ZM's Fletch, Vaughan & Hayley - Fletch, Vaughan & Hayley's Podcast - Finance Chat with Bad News Brad Olsen!

Episode Date: April 3, 2023

Fletch, Vaughan & Hayley sat down and had a chat with everyone's favourite Chief Executive & Principal Economist at Infometrics, Bad News Brad Olsen!See omnystudio.com/listener for privacy information.

The ZM Podcast Network. Play ZM's Fletch Vaughan and Hayley. Hello, welcome to a special Fletch Vaughan and Hayley podcast. It's thanks to McCafe. Drive through and get a cup of barista-made McCafe coffee on the go. It's special because we have a special guest. Financial special. With Bad News Brad.

Brad Olsen. Now, this is our bad news, Brad. That was bad news. Now, this is our second one, Brad. People raved and loved the last podcast. I would say they ranted and raved. I would say they ranted and raved. They ranted and raved about it. What are we? We did that in December, so we're like five months down the track.

Thereabouts. So how much more? I think three is how much. Hang on, hang on. We did that in December. We did it in the start of December, so I'm counting December. December works. Hang on, hang on. We did that in December. We did it in the start of December, so I'm counting December. December, January, February, March.

I guess at four. We'll meet in the middle at four. So how much more screwed are we now? Look, I think actually things have sort of proceeded as expected in a sense. We've sort of seen that, yes, interest rates have gone up. Yes, people are feeling the pinch. Food prices are still high and all those sorts of things have come through. No one was picking a massive flood

in Auckland and then a follow-up cyclone the next weekend, if you will, across Hawke's Bay and Gisborne. That hasn't helped. I mean, I think that has definitely, you know, you've got a lot more people who are looking for houses, more houses that have been destroyed though, so there's pressure on rents. You look at the likes of food prices. There were onions

down the street. There were, you know, apples that have been completely wrecked and similar. Grapevines. Grapevines ruined. Grapevines. Wine. Kumita. For those of you who like Kumita. Do you not like Kumita, Brad?

Oh, I mean, like, it's okay. It's not my top ten bench. Oh, no, that's a top ten. My family harks from Dagobah. I resent that. Oh, I'm a Northlander, but, like, still. Yeah, not your starch of choice. No, no, just a good

hearty potato. Not even a kumita chip? Oh, yeah, yeah. No, like, I've got nothing against them, but if that's on the menu versus just like a good old, like, triple cut I think we shouldn't talk about any of this financial stuff. I think we should talk about the debate whether it's kumita versus

the potato. Food podcast, not finance, it's food debate whether it's kumara versus the potato. Food podcast, not finance, it's food, it's the other F. Whether it's kumara or potato, it's all way more expensive. Absolutely. At the moment, yeah. So, I mean, I think all of that is putting pressure on people, but I think also we come into this year and we go, what is coming ahead? We've had banking collapses, you know, all sorts of things

still happening the world over, so it's not comfortable. Let's start with that. Silicon Valley Bank, that was wild, wasn't it? Oh, it was the 16th largest bank in the US. It's the second largest bank to fall over in history. I mean, this is some big money that came through here, but I think we've also got to keep it a little bit in context. It was a particular sort of bank. It catered to, you know, start-ups, it catered to tech companies. It's not your regular mum and dad go down and take your deposits after particular sort of bank. It catered to startups. It catered to tech companies. It's not your regular mum and dad go down and take your deposits after school sort of bank. And importantly, and I think this is one of the big ones, one of the reasons it fell over is because they invested their money into one particular area. They had no coverage. They

didn't spread their risk at all. They had it in one area. And then it all went bad. They were $2 billion short. And importantly, no one stress tested them. No one kicked the tires. Whereas here in New Zealand, every year or two, the Reserve Bank goes to our major trading banks and says, hey, if I did this to you, if this sort of financial event happened, could you last through it? And most of all of our banks, in fact, in the last few years have been able to say, absolutely, we don't make a lot of profit anymore, but could last because who so what happened to the people that had money in that bank that that fell some of them are going to get it back uh there are some so an amount of everyone's deposits are protected by the government but also what you're starting to see now is that uh svb has or is in the process of parts of it being

bought out which means that over time some of those uh depositors they will get their money back but it's not going to be particularly quick and you think of you know some of those depositors, they will get their money back. But it's not going to be particularly quick. And you think of some of these businesses, I think Rocket Lab had like 38 mil or something in there. That's a whole bunch of cash they just can't get out immediately. So that's a huge pressure for them. So can this happen, can that happen in New Zealand still? Even to like the individual, if you had all your money in the bank? Could it disappear?

