Speaker 1: You're listening to the Weekend Collective podcast from News Talks.
Speaker 2: And welcome back to the Weekend Collective for well, welcome
Speaker 2: in of you if you have just joined us. By
Speaker 2: the way, of course, there was an illuminating conversation we
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Speaker 2: had Jeffrey Miller, who's a geopolitical analyst on the recent
Speaker 2: moved moved from the States to bomb those nuclear bunkers
Speaker 2: and Iran and Jeffrey's take on it as well, so
Speaker 2: he getsquent some quite strong comments on it as well.
Speaker 2: And we also chatted to the head of the head
Speaker 2: of the President of the Tourism Council and the Cook
Speaker 2: Islands around what's going on with Mark Brown and the
Speaker 2: Cook Islands and the money that's been suspended from New
Speaker 2: Zealand as well. So an illuminating couple of hours. Go
Speaker 2: check out our podcast again. And news talks at b Dot,
Speaker 2: Codter and Zaid right now though new new topic smart money,
Speaker 2: and to join us. He is a fixed income gosh.
Speaker 2: I always struggle with that fixed income and currency strategist.
Speaker 2: And his name is Hamish Pep Gosh. I'm all over
Speaker 2: the place, Hamish Pepper. Hello, God, I'll just shut up
Speaker 2: and introduce it.
Speaker 3: Should I take over? Tom?
Speaker 2: I'm good mate. How you been doing?
Speaker 3: Yeah? Good. We've had a big weekend. We were we
Speaker 3: were tramping with our two young girls who are five
Speaker 3: and seven, and the Low North Island. It was great fun.
Speaker 3: Oh lovely.
Speaker 2: I thought you were going to say we had a
Speaker 2: big week and it was something to do with the
Speaker 2: money markets, but you've simply just had it. Was that too,
Speaker 2: You've had a mataiki weekend.
Speaker 3: Yeah. I came out of the bush and read the
Speaker 3: headlines that Trump had struck Rhan and thought, gee, okay,
Speaker 3: I better get my be to get my sort of
Speaker 3: thoughts together for the show in case you know we
Speaker 3: go there.
Speaker 2: Well, I suspect now that you've you've mentioned it, we're
Speaker 2: going to go there. I think we're going to go there.
Speaker 2: It's like that Mighty Pith that was like what was it?
Speaker 2: Faulty tiers. Don't mention the more war. I mentioned it once,
Speaker 2: but I think I got away with it actually, So
Speaker 2: actually we're lucky with the tramping weather though my daughter
Speaker 2: has in fact having them caught up with it. Yep,
Speaker 2: she's just on the Duke of Edinburgh overnight tramp where
Speaker 2: they went to ring a Toto. But they were allowed
Speaker 2: to switch their phones on to send photos this morning
Speaker 2: at about seven o'clock and oh what weather for tramping
Speaker 2: really just fantastic.
Speaker 3: Absolutely, yeah. We had these beautiful views of Mount a
Speaker 3: pay who mount not a hooey and when we went
Speaker 3: in on the Friday we couldn't see either of them.
Speaker 3: And then yeah, fantastic last couple of days. So yeah,
Speaker 3: really special.
Speaker 2: Excellent, good stuff. And that's thank you for touching on that.
Speaker 2: That's it's nice to take our head out of the
Speaker 2: financial weeds for a moment before we dive straight back
Speaker 2: and before we get onto talking about because it is
Speaker 2: going to be a big deal what's happened in the
Speaker 2: in the Middle East, right, and we will I think
Speaker 2: we'll have to dig on that, even though it's just
Speaker 2: a recently developing story. I'm sure you'd be able to
Speaker 2: give us some insights.
Speaker 3: But let's go.
Speaker 2: Let's have a look back on you guys at track.
Speaker 2: What's how things have been going where farmers have had
Speaker 2: good news on the farm gaate milk prices and dairy
Speaker 2: price and things like that. We've just had the we've
Speaker 2: just had the Field Days massive event. How what do
Speaker 2: we know about the spending confidence of farmers in particularly?
Speaker 2: How did the Field Days go? Do you have much
Speaker 2: of a handle on that stuff.
Speaker 3: Yeah, it was a fantastic event. We were there for
Speaker 3: three days, hosted by ben Z and of course we're
Speaker 3: the manager for the Kiwi Saver and the private wealth
Speaker 3: money for them, so we got to see it from
Speaker 3: their point of view. They were a regular vendor there
Speaker 3: and just you know, one hundred thousand people through those
Speaker 3: four days, and I've got a real sense of that
Speaker 3: part of the economy, which, as you say, has had
Speaker 3: a really good last year season for the dairy farmers,
Speaker 3: you know, the best ever. But I think there's still
Speaker 3: a degree of caution there are spending more than they
Speaker 3: were last year, but last year they had a season
Speaker 3: which wasn't nearly as good, and I think there's still
Speaker 3: a bit of memory of that that the good times
Speaker 3: don't last forever, and so I think they'll probably want
Speaker 3: to see what Fonterra actually forecasting, which is another season
Speaker 3: of good milk prices, and that might be something which
Speaker 3: then a bit more more spending.
Speaker 2: So what do we know about what they actually did spend?
