October 13, 2024 • 41 mins
The Reserve Bank of New Zealand has announced a cut of 50 basis points to the OCR, bringing it down to 4.75%.
Director and Fixed Income and Currency Strategist at Harbour Asset Management, Hamish Pepper, joins Tim Beveridge to discuss how the markets have responded and what they may do from here.
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Speaker 1 (00:05):
You're listening to the Weekend Collective podcast from News Talks.
Speaker 2 (00:50):
And welcome back to the Weekend Collective. I'm Tim Beveridge
and this is Smart Money. What that was before in
the last hour was the Health Hub with Alex Bartell
some great advice on getting a good night's sleep. One
of those things is that you think when you're having
a chat about sleep that you know, the the questions
on it would be sort of reason me limited, and
you just realize that that so many different people have
different issues and advice with that had to get a
(01:13):
good night's sleep and napping and you know, all sorts
of things in sleep out there, and actually, funny enough,
there were a couple of topics that didn't pop up
with that I was expecting too so, but if you
if you want to have a listen to that or
the previous hour where politics. We had to chat with
a Ministry of Conservation Tama Portuker and also Winston Peters
on the back of him wrapping up the New Zealand
First and your Conference. A couple of interesting interviews there
(01:36):
as well. You can check it out on our website,
look for The Weekend Collective or on iHeartRadio we get
those podcasts launched pretty much as quickly as as we can.
But right now it is time for smart money and
joining me is he is director and fixed income and
currency strategist. Oh god, I've got to say that again.
(01:57):
It's tongue twister. It is actually a bit of a
tongue twister to try and state quickly. He is director
and fixed income and currency strategist at Harbors Management and
his name is Hamish Pepper. Good afternoon, Hello Tim. How
are you too bad? That is quite a mouthful your
job description. I think it's the longest of all the
chaps at Harbor asset.
Speaker 3 (02:16):
Oh, it's far too long. We need to change that.
Let's do it now.
Speaker 2 (02:23):
Actually, what do you prefer? I no, no, I was
just thinking if you put it out to the text,
say what's a good Let's let's summarize his job and
he's a currency strategist, director of fixed oncoming. I don't know,
we'll have to work, we'll have to workshop that one.
I think your one is probably the most accurate, But anyway,
I digress. Now. First things first, the Reserve Bank announced
(02:45):
that they're they're cutting the OECR by fifty basis points
I've heard much opinion that contrary to what the Reserve
Bank governor said quite a few months ago when he
said he wasn't anticipating a cut until next year. Well,
those ships have well and truly sailed that. This is
just the What do you make of it? Markets responded,
(03:08):
I mean, you're.
Speaker 3 (03:09):
Right, what a change we've had over the past. I
mean it has really only been four or five months.
As you say, this is a central bank now which
I think is increasingly aware of just how much help
this economy needs. And the idea of having your official
cash rate at probably double the rate at which you're
(03:33):
providing help to an economy is just it's just not
the right place to be. And so I think they've
woken up to that. They're getting into their work, and
as you say, the expectation is they'll really accelerate through
the summer. More fifty basis point rate cuts are expected
by financial markets, such that we will probably get into
that April May period next year with an official cash
(03:56):
rate that's much closer to three percent than it is
to follow.
Speaker 2 (04:01):
Wow, so you just said more fifty percent cuts, So
you're anticipating what we could have another whole point a
whole another hundred points to come off.
Speaker 3 (04:12):
That's right. Yeah, But by February, you know, financial markets
are saying about ninety bases points er point nine percentage
points of that that one hundred or one is expected,
and so yeah, I mean I wasn't exaggerating that. We
get into May and you'll have something around three and
a half percent for your official cash rate if financial
(04:33):
markets are right.
Speaker 2 (04:34):
Do you recall when Adrian or was saying that he
didn't anticipate any cuts till next year. Do you remember,
because that wasn't in my mind, if I recall correctly,
he was saying that as late as maybe April or something.
Wasn't he or was it?
Speaker 3 (04:47):
It was the main minetary policy statement where they actually
considered at that meeting whether there was a need to
take the official cash rate even higher than the five
and a half percent. And what happened since then? There
was a big pivot in July in the review that
they then where I think some of the business survey
(05:07):
data was looking particularly weak and they thought, oh, hold
on a second, and then in August it began with
the first rate cut. As you say, you know, more
than a year earlier than they'd told us and planned
just just sort of six or seven weeks earlier.
Speaker 2 (05:26):
It made me wonder whether he was engaging, you know
when he talked about or we still might pop it
up and we're looking back in May. By the way,
if you just tuned in, that was more a case
of rhetoric. So if people didn't suddenly get all excited
and act in a way they didn't want us to act.
Speaker 3 (05:41):
It might have been. It's always a delicate balance that
with central banks, how much do you want the market
to move ahead of you and perhaps, as you say,
undermine the current stance of policy. Because at that time
it probably still was the case that you could create
a story that rates needed to stay higher for a
(06:03):
bit longer. There was keenness in some of the inflation
we were generating domestically, which was a worry, but the
surveys were starting to tell you that that shouldn't be
sustained and that you can start to move back towards
a more normal setting. And that's essentially what's happened since then.
(06:24):
We're on our way back to normal.
Speaker 2 (06:27):
So what is normal?
Speaker 3 (06:29):
Normal somewhere around three three percent for their official cash rate.
Speaker 2 (06:33):
Has that always been what I mean, normal obviously changes,
you know, the expression of the new normal. Of course,
what has the history in the last maybe ten or
twenty years of the cash right been. What has normal
always been around this or has normal been something of it?
Speaker 3 (06:47):
It's been lower. Just before we had COVID, you would
remember in that time, central banks all over the world
were really struggling to generate inflation. You know, they'd had
inflation sitting either at or below where they were targeting,
and they were really scratching their heads as to what
they could do in order to get that inflation back
(07:08):
up a bit higher. Since then, of course, we've had
plenty of inflation, as you know well in many of
the listeners, But that normal level of the cash rate
or policy rates is lifted from probably two pre COVID
to something around three.
Speaker 2 (07:25):
Now, why do we need some level of inflation? I
know that's not the issue now, But as you were
saying that banks were struggling to get central banks were
struggling to get in some sort of inflation, why is
that part of the way, part of our reality.
Speaker 3 (07:42):
It's a great question. I mean, the best example I
think I can give, and this is one of the
ways in which inflation greases the wheels of an economy,
and it's the way in which firms are able to
reduce the real cost of their labor if there is
some inflation. So the example would be we're in an
(08:03):
inflation environment where prices are rising in a general sense
two percent prandom. What I can do to my employees
is to say, well, hey, I might give you a
one percent wage increase this year. Well, it might give
you nothing. That for the firm is a useful thing
if that firm is looking to try and weather a
period of challenge in whatever industry therein they are reducing
(08:28):
that real cost of their wage bill. Because you've got
to assume that firm is also able to experience those
higher prices in terms of what it's charging. So the
two percent prandom I'm talking about in terms of inflation
is also something that the firm should be experiencing in
their prices.
Speaker 2 (08:47):
In a way because theoretically, I mean, we can get
distracted about these things because it's not really the question
of the day. But theoretically, if there was no inflation
in people, I don't know, it doesn't feel like the devil.
But the way you explain it it does get a
sense that there is always the potential for things to
be moving, I guess, and people and energizing things, is it.
Speaker 3 (09:06):
It's kind of sneaky, isn't it. You know, because what
you're you're either saying to employees you are aware of
this general rise in prices, and you're then also aware
what I'm offering you in terms of your wage increase
for the year is less than that, and then you're
assuming that they're happy with it, or you're assuming that
(09:28):
perhaps they're not fully aware of just how much those
sort of general prices are shifting by. But I think
the crux of it is this is something where firms,
when they're doing that, are usually doing it because they
are facing some sort of challenge, you know, some sort
of profitability type challenge, and it's giving them a way
(09:49):
to manage that without having to say to somebody, hey,
I've actually got to cut your wages here. You know,
we're not talking about a lower increase than what inflation
is doing. We're actually talking about, you know, reducing whatever
you had last year is going to be less this year.
And that's quite a tough conversation.
Speaker 2 (10:07):
So getting back to the whole inflation thing. So with
it being trimmed by fifty basis points to four point
seventy five, and you've anticipated that maybe there could be
a whole I mean, could be more than one hundred
basis points. What do you think inflation round three percent
would be another one hundred and what is that one
hundred and twenty five basis points. Let's not be too
literal about that, but there's a lot of people who'd
be listening, could be who depend on getting a bit
(10:29):
of interest for their money in the bank, and what
invests you know what it means for the way people
who want some sort of fixed income, How are they
going to generate money if they're not going to have
it in the bank, are they?
