1 00:00:00,080 --> 00:00:03,240 Speaker 1: Let's get to our guest. Will Curtain, portfolio manager at 2 00:00:03,279 --> 00:00:06,800 Speaker 1: Milford Asset Management. Will hang on a second. A word 3 00:00:06,840 --> 00:00:09,040 Speaker 1: to the audience. I just want to say that we 4 00:00:09,160 --> 00:00:11,440 Speaker 1: bring all of these guests on the program, they don't 5 00:00:11,480 --> 00:00:13,840 Speaker 1: have the foggiest notion what we're going to ask them, 6 00:00:14,000 --> 00:00:17,440 Speaker 1: and the art for them is to try to answer 7 00:00:17,440 --> 00:00:20,959 Speaker 1: our questions within the context of also making some of 8 00:00:21,000 --> 00:00:24,000 Speaker 1: their key points. They all come in with basic ideas 9 00:00:24,000 --> 00:00:26,439 Speaker 1: that they'd like to get across to UH, to you 10 00:00:26,520 --> 00:00:29,960 Speaker 1: the listener, and so let's see how artful uh Will 11 00:00:30,040 --> 00:00:33,400 Speaker 1: Curtain is. So my first question Will it's pretty simple, really, 12 00:00:33,720 --> 00:00:36,960 Speaker 1: I mean it's it's it's black rock there. Strategists say 13 00:00:36,960 --> 00:00:39,440 Speaker 1: that traders that are out there betting on a sharp 14 00:00:39,920 --> 00:00:43,240 Speaker 1: slow down in inflation are making a big mistake. They're 15 00:00:43,280 --> 00:00:47,080 Speaker 1: setting themselves up for disappointment. In other words, they don't 16 00:00:47,120 --> 00:00:53,360 Speaker 1: think that price pressures are ebbing fast, do you hy 17 00:00:53,479 --> 00:00:57,640 Speaker 1: Brian and Apple um to stick back up. But we 18 00:00:57,840 --> 00:01:01,080 Speaker 1: were believers that inflation structure for the next decade. It's 19 00:01:01,160 --> 00:01:06,800 Speaker 1: partly geopolitics and what we think is the end of globalization, 20 00:01:06,920 --> 00:01:10,120 Speaker 1: or at least the stalling of globalization, which has exported 21 00:01:10,160 --> 00:01:12,880 Speaker 1: cheap goods from Asia to the Western world. And it's 22 00:01:12,920 --> 00:01:17,320 Speaker 1: partly because baby boomers in now sixty seven on average 23 00:01:17,360 --> 00:01:20,119 Speaker 1: that beginning to retire. These less people in the Western 24 00:01:20,200 --> 00:01:23,080 Speaker 1: world age fifty twenty five and the Baby Boom federation 25 00:01:23,120 --> 00:01:27,679 Speaker 1: that's retiring. Tightening labor force means more wage pressure means 26 00:01:27,720 --> 00:01:31,240 Speaker 1: more inflation from So from that backdrop, where you get 27 00:01:31,280 --> 00:01:34,399 Speaker 1: worried is that we haven't seen much cracks in the 28 00:01:34,440 --> 00:01:38,600 Speaker 1: in the labor market in the US yet that's causing 29 00:01:38,720 --> 00:01:41,800 Speaker 1: wages to continue to going up strongly, and that's causing 30 00:01:41,880 --> 00:01:44,440 Speaker 1: service inflation to remain strong. And it's pretty clear the 31 00:01:44,440 --> 00:01:46,640 Speaker 1: Federal Reserve and Drone Power is very worried about this 32 00:01:46,720 --> 00:01:51,360 Speaker 1: since the reason that we remained on their Haucus tilt um. 33 00:01:51,520 --> 00:01:54,840 Speaker 1: That's it. We will get slowing inflation the past big inflation. 