Speaker 2: You said they spent more, and I think that that
Speaker 2: was the headline that just cuts across, isn't it? A
Speaker 2: lot farmers are and I assume that they've just been
Speaker 2: a big spend up because you know, they're spending more
Speaker 2: than last year, but it was the room for improvement perhaps,
Speaker 2: and maybe it's not as far as it could be.
Speaker 3: Yeah, exactly. So I mean you don't, as far as
Speaker 3: I know, you don't get sort official data from the vendors,
Speaker 3: you know, aggregated up for field days. So what we
Speaker 3: did was we went around and asked, you know, the
Speaker 3: individual vendors. I think I spoke to more than a dozen,
Speaker 3: and the common story was sales were up on last year,
Speaker 3: but not record levels, so an improvement but not the
Speaker 3: best they'd seen. And it does kind of it's corroborating
Speaker 3: what we're seeing in the aggregate data, which is, you know,
Speaker 3: if you think about for the dairy sector, they probably
Speaker 3: had a boost in terms of revenue. That's between four
Speaker 3: and five billion dollars. What the lending data is saying
Speaker 3: for the sector is a portion of that has gone
Speaker 3: to pay down debt. And what the data is telling
Speaker 3: us from the deposit side of the banking system is
Speaker 3: that cash balances have increased in the agricultural sector, and
Speaker 3: so that leaves there is some left which has been spent,
Speaker 3: and that kind of you know, fits the field Day's story.
Speaker 3: But there's a bit of caution there still within the
Speaker 3: within that rural sector.
Speaker 2: So when you say four or five billion dollars, that's
Speaker 2: an extra earnings. So what can you give us some
Speaker 2: context for that? Of course, if that was the American
Speaker 2: dairy industry, you might say that doesn't sound like very much.
Speaker 2: But for us, how much is it?
Speaker 3: Yeah? I mean four or five billion is significant. You know,
Speaker 3: if you think about one metric could be the amount
Speaker 3: the dollar amount of exports each year that dairy represents,
Speaker 3: which is around that twenty billion kind of mark, so,
Speaker 3: you know, which puts it at about five percent of GDP.
Speaker 3: So these numbers are meaningful, and I think what we're
Speaker 3: seeing though is that the translation into the economy. You know. So,
Speaker 3: I think what many of us are hoping for is
Speaker 3: that the external sector can lead our recovery, you know,
Speaker 3: which has been hasn't really begun in a vigorous way.
Speaker 3: You would say it's been fairly soft in some areas.
Speaker 3: But the way that we could perhaps see that accelerators.
Speaker 3: You see more comfort from the external sector, not just
Speaker 3: dairy right, you know, the beef shedding beef as well.
Speaker 3: If they feel a bit more comfortable going out buying tractors,
Speaker 3: you know, you don't even have to be as extreme
Speaker 3: as saying buying boats and jet skis and things like that,
Speaker 3: but more of it can feed into the economy, then
Speaker 3: there is the ability for that to then generate a
Speaker 3: more robust recovery or a faster recovery than the one
Speaker 3: that we're seeing.
Speaker 2: So at the moment, it is just we want that.
Speaker 2: Do you think that the rural community of farming communities
Speaker 2: that want to see just more good news before they
Speaker 2: really start to open their wallets in a meaning in
Speaker 2: a way that really impacts the economy.
Speaker 3: Yeah, I think, Look, you know, these these people that
Speaker 3: you know, they're aware of what's going on, globally. You know,
Speaker 3: they're probably more aware than most of us about what's
Speaker 3: happening with tariffs, the risks that there are between you know,
Speaker 3: your two largest economies in the world having a trade war,
Speaker 3: the US and China, and one of those China being
Speaker 3: our largest export destination. So there's a real awareness of
Speaker 3: the ability for that to escalate and for global growth
Speaker 3: to then weaken and therefore demand for our exports to
Speaker 3: come off. So I think that that's in the piece.
Speaker 3: And then there's also an awareness of the exchange rate.
Speaker 3: Right the Kei we dollar hasn't probably been doing what
Speaker 3: maybe it normally would when you have an event like
Speaker 3: you know, the the Trump tariffs, where generally risk sentiment deteriorates,
Speaker 3: Usually our currency in that environment would appreciate and that
Speaker 3: would make the global value of our exports go up
Speaker 3: in New Zealand dollar terms. Now that hasn't happened, and
Speaker 3: there's an awareness of that. Our exchange rates actually appreciated
Speaker 3: against the US dollars. So that's been at the margin,
Speaker 3: something which has taken a little bit of the shine
Speaker 3: off those high global prices.
Speaker 2: Why is that, Well, this is the thing.
Speaker 3: You probably heard people questioning perhaps the status of the
Speaker 3: US dollarting got dropped to a triple A something rather
Speaker 3: than quadruple or so, I can't remember yet, have to. Yeah,
Speaker 3: they lost their triple A rating recently, and that was
Speaker 3: a reflection of some of the policies that I mean,
Speaker 3: this goes back, you know, prior to that, you know,
Speaker 3: the US was on a trajectory in terms of the
Speaker 3: government debt. Yeah, that it was accumulating, which was not
Speaker 3: looking particularly sustainable. So it was just increasing somewhat exponentially
Speaker 3: in terms of the forecast that people would make for it.