Speaker 3 (10:43):
That's right? What happens in these easing cycles. What happens
whenever interest rates move in an economy is there are
going to be winners and losers. And I think you've
identified a group that may feel as if they're the
losers in this. If you've been sitting on say, term
deposits and rolling your say it, one year term deposit,
(11:06):
you know you're probably experiencing around about one hundred bases
point or one percentage point drop in the rates that
you know you've recently rolled on too, relative to a
year ago. So let's just use round numbers. You probably
a year ago, we're getting six percent for a one
year term deposit, You're now getting five, And if markets
are right, in another year's time, it will probably be
(11:30):
half a percentage point lower than that. Again, and this
has some real impacts for people who are relying on
these things for income. You know, think about retirees, for example,
so they in some ways are a group that lose
to a degree when interest rates four.
Speaker 2 (11:48):
Yeah, well you're a fixed income strategist, I guess, so
what are you guys? What are you doing? What advice
would you give to people who are on a fixed
income with that? Not specific financial advice, but where are
the places people are going to be wanting to put
their money?
Speaker 3 (12:05):
I think what naturally happens in those times is people
do reassess whether they have risk tolerance or a set
of financial objectives that would allow them to think about
complementing term deposits with other things. You know, obviously we
are one possible solution in terms of the funds that
(12:28):
we offer, but there are other solutions for these people
as well, and I think it's just the moment I
suppose where those questions start being asked. I mean, if
you put numbers around it, if you think about what
an average household. Now this is the problem with averages,
because we've got you know, Graham Heart at one end,
(12:48):
who's skewing this average. But let's use the average. What
the data for New Zealand tell us is we've got
an average household who has a probably a house in
terms of a non financial set of assets that's worth
about let's say eight hundred thousand of just round numbers,
this is the average, and then about the same again
(13:11):
in financial wealth. And so if you assume all of
that financial wealth that eight hundred thousand is in just
term deposits, you're talking about a drop in your annual
income and this is before tax, from about forty eight
thousand dollars a year to less than forty thousand dollars
a year. And so it's in these moments that I
(13:33):
think you get a reflection as to whether you know
that portfolio of financial assets is delivering the outcomes that
you need.
Speaker 2 (13:42):
That Actually I thought it was going to sound a
lot worse than that. But of course if you've just
got to understand a bank account. It's probably going to
be a lot more dramatic than that, isn't it.
Speaker 3 (13:50):
Yeah, I think your rates for your on call deposits
are attend to me a lot lower than than what
you're getting for term deposits.
Speaker 2 (13:58):
Hey, so what let's get back to So let's sort
of reset again. So the mortgage, sorry, the the cash
rate has been cut by fifty basis points to four
point seventy five. How much has that affected mortgage rates?
Because I often hear when we're chatting with people about
with the experts about this, that they'll tell you that
(14:19):
the banks have already priced that in. But of course
an announcement like this comes with more pressure for the
banks to chop their mortgage rates. So what has actually
happened to mortgage rates as a result?
Speaker 3 (14:29):
So if you think about just the past year, and
we just use a one year, probably the one year
special mortgage rate is the one that you know people
are probably talking about about most that's dropped just over
one percentage point. It's sitting around a lot of talk
about these special secret rates term that people get offered
(14:50):
on their band caps. And I saw andry stock code
Audi in zed saying, please, you know, tell us what
your secret rate is, but I'll use the one that
has posted publicly. And so that's sort of a one
year mortgage rate of just above six percent. And then
if you think about what the market has in terms
of its pricing, including the mortgage market, and we think
(15:12):
about where a one year rate could be in a
year's time, it's probably around another percentage point lower, is
what's being implied. So mortgage rates troughing for the one
year specials somewhere just above that five percent level is
what markets and the mortgage current mortgage rates are telling you.
Speaker 2 (15:31):
Yeah, it's funny. A lot of people I didn't realize that.
I didn't realize that the cup that was being predicted
was as large as you're saying, because I think you
guys have even suggested it might take the OCA be
below three percent, which would make people who are just
doing who are reinvesting their mortgage, sorry, who are reborrowing
just for a year or six months, They're definitely probably
(15:51):
on the right track, aren't they.
Speaker 3 (15:54):
I think that's the it's the interesting thing. You know,
you're right that borrowers have been fixing for increasingly short terms,
you know, so the six month mortgage rate has become
really really popular, and I think it's because there's been
mortgage brokers pushing an idea that, look, the central banks
on the cusp of cutting rates or has just begun,
(16:16):
there's more to come and as that happens, you will
get better deals for longer term fixed rates. I think
where we've got to now though, is if you're looking
at the consistency between what wholesale financial markets are pricing
and what the mortgage interest rates where they are. There's
(16:38):
quite a lot of consistency there now. So unless there's
a belief that we do go back to some sort
of COVID type levels of the official cash rate and
interest rates which were sort of extraordinarily low, you know,
emergency type settings, you know, you've got to I think
(16:59):
except that there is this consistency to return to normal.
But it's not obviously a disastrous period that we have
ahead rates, So are not showing us what they what
they did back then.
Speaker 2 (17:15):
Okay, look, we're going to take some calls on this
if you want to join the conversation with Hamish pepri's
director and fixed income and currency strategists to harbor asset management.
The ocr has been cut in the week that's just
gone by fifty basis points, bring it down to four
point seventy five percent. Just want your simple take on it.
Where do you hope to see it going in the
next month or two? And on that basis, what are
(17:36):
you doing with your money, either the money you've got
in the bank and your investments or the money that
you've borrowed from the bank. What's your strategy because where
you sent going? Because I don't mind telling you, I
thought that I've got accustomed to the higher rates, and
I thought with Adrian or loving the higher rates. So
I'm finding it hard to imagine I'm chopping it as
much as it's been predicted. But if we've got predictions
of maybe another one hundred points or even more, what
(17:59):
are your plans and what are your expectations? Give us
a call O eight hundred and eighty ten and eighty.
We'll be back in just a moment. News Talks. He'd
be twenty all past five. You can't start ours, fin
(18:21):
that's welcome back to Smart Money. I'm Tim Beveridge and
this is the Weekend Collective. My guest is Hamish Pepper.
He's director and fixed income and currency strategist at Harbor
Asset Management. We're talking about the cash rate dropping, is
it going to go further? And what do you wanted
to do in your plans? Hamish, let's talk to on
a second Steve.
Speaker 4 (18:39):
Hello, Yeah, Hey, Look a lot of a lot has
been made over the week. In actual fact, all the
talk is a you know, has been about around interest
rates and how it's going to affect the economy, right
as though it's the this panacea, it's going to fix everything,
but nothing has been mentioned. And what I think is
(19:01):
more important than interest rates is the the migration levels.
I mean, it was on the news on Friday, but
none of you guys have picked up on this and
discussed it and the implications. And I'm really perplexed about
it because, look, I think we might be in a situation.
It might be a bit negative, but we might be
a bit like what Japan was, and we're going to
(19:21):
suffer what you call a zombie economy for quite some time,
a very anemic economy because of our lack of migration.
New Zealand has never I can't remember a single time
since I started work in eighty seven been through a
lot of ups and downs. I can't remember a single
time when we've traded well among ourselves and the economy flourished.
(19:43):
We've always relied on those high migration levels, specifically the
three waves of Chinese migration we had in the mid nineties.
They're all's going to come from Hong Kong, the nearly
two thousands, and then later on again we had a
smaller wave, but we had a massive wave just after
two thousand, didn't we And a lot of it came
(20:04):
from the student We had a huge number of students
who came here, they ended up settling here. Now, I
don't you've made in the past, You've made a big
point of who's the labor. MP said that Chinese did
an affect the market, the housing market.
Speaker 2 (20:21):
I think you can pass. I can't remember.
Speaker 4 (20:24):
Yeah, yeah, well look they do, they do, they affect
it and they.
Speaker 2 (20:28):
Oh no, I remember it was it was about It
was about that there was a perception that immigration was
having a massive effect on the housing market, and I
think there was some push back on that.
Speaker 4 (20:40):
Yeah, you pushed back on it, and of course the media,
the left wing always say is as soon as you
have mentioned a particular ethnicity. It's racism over practical logical
thought process. And the logical thought process they were actually
affecting the the Auckland property market, specially especially the central
area through and unfortunately the New Zealand data can't pick
(21:00):
that up that they were through all sorts of ways
where they.
Speaker 2 (21:05):
And data is not picking it up. I mean it's oh,
that's right, I'm vaguely recalling. Anyway, we probably need to
type back into Hamish's sort of air of expertise. What's
your what's your question?
Speaker 4 (21:15):
Oh? Look, my question is is that, like I said,
I think the interest rates, I don't think they're going
to have the effect that everyone thinks they're going to have.