34 00:01:55,480 --> 00:01:58,320 Speaker 1: The big question isn't where inflation declines on a year 35 00:01:58,320 --> 00:02:01,320 Speaker 1: in your level. It's cannet the client below three and 36 00:02:01,360 --> 00:02:04,320 Speaker 1: a half per cent a year and year at some 37 00:02:04,360 --> 00:02:07,480 Speaker 1: point next year, we're skeptical. We think the services side 38 00:02:07,520 --> 00:02:10,280 Speaker 1: has going to remain pretty strong unless you cause quite 39 00:02:10,320 --> 00:02:14,160 Speaker 1: a significant recession um. And it's it's that or really 40 00:02:14,240 --> 00:02:17,840 Speaker 1: tests drawing powers and the Federals resolved. If you start 41 00:02:17,880 --> 00:02:20,320 Speaker 1: going into recession, if you start seeing you don't sound 42 00:02:20,360 --> 00:02:22,799 Speaker 1: too helpful to your head, you don't sound too hold. No, 43 00:02:23,919 --> 00:02:27,440 Speaker 1: we're not too opful when we're not toled getting blow 44 00:02:27,480 --> 00:02:31,880 Speaker 1: through opposite here and yet without serious pain. Well, let's 45 00:02:31,880 --> 00:02:33,600 Speaker 1: have a little bit of context here, though. The Baby 46 00:02:33,600 --> 00:02:37,239 Speaker 1: boom generation that you mentioned, a generation X that followed 47 00:02:37,280 --> 00:02:42,040 Speaker 1: would well remember inflation being far than it is now, 48 00:02:42,080 --> 00:02:45,800 Speaker 1: even at what we today considered to be elevated levels 49 00:02:45,639 --> 00:02:48,000 Speaker 1: that some of us might remember interest rates when they had. 50 00:02:48,680 --> 00:02:52,280 Speaker 1: We're in the twenties. Are we returning to a normal 51 00:02:52,320 --> 00:02:56,799 Speaker 1: in fact? And what does a normal inflation rate look like? Yeah, 52 00:02:56,800 --> 00:02:59,840 Speaker 1: I guess normal. As these cycles of high inflation, this 53 00:03:00,000 --> 00:03:02,680 Speaker 1: ecles of low inflation, and just unfortunately these cycles are 54 00:03:02,800 --> 00:03:05,760 Speaker 1: very long, so we go through thirty year periods of 55 00:03:05,800 --> 00:03:09,840 Speaker 1: disinflation pocketed with these bouts of ten years or fifteen 56 00:03:09,919 --> 00:03:12,800 Speaker 1: years of inflation. As you greatly said, the last one 57 00:03:12,800 --> 00:03:16,480 Speaker 1: of those was in the nine seventies, where we may 58 00:03:16,520 --> 00:03:19,600 Speaker 1: be another one now. And it's interesting that inflation peaked 59 00:03:20,080 --> 00:03:24,080 Speaker 1: in night Um and a number of interesting things occurred 60 00:03:24,160 --> 00:03:26,639 Speaker 1: around that time. One is the medium baby boomer to 61 00:03:26,760 --> 00:03:28,880 Speaker 1: in twenty five. So that means most of the rage 62 00:03:28,919 --> 00:03:31,000 Speaker 1: twineted at thirty, which means most of them were in 63 00:03:31,040 --> 00:03:34,080 Speaker 1: the workforce. UM. And of course you had Paul Vacla 64 00:03:34,440 --> 00:03:37,880 Speaker 1: quite contest straights up over twenty percent to bring it down. UM. 65 00:03:38,320 --> 00:03:40,920 Speaker 1: We are now, in our view, in another period of 66 00:03:40,920 --> 00:03:43,320 Speaker 1: that inflation. But we're only a two or three years 67 00:03:43,360 --> 00:03:47,120 Speaker 1: into it. When Paul Vocala hyked interest rates above twenty 68 00:03:47,160 --> 00:03:51,560 Speaker 1: percent in to bring inflation down, you would you would 69 00:03:51,560 --> 00:03:56,280 Speaker 1: experienced inflation for ten years and the public and the politicians, um, 70 00:03:56,320 --> 00:03:59,320 Speaker 1: and everyone was sick of it. There was a huge 71 00:03:59,400 --> 00:04:03,800 Speaker 1: political um and public support to tech on inflation. I'm 72 00:04:03,800 --> 00:04:07,280 Speaker 1: not sure we've got that today. Yes, inflation is hurting 73 00:04:07,280 --> 00:04:09,280 Speaker 1: a lot of people used to hurting a lot of people, 74 00:04:09,800 --> 00:04:12,520 Speaker 1: um at the lower range of the income spectrum. But 75 00:04:13,720 --> 00:04:16,240 Speaker 1: you don't see people out on the streets with the pitchforks. 