Theoretically, yes. Practically, very unlikely. But I say that because, look, there's always risk, right? But if you look at our banks, they are stress tested. They've got to hold a certain amount of capital. And I checked our capital the other day, and they're fine on capital. And the important thing for New Zealand trading banks is they've got lots of different stuff. So SVB had it in one area, US Treasuries. That went bad because they were good when interest rates were low when they were bought, when interest rates rose they were a bit screwed. But New Zealand

banks, they've got mortgages, they've got the likes of, yes they've got some Treasuries, they've got long-term New Zealand bonds, they've got international stuff, they've got lots of different bits of money in different pots which means they've got a bit of protection. What are Treasuries? When you say they were fully in treasuries, what's an example of treasuries? So effectively think of it like a short-term government bond. So the government will say to you, look, I need some money now, and I'll pay you back over time. I'll pay you back in 10 years.

But for some of the treasuries, they might be in three months, for example. They sort of say, and that's cash flows. It's effectively, if you will, when we talk about treasuries, I mean there's all bills and bonds and so on. It's all effectively a bit of an IOU. You give me money now, and I'll promise to give you money back in the future at a certain rate. And that's safer because it's the government?

It's seen as a safer... Oh, certainly the government stuff is. But the issue as well is it depends on when you buy it. If you're buying it sort of for three months or even for a year or something, and you buy it at a certain price, and you think that interest rates won't go up and then all of a sudden they do, what you get back might well not be quite as good as it was before. Gotcha.

But we still don't have a protection for our money and our banks, do we? Not yet. Most countries have, if you have savings, they are guaranteed or protected up to a certain level, like $50,000 or $100,000. Yeah, and New Zealand doesn't have that yet. We are working on it. Currently, there's a bill before Parliament that is working through that. It's at Select Committee at the moment. Oh, that's good. At least. That will provide $100,000 worth of deposit coverage per depositor per bank. So once that's

through, there is a fair bit of protection. Important as well to know, I guess, that again, in the interim, the Reserve Bank does stress test banks. They kick them quite hard during the processes. They put them through the motions and say, are you good? Will you still be a workable bank and a workable business after these hypothetical shocks come through? And one of the ones they did recently, even before we actually had a cyclone,

is they said, hey, if a major weather event like a cyclone hit, how would you guys go? And then they said, after they got the first results back, they said, cool. Now, based on that result, let's imagine another cyclone hits back to back. Can you still keep going? They predicted the bloody future, basically. Well, a little bit.

I mean, the Reserve Bank, if they could keep doing it and bring inflation under control, would be in a great place. Yeah, yeah, yeah. But they are stress-tested. We know that the banks can stand up. They've got enough money. They've got enough capital. So protection per depositor per bank means that if Ivor and Smith had a million dollars...

Oh, imagine. Oh, my God. What would we do? What would we do? One, you're buying... We're going for your face right now. Blah, blah, blah. A little tractor.

I put a million dollars in the bank and then that bank collapsed. I would only get $100,000 guaranteed. Correct. What if you put $100,000 in ANZ and then $100,000 in Westpac and $100,000 in ASB and $100,000 in... Then, yeah, you'd get $100,000 per each, but you'd also have to deal with the admin of it all. And I guess I'd say this.

Look, you look at our banks at the moment. How risky do they look at the moment? Yeah. Like, come on. And it's the admin of it all and i guess i'd say this look you look at our banks at the moment how how risky do they look at the moment yeah come on yeah they and it's the sort of thing i and i do think this is important to stress because trust me after svb happened i got calls in the office there were calls coming through to informetrics from people going hey i've heard you talking about it is my money safe and and i think that the two points there is i'm never going to say that absolutely everything is always safe like that's that there is always a little bit of inherent risk. But you look at the sort of protections that have been put on New Zealand banks. You look at how much we changed our regimes after the global financial crisis, after those finance companies and that fell over.

We are in a strong position. And since then, how many more U.S. banks have fallen over? There's been two smaller ones since then. There's been a buyout of Credit Suisse. There you know some concerns if you will around deutsche bank but in general you haven't seen any systematically important banks that have fallen over or similar i i put it this way i haven't moved my money personally yeah and i do what brad does you do what brand does well but what was interesting about the silicon valley bank was the social media aspect and the 2023 aspect which was only a very few people caused all that panic it's like

the game stop stuff on on reddit all over again which also highlights like one of the risks that you know having social media and having sort of that finance information out there publicly is hugely important. But at the same time, if it's rubbish information, then you get quite worried. I remember one guy on TikTok at one point, I'm sure I saw it like this a few months back, and he was like, oh, the inflation rate is 7.2%.