I think we're going to settle. We've got this short
little sugar rush and doorphin effect, but I think it's
going to settle back down to a very anemic feeling
because we just haven't got the migration levels and New
(21:35):
Zealand requires people with money to come in the front
door fright around, get the sugar hit a couple of
years before they get permanent residency, and then it goes
the other way because they jump on a welfare But
that that first lot had come in one hundred thousand
auk in a year. Turbot charges our economy and was
out it which and apparently we're going to be having
(21:56):
we're going to have more people leaving next year.
Speaker 2 (21:58):
Possibly, well we do it. Migration that's quite high right now,
and I think it's a record, it's incredibly it's fifty
five thousand people coming in.
Speaker 4 (22:06):
Do you know where they're coming in from. You're coming
from India, so they're not even coming from China, and
looks they're not the one to the high spending Chinese
who coming and buy the houses and it pushes construction
and everything else there. Actually the engines, the engine.
Speaker 2 (22:18):
People we'll bring, I'll bring, We'll bring we'll bring hamersh
and and see you got any take on the Samish.
Speaker 3 (22:26):
Yeah. I think the point, the big one that Steve
makes there is we've had a big drop off. If
we look at the monthly numbers for migration, you know,
we're running around sort of three three and a half
thousand per month, which means we've kind of gone back
to the more sort of historical average levels of net
migration from the like you say, Tim, the boom that
(22:49):
we had just a couple of years ago, and it
does have implications for the economy, and the housing market
is one that we look at as many others first
to pick up the signs of those migration surges or
indeed when they when they tail off. And I think,
if you put this story together, so we had a
(23:11):
sort of a boom and migration the last couple of
years into earlier this year, and then it's really fallen away.
It's about the same time that people have been puzzled
that the housing market hasn't picked up a bit more
in response to, for instance, the changes that we've had
for investors when it comes to investment properties, and also
(23:35):
you know the decline and mortgag rates more recently. But
the so it's there. It's part of the picture, is
what I'm trying to say, and it's part of the
reason why interest rates are now you know, moving lower
and are expected to continue to do so. You know
that I think the market gets it that this is
now turned into what was a positive has turned into
(23:59):
into a negative from a demand point of view. But
I just add one more thing. When we think about migration,
and we think about it on a net basis, so
people arriving, less people leaving, And it really hasn't been
so much that people have stopped coming. There's been a
little bit of that, but it's been much more that
there's been a pickup in people leaving. So it's got.
Speaker 5 (24:23):
And it's too.
Speaker 3 (24:24):
Another part of your point there, Steve, which is just
how much faith do young people have in this economy
to deliver them the things that they are wanting out
of out of a career, and.
Speaker 4 (24:39):
A lot of bothering me. You know what's bothering me?
Speaker 6 (24:42):
Though?
Speaker 4 (24:43):
There's brain drain, isn't it. They're they're the ones that
twenty year olds who are meant we're staying here and
buying the houses and paying the taxes for the people
going to be retiring. They're buggering off and why wouldn't you?
And the ones who are staying don't have the qualifications,
are on a benefit and we're left with those types.
And then we've got the retired people on the other end.
Then we've got the our age team, right, and then
(25:05):
we're sort of buttoning back that we haven't got that power,
the power demographic. They're leaving, Why would they stay? Why
would they want to stay? I mean it's more to
do with the economy. It's more than just that there's
something not quite right in New Zealand culture at the moment.
I could say it might be because you might just
(25:26):
but there is a bit of that. I think people
are just going I'm tired of it.
Speaker 2 (25:30):
Yeah, I don't know. I mean, I think you may
be catastrophizing it a bit more than I would with Steve.
But I'm to be honest, it's difficult without doing a
really deep dive into the immigration figures and the stats
and who's coming here in the settings and everything. So
probably have a discussion with that Immigration minister probably, I
would imagine, wouldn't we amish.
Speaker 3 (25:49):
I think that would be a great discussion to have.
I mean, I think Steve, just on one thing he
said there about sort of you know, relative kind of
economic performance is really the point I was taking. And
so I can see the logic for a young person
who looks over to Australia for example, and realizes I
can get paid more and I have more affordable housing options,
(26:13):
and thinking, well, regardless of anything else, those are two
big things for me at this moment in my life,
and so I'm going to go for it.
Speaker 2 (26:21):
I think also. I think also as well as remember Worth,
remembering Steve, that we have been losing New Zealanders for decades.
It's been It's almost part of the whole thing of
New Zealand music. You know, would the last person leave
switch out the lights. I don't think it's a modern phenomenon.
Speaker 4 (26:36):
It's more than that, mate. I'll tell you why. Younger
people now, they just don't want they want them for structure.
These are not people who just need mountains and beautiful scenery, right,
we need far more than that. New Zealand's are beautiful.
It's like you know, you go out with.
Speaker 2 (26:48):
The supermodel rips, all right.
Speaker 4 (26:52):
The thing with New Zealand. It's a beautiful country, but
you do need more. And we are poor infra structure.
We've got party government parties that they're just arguments themselves.
We've got crime rates. They're just looking at Sydney and
look they actually got a subway, they've got public transport.
They've just got so much more than they're well, I think,
and lower people here, well.
Speaker 2 (27:12):
Hopefully hopefully we're working on that. I think. Yeah, I
think you're a bit pessimist, more pessimist than i'd be
about things. But look, we're certainly a country that's got challenges.
Sorry that we had a bit of a long chat
there how much with Steve, but you know, he had
a good crack of the whipon me. I've forgot where
I've got to. Okay, Well, I guess the question is,
you know, he was challenging the idea that we're going
to get all this economic prosperity that lower interest rates
(27:34):
are going to, like, are going to bring that. What's
your take on how the lower interest rates actually do
make a difference to the economic prosperity rather than just
people investing in property.
Speaker 3 (27:46):
Yeah, I mean, look, interest rates are hugely powerful. You know,
this is the price of money that is being set
by a central bank for an economy when they move
there their official cash rate or equivalent. And so one
of the places where you can really see it show
up is in the those that are either new home
(28:08):
buyers so they've recently bought or they're contemplating the purchase
of a house, because what interest rates will do as
they fall is really really switched that sort of serviceability
calculation for household So for example, it was probably just
at the end of last year where a household would
(28:29):
need pretty much two thirds of their income. This is
the median household in New Zealand to service an average
mortgage that's already dropped to fifty five percent. And like
I said, if financial markets are right and we get
another sort of one percentage point hunt of basis points
(28:51):
of decline and mortgage rates, you know, that should continue
to fall in terms of the amount of income required,
and that'll take it back to probably take it not
just back to the average that we've had since the
GFC the Global financial crisis, but probably below. And that's
pretty meaningful, right, you know, to the extent that this is.
(29:12):
You know, it's not just an asset, right, as you know, Tim,
You know, owning your own home has all of these
additional benefits for those that live in it, you know,
feelings of security for example, and community and all of
that sort of thing. So yeah, I think to counter
Steve slightly there, I would say that, look, as these
(29:32):
interest rates for there is a really meaningful impact on
you know, these parts of the economy, and it results
in you better outcomes for these people households.
Speaker 2 (29:46):
Right, good stuff. Look, we're going to come back and
this month we'll take a break. It's twenty one minutes
to five news talks. He'd be and welcome back to
(30:08):
the show. This is Smart Money. My guest is Hamish Peppery.
He's a currency Oh god, I've got the job description.
I've lost my bit of paper to get it right. Hamish.
It's a fixed income and currency strategist. I actually googled
if we could simplifize that, but it just comes back
to me at the same thing. So hey, let's take
some more calls. Actually, just before we do a quick
question for you, Hamish. You know we're talking about cheaper,
(30:32):
cheaper borrowing and you know the reduced cash rate and
all that, but of course how does it get undone
by the fact that our counsels and insurances and general
caigh cost of living is still screwing homeowners and people.
Speaker 3 (30:46):
Yeah, it's a great point. There's a cohort out there
for sure, where whatever gain they might have experienced so
far from the drop of mortgage rates has been more
than offset by those increases and counter rates and insurance.
As you say, tom So, this is something or you know,
the Reserve Bank to consider as it is embarking on
(31:09):
this easing cycle and taking rates lower that you know,
maybe for that cohort they're not getting the kind of
bang for their buck that they may be assuming, or
you know, may have been the case in previous easing cycles.
So yeah, I think ultimately perhaps also explains some of
(31:29):
why they've got into their work as much as they
have in terms of beginning the using cycle and then
accelerating it.
Speaker 2 (31:38):
That Adrian or can't really control too much what the
councils are rating us. That would be wonderful, wouldn't it
if he just said no, steady on there.