76 00:04:16,520 --> 00:04:18,599 Speaker 1: I get where you're going on that. Um. You know, 77 00:04:18,720 --> 00:04:22,320 Speaker 1: it's tempting to think it's tempting to think that that 78 00:04:22,440 --> 00:04:25,880 Speaker 1: this is all kind of pandemic related and Ukraine War related. 79 00:04:26,400 --> 00:04:29,880 Speaker 1: We had unemployment jump up to fifteen percent during the 80 00:04:29,920 --> 00:04:33,120 Speaker 1: pandemic and now it came way back down. The same 81 00:04:33,200 --> 00:04:37,800 Speaker 1: could happen with inflation. And yes it wasn't transitory in 82 00:04:37,839 --> 00:04:40,200 Speaker 1: the in the case of a few months. But you know, 83 00:04:40,279 --> 00:04:43,320 Speaker 1: compared to the ten or fifteen years, maybe two years 84 00:04:43,400 --> 00:04:47,240 Speaker 1: isn't that long. So should we maybe look at look 85 00:04:47,279 --> 00:04:52,480 Speaker 1: at this a little more optimistically. Uh, if there's a 86 00:04:52,480 --> 00:04:55,000 Speaker 1: structural team train which we're laying out, and if we're 87 00:04:55,000 --> 00:05:00,560 Speaker 1: correct on that, yes, cyclical cycles within structural cycles. Um. 88 00:05:00,600 --> 00:05:05,040 Speaker 1: And I think there's no doubt the cyclical cycle for 89 00:05:05,120 --> 00:05:08,880 Speaker 1: over the next twelve months as the deflationary. So the 90 00:05:09,279 --> 00:05:12,279 Speaker 1: circlical forces that are dragging down inflation are wondering. You know, 91 00:05:12,320 --> 00:05:16,919 Speaker 1: supply chain had largely been resolved to know everyone nearly 92 00:05:16,920 --> 00:05:19,640 Speaker 1: everyone bought all the durable goods. They wanted their furnitures, 93 00:05:19,640 --> 00:05:22,719 Speaker 1: the cars, So the durable goods is coming down. Um, 94 00:05:22,839 --> 00:05:25,920 Speaker 1: we're with oil prices have come lower from their first 95 00:05:26,000 --> 00:05:31,120 Speaker 1: belt rise after the war. Um. And finally we probably 96 00:05:31,160 --> 00:05:34,359 Speaker 1: are seeing the early effects of higher interest rates on 97 00:05:34,480 --> 00:05:39,120 Speaker 1: the inflation. So what whatever the moment is structural forces 98 00:05:39,120 --> 00:05:41,600 Speaker 1: which are pushing the flat and flash and higher cyclical 99 00:05:41,640 --> 00:05:43,640 Speaker 1: forces pushing it down. And there's going to be a 100 00:05:43,680 --> 00:05:47,440 Speaker 1: better ground next year? Can can the deflationary cyclical forces 101 00:05:47,440 --> 00:05:51,320 Speaker 1: push inflation below three? Okay? So where do you put 102 00:05:51,360 --> 00:05:53,479 Speaker 1: money to work in this environment? I can imagine that 103 00:05:53,520 --> 00:05:55,400 Speaker 1: if you're a retail investor, you may as well just 104 00:05:55,400 --> 00:05:57,640 Speaker 1: stick some cash at the bank on term deposit at 105 00:05:57,640 --> 00:05:59,840 Speaker 1: this point. But if you're bigger than that, what do 106 00:05:59,880 --> 00:06:03,120 Speaker 1: you do? Well? You know, we we we can still 107 00:06:03,160 --> 00:06:04,880 Speaker 1: hold cash and some of our funds and one of 108 00:06:04,880 --> 00:06:07,360 Speaker 1: our funds holds for puss in cash because you can't 109 00:06:07,360 --> 00:06:10,000 Speaker 1: own bonds, and only on equities that we're happy to 110 00:06:10,000 --> 00:06:12,280 Speaker 1: put a little bit of cash um. If you can 111 00:06:12,360 --> 00:06:15,160 Speaker 1: own bonds, we can credits much more attractive equities. You 112 00:06:15,200 --> 00:06:17,960 Speaker 1: can get eight percent from nine percent on some pretty 113 00:06:18,000 --> 00:06:20,240 Speaker 1: safe companies that that are very very unlikely to be 114 00:06:20,240 --> 00:06:23,960 Speaker 