Speaker 3: But I think the accelerator to that has been some
Speaker 3: of Trump's actions. For example, the way he's behaved with
Speaker 3: the chair of the Federal Reserve, the Reserve Bank of
Speaker 3: New Zealand equivalent. You know, some of the things that
Speaker 3: he's said to Jerome Powell, who is the fair chair,
Speaker 3: or about him, started to get people to question the
Speaker 3: degree to which the central Bank is going to remain
Speaker 3: independent from government, because that's super important.
Speaker 2: Yeah. Actually, gosh, there's I'll tell you what the elephant
Speaker 2: in the room is. Of course, what's just happened in
Speaker 2: the last twenty four hours, but which we'll get into
Speaker 2: I think it's unavoidable. Okay, Yeah, so America is bond
Speaker 2: Iran and now there's a whole lot of uncertainty around that.
Speaker 2: What does that do to the level of communication the
Speaker 2: folks at Harvar Asset Management on what's going on in
Speaker 2: the markets? Do you guys all get on the blowerlike,
Speaker 2: have you seen the news?
Speaker 3: Yeah, We've got a sort of a team's chat which
Speaker 3: those among the investment teams are part of and will
Speaker 3: share thoughts on what we think it means and what
Speaker 3: could possibly happen. Tomorrow when our market opens will be
Speaker 3: the first market globally to open and try and respond
Speaker 3: to the news, because it's happened after the US markets
Speaker 3: have closed. And I suppose we've got a bit of
Speaker 3: a test case in terms of the lead up to this,
Speaker 3: which was Israel launching their attack on Iran, and we
Speaker 3: saw the biggest response was really oil prices. That's where
Speaker 3: the market worries most that one Iran is a contributor
Speaker 3: to the global supply of oil, but it also controls
Speaker 3: a pathway for which a lot of exports from the
Speaker 3: Middle East come to the rest of the world, and
Speaker 3: so oil prices prior to this event were already up
Speaker 3: about ten percent in response to the Israeli actions, and
Speaker 3: so I think, you know, the base case would be absorbed.
Speaker 2: You mean, the drama of this recent development. It's not
Speaker 2: out of the blue.
Speaker 3: You mean, well, we have seen how markets respond or
Speaker 3: responded to Israel's attacks. Now we've got the US involved,
Speaker 3: which is definitely an escalation. I don't think anybody would
Speaker 3: argue that it's not. And you know, I think I
Speaker 3: think the logic would be those moves we saw in
Speaker 3: terms of higher oil prices and risk sentiment, you know,
Speaker 3: investor sentiment being heard by those developments. You know that
Speaker 3: that's a pretty sensible thing to assume will be a
Speaker 3: feature of the week. But the difficulty will be, you know,
Speaker 3: our market down here having to sort of, you know,
Speaker 3: come up with just how large moves should be. And
Speaker 3: you know that's that's where probably it'll be a bit
Speaker 3: of a holding pattern until the bigger markets come in.
Speaker 2: If I wanted to indulge the conspiracy part of my brain.
Speaker 2: Not conspiracy, I just mean but the I almost wonder
Speaker 2: whether the timing of the strikes is done in a
Speaker 2: way where the markets have a day to get used
Speaker 2: to it rather than doing it in the middle of
Speaker 2: the markets trading where everything goes whoop boom, up and down.
Speaker 2: I mean, that's that's a pointless sort of observation. But
Speaker 2: there's part of me that wonders if there is some
Speaker 2: sort of method in the timing of it from the
Speaker 2: financial stability point of view? Am I just barking mad?
Speaker 3: Yeah? I mean I think it's hard when you're dealing
Speaker 3: with a president like Trump, who you know, you would
Speaker 3: have said last week and it was towards the end
Speaker 3: of last week that he said that he would take
Speaker 3: THENX fortnite to consider, you know, whether to strike around
Speaker 3: or not, and then he's done it just you know,
Speaker 3: a day or two later, you know whether it's planned
Speaker 3: outside of market hours. I mean, at the end of
Speaker 3: the day, markets will respond no matter when it happens.
Speaker 3: And I think the difficulty I think, like I said,
Speaker 3: for our market, and then it will be Australia to
Speaker 3: try and make its assessment as well before Asia opens
Speaker 3: in London and so on. As like I was saying,
Speaker 3: just you know, how much should things move and do
Speaker 3: you even get the direction right? For example, when the
Speaker 3: Israeli strikes happened, we had interest rates in the US
Speaker 3: initially fell, you know, that was the biggest market that
Speaker 3: was open at the time, and then people thought, oh,
Speaker 3: hold on, oil prices are going up. Actually maybe there's
Speaker 3: a bit of inflation that comes with this, So well,
Speaker 3: we can't take interest rates too too low, because you know,
Speaker 3: that will just add to the inflation problem. So they
Speaker 3: went back sickly to where they started. So it's a
Speaker 3: complicated thing. But at the end of the day, I
Speaker 3: think the oil price channel is the one that will
Speaker 3: be focused on, and probably for a lot of central
Speaker 3: banks that's not going to be a welcome thing to
Speaker 3: have meaningfully higher oil prices when you've just got on
Speaker 3: top or you're still getting on top of inflation. You know,
Speaker 3: it's not the greatest thing.
Speaker 2: Yeah, we love your calls as well. I went hundred
Speaker 2: eighty t and eighty And actually when we framed this
Speaker 2: conversation was before the recent developments in the Middle East,
Speaker 2: but it was a look at the looking at the
Speaker 2: spending up at field days, but how there's still a
Speaker 2: bit of room for people to be confident that they're
Speaker 2: going to spend again. And actually just be curious from
Speaker 2: you if you're listening, how confident are you with spending
Speaker 2: money these days? Because people are still feeling the sort
Speaker 2: of delayed response to inflation we see while the farmers
Speaker 2: eating a good result at the in global exports, of course,
Speaker 2: we're paying a lot for milk and dairy and people
Speaker 2: feel that. So what would it take for you to
Speaker 2: feel confident in spending again, either for yourself or for
Speaker 2: your business. Give us a call on that on eight
Speaker 2: hundred eighty ten and eighty or if you've got any
Speaker 2: questions for Hamish Hamish Pepper from Harbor Asset Management. He's
Speaker 2: a fixed income and a currency strategist, so I'm going
Speaker 2: to dig into questions around what the currency is going
Speaker 2: to do as a result of the recent news as well.
Speaker 2: But what are you looking for to decide that it's
Speaker 2: okay to spend again? And do you look at these
Speaker 2: global developments and these what's happening with America and the
Speaker 2: uncertainty around that is a time to keep your purse closed?
Speaker 2: I don't know. We're going to explore that more with
Speaker 2: Hamish Pepper Harbor Asset Management will be back with us
Speaker 2: in just a moment. But you know the number, it's
Speaker 2: O eight hundred eighty ten eighty for your reckons as well.
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Speaker 1: Parentech, Property, Politics plus Money, Health and the week's debates.
Speaker 1: It's all on the Weekend Collective with Tim Beverage US
Speaker 1: talk Zevvy.
Speaker 2: Yes, and we are with Hamish Peppery's fixed income and
Speaker 2: currency strategist with Harbor Asset Management. Hey, Hamish. So for
Speaker 2: those of people who are following global events and think, oh,
Speaker 2: this is not good, you can't actually now that the
Speaker 2: event has happened, is there any reaction people can make
Speaker 2: with regards to currency or investments or it just happens
Speaker 2: at lightning pace as soon as the market's open bingo
Speaker 2: too late for you to to You needed to predict
Speaker 2: this to do anything about it, didn't you?
Speaker 3: Yeah, I think I think largely tim I mean, I
Speaker 3: think there will still be that dynamic that I described
Speaker 3: earlier that you know, we are a small market. But
Speaker 3: it's not to say that, you know, those people who
Speaker 3: are in other centers won't be awake and trading in
Speaker 3: our time zone. You know, they'll wake up in the
Speaker 3: middle of the night to try and do exactly as
Speaker 3: you describe, maybe get positions on or take positions off. So,
Speaker 3: but the difficulty can be I think just the amount
Speaker 3: of liquidity that's in markets at that time. You're not
Speaker 3: going to have the same as you would more in
Speaker 3: the middle of our day into our afternoon and evening.
Speaker 3: But yeah, I mean it's entry. What we'll be observing
Speaker 3: tomorrow morning will be the market trying to find you know,
Speaker 3: the appropriate clearing price. And so, you know, when you
Speaker 3: think about the currency markets, usually in these instances, usually
Speaker 3: the US dollar would be strengthening because it would be
Speaker 3: the safe haven currency, the currency that people would go
Speaker 3: to when they aren't sure, along with things like the
Speaker 3: Japanese yen and usually our currency and ones like it,
Speaker 3: like the Australian dollar, some emerging market currencies as well.
Speaker 3: For example, We're seen as more risky, and so people
Speaker 3: would want to sort of sell our currencies and buy
Speaker 3: buy the US dollar or the Japanese yen.
Speaker 2: I might not play out, you said that were just
Speaker 2: before I wanted to throw to dramatize it. You said,
Speaker 2: usually usually usually, And I was thinking, there's going to
Speaker 2: be a big hairy butt coming here.
Speaker 3: And and the hairy bt is that the US dollar
Speaker 3: is being questioned as that safe haven. You know, not outright,
Speaker 3: people are not throwing it out all together, but there
Speaker 3: is an impact that Trump is having that you know,
Speaker 3: their approach to debt and you know, not really doing
Speaker 3: much to contain it. Is having on people's you know,
Speaker 3: sort of appetite to hold it. So you know that
Speaker 3: the US dollar weakness that we touched on earlier is
Speaker 3: a reflection of those things. And so it's not always
Speaker 3: the case now that you see, you know, the US
Speaker 3: dollar strengthening in these environments. And indeed, you know, we
Speaker 3: talked about, you know, the reaction to Israel's strikes and
Speaker 3: there was a modest amount of US dollar strength but
Speaker 3: not not a lot, which I think speaks to some
Speaker 3: of those dynamics. Well, I guess it's.
Speaker 2: Look and look, people know that I don't really like
Speaker 2: Donald Trump very much, but he's not Everything he does
Speaker 2: is going to be the wrong decision. So, but is
Speaker 2: there I think it's a fair to say, without too
Speaker 2: much partisanship, that he is unpredictable. And I don't think
Speaker 2: that's a judgment whether you be a Democrat or a publican.
Speaker 2: But the guy is unpredictable. He's arguably persuadable depending on
Speaker 2: who's in his ear on things. Does that Does that
Speaker 2: have any impact on financial markets when it comes to
Speaker 2: the reaction to global potential, global conflict and stuff, and
Speaker 2: the US dollars positioning with everything.