Speaker 3 (31:45):
Yeah, it's an unfortunate reality.
Speaker 5 (31:47):
Yet.
Speaker 3 (31:48):
No, obviously it's not just local councils that they can't control.
They can't control central government what they're up to either.
Speaker 2 (31:54):
No, although well, central government at least trying to pretend
that they're spending lest aren't they And maybe they are.
But anyway, that's another discussion, fro another. Let's take some calls, Rob, Hi, Yeah, Hi, how.
Speaker 5 (32:08):
Are you going?
Speaker 2 (32:09):
Good?
Speaker 3 (32:10):
Well?
Speaker 5 (32:11):
Good? Yeah, I just thought i'd let you know. I
went to Ozzie in nineteen ninety three and went to
the Grand Final. Then I went back last year at
twenty twenty three, and I couldn't believe how far Auckland
had slipped behind Sydney. It was unbelievable. I went out
to a place called Balkan Hill, which was between Parametta
(32:33):
and Penrith Yea, so it's not in a city Sydney
or anything like that, but they were out cleaning the
streets at five in the morning. It was the place
was spotless. I live and walk with and I go
down to I've got a place down in Point Chevalier
and I stay away from Auckland as much as I can.
But when you go back down to Auckland, you just
realize how much it's really slipped and just turned really nasty,
(32:57):
and honestly, it's a real disappointment that the council have
just not stuck to their knitting and done what the
rates supposed to be used for. They just waste money
left right on center and just on stuff that's not required.
I heard the other day that they are only wanting
to pick up the rubbish once every fortnight now in
one part of Auckland. Yeah, and you know, it's just
(33:19):
a shame that I've just allowed people have just allowed
that to happen. I taste seven grand a year rate
and points Chevalier for a two bedroom nineteen twenties house.
Speaker 2 (33:32):
Rob By, the way I've got you, you're going to
chat about the ocr not the council because this is
smart money and the Politics hour was a couple of
hours ago. I know we've slipped in this direction and
Australian comparisons.
Speaker 5 (33:43):
Yeah, I rang mainly. I rang mainly about that guy
that had told me that they had said that on
the radio just before that. He said that you're not
going to get the migration here and that the interest
rate cuts are going to have very minimal effect. And
I totally agree with them. I think Auckland is undesirable
for people. They't all want to go to Australia, and
I think the housing market's not going to kick gone
(34:05):
what they're all saying. I think he's dead right with
what he's saying. It's just going to be stagnant for years.
Speaker 2 (34:13):
Okay, Rob, I'll throw that to Hamish. That's a pretty
pestimistic view of it, I must say, how much it's
worth noting that I went out the other night in
Auckland and I thought the conversation with mates of mine
were like, this is New Zealand's biggest city and it's
a Thursday night and it's eleven o'clock and it's dead.
But anyway, that was a pessimist view of it. But
what do you reckon?
Speaker 3 (34:34):
Yeah, I mean, on that particular story you had there
to him. I mean, I think that's reflective of an
economy that still is hurting. You know, we've started to
lower interest rates, but they're still high. You know, they're
still putting downward pressure on activity and causing paying for
four households. So you know, the idea of discretionary spending
(34:56):
in that environment, you know, going out on a Thursday
night and having a meal, having some drinks, you know,
for many many people won't be something that budgets are
allowing just yet. But I would hope that, you know,
if we're to talk again on a similar matter at
a year's time, that you know, it would be a
different story for you on Thursday.
Speaker 2 (35:13):
Night, because we can all remember times when Auckland's been heaving.
Not Actually, you know, what just came to mind was
when we were hosting the America's cuple Ones. Of course
that's in Barcelona, but never mind, let's not talk about
that one. At least we won those two races Steve.
Speaker 3 (35:28):
Steve had another point there which you know, look, I'm
not going to disagree with the infrastructure need that New
Zealand has. I mean, it's it's it's there, it's clear.
It has implications in terms of you know, people's rates,
but also you know taxes as well, because there's a
burden that central government have with that. So yeah, it's
going to be a bit of a painful. Yeah, it's
going to be decades, isn't it. As we do, you know,
(35:51):
kind of improve that that aspect of society. But in
the meantime, you know, lower rates. I still got to say,
you know, I think we were surprised how impactful they
were during COVID, you know, when when we had interest
rates pretty much at zero. You know, just remember those
times in terms of how much growth was generated and
(36:13):
what it did to the housing market for example. And
sure we're not going back to zero rates, but we're
going to go a lot lower if if markets are
right than where we are today, and so don't don't
discount it.
Speaker 2 (36:24):
Yeah, okay, right, tell you what. Well, Richard's holding for
a question, But we'll just take a quick moment and
be back and just take it is eleven minutes to
six news talks.
Speaker 6 (36:33):
He'd be.
Speaker 2 (36:34):
There. Please go that's where you are and welcome back
to the wee Can Collective. My guest is Homers Pepper
from Harbor Asset Management. Take squeeze in one more before
we wrap it up, Richard.
Speaker 6 (36:52):
High High, I've got an on top of question boom.
Speaker 2 (36:57):
Then go.
Speaker 3 (37:00):
Fantastic, Richard.
Speaker 6 (37:02):
I'm renewing on having to refix my rate next week,
so I'm aware of what's happened, and I'm aware that
there's going to be the invasion rate can be announced
next week, which is going to be after I've had
to make a decision, except that I'm not stressed at all.
So I'm just looking at a strategy that will be
sort of long term game for short term thing. And
(37:25):
I'm thinking, would it be smart to go on to
a floating rate and then maybe leave it a couple
of weeks. Now, I'm not asking you to tell me
whether that's a good idea, because you don't do that.
But what I'm interested to know is what pitfalls you
see in that sort of stress.
Speaker 2 (37:41):
What rate did you say a floating rate of floating?
Speaker 6 (37:45):
Yeah, so like you know at any time I can
just you know, in three weeks time, I can say, okay,
now I want to fix it. I understand as the situation.
Speaker 2 (37:54):
Well, I mush. I mean there's a logic to that,
isn't there If you think it's going to fall fast
and quick, isn't it?
Speaker 3 (38:00):
Yeah? I think the thing to bear in mind with
you know, when whenever you're contemplating a floating rate, it's
just how much higher those floating rates are relative to
the fixed rates. So you know, just for for example,
you know, looking at say A and Z, you know
they're probably in the region of fifty or sixty basis
(38:22):
points above a six month rate, So they're pushing up
towards eight percent for a for a floating rate, and
so you know, just speaking generally, I guess you need
to be sort of calculating how long you would want
to be on that thing.
Speaker 6 (38:38):
Before only two or three weeks, you know, maybe a.
Speaker 3 (38:46):
Yeah.
Speaker 6 (38:46):
Look, what I'm what I'm not clear about is you
know they say, oh, the banks predict the terms, but
they would have, you know, they would have. Maybe it
doesn't what happened the other day, but are they going
to be predicting another rate propping whins next November. November, November, November,
the next eight right, So when would they start figuring
(39:15):
that in, you know, if I was way to stay
in mid November.
Speaker 2 (39:19):
Yeah, yeah, Okay, We've got about a minute left though,
Just so you know, I'll.
Speaker 3 (39:27):
Just quickly reiterate something I said earlier, which is, this
is not a situation where mortgage rates are disconnected from
what wholesale financial markets are saying. They are pretty well
reflecting one another. So when I talked about financial markets
expecting almost one hundred basis points of rate cuts between
(39:49):
now and February next year, mortgage rates largely have that
in where their price now. So you need to think
of a scenario where the market can contemplate even lower
rates again and that and that's when you might get
some movement. But other you've got consistency. You've got quite
a bit of consistency between the two of.
Speaker 2 (40:08):
The mast that's worth I mean, that's why they have
such enticing rates now for two years, because if you know,
if you wanted to say, do half of your mortgage
six months or floating and then fix a bunch of it,
that's five point sixty nine at the moment. If you've
got a bit of equity and A and Z. You
know they are difficult, They're not. They don't mean to
make it easy for you, do they. Hamish anyway, the
(40:29):
banks after all time exactly. Hey, Hamish, thanks so much
for your time mate, and for covering a range of
conversations there. Really appreciate your.
Speaker 3 (40:36):
Time and oh thank you it's been a pleasure.
Speaker 2 (40:38):
Excellent. And just google the guys at harbor Asset Management
that's harbor Asset dot co dot nz and yeah we'll
look catch you again, Hamish, thanks so much and thank
you for listening. Check out our podcast I got to
iHeartRadio look for the Weekend Collective and thank you once
again also to my producer Tyre Roberts for great work
on the show again Tyra, and we'll look forward to
your company. Same time again Saturday, three o'clock. Enjoy your
(41:00):
week
Speaker 1 (41:15):
For more from the Weekend Collective, listen live to News
Talks it Be weekends from three pm or follow the
podcast on iHeartRadio.