That's true. He followed up with, but once you add tax, it's 9.4. And I was like, what are you talking about? This is idiotic. So there's some real good stuff out there, some real good podcasts and real good TikToks and that, and some absolute trash. Well, this one's not the trash one.

Shall we throw, Brady, one of our listener questions? As you said, four months have passed, and a question from a listener is, is this recession going to be as bad as they say it will be? Well, it depends on a sense on who you're listening to in terms of how bad it will be. The way I sort of phrase it at the moment, I've probably used this before in our chats, at the moment the economy's like a boiling pot of water. Too much of that water is spilling out the sides, and if you think of economic activity

as the water, you don't want to be losing it. Now, to stop you losing that economic activity, you don't turn the pot off and let the water go cold, you just turn it down pot off and let the water go cold. You just turn it down a little bit towards a bit more of a simmer. It sounds like you need to get a lid. I saw on TikTok you can put a wooden spoon across the top and it stops it boiling over. We need the magical wooden spoon!

You do, which is partly why those interest rates are sort of just keeping that stuff from bubbling over. But at the same time, if you pick up that wooden spoon, real hot, real, no, not good. Okay, I i like he's taking my analogy and add analogy on top we're stacking analogies because you i mean you meant we mentioned just earlier that i mean we've heard from you before we need to pull back on our spending pull back on our spending and then we got hit by two major weather events and in order to

fix not only our personal houses but like like whole cities, we have to spend. Absolutely. Is that going to make a huge impact on where the recession was heading? I think what you're likely to see there is that inflation, because of the cyclone and the floods and similar, inflation will remain higher than we otherwise thought. But you go and talk to the Reserve Bank, and they said this a few weeks back,

because they're the ones trying to get inflation under control. They said, look, we understand there's not a lot we can do about that. We're hoping that it's sort of more of a short-term hit. We're going to look through that. So they're not going to deviate their cause too much more. I'd still think that there are interest rate rises to come because there's just a little bit more of that sort of push over the top of the hill to get people down to the other side.

When we looked at the spending numbers, for example, at the end of the year, we saw a bit of a pullback in sort of Christmas spending. Toys were, I think, 8% more expensive, so you can sort of understand why. When I went home for Christmas, I said to my family, I am your present. You don't get anything physical.

Especially when flights are like bloody $500 to get home. $553 one way from Wellington to Whangarei. One way! I bet Uncle Brad was a favourite, eh? I'm a hoot at parties We bloody love Uncle Brad But what's interesting when we look through the figures of spending What we saw is that households sort of got the same amount of stuff

The same number of goods, if you will Throughout the last three months of last year Even though they were paying more for them Now what that says to me is that inflation's hitting household budgets Because you're not able to buy a huge amount more, you're getting the same stuff as you did before. But that also says that interest rates haven't fully hit yet, because when your interest rates go up, if you think of your household budget like a pie, you've got to give an extra slice of that to the mortgage this time around. That's less of a slice that can go on

haircut, clothing, going out for drinks or whatever it might be. And so we haven't seen a pullback there yet. I think we'll see that more in 2023. That doesn't have to be catastrophic. What it says is that households are just going to have to be a bit more cautious with their spending. They're going to have to make a bit more of a prioritisation. And it's fascinating to see how that's already happening. And I'll be interested in all your views.

Hayley, you're going to hate this. In terms of how New Zealanders are adjusting their spending already, people are still buying lots of groceries, putting food on the table and similar. It's clothing and footwear and similar that people are pulling back on. We're not as big a fashionista. Look at these jeans, Brad. They've got holes in them. Absolutely buggered.

Hashtag fashion. Well, I guess a lot more people going online and getting secondhand clothes as well. Yep. Upcycling. And hand-me-downs and all that sort of thing. I love an op shop. Food is one of those things that we need, and, like, supermarket shop is insane.

Like... Spinny. So expensive. I couldn't get over it. I don't do it very often, but I did it recently, and I was like, okay, stick on to us, because I'm a shocker. I'll get new toothbrushes.

You're like, oh, that looks nice. I need some more moisturizer. I love that you talk about food, and you're like, I'm going to get more toothbrushes. Yeah. Like, I'd get snacks. I'd eat down the aisle, like, oh, that looks nice. I need some more moisturizer. I love that you talk about food and you're like, I'm going to get more toothbrushes. I'd get snacks. I'd look down the aisle and I'd be like, oh, new toothbrush. But toothbrush, they add up.

All these sometimes things that you buy. You're a family of four. Yeah, but I did the shop and I was very conservative for me and I was just like, oh, my God, how are families with teenage boys keeping anybody fed? