Shane. Yep,
(24:26):
what is what is beta?
Speaker 4 (24:28):
You know?
Speaker 5 (24:28):
And then terminal in the stock market. But the other
thing before the conversation gets going is where do you
call Trump and mask mister? They're not they're not They're
not gentlemen. They they don't deserve the title mister.
Speaker 3 (24:43):
Okay, fair enough. Uh well, I mean Shane's a very
polite guy. Did you have a particular question other than
how we refer to these individuals?
Speaker 4 (24:55):
Sorry, David, do you want talk about data or beta?
I just missed missed it.
Speaker 3 (25:00):
I don't know, David, he is still there.
Speaker 5 (25:02):
Try to come from Yeah, I'm trying.
Speaker 3 (25:05):
You're there, Yes, yes, what was your question again?
Speaker 5 (25:10):
My first question was what is beta or beta?
Speaker 4 (25:13):
Or? Oh?
Speaker 5 (25:13):
Yes, in terms in terms of speed. I think it's
the speed of the transactions that go through and the
high beta is what's called momentum. That's my understanding, and
so I thought i'd ask you what your understanding was
and what the number means of you know, it's a
ratio of number.
Speaker 4 (25:35):
Yeah, thanks, good question.
Speaker 3 (25:36):
Thanks David yep I got lost there, but you go.
Speaker 4 (25:39):
Yeah, no, sorry. Beta is refers to the the market's
overall movements. So if I'm investing in the market, it's
the it's the beta of the market is that is,
just as you said, the pace of change. Some stocks
are more sensitive to Some individual companies that listened on
the shear market have a higher sensitivity to that market beta.
(26:01):
So we talked earlier about Rocket Lab. They are more
they have more ups and down, so they tend to
have a higher beta. Something like a defensive New Zealand
utility like Mercury or Meridian, they have a lower beta.
So the market might go one percent, they might only
go by point nine point eight, depending on what it is.
(26:21):
So there less sensitive to the ups and downs, and
that has a benefit in terms of being at certain
points in the cycle, maybe the market goes down so
having those less sensitive businesses to that market move is
quite up. So the ratio refers to the sensitivity of
the stock to the market movement. So if the market
(26:41):
goes at one percent and I've got a beta at
one point one, I should go up by one point
one percent. Have I've got a better of point nine,
I should be like point not I should be a
lower I should only I won't move as much. So hopefully, David,
that sort of is the momentum piece is interesting, right,
So momentum trading is definitely getting has had a lot
(27:02):
of growth. What that means is I following the stocks
the sheer prices are going up. Now I'm going to
buy more of them. And there's That's just one of
many strategies that some people use. Certainly we think there's
this periods of time where it works really well and
other times where it reverts it that she doesn't work.
So we're in a period in particularly in the US
(27:24):
and global market where momentum is working. So people are
following the winners. If you like backing your winners.
Speaker 3 (27:31):
Okay, all right, we take a break. Thanks for you call, David.
We'll be back in just to tickets twenty two minutes.
Twenty two minutes to say yes, welcome back to smart
(28:02):
Money on the weekend Collective. I'd suspect this song might
have been requested by one of our guests. Actually this
is one of yours, Shane.
Speaker 4 (28:10):
Well, you got to say acknowledge Ossie's passing. It's pretty Yeah, yeah,
all right. We like the pioneers. We like people that
are entrepreneurs and do different things.
Speaker 3 (28:22):
Yeah, good on you a little bit?
Speaker 4 (28:23):
Is this black?
Speaker 3 (28:24):
Saba thought Ossie?
Speaker 4 (28:25):
Well it's actually Aussie is post blex edit? Yeah? Yeah,
is still we'll take it.
Speaker 3 (28:31):
Good stuff. Hey, now, let's get gosh, we've been sidetracked
by some other well we have me s we all
been talking about money all along the way. But let's
get back to New Zealand and the release of the
CPI data has been lower than expected for the Dune quarter.
What's this all meaning? The r the Reserve Bank? Gosh,
(28:53):
they've been in the headlines for other reasons too, haven't they.
But anyway, let's get onto the actual job that they
do about the rate cutting cycle. How's that all going?
Speaker 4 (29:01):
Yeah? Look, so just to go back to the June
consumer price and play CPI data came out at two
point seven percent, and what we saw was the market,
particularly the fixed interest markets, they priced in a higher
probability of a cut by the Reserve bankan using on
the RB and Z in August. And so what we're
actually seeing today, tim is the markets pricing about a
(29:23):
zero point two percent cut. That's an eighty percent chance
of a point two five percent cut in August, and
that's up from seventy percent prior to the data. So
that CPI data did actually help move the intention along
or the market's viewl long and one thing that it
has done, it's also sort of seen a small drop
on what's called the terminal or that's the low point
(29:45):
in the cycle official cash rate from two point to
two point seven from two point eight. So it all
doesn't sound like a lot, but in when we mix
it all together, it's a slightly more helpful constructive backdrop
for the economy. But you know, we talked about this before.
The zero Bank in New Zealand, they've got an interesting
(30:07):
challenging job at the moment that it's a committee by
the way, same as other places, and they've got to
think about what a terrorists do to inflation and then
against that we continue and see local inflation data continue
to support lower rates. So businesses are not putting through
price increases the intent they were, consumers are reducing their
(30:28):
expectations on inflation. These are the lead indicators that the
Central Bank Committee are looking at, and you know it's
definitely pushing them to reduce rates. Just when and how
fast is the question.
Speaker 3 (30:40):
How much of a distraction is all that at the
other headlines around comings and goings and Adrian or and
all that sort of stuff at the Reserve Bank, because
that unsettling at all. It's just meaningless gossip behind the
scenes and you guys don't care about it.
Speaker 4 (30:52):
Look, we care about it. That it's you know, the
reality is there's the fact that we've got a really
robust central bank. You know, Christian hawks be stepped up
to fill that role. There's a bunch of really good
people around than that team, and we've got a committee,
so it's not actually it's a a little bit like
you know, mister always and I will call it mister
Adrian all he did a good job in a difficult
(31:16):
circumstance and you know, quite rightly there's some questions about
some speed that's always going to be the case. It
doesn't really matter who's who's doing. Remember who's a committee, right,
So there's a committee grow behind this. So you know,
while Christian hawks be mister Christian hawks will have to
we'll have to front.