You're listening to the Weekend Collective podcast from News Talks.
Speaker 2 (00:50):
And welcome back to the Weekend Collective. I'm Tim Beveridge
and this is Smart Money. What that was before in
the last hour was the Health Hub with Alex Bartell
some great advice on getting a good night's sleep. One
of those things is that you think when you're having
a chat about sleep that you know, the the questions
on it would be sort of reason me limited, and
you just realize that that so many different people have
different issues and advice with that had to get a
(01:13):
good night's sleep and napping and you know, all sorts
of things in sleep out there, and actually, funny enough,
there were a couple of topics that didn't pop up
with that I was expecting too so, but if you
if you want to have a listen to that or
the previous hour where politics. We had to chat with
a Ministry of Conservation Tama Portuker and also Winston Peters
on the back of him wrapping up the New Zealand
First and your Conference. A couple of interesting interviews there
(01:36):
as well. You can check it out on our website,
look for The Weekend Collective or on iHeartRadio we get
those podcasts launched pretty much as quickly as as we can.
But right now it is time for smart money and
joining me is he is director and fixed income and
currency strategist. Oh god, I've got to say that again.
(01:57):
It's tongue twister. It is actually a bit of a
tongue twister to try and state quickly. He is director
and fixed income and currency strategist at Harbors Management and
his name is Hamish Pepper. Good afternoon, Hello Tim. How
are you too bad? That is quite a mouthful your
job description. I think it's the longest of all the
chaps at Harbor asset.
Speaker 3 (02:16):
Oh, it's far too long. We need to change that.
Let's do it now.
Speaker 2 (02:23):
Actually, what do you prefer? I no, no, I was
just thinking if you put it out to the text,
say what's a good Let's let's summarize his job and
he's a currency strategist, director of fixed oncoming. I don't know,
we'll have to work, we'll have to workshop that one.
I think your one is probably the most accurate, But anyway,
I digress. Now. First things first, the Reserve Bank announced
(02:45):
that they're they're cutting the OECR by fifty basis points
I've heard much opinion that contrary to what the Reserve
Bank governor said quite a few months ago when he
said he wasn't anticipating a cut until next year. Well,
those ships have well and truly sailed that. This is
just the What do you make of it? Markets responded,
(03:08):
I mean, you're.
Speaker 3 (03:09):
Right, what a change we've had over the past. I
mean it has really only been four or five months.
As you say, this is a central bank now which
I think is increasingly aware of just how much help
this economy needs. And the idea of having your official
cash rate at probably double the rate at which you're
(03:33):
providing help to an economy is just it's just not
the right place to be. And so I think they've
woken up to that. They're getting into their work, and
as you say, the expectation is they'll really accelerate through
the summer. More fifty basis point rate cuts are expected
by financial markets, such that we will probably get into
that April May period next year with an official cash
(03:56):
rate that's much closer to three percent than it is
to follow.
Speaker 2 (04:01):
Wow, so you just said more fifty percent cuts, So
you're anticipating what we could have another whole point a
whole another hundred points to come off.
Speaker 3 (04:12):
That's right. Yeah, But by February, you know, financial markets
are saying about ninety bases points er point nine percentage
points of that that one hundred or one is expected,
and so yeah, I mean I wasn't exaggerating that. We
get into May and you'll have something around three and
a half percent for your official cash rate if financial
(04:33):
markets are right.
Speaker 2 (04:34):
Do you recall when Adrian or was saying that he
didn't anticipate any cuts till next year. Do you remember,
because that wasn't in my mind, if I recall correctly,
he was saying that as late as maybe April or something.
Wasn't he or was it?
Speaker 3 (04:47):
It was the main minetary policy statement where they actually
considered at that meeting whether there was a need to
take the official cash rate even higher than the five
and a half percent. And what happened since then? There
was a big pivot in July in the review that
they then where I think some of the business survey
(05:07):
data was looking particularly weak and they thought, oh, hold
on a second, and then in August it began with
the first rate cut. As you say, you know, more
than a year earlier than they'd told us and planned
just just sort of six or seven weeks earlier.
Speaker 2 (05:26):
It made me wonder whether he was engaging, you know
when he talked about or we still might pop it
up and we're looking back in May. By the way,
if you just tuned in, that was more a case
of rhetoric. So if people didn't suddenly get all excited
and act in a way they didn't want us to act.
Speaker 3 (05:41):
It might have been. It's always a delicate balance that
with central banks, how much do you want the market
to move ahead of you and perhaps, as you say,
undermine the current stance of policy. Because at that time
it probably still was the case that you could create
a story that rates needed to stay higher for a
(06:03):
bit longer. There was keenness in some of the inflation
we were generating domestically, which was a worry, but the
surveys were starting to tell you that that shouldn't be
sustained and that you can start to move back towards
a more normal setting. And that's essentially what's happened since then.
(06:24):
We're on our way back to normal.
Speaker 2 (06:27):
So what is normal?
Speaker 3 (06:29):
Normal somewhere around three three percent for their official cash rate.
Speaker 2 (06:33):
Has that always been what I mean, normal obviously changes,
you know, the expression of the new normal. Of course,
what has the history in the last maybe ten or
twenty years of the cash right been. What has normal
always been around this or has normal been something of it?
Speaker 3 (06:47):
It's been lower. Just before we had COVID, you would
remember in that time, central banks all over the world
were really struggling to generate inflation. You know, they'd had
inflation sitting either at or below where they were targeting,
and they were really scratching their heads as to what
they could do in order to get that inflation back
(07:08):
up a bit higher. Since then, of course, we've had
plenty of inflation, as you know well in many of
the listeners, But that normal level of the cash rate
or policy rates is lifted from probably two pre COVID
to something around three.
Speaker 2 (07:25):
Now, why do we need some level of inflation? I
know that's not the issue now, But as you were
saying that banks were struggling to get central banks were
struggling to get in some sort of inflation, why is
that part of the way, part of our reality.
Speaker 3 (07:42):
It's a great question. I mean, the best example I
think I can give, and this is one of the
ways in which inflation greases the wheels of an economy,
and it's the way in which firms are able to
reduce the real cost of their labor if there is
some inflation. So the example would be we're in an
(08:03):
inflation environment where prices are rising in a general sense
two percent prandom. What I can do to my employees
is to say, well, hey, I might give you a
one percent wage increase this year. Well, it might give
you nothing. That for the firm is a useful thing
if that firm is looking to try and weather a
period of challenge in whatever industry therein they are reducing
(08:28):
that real cost of their wage bill. Because you've got
to assume that firm is also able to experience those
higher prices in terms of what it's charging. So the
two percent prandom I'm talking about in terms of inflation
is also something that the firm should be experiencing in
their prices.
Speaker 2 (08:47):
In a way because theoretically, I mean, we can get
distracted about these things because it's not really the question
of the day. But theoretically, if there was no inflation
in people, I don't know, it doesn't feel like the devil.
But the way you explain it it does get a
sense that there is always the potential for things to
be moving, I guess, and people and energizing things, is it.
Speaker 3 (09:06):
It's kind of sneaky, isn't it. You know, because what
you're you're either saying to employees you are aware of
this general rise in prices, and you're then also aware
what I'm offering you in terms of your wage increase
for the year is less than that, and then you're
assuming that they're happy with it, or you're assuming that
(09:28):
perhaps they're not fully aware of just how much those
sort of general prices are shifting by. But I think
the crux of it is this is something where firms,
when they're doing that, are usually doing it because they
are facing some sort of challenge, you know, some sort
of profitability type challenge, and it's giving them a way
(09:49):
to manage that without having to say to somebody, hey,
I've actually got to cut your wages here. You know,
we're not talking about a lower increase than what inflation
is doing. We're actually talking about, you know, reducing whatever
you had last year is going to be less this year.
And that's quite a tough conversation.
Speaker 2 (10:07):
So getting back to the whole inflation thing. So with
it being trimmed by fifty basis points to four point
seventy five, and you've anticipated that maybe there could be
a whole I mean, could be more than one hundred
basis points. What do you think inflation round three percent
would be another one hundred and what is that one
hundred and twenty five basis points. Let's not be too
literal about that, but there's a lot of people who'd
be listening, could be who depend on getting a bit
(10:29):
of interest for their money in the bank, and what
invests you know what it means for the way people
who want some sort of fixed income, How are they
going to generate money if they're not going to have
it in the bank, are they?