Speaker 3: Yeah, the thing, I mean the thing that it has.
Speaker 3: So this is two parts I think to support your
Speaker 3: first point on that kind of unpredictable nature of you know,
Speaker 3: and it's not just Trump, it's the US administration. I
Speaker 3: think that you know, that is being reflected in these
Speaker 3: indices which go in scourur global media articles for words
Speaker 3: that are either uncertainty itself or associated with uncertainty, and
Speaker 3: then are coupled with economic policy. And so what we've
Speaker 3: seen in those indices is that even at a global level,
Speaker 3: we're at all time highs in terms of you know,
Speaker 3: that measure of uncertainty. So you've got a sort of
Speaker 3: it's being quantified by these measures, which is something we
Speaker 3: haven't been able to do as well in the past.
Speaker 3: We've been able to go back and back fill the past,
Speaker 3: but we didn't know in real time. It's just how
Speaker 3: uncertain things were from a quantifiable point of view. And
Speaker 3: then in markets, what's happened is there's just generally a
Speaker 3: higher level of uncertainty being sort of ascribed across asset classes,
Speaker 3: and so there's ways for us to measure that. And
Speaker 3: when we measure it, it's in currency space, it's an
Speaker 3: equity space, it's an interest rates space. There is that
Speaker 3: reflection of the dynamic you're describing. So one way to
Speaker 3: put it is, say you're looking for and insurance in
Speaker 3: financial markets, which is it's usually options that that's the
Speaker 3: bit that financial markets do in that regard, you know
Speaker 3: those options that insurance is more expensive now because of
Speaker 3: this uncertainty.
Speaker 2: People who are listening, how does that work?
Speaker 3: Think of it as insurance. So if you want to
Speaker 3: ensure yourself against a let's use currencies as an example.
Speaker 3: A movement in the New Zealand dollar over a particular timeframe.
Speaker 2: That means you're selling your goods for effectively fewer New
Speaker 2: Zealand dollars. Perhaps, is that.
Speaker 3: Well you are paying You are paying a higher premium
Speaker 3: to gain that protection. So that that's what's going on.
Speaker 3: Because we are more unsure as to where these asset
Speaker 3: prices and in this case, where the New Zealand dollar
Speaker 3: is going to be in the future, you need to
Speaker 3: pay more to ensure yourself against moves in the in
Speaker 3: the currency.
Speaker 2: Is the word hedging a crude way of referring to
Speaker 2: that as well?
Speaker 3: Or yeah that's right. Yeah, So I mean, you know,
Speaker 3: bringing this back to exporters. That is something that they
Speaker 3: may want to do is to look to hedge themselves
Speaker 3: against currency movements. That wouldn't be helpful, And of course
Speaker 3: it's the one that we just described. You know, if
Speaker 3: the key we dollar keeps appreciating on them, that's something
Speaker 3: which is going to be reducing those those global returns.
Speaker 2: I love it when I ask for a prediction because
Speaker 2: I always think it's the most unfair thing I can
Speaker 2: do with you guys, even though part of your game
Speaker 2: is professionally calculating what predictions you can sort of safely
Speaker 2: make make within a set of parameters. I guess would
Speaker 2: be some sort of confusing way of putting it. But
Speaker 2: what do you think is going to happen to the
Speaker 2: New Zealand dollar versus the US and other currencies as
Speaker 2: a result of the latest news.
Speaker 3: Yeah, I mean this is going to be the hard thing. Yeah,
Speaker 3: I mean again, you know, we can go back to
Speaker 3: the example of the Israeli strikes and they're was a
Speaker 3: modest amount of US dollar strength and that was against
Speaker 3: US as well, you know, so New Zealand dollar weakness.
Speaker 3: But yeah, the background is one where you know, if
Speaker 3: you think about what, why is it that we're being
Speaker 3: able to have this period of appreciation versus the US dollar.
Speaker 3: It's because on a long long term basis, we are
Speaker 3: still below sort of an average level, you know, and
Speaker 3: this is this is reflected in the US dollar side
Speaker 3: as well, you know, So you know that's the big
Speaker 3: backdrop is that because we are below those long term
Speaker 3: average levels, that if you get a catalyst that might
Speaker 3: push us up, then you know, it can have a
Speaker 3: bit more of an impact.
Speaker 2: How much do long term averages affect people's attitude towards
Speaker 2: the currency's value. So you know, you might have if
Speaker 2: the currencies have never existed, you'd be looking at a
Speaker 2: whole bunch of criteria, But when the currency has a history,
Speaker 2: if there's a long term average, how much of a
Speaker 2: role does that actually play in the way people perceive
Speaker 2: its value.
Speaker 3: I mean, the interesting thing about it is it's it's
Speaker 3: a really simple approach, obviously, right, But the amazing thing
Speaker 3: is that it does have quite a good relationship with
Speaker 3: things like you might have heard of purchasing power parity,
Speaker 3: or the economists have got a big, big mac index,
Speaker 3: and so the idea is that you shouldn't pay a
Speaker 3: different price for something in another currency. So the currency
Speaker 3: the exchange rate is going to ensure in the in
Speaker 3: the in the long run that that doesn't happen. And
Speaker 3: so what you get is you get generally a relationship.
Speaker 3: If a currency becomes, you know, lower than its long
Speaker 3: term average, it's usually also the case that it's screening
Speaker 3: that way on a on a McDonald's index, that you know,
Speaker 3: that currency needs to appreciate and lift up because it's
Speaker 3: paying too much for a for a hamburger in a
Speaker 3: big Mac in the U. Yes, you know, if we
Speaker 3: stay with this example.
Speaker 2: Of in terms of data trackers, you've probably heard of
Speaker 2: the Pentagon Pizza tracker. Yes, yeah, the new one, which
Speaker 2: is so the pizza The Pentagon Pizza Tracker, by the way,
Speaker 2: people is it's a monitor which predicted they know when
Speaker 2: the military maybe going into some sort of heightened activity
Speaker 2: because they track the number amount of pizza that gets
Speaker 2: ordered within pizza shops within a certain area radius of
Speaker 2: the Pentagon. I mean, well, funnily enough, they were right,
Speaker 2: weren't they. I guess that there was this in the
Speaker 2: last two or three or four days. There is a
Speaker 2: bunch the pizza tracker predicted a lot more activity and
Speaker 2: then hey, presto, look what we've had. Yeah, hey, you
Speaker 2: mentioned in the currency side of things, the Japanese yen.
Speaker 2: Does I mean, I just take a few comments and
Speaker 2: go one plus one plus one equals three. But is
Speaker 2: it a fair enough guess that a currency like the
Speaker 2: Japanese yen, which is seen as a stable currency, that
Speaker 2: that might see an increase and it's value given that
Speaker 2: it's not associated with the US dollar and political decisions
Speaker 2: over there, what do you think the story would be there?
Speaker 3: You know, that's been a theme for the year, has
Speaker 3: been okay, if we're going to move away from the
Speaker 3: US dollar at the margin, you know, again, it hasn't
Speaker 3: been wholesale. There's just been this marginal view of perhaps
Speaker 3: there's a you know, a couple of reasons to not
Speaker 3: hold the same amount of US dollars, and who do
Speaker 3: you go to? You know, And the answer ultimately is,
Speaker 3: there's not really an alternative if you're thinking about a
Speaker 3: wholesale movement to another currency. Because the capital market, so
Speaker 3: that's the share market in the US and the bond
Speaker 3: market in the US, the fixed income market. You know,
Speaker 3: they are the two largest markets in the world by
Speaker 3: some margin, by by a long, long way. So the
Speaker 3: idea of moving wholesale, Okay, we'll just abandon the US
Speaker 3: all together and we'll go somewhere else just just doesn't work.
Speaker 3: There's no markets that can that can take that amount
Speaker 3: of money. But at the margin, yes, you know, Japan
Speaker 3: is looked at as one that's probably next off the rank.
Speaker 3: The dynamics are different there though, Like what is it
Speaker 3: that causes the strength in the Japanese yen when sort
Speaker 3: of resentiment sours. It's not so much people globally looking
Speaker 3: to invest there. There is definitely that, but it's more
Speaker 3: about the Japanese savers. So Japan is a provider of
Speaker 3: capital to the world because they save so well, But
Speaker 3: then when they become concerned, they want to bring that
Speaker 3: money home, and that's the main channel that causes the
Speaker 3: Japanese yen to appreciate. It's sort of a home bias.
Speaker 3: It's bringing the money back in different dynamic for the US,
Speaker 3: where it's people seeking out that market and wanting to
Speaker 3: place capital there. So they'll both do similar things, usually
Speaker 3: in those times of fear, which they will appreciate, But
Speaker 3: the dynamics are slightly different because the US borrows from
Speaker 3: the rest of the world, so they have a debt.
Speaker 3: Japan's one of the places which allows them to have
Speaker 3: a debt to the rest of the world because they
Speaker 3: are the provider of savings essentially.
Speaker 2: I want to dig into the euro where that sits
Speaker 2: in the scheme of things. But we'll do that in
Speaker 2: just a moment. By the way, and all this I
Speaker 2: think that you've been talking about, Hamish, were talking about uncertainty.
Speaker 2: We might try and tie that back into whether that's
Speaker 2: actually the chief villain when it comes to just our
Speaker 2: attitude towards spending here. But we'll dig into that a
Speaker 2: bit more with Hamish Pepper. He's a fixed and common
Speaker 2: currency strategist at Harbor Asset Management. A fascinating conversation twenty
Speaker 2: to six back in a.
Speaker 4: Mow Yes, welcome back to smart Money.
Speaker 2: Welcome in if you've just joined us, you're a little late.
Speaker 2: We're with Hamous pepperies of fixed incoming currency strategist at
Speaker 2: Harbor Asset Management, and we started by talking about the
Speaker 2: just you know, the how s farmers were spending as
Speaker 2: a result of field days and everything, but not as
Speaker 2: big as we'd think. And we're going to dig into
Speaker 2: that a little bit more because I think there's a
Speaker 2: theme Hamish we've found in the question of uncertainty. But
Speaker 2: before that, we're talking about currencies and what the Japanese
Speaker 2: yeen and how we haven't depreciated in ways we might
Speaker 2: have in the past under similar circumstances. Where's the Euro
Speaker 2: sitting all of this with the yen and the US
Speaker 2: dollar and the New Zealand dollar and that, Well, of
Speaker 2: course we're in significant compared to the euro, but how
Speaker 2: does the Euro behave?
Speaker 3: Yeah, so it's got similar characteristics to Japan in the
Speaker 3: sense that it too is also like a provider of
Speaker 3: capital to the world. They're a saver and I with
Speaker 3: that then that's kind of a first box tacked in
Speaker 3: some ways, Like you know, you tend to like countries
Speaker 3: like that they don't have a reliance on the rest
Speaker 3: of the world to fund themselves. The US is a
Speaker 3: real exception, right, just because of some of the things
Speaker 3: we were talking about earlier in terms of you know,
Speaker 3: the capital markets that they have. So, yeah, Europe's probably
Speaker 3: in the MAX as a place and the Euro is
Speaker 3: in the MAX as a place where you could see
Speaker 3: some of that safe haven dynamic that the issue with
Speaker 3: them to know is like, just take Germany for example,
Speaker 3: we're talking about equity markets, won't we Well, let's go bigger. Actually,
Speaker 3: let's go for the whole of European Union. They're equity
Speaker 3: markets will add up to fifteen trillion dollars. But that's
Speaker 3: it's only a quarter of the size of the US market.
Speaker 3: So they don't they don't. Really, it's again the same thing.
Speaker 3: They've got some capacity, you know, to take that kind
Speaker 3: of demand and that that kind of flow, but they're
Speaker 3: not really going to be able to manage that wholesale
Speaker 3: shift away from from the US. But you know, we've
Speaker 3: seen already this year then benefit both in terms of
Speaker 3: the currency but also the equity market as well.
Speaker 2: Quick question for me people on the day to day
Speaker 2: spending thing. Should Should I be filling the car up tonight?
Speaker 3: Yeah? I feel the same thing on the way in right. Yeah,
Speaker 3: I mean I'm going to have to because the tank's
Speaker 3: empty after driving that from the middle of the North Island.
Speaker 3: But yeah, I mean it's interesting, isn't it. I Mean,
Speaker 3: already it was the case that driven the increase in
Speaker 3: oil prices that we've had, you know, prior to the
Speaker 3: weekend that there was going to be a bit of
Speaker 3: pressure for those those prices at the pump to increase,
Speaker 3: and you know, I think it seems reasonable that you
Speaker 3: know that that pressure is at least going to remain.
Speaker 2: Would that have instantly happened already, that the fuel that
Speaker 2: companies will be responded to something already or is actually
Speaker 2: fell fell up before nine am, you'll be fine.
Speaker 3: Yeah, well we have to have a look at and
Speaker 3: see exactly what happens, you know, in the morning in
Speaker 3: terms of what it'd be probably more into our afternoon
Speaker 3: in terms of how much oil prices move on the
Speaker 3: on the global market. And of course the exchange rate
Speaker 3: is going to be an important part of you know,
Speaker 3: calculating what it means for the New Zealand dollars. But
Speaker 3: you know, just just on that point, this is where
Speaker 3: just on that farmer piece, you know, it's not all
Speaker 3: you know, kind of one way traffic in the sense
Speaker 3: that you know that that is a kind of a
Speaker 3: cost of production for most farms is you know, diesel
Speaker 3: and petrol, and so this will also be something which
Speaker 3: is perhaps taking the shine off and may continue to
Speaker 3: do so some of those higher export prices.
Speaker 2: Because one of the things we're going to explore this hour,
Speaker 2: was you know, when will people know if it's okay
Speaker 2: to spend again? When will we see businesses, farmers, et
Speaker 2: cetera start to really spend. And I I wonder if
Speaker 2: it's if the answer, because at the start of the hour,
Speaker 2: I was thinking it was to do with just we
Speaker 2: need to see more good news for the farming sector.
Speaker 2: I was wondering if because one of the words that
Speaker 2: keeps on cropping up in our conversation is just around uncertainty.
Speaker 2: We're talking about uncertainty around the US markets and the
Speaker 2: decisions are being made with tariffs, and it's actually not
Speaker 2: so much prosperity related, it's uncertainty related. Do you think
Speaker 2: that's it? I mean, it's a bunch of things, isn't it.
Speaker 2: But how big deal is the uncertainty that we just
Speaker 2: have globally?
Speaker 3: No, it's huge. And you know we've used the word
Speaker 3: a lot in our conversation. But you know, if you
Speaker 3: do something like do a word count of the number
Speaker 3: of times uncertainty is appearing in say, central bank communication,
Speaker 3: it's off the charts. You know, you know, many many,
Speaker 3: many multiples is that word appearing versus normal, normal, times.
Speaker 3: And I think what it does for an economy is
Speaker 3: if you think about you know, households and businesses, is
Speaker 3: in both cases it probably causes a delay in spending.
Speaker 3: So firms are going to be less confident about committing
Speaker 3: to you know, big pieces of investment. For households, they
Speaker 3: too will be less confident committing to you know, big
Speaker 3: pieces of investment or big pieces of spending, you know,
Speaker 3: big ticket items for example. You're not going to feel
Speaker 3: as confident going and committing to a new car, for example.
Speaker 3: And so that I think is why we are seeing
Speaker 3: you know, confidence in those sectors. Business confidence is rolling off,
Speaker 3: and consumer confidence is still at levels that you would
Speaker 3: associate with times like COVID and the global financial crisis.