Speaker 3 (31:35):
That's so like a Vegas Act area anyway.
Speaker 4 (31:39):
Christians a lovely man, he will take that in a
positive way. Tell you now that there is definitely yes, yeah,
it's a challenging environment. But there's a committee and that committee,
there's there's going to be different views within the committee. Yeah,
just as there isn't so the US Federal Reserve Open
Market Committee.
Speaker 3 (32:00):
Now, what's your read on where the where the rate
cutting is sort of going to go and end?
Speaker 4 (32:05):
Yeah, we know our research suggests that it does need to.
You know, it is on track to be below three percent?
What are we now? Just remind me we're at three
point two five percent, so we've got a little where
to go. So, you know, where does it go in
the twos? That's going to be the magic question. Do
we go to two and a half? There's a bit
(32:27):
of research out there from a number of different groups
that suggest that maybe we will end up as I say,
currently markets pricing and two point seven. Zero point two
percent doesn't sound like a lot to people between two
and a half and two point six. That is actually
quite a lot if you're paying, if you were a.
Speaker 3 (32:43):
Big mor whiche, not as much as John Key wants.
He wants to slash by one hundred points. So tell
him he's dreaming, isn't it.
Speaker 4 (32:50):
Well he may not be, I don't you know, you've
got to respect mister Key. He's you know, he's obviously
run a few businesses and economies, and so you've got
to respect what he's saying.
Speaker 3 (33:01):
What do you reckon if you were I mean, if
you were shuting, we'll look at I know you have
to be certain circumspect to a point, Shane, but what
did you here when you heard him make that recommendation,
Because what you're talking about is maybe half a point
cut further, but he's going the whole log for the
whole hundred.
Speaker 4 (33:19):
Oh look, I'll stick with all back my research colleagues
and what they're doing, and they're they're saying, you know,
and that sort of lower twos is the sort of
number of mid midlwer twos. So yeah, look back then.
Speaker 3 (33:32):
Because that could be inflationary if you go too far,
couldn't It? Isn't that right?
Speaker 4 (33:36):
Look, I think we need to be careful about, you
know what why rates are being cut. If they're being cut,
because inflation expectations are with closer to two than three.
And remember they're still on that sort of higher twos level.
You know, if we don't we've got to manage the
inflation is not actually good you know, for anybody have
a longer term. It really erodes our purchasing power. So
(34:00):
I think it's important to stick within a reasonable range.
And two to three is there as a band that people,
particularly central banks and governments can get on top of.
You know, look, I've got to look over the shoulder
at what we're seeing from some of the fiscal with
the government. Policy changes are being announced and this is
not politics just making a statement. We're seeing the taps
(34:21):
open back up to stimulate the economy after a bit
of a reset, and so that is coming through as well.
So we're potentially got a bit of a double where remembering,
you know, was July last year we saw the New
Zealand Reserve Bank and ZEOND really start cutting rates. They've
cut rates a really big chunk from there, so it
(34:44):
takes time for that policy to start coming through. It
has taken longer than we thought. It was taken longer
than the investment community thought for those lower rates to
underpin the New Zealand economy. But go back to what
we we're talking right at the top, there's uncertainty around
the tariff changes has taken some that benefit that boost away.
Speaker 3 (35:07):
Yeah, well, I mean in terms of the New Zealand
share market, we've you know, we've been a bit behind
everyone our haven't we. So what what what do we
need in our market to see it pick up?
Speaker 1 (35:19):
Yeah?
Speaker 4 (35:19):
Look great point. Look I talk about you to date,
so you to date the New Zealand share market actually
down two percent and if I look at the US
markets up close to nine even the AUSSI markets up
above eight percent. So you know we have we have
undershot the other markets. It's a function of this. Our
economy has been weaker than are the economies. You know,
(35:40):
the Australian economy is very resilient, pretty strong. US economy
we talked about before, pretty strong, and so that weakness
has hit the earnings for gas for some of our
more cyclical companies, the companies that are more dependent on
New Zealand activity that's sexually seen. We've seen earnings downgrades
and so and we've also seen this. Our market tends
(36:01):
to be defensive, so we have a lot of utilities
that's actually great long term they protect your capital, but
we don't have these big growth technology businesses that are
dominating the US market. So look, we're on the cusp
of another profit reporting season for the June period, so
companies start to report their profit numbers and you know,
(36:24):
realistically that result season might be a bit, you know,
not particularly exciting on what actually happened for the June
period because we've got most of the businesses we talked to,
and we talked to them daily in different different sectors,
in different parts. They're saying, hey, look things have stopped
getting worse. Yeah, But what we are seeing and talking
(36:45):
about is how profit margins starting to figure out costs,
in particular costs beginning on top of so the things
they can control. And then we go back to this
opening up of the money supply by the central bank
starting to just underpin the economy, so we could have
the combination of corporate costs coming down at the same
(37:07):
time the economy is just expanding a little bit to
give us some reasonable earning support. We haven't had that
for three years. It's been the other way. We've had
falling earnings. We could actually see modest earnings growth mid
single digits, you know. So I think we tend to
be a different cycle here in New Zealand from the
rest of the will and so our cycle has been
(37:28):
negative and we can see potential for it to turn
back to being positive.
Speaker 5 (37:34):
Good stuff.
Speaker 3 (37:35):
I've been digging to that a little bit more. When
we've got a couple of minutes to go before we
wrap up the show, but we'll be back just to
tick one with Shane Solely from Harbor Asset Management. It
is nine minutes to six. Yes, welcome back to Smart
Money with I'm Tim Beverage Shane Solely from Harbor Asset Managements.
I guess we've only got a couple of minutes to go, Shane,
but just just to finish on a mildly lighter note,
but just to give you know, a lot of people
might actually be asking this. We've been told how wonderful
(37:57):
it is for our economy that butto is eight dollars
sixty does that actually going to have an effect? On
just the general economy here that Fonterra is going to
be pulling on what is it, twenty five billion for
its shareholders in the next sort of year.
Speaker 4 (38:10):
Yeah, look at it. Assume the supporting that egg sector.
We're seeing a really strong dairy sector and good on them.
They go through ups and downs and seeing that they're
we're in a sweet spot at the moment. We are
seeing globally that the dairy industry production is falling, so
New Zealand's in a good place. Well, we're not growing
our volume as the same extent as we were, our
(38:32):
value is increasing, so yeah, it's definitely that is trickling down.
We are seeing, you know, the dairy industry and the
haart sector doing pretty well and that's a lot of
being paid off and people reinvesting. So yep, it's a
good beast.
Speaker 3 (38:47):
Its global dairy falling because of guilt and climate change
and cows and metho and all that sort of stuff.
Speaker 4 (38:53):
Yeah, the climate, it's just you know, we've had a
bad environmental period globally for diiry. Cows don't do well
on the heat.
Speaker 3 (39:03):
Well, I guess if there's to be made though, there
might be a few countries as side. Actually they might
want to churn out a bit more dairy. What do
you reckon, We've got a minute to go.
Speaker 4 (39:11):
By the way, we see a production we will we
see a production response, right if prices hold up then
you know this is what markets to. People will respond.
Speaker 3 (39:20):
Yeah, well that'd be interesting to watch to see what
that does to the price. Hey Shane, great to chat mate,
Really appreciate your time, and thanks for the Assy Osborne
recommendation for the playlist, and we'll catch you next time.
Harbor asset dot cot it in zed.
Speaker 4 (39:33):
Cheers mate, Thank you Kim.
Speaker 3 (39:35):
That's Shane Soley and we're going to go with the
other drop Coock song I recommended, which was Bobby Bear
drop Kick Me Jesus for the Golf Coast of Life,
which I just play for you to demonstrate is in
fact a song. Apart from that, I've got nothing to
us to add. Thanks for your time this weekend, thanks
to my producer, Tyra Roberts, and we'll look forward to
next week. By the way, health are we talking menopause
(39:56):
with the convenor of our Terry Menopause forums with us
among other things in a great guests catch you soon.
Enjoy the rest of your night Sundout Sex is Next.
Speaker 4 (40:05):
Homes.
Speaker 1 (40:08):
For more from the Weekend Collective, listen live to neth
talk ZB weekends from three pm, or follow the podcast
on iHeartRadio
You're listening to the Weekend Collective podcast from News Talks edb.
Speaker 2 (00:11):
Soon News.
Speaker 3 (00:15):
It's co DECI in world stay stay talk at the
bar or by our sols.
Speaker 4 (00:34):
But I'm here for some.
Speaker 2 (00:36):
One and welcome back to the Weekend Collective on Tim Beverage.
Speaker 3 (00:54):
We you can we this is where we want your
cause of course, for these hours on one hundred eighty
ten eighty and text nine nine two. This is smart
money and we're going to be being a chat about
well money. But the consumer price index over the June
quarter was lower than expected at two point seven percent,
could mean a rate cut by the Reserve back next month.
(01:14):
And the question I guess we're going to explore is
is the New Zealand investment winter over? Can our asset
values finally joined the global melt up? Which I'm pretty
sure is the expression that has been coined or at
least put into the conversation by Well. He's a director
and portfolio manager and research analyst at Harbor Asset Management.
His name is Shane Solly and he's with us now
(01:37):
for Smart Money.
Speaker 4 (01:38):
Shane, goodall, Tim, how are you?
Speaker 3 (01:40):
I'm pretty good? Thanks? What's been keeping you out of
mistress lately, well, capital.
Speaker 4 (01:46):
Markets in indition markets its ccerely been pretty interesting, that's
for sure. But we certainly seeing the melt up you mentioned. Yeah,
it's the sort of a grudged rally we're seeing global
share markets, and it really has been the earnings have
driven that up in markets have rallied and investors have
been pretty weary about it. You think it the backdrop, right,
We've seen wars, We've seen all sorts of problems, and
(02:09):
this melt up as occurred.
Speaker 3 (02:10):
Well, I guess as winds, but I mean, of course
people will relate it to the winter in New Zealand,
but of course in the northern hemisphere while it's it's summer.
What what's been you know, the general global investment winter,
if we're going to use that term, and what's caused
it because you know, we're going to a certain president
of the White House, has been unpredictable, the specter of
(02:32):
tariff's coming going not happening, Global conflict Ukraine. You know,
I'm not sure how much Israel and Gaza. It's the
global economy. But anyway, so where where what have we seen.
Speaker 4 (02:44):
The guest few months, very very complicated investment world? I
think one of the points you raised there is tariffs,
and you know, this has been an unusual stance by
this new US government led by mister Trump. They've certainly
thrown this global trade structure that we've gotten used to
for twenty plus years around, and so I think that's
(03:05):
really been a challenge for investment markets. If these policies
are fully implemented, then they may actually lead to higher inflation,
and of course we've just come out of a period
of battling inflation, and so this is also and also
the other side could impact lower growth. So this mix
has really been a struggle for a capital markets. But
(03:26):
against it all, against it all, you know, certainly we've
seen a strong rally, and particularly led by the US
technology stocks because they have quite some quite amazing technology
that is really leading to strong profit growth, much stronger
than we all expected, and that has dragged the markets up.
So despite all this uncertainty and central banks, right, who
(03:50):
would want to be a central banker at the moment
You've got this potential for inflation to go up, so
you're holding back from cutting rates even though inflation is
lower or within your target bands.
Speaker 3 (04:00):
It's a tough one, right, even be you guys at
this time and this it's been the most hides same time.
Speaker 4 (04:05):
But this is interesting, It is actually fantastic. It's very
it's the challenging market creates opportunities and that's what we're
here to do, look after our investors and turn this
environment into a great return outcome.
Speaker 3 (04:18):
But you want to be right, don't you. I mean
Chaine slowly when he does his investment, When you do
your research or analysis and stuff, you want to be right.
I would imagine that the potential to be wrong. I mean,
how do I know this is a broader question than
what we're going to talk about, but how do you
how do you get your job right in the environment
(04:39):
we've seen in the last few months.
Speaker 4 (04:41):
Well, it's about being patient, doing the research, understanding where
they're making investments relative on a risk adjusted basis. You know,
it's it's an opportunity, which is you know, it's a
bit like sports, right people talk about you know, people
get lucky. The opportunities or their lucky is generally built
on are years of training, years of development and skills,
(05:03):
and that's what we do. So we've I've spent We've
got a very established team that's been around in many
cases for more than three decades in capital markets. This
is not the same as what we've seen in the past.
Every time it's different, But every time there's a surprise
or there's a shock, we do know these are the
sorts of investments that do well in that environment. These
are the sorts of investments that don't do well. So
(05:25):
it's about making sure we steer the ship to avoid
some of the problems and to clear awater. So yeah,
I think it's a great point you raise, and you know,
there's an investing people have to be patient. You do
need to take a long what's a long term view?
Three years is short, five years is not. We're really
starting it going, it's like five years plus, as we
(05:47):
should think about when you're making investments in growth thesets
in particular. So that's what we think about, Tim.
Speaker 3 (05:52):
I was listening to some news I listened to a
range of news sources when I'm on my way, and
it was talking about, you know, some of the recent
growth and how markets have sort of overcome some of
the uncertainty around Trump, and then it also talked about
quite a few companies that have experienced some significant growth
in terms of earnings and income, and actually that the
(06:15):
words earnings and income or revenue revenue and earnings. That's right,
but they were treated as two different things. Of what
am I missing there?
Speaker 4 (06:22):
They are different things. There's a really good point, particularly
with some of these really fast growing technology businesses that
are driving sheer markets, particularly the US. They don't necessarily
make a bottom line after tax profit, right, there's got this,
but in many cases they are on the growing their revenue,
which is the income they earn from providing services, includes
(06:45):
faster than expected. And in many cases the profit margin
before paying tax is actually growing faster than expected. And
this is what's called operating leverage. So the revenue is
growing much faster than my costs are, and that is
actually what's really surprising. That we're about the way through
the US reporting season for the second quarter tom and
(07:10):
generally the numbers are coming in better, but it's driven
by a small you know, the technology businesses in particular.
We've got about forty percent of the US market reporting
this week, some really big technology names things like Amazon, Meta, Microsoft,
so this is a big week. But what we're looking
at is we're starting to see some of this margin growth.
I was talking about before about this operating leverage our
(07:32):
marker here in Zealand. We've lagged right, We've left being
left behind, and what we are starting to see is
this profit margin starting to drive back up. So that's
really when you come back to the winter that we've
seen in New Zealand, and we have been in the winter,
that's where the opportunity is. We're seeing an improving profit margin.
So yeah, it's a big difference between revenue and profit.
(07:53):
Great point.
Speaker 3 (07:53):
So how have how have investment investment markets evolved pardon me,
with the impact of tariffs and things now, are they
sort of are they still sensitive to tariff talk or
are they just sort of soldiering on?
Speaker 4 (08:09):
Yeah, well, look you asked me what I've been spending
my time on lately this weekend. It's about watching to
see what Trump tariff announcements come out. And mister Trump
loves to throw out stuff on his truth social media
on a Sunday night, so he's probably just browing up
a few ideas right now. But coming back, so terriffs
(08:32):
has been interesting. We've actually seen a little bit of
so it's a capital markets or in listmer markets still
pretty weary about what that means what their inflation risk is,
what the growth down risks. But what we're actually seeing
is some of the actual tariff outcomes have been slightly
better than expected. We've seen a few deals that come through,
(08:52):
and I'm mindful that last this time last year to
there were no tariffs capital markets finel thing. For example,
this week, we've just seen the deal that the US
is done with Japan, and Japan was looking at a
twenty five percent tariff and it's ended up at fifteen percent.
It's still higher than ten percent. It's still a lot
higher than zero percent it was six months ago, but
(09:15):
that's not as bad as what capital market said priced.
And we've also seen a lot of government spending stimuls
or potential government spinning stimulus that offsets somewhere the tariff
spin in the US. This one big beautiful bell, which
is an interesting name. We'll see you quite a lot
of stimulus, quite a lot of tax breaks in the US,
(09:38):
and it provides a bit of an off site to tariff.
So on the one hand, we've got the potential risk
around tariff. On the other side, we've got the Chinese
government stimulating activity, not hugely, but enough to keep their
economy heading five percent, European Union stimulating activity predominantly through defense,
and then the US government saying, hey, look we're going
(09:59):
to give you a tax break. That's providing an opposite.
So yeah, when we go back this US economy, No,
it's a very resilient economy and we're not seeing expectations
of recession. So that's a really important point. So while
we're weary about tariffs, it's not coming through the recession. Look,
businesses are being careful about spending on capex, consumers are
(10:21):
being careful. That really from a capital market investment point
of view, what it's doing ter they stopping sort of
keep containing long term government bond you its. There's they
caught in a bit of a range because on the
one hand, the central banks are weary about tariff's are
not cutting, but they actually should be given where inflation is,
(10:43):
will they cut? Won't they cut? As an impact on
the cost of borrowing for governments and by definition the
cost of borrowing for you and I.
Speaker 3 (10:51):
What is We've got to move on to the domestic
side of things soon, but I just want to dig
into a couple more things with regard to the US.
You know, the big beautiful bill and the tax brakes
that are coming. There's going to be I saw the
headline that of how many trillion it's going to add
to you debt. We see Donald Trump hanging out at
the Federal Reserve building with Jerome Powell. If I've got
the names right again, all that extra money sloshing around
(11:15):
surely would be inflationary. That does any of that factor
into sort of the view that you're taking of what
stocks are doing, you know, the potential for inflationary pressures
at US indebtedness or do we think that the as
I say, the stock markets just sail on regardless.
Speaker 4 (11:35):
Look, we don't sail on regardless. It is. It is
something that will be a continuous There'll be jolts, There'll
be periods of time where people get anxious about this
learning debt. In the way that the US current US
government is really trying to engineer things is to drive
and and really grow their way out of it, right,
to stimulate their economy to produce growth and then they
(11:59):
can pay down the debt. It's a pretty aggressive stance,
you know, withect Well, time will tell.
Speaker 3 (12:06):
Time will as inflation the problem potentially.
Speaker 4 (12:10):
It isn't at the moment, it isn't at the moment.
As a result, it could be yes, yeah, we could
get parts of the economy having you know, where the
pricing power is higher. And so I think we're going
to be weary of it. And that's certainly something people
are keeping a very watchful look, looking over their shoulder regularly.
So what that means is certain parts of you know,
(12:31):
we talked about bond you as for example, and they're
sort of four and a halfish in the long term bonds.
They're kind of stuck there trading around, and so that's
telling you where investment markets are weary about it. The
other end of the spectrumers, of course, as you touched
on this pressure on the US Federal Reserve. They meet
this week late this week Thursday, they're out and markets
(12:56):
aren't expecting cuts by the Central Bank. But you know,
we saw last week some pretty heavy pressure going on
your own power. You know, he's got he's got a spine,
he's he's ballsy.
Speaker 3 (13:09):
That guy he stood next to Trump at that when
Trump said, oh, you've got to blow out on this,
and he's like, I haven't heard of that. And Trump's like, yeah,
I've got it. Here and he goes, no, No, you've
taken into account the wrong building.
Speaker 4 (13:21):
His impressive right, guys, he's he's tough ass. So I've
got a lot of respect from mister mister power. So
you know, we know his terms, you know, running the
clocks running down, and look, I think he's going to
do the thing that he sees his best. Remembering he's
only one of a member. It's a committee, right, so
he's not making the decision, he's disfronting it. So there's
(13:42):
no expectations of a rate cut this week. So they
were saying that four and a quarter type range, you know,
so higher than here. We're out in New Zealand where
threeish and they're fourish, and so you can understand why
he's under a bit of pressure from me.
Speaker 3 (13:55):
Actually, that steadfastness that he demonstrates, does that actually quite
a positive thing in terms of just the signal that
sends to everyone else who relies on the Reserve holding
its ground, the Federal Reserve sort of having a policy
that's uninfluenced by the President.
Speaker 4 (14:10):
Yeah, totally. And I think this is one of the
things that the feed is very focused on being trusted
that they can rely We you and I can rely
on well went on in the US capital markets, investment markets.
Think about that as a start point for investing. It
remains still you know, the lowest risk considered the lower resk.
(14:31):
Not necessarily these other things to invest as well, but
that's where we start from. So his resolve and the
committee's resolve is important if they seem to capitulate. But look,
you know there is definitely you know, we will see
It's likely we will see some rate cuts later this
year from the US for the Reserve, and perhaps one
(14:52):
or two next year as well. So it's going to come.
It's just the timing. And so mister Power was sort
of saying, I'm just got to look at the data,
and the data doesn't give me the year.
Speaker 5 (15:02):
Yeah.
Speaker 3 (15:03):
Hey, just before we go the break now, I started
by mentioning the word melt up. Is that one of
your expressions, by the way, or is it I'll buy it?
The question that comes as obviously that's a response to
talking about we've had the meltdown. Now we've got the
melt up, which does sound very bullish to me. What
(15:24):
what is it? And I guess you know markets price
and bolishness, don't they or not.
Speaker 4 (15:30):
That's right. So there's a few bit of optimism baked
and particularly the US market at the moment, you know,
less so by the markets, but particularly the US market.
And that's why this profit reporting season that we can't
in is so crucial. If the companies don't deliver enough,
you know, whatever period where the market doesn't like it.
You know, I'm not saying we're going to see a
(15:51):
massive pullback, but it will just be vitile. And so yeah,
you know this potential, but we actually see that the numbers,
as to say, the numbers are doing the work for
us in the beating expectations. So got to run with
the numbers.
Speaker 3 (16:05):
Do you like volatility?
Speaker 4 (16:07):
Look, I think it's part short tuned, you know, long long,
short term volatility can create long term opportunities. I don't.
I won't caught excitement. I just call it, you know,
it's just what we have to deal with. So, you know,
things that can appear very wiltile and the short term,
you know, and shears go up and down in the
short term are actually long term potentially the best protectors
(16:29):
of wealth in that they tend to grow faster than inflation.
That's really important for all of us, particularly putting away
some capital for when we don't earn income.
Speaker 3 (16:40):
Yeah, take a quick moment. I'm with Shane Soly's director.
He's a portfolio manager and research Jannalist at hard Brasset Management.
We're going to bring the conversation closer to home with
what's going on with our reserve bank and what we
can expect. Are we going to have a bit of
a melt up ourselves in the domestic markets here? And actually,
if you want to join the conversation, look, Shane's a
(17:02):
wealth of knowledge. If you've got questions from if you've
got an opinion, because there are a lot. Everyone is everyone.
I think everyone's predicting that we're going to have further
interest cut rate rate cuts, possibly in August. What do
you reckon and what does it mean for your financial
plans as well? You give us a call on one
hundred and eighty ten eighty. But as I say, I'm
(17:23):
with Sean and we'll be continue our Shane, Sorry, Shane,
we'll be continue our conversation. Sorry about that, sewn. Shane
Sure is.
Speaker 4 (17:33):
Fine. Sure.
Speaker 3 (17:34):
Shoran is my is my producer's new husband. And that's
why that name was on my mind because you just
got married, and your Shane, and we're going to be
back with you, Shane and just a moment. News Talks
B twenty four past five. Yes, welcome back. I'm with
the director of portfolio manager and research analyst at Harbor
Asset Management, Shane Sally, and we're going to dig into
our own market and just a month. We're going to
(17:54):
take some calls. By the way, we've got a couple
of callers we're going to go to in just a sec.
But basically, if I were you, if you ever want
to run your theory or pick someone's brains about what's
going on in our economy or in our markets and
things like that, this is pretty much the perfect opportunity.
It's like having got into the elevator and Shane can't escape,
and he's going to take your cause. So jump into
the elevator and we'll close the doors and he'll be
(18:16):
stuck and taking your cause. I know, one hundred and
eighty ten eighty terrible analogy. I just made that up, Shane,
but I think it's the point across anyway, right, let's
go to Ross. Hello, Oh yeah.
Speaker 6 (18:27):
I can and Shane, Yeah, yeah, you're here.
Speaker 3 (18:33):
Yep, Yep, we're all here. I think we're there, aren't we. Shane, Yeah, yes, gotchah.
Speaker 4 (18:38):
Yeah.
Speaker 6 (18:38):
I was just wondering about the theory about she is
showing up by steercase and coming down by elevator. I
just recently bought rocket Lab shoots and oh, I'm not sure,
maybe six seven months ago there were twenty two dollars
this year, and then I'll see they jumped out to
about twenty eight. I mean, I've got Jepps and buy some.
(18:58):
So I bought some and now I see they've done
a bit of a height. But I'm just wondering because
of the market.
Speaker 3 (19:07):
Or I saw the rocket Lab shares have gone pretty well.
Shane Ross has made a goodbye there at the moment,
isn't he.