1: going bust or having having problems. So bonds and credit 115 00:06:24,240 --> 00:06:27,039 Speaker 1: um in the right places are an area here it 116 00:06:27,080 --> 00:06:29,800 Speaker 1: to look. But with the equities we're playing at the 117 00:06:29,880 --> 00:06:32,640 Speaker 1: feastive we you know, we think you're entering your way 118 00:06:32,680 --> 00:06:35,080 Speaker 1: towards you recission. We don't know how long or deep 119 00:06:35,120 --> 00:06:38,720 Speaker 1: it will be. We we do have high confidence that 120 00:06:38,839 --> 00:06:40,960 Speaker 1: profits will come down a lot, whether it is a 121 00:06:41,040 --> 00:06:43,839 Speaker 1: receission or not. It's just a function of margins being 122 00:06:44,720 --> 00:06:48,760 Speaker 1: unsustainably high cost brushes coming in top line slowing UM. 123 00:06:48,880 --> 00:06:53,280 Speaker 1: So that means we're avoiding discretionary cyclical stocks. We're concentrating 124 00:06:53,320 --> 00:06:57,680 Speaker 1: our loans within healthcare, within utilities, within staples, and it's 125 00:06:57,720 --> 00:07:01,000 Speaker 1: whether the storm and you know, the store storm really 126 00:07:01,040 --> 00:07:02,920 Speaker 1: is here and the profit the kind of play out 127 00:07:02,960 --> 00:07:06,400 Speaker 1: and then you'd buy, Well, what's your position, what's your 128 00:07:06,440 --> 00:07:10,960 Speaker 1: position on real estate at the moment? You know, real 129 00:07:11,080 --> 00:07:15,080 Speaker 1: estate if even we're I'm sitting here in orphaned and 130 00:07:16,080 --> 00:07:19,200 Speaker 1: house prices in Aucklands, New Zealand went up two hundred 131 00:07:19,200 --> 00:07:22,120 Speaker 1: percent in the last twelve years, and they went up 132 00:07:22,160 --> 00:07:24,880 Speaker 1: fifty percent into two years from the beginning of COVID 133 00:07:24,920 --> 00:07:28,080 Speaker 1: to late last year UM. And we now have just 134 00:07:28,120 --> 00:07:30,400 Speaker 1: threat have gone mortgage directed on from two from one 135 00:07:30,400 --> 00:07:33,520 Speaker 1: percent up to six and a half percent. Property is 136 00:07:33,560 --> 00:07:36,400 Speaker 1: already down twenty percent in New Zealand and it's probably 137 00:07:36,400 --> 00:07:39,280 Speaker 1: going to continue going down because the market is driven 138 00:07:39,320 --> 00:07:43,040 Speaker 1: by debt and people cannot afford debt. At six and 139 00:07:43,040 --> 00:07:47,560 Speaker 1: a half percent, mortgage rates are similar to less severe 140 00:07:47,720 --> 00:07:50,920 Speaker 1: cases as playing under the year West with the fixed 141 00:07:51,000 --> 00:07:53,880 Speaker 1: rate mortgage structure as We know mortgage reacts in the 142 00:07:53,960 --> 00:07:56,080 Speaker 1: US and now very high, and that's probably gonna drive 143 00:07:56,120 --> 00:07:58,360 Speaker 1: house prices down, but a lot of people have got 144 00:07:58,360 --> 00:08:02,200 Speaker 1: those fixed MORGANE. Drakes, which is delaying the house. Christ 145 00:08:02,240 --> 00:08:04,640 Speaker 1: decline that we're seeing another part of the world, so 146 00:08:04,680 --> 00:08:07,240 Speaker 1: we think it goes lower, but we think it's a grind. Okay. 147 00:08:07,240 --> 00:08:11,160 Speaker 1: In ten seconds, would you feed China? Yes, we fade 148 00:08:11,240 --> 00:08:16,280 Speaker 1: China by the rumor cell effect. All right, thanks Will, Yeah, 149 00:08:16,480 --> 00:08:19,600 Speaker 1: very interesting, nice dance, so we did with you. Thank 150 00:08:19,640 --> 00:08:22,640 Speaker 1: you for joining us. Will care Chain, portfolio manager at 151 00:08:22,720 --> 00:08:26,840 Speaker 1: Milford Asset Management in Lovely Auckland, New Zealand.