Speaker 2: I mean, I don't know what your own personal observations
Speaker 2: arecus you know, your job is sort of so intertwined
Speaker 2: with the way people view money and markets and things.
Speaker 2: But personally, I've been intellectually aware that times are tough,
Speaker 2: but I haven't thought of it for myself until probably
Speaker 2: just the last two or three weeks when I had
Speaker 2: to do myttacks and I had to pay for health
Speaker 2: insurance and other insurances, and I'm going and then the
Speaker 2: rates and you suddenly go for the first time, I've
Speaker 2: gone bloody hell. And so I'm a delayed reaction. I
Speaker 2: don't think i'd be alone in having this delayed reaction.
Speaker 2: My confidence is only just slumped just recently.
Speaker 3: Yeah, you would not be alone at all. I think
Speaker 3: what's happened is we've been celebrating inflation returning to more
Speaker 3: normal levels. But what has happened through that period where
Speaker 3: we had really high inflation is it's lifted up the
Speaker 3: price level of lots and lots of things, and so
Speaker 3: in order for those to come back down to where
Speaker 3: they were before the big bout of inflation, you actually
Speaker 3: need deflation. You need prices to be falling, and that's
Speaker 3: very unlikely to happen, you know, at least in aggregate.
Speaker 3: So what you're describing to them, for sure is something
Speaker 3: that others are too. You know, there's a feeling too,
Speaker 3: which is that cost of living you know, dynamic. I
Speaker 3: won't call it a crisis, but that cost of living
Speaker 3: dynamic is I think weighing.
Speaker 2: Which is why I reckon that there's a good case
Speaker 2: too for the cash rate to drop again. Simply that's
Speaker 2: what I'll be hoping for Yeah, and.
Speaker 3: I think you're not alone. Financial markets agree they were
Speaker 3: probably a little challenged by the recent set of communication
Speaker 3: from the Reserve Bank of New Zealand. But we've still
Speaker 3: got priced one more rate cut, probably in August rather
Speaker 3: than the meeting that we have next month. But I
Speaker 3: think you know, the broader point here is perhaps there
Speaker 3: was expectation of more impact from the drop and interest rates.
Speaker 3: So we've had two point twenty five percent taken off
Speaker 3: the cash rate, and yeah, we we probably haven't seen
Speaker 3: yet anyway, the normal amount of impact from that amount
Speaker 3: of of of loosening. We would describe it as. So yeah,
Speaker 3: to your point, you know, we're closely watching whether that
Speaker 3: will change, but markets are saying base case, there's more
Speaker 3: to come.
Speaker 2: Right, Look, we'll be back in just to mo it's
Speaker 2: eight minutes to six news talks. He'd be yes, welcome back.
Speaker 2: Time is upon us with. Hamish Pepper is a fixed
Speaker 2: income and currency strategist with Harbor Asset Management. Hamish Lucky.
Speaker 2: Last question, just quickly, being a fixed income guy, do
Speaker 2: you find that these are the times when fixed income
Speaker 2: there's a few more people inquiring about just certainty of
Speaker 2: getting their money someway where they can just get the
Speaker 2: steady stream of income. Is it busy times for you?
Speaker 3: Yeah? I think. I think the driver of the busy
Speaker 3: times has been the falling of interest rates. So people
Speaker 3: are noticing that term deposit rates have come off and
Speaker 3: they're around that four percent level, and you know, if
Speaker 3: you think about what the market is implying, you know
Speaker 3: that they'll fall further, perhaps another twenty five basis points.
Speaker 3: I think that's the main driver of inquiry, as people
Speaker 3: who are looking to ensure they can need to have
Speaker 3: a particular level of income, and so what are the
Speaker 3: other options available to them? Well?
Speaker 2: Hey, time flies me having fun. Thanks so much for
Speaker 2: your time in this afternoon. Amish for the chat. When's
Speaker 2: the next tramp.
Speaker 3: Or on the valley? A few months time out? There?
Speaker 3: Can't wait?
Speaker 2: Good work. He's planning her head. That's where she go
Speaker 2: to these guys heart brasset dot cirta and zy thinking
Speaker 2: her head even when it comes to the tramp. Hey,
Speaker 2: thanks so much for your time. Homi's good work.
Speaker 3: Cheers, cheers made and.
Speaker 2: We'll be back same time again next week. If you
Speaker 2: want to check out any of the hours you've missed,
Speaker 2: go and check out our podcast for the Weekend Collective
Speaker 2: on News Talks are Beat Dot Curtain in zid or iHeartRadio.
Speaker 2: We get our hours up pretty quickly. It was a
Speaker 2: fascinating show across the board today all three hours, so
Speaker 2: go and check them all out. I recommend it highly. Anyway,
Speaker 2: we'll be we'll be back next week. We've got Elsa
Speaker 2: Wilf joining us for the one with Faddyr show. She's
Speaker 2: all about renovating and making the most out of your
Speaker 2: property and so we'll be having a chat with Elsa
Speaker 2: about that and Sandy Passley, the former principle of barret
Speaker 2: Ing Joint Us for the parent Squad. We'll look forward
Speaker 2: to your company again Sunday at six next thanks to
Speaker 2: my producer Isaiah. Great job, mate, and we'll enjoy the
Speaker 2: rest of your evening three to six.
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