Speaker 4 (19:16):
Yeah? Yeah. Firstly, Ross, well done. You know, the the
rocket Lab team are doing an amazing job. So you know, firstly,
they are certainly doing something special. And it is one
of these companies that we're talking about before Ross with
about it's got lots of revenue yet to make a
bottom line profit. The market has got more comfort that
(19:38):
they're on track to continue to grow share. One of
the interesting elements of mister Trump and mister Musk falling
out of love is of course, mister Musk's business was
a competitor to rocket Lab, and you know, maybe that's
going to become a little bit more challenging. They have
to fight for a bit more shares. Hopefully rocket Lab
gets a bit more share, but it is driven by
(19:58):
the fact they're doing a great job in terms of
improving their productivity on their launchers and getting their cost
structurer Look I too, you know you look at rocket
lad the stock has literally been a rocket ross, so
you've you've picked it. Well, it's certainly that sweet spot
of is a bunch of businesses or a number of businesses,
(20:19):
and there's similar space, particularly in that defense sector that
have benefited from some of the change we've seen in
the last eighty months two years. But look, I can't
actually give you an advice either way on whether it's good,
better and different here to be honest with your ross.
But you know, look, I think the same as all
these things you do that you've obviously done the homework,
(20:39):
keep doing it. Be patient, you know there'll be ups
and downs.
Speaker 3 (20:43):
Have you got the speed wobbles lost? You've had the
stock you bought relatively cheaply and now it's worth quite
a lot more. Are you just a bit nervous that
like you're cheap as I need to get off before
this thing does something I don't expect.
Speaker 6 (20:55):
No, not at all, I say is twenty nineteen, and
I seek to themself well because a ten years to
get where to one, not to where I want not
to be. We have a stock, good stock. I bought
New Zealand was the name trade of course number fifty three.
But in twenty twenty two they went up to ninety actives,
which I thought they go to one hundred, but they
obviously don't know.
Speaker 3 (21:16):
Well, sorry if you're disappointment Ross, I think Ross was
just ringing up to brag.
Speaker 4 (21:20):
I think, well, kudos to Ross. We you know Ross,
we own main Fred two. We were we we own
a reasonable wedge of the business. Did you to come
out with an update on Wednesday? It might be a
little bit sort of New Zealand might be a bit
titchy for them, a bit tough. And so that's something
that the shop prices. You know, you talked about it
(21:41):
sort of going up and down, and you're right at days,
but it generally goes up over time or has done
live by great great a series of great managers and
great board and they know when to go and when
not to go, and so they're very good at using capital.
And that's one of the reasons we like them. They
know they value the fact that we as investors need
a decent return, and so they invest as if their owners,
(22:04):
because they are the owners. That's what we really like.
So Wednesday, keep your eyes open, Osie could be quite
good for them USLB. That maybe another that makes one
that they've got plenty of growth there potentially.
Speaker 3 (22:17):
Just and I don't want to keep sidetracking the conversation,
but you know, Ross mentioned as rocket Lab shares and
that was maybe one of the things I heard about
and read about in terms of this the growth, and
it wasn't actually because they haven't. You know, they haven't,
they're not making the profits yet. But how much of
the growth is simply because people are interested in the
shares are seeing they're getting this number of launches off,
(22:37):
they're becoming more and more credible on the launch space,
and so people just see because they're following a bit
more than nuts and bolts of what rocket Lab do
rather than the data around money, how much of it's
based on just looking at well they're doing X, Y
and z, that's going to convert into something really quite promising.
Speaker 4 (22:53):
Yeah, Like, I think the point you're raising to them
is what we would look at is called secular investing,
So we're looking at what the business is doing driven
by the industry structure. Yeah, these guys can grow or
maybe not. They're less sensitive to what the broader economy
is doing. So the economy can be going down and
these guys can or this, these types of businesses can
(23:16):
continue to grow because they've got these secular tailwinds and
certainly we're seeing increased activity in that space sector and
so as a result, Rocket Labs is in the right place.
So they've put themselves here. That's the cool thing, right,
these guys have they just haven't done whatever they've they've
done the right thing. So certainly I think that's what
(23:36):
when you're looking for these longer term businesses, these secular
growth that don't depend on the economy, you've got to
have a longer term view. Takes time, they don't go
that doesn't go in a straight line, and you've got
to be focused on what actually triggers this upside. So yeah,
they're they're certainly improving their own game, and they're in
(23:56):
a game that doesn't depend on the economy to the
same extent.
Speaker 3 (24:00):
Okay, let's take another call David High.
Speaker 5 (24:04):
Yeah, yeah, sure, Shane, Shane and things have got screwed
up there and somehow. But anyway, it's been hard to differentiate.
But yeah, it's good to listen to this. We should,
we should have a bit more time on the subject.
But I want to ask a question of Shane. Yep,
(24:26):
what is what is beta?
Speaker 4 (24:28):
You know?
Speaker 5 (24:28):
And then terminal in the stock market. But the other
thing before the conversation gets going is where do you
call Trump and mask mister? They're not they're not They're
not gentlemen. They they don't deserve the title mister.
Speaker 3 (24:43):
Okay, fair enough. Uh well, I mean Shane's a very
polite guy. Did you have a particular question other than
how we refer to these individuals?
Speaker 4 (24:55):
Sorry, David, do you want talk about data or beta?
I just missed missed it.
Speaker 3 (25:00):
I don't know, David, he is still there.
Speaker 5 (25:02):
Try to come from Yeah, I'm trying.
Speaker 3 (25:05):
You're there, Yes, yes, what was your question again?
Speaker 5 (25:10):
My first question was what is beta or beta?
Speaker 4 (25:13):
Or? Oh?
Speaker 5 (25:13):
Yes, in terms in terms of speed. I think it's
the speed of the transactions that go through and the
high beta is what's called momentum. That's my understanding, and
so I thought i'd ask you what your understanding was
and what the number means of you know, it's a
ratio of number.
Speaker 4 (25:35):
Yeah, thanks, good question.
Speaker 3 (25:36):
Thanks David yep I got lost there, but you go.
Speaker 4 (25:39):
Yeah, no, sorry. Beta is refers to the the market's
overall movements. So if I'm investing in the market, it's
the it's the beta of the market is that is,
just as you said, the pace of change. Some stocks
are more sensitive to Some individual companies that listened on
the shear market have a higher sensitivity to that market beta.
(26:01):
So we talked earlier about Rocket Lab. They are more
they have more ups and down, so they tend to
have a higher beta. Something like a defensive New Zealand
utility like Mercury or Meridian, they have a lower beta.
So the market might go one percent, they might only
go by point nine point eight, depending on what it is.
(26:21):
So there less sensitive to the ups and downs, and
that has a benefit in terms of being at certain
points in the cycle, maybe the market goes down so
having those less sensitive businesses to that market move is
quite up. So the ratio refers to the sensitivity of
the stock to the market movement. So if the market
(26:41):
goes at one percent and I've got a beta at
one point one, I should go up by one point
one percent. Have I've got a better of point nine,
I should be like point not I should be a
lower I should only I won't move as much. So hopefully, David,
that sort of is the momentum piece is interesting, right,
So momentum trading is definitely getting has had a lot
(27:02):
of growth. What that means is I following the stocks
the sheer prices are going up. Now I'm going to
buy more of them. And there's That's just one of
many strategies that some people use. Certainly we think there's
this periods of time where it works really well and
other times where it reverts it that she doesn't work.
So we're in a period in particularly in the US
(27:24):
and global market where momentum is working. So people are
following the winners. If you like backing your winners.
Speaker 3 (27:31):
Okay, all right, we take a break. Thanks for you call, David.
We'll be back in just to tickets twenty two minutes.
Twenty two minutes to say yes, welcome back to smart
(28:02):
Money on the weekend Collective. I'd suspect this song might
have been requested by one of our guests. Actually this
is one of yours, Shane.
Speaker 4 (28:10):
Well, you got to say acknowledge Ossie's passing. It's pretty Yeah, yeah,
all right. We like the pioneers. We like people that
are entrepreneurs and do different things.
Speaker 3 (28:22):
Yeah, good on you a little bit?
Speaker 4 (28:23):
Is this black?
Speaker 3 (28:24):
Saba thought Ossie?
Speaker 4 (28:25):
Well it's actually Aussie is post blex edit? Yeah? Yeah,
is still we'll take it.
Speaker 3 (28:31):
Good stuff. Hey, now, let's get gosh, we've been sidetracked
by some other well we have me s we all
been talking about money all along the way. But let's
get back to New Zealand and the release of the
CPI data has been lower than expected for the Dune quarter.
What's this all meaning? The r the Reserve Bank? Gosh,
(28:53):
they've been in the headlines for other reasons too, haven't they.
But anyway, let's get onto the actual job that they
do about the rate cutting cycle. How's that all going?
Speaker 4 (29:01):
Yeah? Look, so just to go back to the June
consumer price and play CPI data came out at two
point seven percent, and what we saw was the market,
particularly the fixed interest markets, they priced in a higher
probability of a cut by the Reserve bankan using on
the RB and Z in August. And so what we're
actually seeing today, tim is the markets pricing about a
(29:23):
zero point two percent cut. That's an eighty percent chance
of a point two five percent cut in August, and
that's up from seventy percent prior to the data. So
that CPI data did actually help move the intention along
or the market's viewl long and one thing that it
has done, it's also sort of seen a small drop
on what's called the terminal or that's the low point
(29:45):
in the cycle official cash rate from two point to
two point seven from two point eight. So it all
doesn't sound like a lot, but in when we mix
it all together, it's a slightly more helpful constructive backdrop
for the economy. But you know, we talked about this before.
The zero Bank in New Zealand, they've got an interesting
(30:07):
challenging job at the moment that it's a committee by
the way, same as other places, and they've got to
think about what a terrorists do to inflation and then
against that we continue and see local inflation data continue
to support lower rates. So businesses are not putting through
price increases the intent they were, consumers are reducing their
(30:28):
expectations on inflation. These are the lead indicators that the
Central Bank Committee are looking at, and you know it's
definitely pushing them to reduce rates. Just when and how
fast is the question.
Speaker 3 (30:40):
How much of a distraction is all that at the
other headlines around comings and goings and Adrian or and
all that sort of stuff at the Reserve Bank, because
that unsettling at all. It's just meaningless gossip behind the
scenes and you guys don't care about it.
Speaker 4 (30:52):
Look, we care about it. That it's you know, the
reality is there's the fact that we've got a really
robust central bank. You know, Christian hawks be stepped up
to fill that role. There's a bunch of really good
people around than that team, and we've got a committee,
so it's not actually it's a a little bit like
you know, mister always and I will call it mister
Adrian all he did a good job in a difficult
(31:16):
circumstance and you know, quite rightly there's some questions about
some speed that's always going to be the case. It
doesn't really matter who's who's doing. Remember who's a committee, right,
So there's a committee grow behind this. So you know,
while Christian hawks be mister Christian hawks will have to
we'll have to front.
Speaker 3 (31:35):
That's so like a Vegas Act area anyway.
Speaker 4 (31:39):
Christians a lovely man, he will take that in a
positive way. Tell you now that there is definitely yes, yeah,
it's a challenging environment. But there's a committee and that committee,
there's there's going to be different views within the committee. Yeah,
just as there isn't so the US Federal Reserve Open
Market Committee.
Speaker 3 (32:00):
Now, what's your read on where the where the rate
cutting is sort of going to go and end?
Speaker 4 (32:05):
Yeah, we know our research suggests that it does need to.
You know, it is on track to be below three percent?
What are we now? Just remind me we're at three
point two five percent, so we've got a little where
to go. So, you know, where does it go in
the twos? That's going to be the magic question. Do
we go to two and a half? There's a bit
(32:27):
of research out there from a number of different groups
that suggest that maybe we will end up as I say,
currently markets pricing and two point seven. Zero point two
percent doesn't sound like a lot to people between two
and a half and two point six. That is actually
quite a lot if you're paying, if you were a.
Speaker 3 (32:43):
Big mor whiche, not as much as John Key wants.
He wants to slash by one hundred points. So tell
him he's dreaming, isn't it.
Speaker 4 (32:50):
Well he may not be, I don't you know, you've
got to respect mister Key. He's you know, he's obviously
run a few businesses and economies, and so you've got
to respect what he's saying.
Speaker 3 (33:01):
What do you reckon if you were I mean, if
you were shuting, we'll look at I know you have
to be certain circumspect to a point, Shane, but what
did you here when you heard him make that recommendation,
Because what you're talking about is maybe half a point
cut further, but he's going the whole log for the
whole hundred.
Speaker 4 (33:19):
Oh look, I'll stick with all back my research colleagues
and what they're doing, and they're they're saying, you know,
and that sort of lower twos is the sort of
number of mid midlwer twos. So yeah, look back then.