Speaker 3 (10:43):
That's right? What happens in these easing cycles. What happens
whenever interest rates move in an economy is there are
going to be winners and losers. And I think you've
identified a group that may feel as if they're the
losers in this. If you've been sitting on say, term
deposits and rolling your say it, one year term deposit,
(11:06):
you know you're probably experiencing around about one hundred bases
point or one percentage point drop in the rates that
you know you've recently rolled on too, relative to a
year ago. So let's just use round numbers. You probably
a year ago, we're getting six percent for a one
year term deposit, You're now getting five, And if markets
are right, in another year's time, it will probably be
(11:30):
half a percentage point lower than that. Again, and this
has some real impacts for people who are relying on
these things for income. You know, think about retirees, for example,
so they in some ways are a group that lose
to a degree when interest rates four.
Speaker 2 (11:48):
Yeah, well you're a fixed income strategist, I guess, so
what are you guys? What are you doing? What advice
would you give to people who are on a fixed
income with that? Not specific financial advice, but where are
the places people are going to be wanting to put
their money?
Speaker 3 (12:05):
I think what naturally happens in those times is people
do reassess whether they have risk tolerance or a set
of financial objectives that would allow them to think about
complementing term deposits with other things. You know, obviously we
are one possible solution in terms of the funds that
(12:28):
we offer, but there are other solutions for these people
as well, and I think it's just the moment I
suppose where those questions start being asked. I mean, if
you put numbers around it, if you think about what
an average household. Now this is the problem with averages,
because we've got you know, Graham Heart at one end,
(12:48):
who's skewing this average. But let's use the average. What
the data for New Zealand tell us is we've got
an average household who has a probably a house in
terms of a non financial set of assets that's worth
about let's say eight hundred thousand of just round numbers,
this is the average, and then about the same again
(13:11):
in financial wealth. And so if you assume all of
that financial wealth that eight hundred thousand is in just
term deposits, you're talking about a drop in your annual
income and this is before tax, from about forty eight
thousand dollars a year to less than forty thousand dollars
a year. And so it's in these moments that I
(13:33):
think you get a reflection as to whether you know
that portfolio of financial assets is delivering the outcomes that
you need.
Speaker 2 (13:42):
That Actually I thought it was going to sound a
lot worse than that. But of course if you've just
got to understand a bank account. It's probably going to
be a lot more dramatic than that, isn't it.
Speaker 3 (13:50):
Yeah, I think your rates for your on call deposits
are attend to me a lot lower than than what
you're getting for term deposits.
Speaker 2 (13:58):
Hey, so what let's get back to So let's sort
of reset again. So the mortgage, sorry, the the cash
rate has been cut by fifty basis points to four
point seventy five. How much has that affected mortgage rates?
Because I often hear when we're chatting with people about
with the experts about this, that they'll tell you that
(14:19):
the banks have already priced that in. But of course
an announcement like this comes with more pressure for the
banks to chop their mortgage rates. So what has actually
happened to mortgage rates as a result?
Speaker 3 (14:29):
So if you think about just the past year, and
we just use a one year, probably the one year
special mortgage rate is the one that you know people
are probably talking about about most that's dropped just over
one percentage point. It's sitting around a lot of talk
about these special secret rates term that people get offered
(14:50):
on their band caps. And I saw andry stock code
Audi in zed saying, please, you know, tell us what
your secret rate is, but I'll use the one that
has posted publicly. And so that's sort of a one
year mortgage rate of just above six percent. And then
if you think about what the market has in terms
of its pricing, including the mortgage market, and we think
(15:12):
about where a one year rate could be in a
year's time, it's probably around another percentage point lower, is
what's being implied. So mortgage rates troughing for the one
year specials somewhere just above that five percent level is
what markets and the mortgage current mortgage rates are telling you.
Speaker 2 (15:31):
Yeah, it's funny. A lot of people I didn't realize that.
I didn't realize that the cup that was being predicted
was as large as you're saying, because I think you
guys have even suggested it might take the OCA be
below three percent, which would make people who are just
doing who are reinvesting their mortgage, sorry, who are reborrowing
just for a year or six months, They're definitely probably
(15:51):
on the right track, aren't they.
Speaker 3 (15:54):
I think that's the it's the interesting thing. You know,
you're right that borrowers have been fixing for increasingly short terms,
you know, so the six month mortgage rate has become
really really popular, and I think it's because there's been
mortgage brokers pushing an idea that, look, the central banks
on the cusp of cutting rates or has just begun,
(16:16):
there's more to come and as that happens, you will
get better deals for longer term fixed rates. I think
where we've got to now though, is if you're looking
at the consistency between what wholesale financial markets are pricing
and what the mortgage interest rates where they are. There's
(16:38):
quite a lot of consistency there now. So unless there's
a belief that we do go back to some sort
of COVID type levels of the official cash rate and
interest rates which were sort of extraordinarily low, you know,
emergency type settings, you know, you've got to I think
(16:59):
except that there is this consistency to return to normal.
But it's not obviously a disastrous period that we have
ahead rates, So are not showing us what they what
they did back then.
Speaker 2 (17:15):
Okay, look, we're going to take some calls on this
if you want to join the conversation with Hamish pepri's
director and fixed income and currency strategists to harbor asset management.
The ocr has been cut in the week that's just
gone by fifty basis points, bring it down to four
point seventy five percent. Just want your simple take on it.
Where do you hope to see it going in the
next month or two? And on that basis, what are
(17:36):
you doing with your money, either the money you've got
in the bank and your investments or the money that
you've borrowed from the bank. What's your strategy because where
you sent going? Because I don't mind telling you, I
thought that I've got accustomed to the higher rates, and
I thought with Adrian or loving the higher rates. So
I'm finding it hard to imagine I'm chopping it as
much as it's been predicted. But if we've got predictions
of maybe another one hundred points or even more, what
(17:59):
are your plans and what are your expectations? Give us
a call O eight hundred and eighty ten and eighty.
We'll be back in just a moment. News Talks. He'd
be twenty all past five. You can't start ours, fin
(18:21):
that's welcome back to Smart Money. I'm Tim Beveridge and
this is the Weekend Collective. My guest is Hamish Pepper.
He's director and fixed income and currency strategist at Harbor
Asset Management. We're talking about the cash rate dropping, is
it going to go further? And what do you wanted
to do in your plans? Hamish, let's talk to on
a second Steve.
Speaker 4 (18:39):
Hello, Yeah, Hey, Look a lot of a lot has
been made over the week. In actual fact, all the
talk is a you know, has been about around interest
rates and how it's going to affect the economy, right
as though it's the this panacea, it's going to fix everything,
but nothing has been mentioned. And what I think is
(19:01):
more important than interest rates is the the migration levels.
I mean, it was on the news on Friday, but
none of you guys have picked up on this and
discussed it and the implications. And I'm really perplexed about
it because, look, I think we might be in a situation.
It might be a bit negative, but we might be
a bit like what Japan was, and we're going to
(19:21):
suffer what you call a zombie economy for quite some time,
a very anemic economy because of our lack of migration.
New Zealand has never I can't remember a single time
since I started work in eighty seven been through a
lot of ups and downs. I can't remember a single
time when we've traded well among ourselves and the economy flourished.
(19:43):
We've always relied on those high migration levels, specifically the
three waves of Chinese migration we had in the mid nineties.
They're all's going to come from Hong Kong, the nearly
two thousands, and then later on again we had a
smaller wave, but we had a massive wave just after
two thousand, didn't we And a lot of it came
(20:04):
from the student We had a huge number of students
who came here, they ended up settling here. Now, I
don't you've made in the past, You've made a big
point of who's the labor. MP said that Chinese did
an affect the market, the housing market.
Speaker 2 (20:21):
I think you can pass. I can't remember.
Speaker 4 (20:24):
Yeah, yeah, well look they do, they do, they affect
it and they.
Speaker 2 (20:28):
Oh no, I remember it was it was about It
was about that there was a perception that immigration was
having a massive effect on the housing market, and I
think there was some push back on that.
Speaker 4 (20:40):
Yeah, you pushed back on it, and of course the media,
the left wing always say is as soon as you
have mentioned a particular ethnicity. It's racism over practical logical
thought process. And the logical thought process they were actually
affecting the the Auckland property market, specially especially the central
area through and unfortunately the New Zealand data can't pick
(21:00):
that up that they were through all sorts of ways
where they.
Speaker 2 (21:05):
And data is not picking it up. I mean it's oh,
that's right, I'm vaguely recalling. Anyway, we probably need to
type back into Hamish's sort of air of expertise. What's
your what's your question?
Speaker 4 (21:15):
Oh? Look, my question is is that, like I said,
I think the interest rates, I don't think they're going
to have the effect that everyone thinks they're going to have.
I think we're going to settle. We've got this short
little sugar rush and doorphin effect, but I think it's
going to settle back down to a very anemic feeling
because we just haven't got the migration levels and New
(21:35):
Zealand requires people with money to come in the front
door fright around, get the sugar hit a couple of
years before they get permanent residency, and then it goes
the other way because they jump on a welfare But
that that first lot had come in one hundred thousand
auk in a year. Turbot charges our economy and was
out it which and apparently we're going to be having
(21:56):
we're going to have more people leaving next year.
Speaker 2 (21:58):
Possibly, well we do it. Migration that's quite high right now,
and I think it's a record, it's incredibly it's fifty
five thousand people coming in.
Speaker 4 (22:06):
Do you know where they're coming in from. You're coming
from India, so they're not even coming from China, and
looks they're not the one to the high spending Chinese
who coming and buy the houses and it pushes construction
and everything else there. Actually the engines, the engine.
Speaker 2 (22:18):
People we'll bring, I'll bring, We'll bring we'll bring hamersh
and and see you got any take on the Samish.
Speaker 3 (22:26):
Yeah. I think the point, the big one that Steve
makes there is we've had a big drop off. If
we look at the monthly numbers for migration, you know,
we're running around sort of three three and a half
thousand per month, which means we've kind of gone back
to the more sort of historical average levels of net
migration from the like you say, Tim, the boom that
(22:49):
we had just a couple of years ago, and it
does have implications for the economy, and the housing market
is one that we look at as many others first
to pick up the signs of those migration surges or
indeed when they when they tail off. And I think,
if you put this story together, so we had a
(23:11):
sort of a boom and migration the last couple of
years into earlier this year, and then it's really fallen away.
It's about the same time that people have been puzzled
that the housing market hasn't picked up a bit more
in response to, for instance, the changes that we've had
for investors when it comes to investment properties, and also
(23:35):
you know the decline and mortgag rates more recently. But
the so it's there. It's part of the picture, is
what I'm trying to say, and it's part of the
reason why interest rates are now you know, moving lower
and are expected to continue to do so. You know
that I think the market gets it that this is
now turned into what was a positive has turned into
(23:59):
into a negative from a demand point of view. But
I just add one more thing. When we think about migration,
and we think about it on a net basis, so
people arriving, less people leaving, And it really hasn't been
so much that people have stopped coming. There's been a
little bit of that, but it's been much more that
there's been a pickup in people leaving. So it's got.
Speaker 5 (24:23):
And it's too.
Speaker 3 (24:24):
Another part of your point there, Steve, which is just
how much faith do young people have in this economy
to deliver them the things that they are wanting out
of out of a career, and.
Speaker 4 (24:39):
A lot of bothering me. You know what's bothering me?
Speaker 6 (24:42):
Though?
Speaker 4 (24:43):
There's brain drain, isn't it. They're they're the ones that
twenty year olds who are meant we're staying here and
buying the houses and paying the taxes for the people
going to be retiring. They're buggering off and why wouldn't you?
And the ones who are staying don't have the qualifications,
are on a benefit and we're left with those types.
And then we've got the retired people on the other end.
Then we've got the our age team, right, and then
(25:05):
we're sort of buttoning back that we haven't got that power,
the power demographic. They're leaving, Why would they stay? Why
would they want to stay? I mean it's more to
do with the economy. It's more than just that there's
something not quite right in New Zealand culture at the moment.
I could say it might be because you might just
(25:26):
but there is a bit of that. I think people
are just going I'm tired of it.
Speaker 2 (25:30):
Yeah, I don't know. I mean, I think you may
be catastrophizing it a bit more than I would with Steve.
But I'm to be honest, it's difficult without doing a
really deep dive into the immigration figures and the stats
and who's coming here in the settings and everything. So
probably have a discussion with that Immigration minister probably, I
would imagine, wouldn't we amish.
Speaker 3 (25:49):
I think that would be a great discussion to have.
I mean, I think Steve, just on one thing he
said there about sort of you know, relative kind of
economic performance is really the point I was taking. And
so I can see the logic for a young person
who looks over to Australia for example, and realizes I
can get paid more and I have more affordable housing options,
(26:13):
and thinking, well, regardless of anything else, those are two
big things for me at this moment in my life,
and so I'm going to go for it.
Speaker 2 (26:21):
I think also. I think also as well as remember Worth,
remembering Steve, that we have been losing New Zealanders for decades.
It's been It's almost part of the whole thing of
New Zealand music. You know, would the last person leave
switch out the lights. I don't think it's a modern phenomenon.
Speaker 4 (26:36):
It's more than that, mate. I'll tell you why. Younger
people now, they just don't want they want them for structure.
These are not people who just need mountains and beautiful scenery, right,
we need far more than that. New Zealand's are beautiful.
It's like you know, you go out with.
Speaker 2 (26:48):
The supermodel rips, all right.
Speaker 4 (26:52):
The thing with New Zealand. It's a beautiful country, but
you do need more. And we are poor infra structure.
We've got party government parties that they're just arguments themselves.
We've got crime rates. They're just looking at Sydney and
look they actually got a subway, they've got public transport.
They've just got so much more than they're well, I think,
and lower people here, well.
Speaker 2 (27:12):
Hopefully hopefully we're working on that. I think. Yeah, I
think you're a bit pessimist, more pessimist than i'd be
about things. But look, we're certainly a country that's got challenges.
Sorry that we had a bit of a long chat
there how much with Steve, but you know, he had
a good crack of the whipon me. I've forgot where
I've got to. Okay, Well, I guess the question is,
you know, he was challenging the idea that we're going
to get all this economic prosperity that lower interest rates
(27:34):
are going to, like, are going to bring that. What's
your take on how the lower interest rates actually do
make a difference to the economic prosperity rather than just
people investing in property.
Speaker 3 (27:46):
Yeah, I mean, look, interest rates are hugely powerful. You know,
this is the price of money that is being set
by a central bank for an economy when they move
there their official cash rate or equivalent. And so one
of the places where you can really see it show
up is in the those that are either new home
(28:08):
buyers so they've recently bought or they're contemplating the purchase
of a house, because what interest rates will do as
they fall is really really switched that sort of serviceability
calculation for household So for example, it was probably just
at the end of last year where a household would
(28:29):
need pretty much two thirds of their income. This is
the median household in New Zealand to service an average
mortgage that's already dropped to fifty five percent. And like
I said, if financial markets are right and we get
another sort of one percentage point hunt of basis points
(28:51):
of decline and mortgage rates, you know, that should continue
to fall in terms of the amount of income required,
and that'll take it back to probably take it not
just back to the average that we've had since the
GFC the Global financial crisis, but probably below. And that's
pretty meaningful, right, you know, to the extent that this is.
(29:12):
You know, it's not just an asset, right, as you know, Tim,
You know, owning your own home has all of these
additional benefits for those that live in it, you know,
feelings of security for example, and community and all of
that sort of thing. So yeah, I think to counter
Steve slightly there, I would say that, look, as these
(29:32):
interest rates for there is a really meaningful impact on
you know, these parts of the economy, and it results
in you better outcomes for these people households.
Speaker 2 (29:46):
Right, good stuff. Look, we're going to come back and
this month we'll take a break. It's twenty one minutes
to five news talks. He'd be and welcome back to
(30:08):
the show. This is Smart Money. My guest is Hamish Peppery.
He's a currency Oh god, I've got the job description.
I've lost my bit of paper to get it right. Hamish.
It's a fixed income and currency strategist. I actually googled
if we could simplifize that, but it just comes back
to me at the same thing. So hey, let's take
some more calls. Actually, just before we do a quick
question for you, Hamish. You know we're talking about cheaper,
(30:32):
cheaper borrowing and you know the reduced cash rate and
all that, but of course how does it get undone
by the fact that our counsels and insurances and general
caigh cost of living is still screwing homeowners and people.
Speaker 3 (30:46):
Yeah, it's a great point. There's a cohort out there
for sure, where whatever gain they might have experienced so
far from the drop of mortgage rates has been more
than offset by those increases and counter rates and insurance.
As you say, tom So, this is something or you know,
the Reserve Bank to consider as it is embarking on
(31:09):
this easing cycle and taking rates lower that you know,
maybe for that cohort they're not getting the kind of
bang for their buck that they may be assuming, or
you know, may have been the case in previous easing cycles.
So yeah, I think ultimately perhaps also explains some of
(31:29):
why they've got into their work as much as they
have in terms of beginning the using cycle and then
accelerating it.
Speaker 2 (31:38):
That Adrian or can't really control too much what the
councils are rating us. That would be wonderful, wouldn't it
if he just said no, steady on there.
Speaker 3 (31:45):
Yeah, it's an unfortunate reality.
Speaker 5 (31:47):
Yet.
Speaker 3 (31:48):
No, obviously it's not just local councils that they can't control.
They can't control central government what they're up to either.
Speaker 2 (31:54):
No, although well, central government at least trying to pretend
that they're spending lest aren't they And maybe they are.
But anyway, that's another discussion, fro another. Let's take some calls, Rob, Hi, Yeah, Hi, how.
Speaker 5 (32:08):
Are you going?
Speaker 2 (32:09):
Good?
Speaker 3 (32:10):
Well?
Speaker 5 (32:11):
Good? Yeah, I just thought i'd let you know. I
went to Ozzie in nineteen ninety three and went to
the Grand Final. Then I went back last year at
twenty twenty three, and I couldn't believe how far Auckland
had slipped behind Sydney. It was unbelievable. I went out
to a place called Balkan Hill, which was between Parametta
(32:33):
and Penrith Yea, so it's not in a city Sydney
or anything like that, but they were out cleaning the
streets at five in the morning. It was the place
was spotless. I live and walk with and I go
down to I've got a place down in Point Chevalier
and I stay away from Auckland as much as I can.
But when you go back down to Auckland, you just
realize how much it's really slipped and just turned really nasty,
(32:57):
and honestly, it's a real disappointment that the council have
just not stuck to their knitting and done what the
rates supposed to be used for. They just waste money
left right on center and just on stuff that's not required.
I heard the other day that they are only wanting
to pick up the rubbish once every fortnight now in
one part of Auckland. Yeah, and you know, it's just
(33:19):
a shame that I've just allowed people have just allowed
that to happen. I taste seven grand a year rate
and points Chevalier for a two bedroom nineteen twenties house.
Speaker 2 (33:32):
Rob By, the way I've got you, you're going to
chat about the ocr not the council because this is
smart money and the Politics hour was a couple of
hours ago. I know we've slipped in this direction and
Australian comparisons.
Speaker 5 (33:43):
Yeah, I rang mainly. I rang mainly about that guy
that had told me that they had said that on
the radio just before that. He said that you're not
going to get the migration here and that the interest
rate cuts are going to have very minimal effect. And
I totally agree with them. I think Auckland is undesirable
for people. They't all want to go to Australia, and
I think the housing market's not going to kick gone
(34:05):
what they're all saying. I think he's dead right with
what he's saying. It's just going to be stagnant for years.
Speaker 2 (34:13):
Okay, Rob, I'll throw that to Hamish. That's a pretty
pestimistic view of it, I must say, how much it's
worth noting that I went out the other night in
Auckland and I thought the conversation with mates of mine
were like, this is New Zealand's biggest city and it's
a Thursday night and it's eleven o'clock and it's dead.
But anyway, that was a pessimist view of it. But
what do you reckon?
Speaker 3 (34:34):
Yeah, I mean, on that particular story you had there
to him. I mean, I think that's reflective of an
economy that still is hurting. You know, we've started to
lower interest rates, but they're still high. You know, they're
still putting downward pressure on activity and causing paying for
four households. So you know, the idea of discretionary spending
(34:56):
in that environment, you know, going out on a Thursday
night and having a meal, having some drinks, you know,
for many many people won't be something that budgets are
allowing just yet. But I would hope that, you know,
if we're to talk again on a similar matter at
a year's time, that you know, it would be a
different story for you on Thursday.
Speaker 2 (35:13):
Night, because we can all remember times when Auckland's been heaving.
Not Actually, you know, what just came to mind was
when we were hosting the America's cuple Ones. Of course
that's in Barcelona, but never mind, let's not talk about
that one. At least we won those two races Steve.
Speaker 3 (35:28):
Steve had another point there which you know, look, I'm
not going to disagree with the infrastructure need that New
Zealand has. I mean, it's it's it's there, it's clear.
It has implications in terms of you know, people's rates,
but also you know taxes as well, because there's a
burden that central government have with that. So yeah, it's
going to be a bit of a painful. Yeah, it's
going to be decades, isn't it. As we do, you know,
(35:51):
kind of improve that that aspect of society. But in
the meantime, you know, lower rates. I still got to say,
you know, I think we were surprised how impactful they
were during COVID, you know, when when we had interest
rates pretty much at zero. You know, just remember those
times in terms of how much growth was generated and
(36:13):
what it did to the housing market for example. And
sure we're not going back to zero rates, but we're
going to go a lot lower if if markets are
right than where we are today, and so don't don't
discount it.
Speaker 2 (36:24):
Yeah, okay, right, tell you what. Well, Richard's holding for
a question, But we'll just take a quick moment and
be back and just take it is eleven minutes to
six news talks.
Speaker 6 (36:33):
He'd be.
Speaker 2 (36:34):
There. Please go that's where you are and welcome back
to the wee Can Collective. My guest is Homers Pepper
from Harbor Asset Management. Take squeeze in one more before
we wrap it up, Richard.
Speaker 6 (36:52):
High High, I've got an on top of question boom.
Speaker 2 (36:57):
Then go.
Speaker 3 (37:00):
Fantastic, Richard.
Speaker 6 (37:02):
I'm renewing on having to refix my rate next week,
so I'm aware of what's happened, and I'm aware that
there's going to be the invasion rate can be announced
next week, which is going to be after I've had
to make a decision, except that I'm not stressed at all.
So I'm just looking at a strategy that will be
sort of long term game for short term thing. And
(37:25):
I'm thinking, would it be smart to go on to
a floating rate and then maybe leave it a couple
of weeks. Now, I'm not asking you to tell me
whether that's a good idea, because you don't do that.
But what I'm interested to know is what pitfalls you
see in that sort of stress.
Speaker 2 (37:41):
What rate did you say a floating rate of floating?
Speaker 6 (37:45):
Yeah, so like you know at any time I can
just you know, in three weeks time, I can say, okay,
now I want to fix it. I understand as the situation.
Speaker 2 (37:54):
Well, I mush. I mean there's a logic to that,
isn't there If you think it's going to fall fast
and quick, isn't it?
Speaker 3 (38:00):
Yeah? I think the thing to bear in mind with
you know, when whenever you're contemplating a floating rate, it's
just how much higher those floating rates are relative to
the fixed rates. So you know, just for for example,
you know, looking at say A and Z, you know
they're probably in the region of fifty or sixty basis
(38:22):
points above a six month rate, So they're pushing up
towards eight percent for a for a floating rate, and
so you know, just speaking generally, I guess you need
to be sort of calculating how long you would want
to be on that thing.
Speaker 6 (38:38):
Before only two or three weeks, you know, maybe a.
Speaker 3 (38:46):
Yeah.
Speaker 6 (38:46):
Look, what I'm what I'm not clear about is you
know they say, oh, the banks predict the terms, but
they would have, you know, they would have. Maybe it
doesn't what happened the other day, but are they going
to be predicting another rate propping whins next November. November, November, November,
the next eight right, So when would they start figuring
(39:15):
that in, you know, if I was way to stay
in mid November.
Speaker 2 (39:19):
Yeah, yeah, Okay, We've got about a minute left though,
Just so you know, I'll.
Speaker 3 (39:27):
Just quickly reiterate something I said earlier, which is, this
is not a situation where mortgage rates are disconnected from
what wholesale financial markets are saying. They are pretty well
reflecting one another. So when I talked about financial markets
expecting almost one hundred basis points of rate cuts between
(39:49):
now and February next year, mortgage rates largely have that
in where their price now. So you need to think
of a scenario where the market can contemplate even lower
rates again and that and that's when you might get
some movement. But other you've got consistency. You've got quite
a bit of consistency between the two of.
Speaker 2 (40:08):
The mast that's worth I mean, that's why they have
such enticing rates now for two years, because if you know,
if you wanted to say, do half of your mortgage
six months or floating and then fix a bunch of it,
that's five point sixty nine at the moment. If you've
got a bit of equity and A and Z. You
know they are difficult, They're not. They don't mean to
make it easy for you, do they. Hamish anyway, the
(40:29):
banks after all time exactly. Hey, Hamish, thanks so much
for your time mate, and for covering a range of
conversations there. Really appreciate your.
Speaker 3 (40:36):
Time and oh thank you it's been a pleasure.
Speaker 2 (40:38):
Excellent. And just google the guys at harbor Asset Management
that's harbor Asset dot co dot nz and yeah we'll
look catch you again, Hamish, thanks so much and thank
you for listening. Check out our podcast I got to
iHeartRadio look for the Weekend Collective and thank you once
again also to my producer Tyre Roberts for great work
on the show again Tyra, and we'll look forward to
your company. Same time again Saturday, three o'clock. Enjoy your
(41:00):
week
Speaker 1 (41:15):
For more from the Weekend Collective, listen live to News
Talks it Be weekends from three pm or follow the
podcast on iHeartRadio.
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