Speaker 3 (33:32):
Because that could be inflationary if you go too far,
couldn't It? Isn't that right?
Speaker 4 (33:36):
Look, I think we need to be careful about, you
know what why rates are being cut. If they're being cut,
because inflation expectations are with closer to two than three.
And remember they're still on that sort of higher twos level.
You know, if we don't we've got to manage the
inflation is not actually good you know, for anybody have
a longer term. It really erodes our purchasing power. So
(34:00):
I think it's important to stick within a reasonable range.
And two to three is there as a band that people,
particularly central banks and governments can get on top of.
You know, look, I've got to look over the shoulder
at what we're seeing from some of the fiscal with
the government. Policy changes are being announced and this is
not politics just making a statement. We're seeing the taps
(34:21):
open back up to stimulate the economy after a bit
of a reset, and so that is coming through as well.
So we're potentially got a bit of a double where remembering,
you know, was July last year we saw the New
Zealand Reserve Bank and ZEOND really start cutting rates. They've
cut rates a really big chunk from there, so it
(34:44):
takes time for that policy to start coming through. It
has taken longer than we thought. It was taken longer
than the investment community thought for those lower rates to
underpin the New Zealand economy. But go back to what
we we're talking right at the top, there's uncertainty around
the tariff changes has taken some that benefit that boost away.
Speaker 3 (35:07):
Yeah, well, I mean in terms of the New Zealand
share market, we've you know, we've been a bit behind
everyone our haven't we. So what what what do we
need in our market to see it pick up?
Speaker 1 (35:19):
Yeah?
Speaker 4 (35:19):
Look great point. Look I talk about you to date,
so you to date the New Zealand share market actually
down two percent and if I look at the US
markets up close to nine even the AUSSI markets up
above eight percent. So you know we have we have
undershot the other markets. It's a function of this. Our
economy has been weaker than are the economies. You know,
(35:40):
the Australian economy is very resilient, pretty strong. US economy
we talked about before, pretty strong, and so that weakness
has hit the earnings for gas for some of our
more cyclical companies, the companies that are more dependent on
New Zealand activity that's sexually seen. We've seen earnings downgrades
and so and we've also seen this. Our market tends
(36:01):
to be defensive, so we have a lot of utilities
that's actually great long term they protect your capital, but
we don't have these big growth technology businesses that are
dominating the US market. So look, we're on the cusp
of another profit reporting season for the June period, so
companies start to report their profit numbers and you know,
(36:24):
realistically that result season might be a bit, you know,
not particularly exciting on what actually happened for the June
period because we've got most of the businesses we talked to,
and we talked to them daily in different different sectors,
in different parts. They're saying, hey, look things have stopped
getting worse. Yeah, But what we are seeing and talking
(36:45):
about is how profit margins starting to figure out costs,
in particular costs beginning on top of so the things
they can control. And then we go back to this
opening up of the money supply by the central bank
starting to just underpin the economy, so we could have
the combination of corporate costs coming down at the same
(37:07):
time the economy is just expanding a little bit to
give us some reasonable earning support. We haven't had that
for three years. It's been the other way. We've had
falling earnings. We could actually see modest earnings growth mid
single digits, you know. So I think we tend to
be a different cycle here in New Zealand from the
rest of the will and so our cycle has been
(37:28):
negative and we can see potential for it to turn
back to being positive.
Speaker 5 (37:34):
Good stuff.
Speaker 3 (37:35):
I've been digging to that a little bit more. When
we've got a couple of minutes to go before we
wrap up the show, but we'll be back just to
tick one with Shane Solely from Harbor Asset Management. It
is nine minutes to six. Yes, welcome back to Smart
Money with I'm Tim Beverage Shane Solely from Harbor Asset Managements.
I guess we've only got a couple of minutes to go, Shane,
but just just to finish on a mildly lighter note,
but just to give you know, a lot of people
might actually be asking this. We've been told how wonderful
(37:57):
it is for our economy that butto is eight dollars
sixty does that actually going to have an effect? On
just the general economy here that Fonterra is going to
be pulling on what is it, twenty five billion for
its shareholders in the next sort of year.
Speaker 4 (38:10):
Yeah, look at it. Assume the supporting that egg sector.
We're seeing a really strong dairy sector and good on them.
They go through ups and downs and seeing that they're
we're in a sweet spot at the moment. We are
seeing globally that the dairy industry production is falling, so
New Zealand's in a good place. Well, we're not growing
our volume as the same extent as we were, our
(38:32):
value is increasing, so yeah, it's definitely that is trickling down.
We are seeing, you know, the dairy industry and the
haart sector doing pretty well and that's a lot of
being paid off and people reinvesting. So yep, it's a
good beast.
Speaker 3 (38:47):
Its global dairy falling because of guilt and climate change
and cows and metho and all that sort of stuff.
Speaker 4 (38:53):
Yeah, the climate, it's just you know, we've had a
bad environmental period globally for diiry. Cows don't do well
on the heat.
Speaker 3 (39:03):
Well, I guess if there's to be made though, there
might be a few countries as side. Actually they might
want to churn out a bit more dairy. What do
you reckon, We've got a minute to go.
Speaker 4 (39:11):
By the way, we see a production we will we
see a production response, right if prices hold up then
you know this is what markets to. People will respond.
Speaker 3 (39:20):
Yeah, well that'd be interesting to watch to see what
that does to the price. Hey Shane, great to chat mate,
Really appreciate your time, and thanks for the Assy Osborne
recommendation for the playlist, and we'll catch you next time.
Harbor asset dot cot it in zed.
Speaker 4 (39:33):
Cheers mate, Thank you Kim.
Speaker 3 (39:35):
That's Shane Soley and we're going to go with the
other drop Coock song I recommended, which was Bobby Bear
drop Kick Me Jesus for the Golf Coast of Life,
which I just play for you to demonstrate is in
fact a song. Apart from that, I've got nothing to
us to add. Thanks for your time this weekend, thanks
to my producer, Tyra Roberts, and we'll look forward to
next week. By the way, health are we talking menopause
(39:56):
with the convenor of our Terry Menopause forums with us
among other things in a great guests catch you soon.
Enjoy the rest of your night Sundout Sex is Next.
Speaker 4 (40:05):
Homes.
Speaker 1 (40:08):
For more from the Weekend Collective, listen live to neth
talk ZB weekends from three pm, or follow the podcast
on iHeartRadio
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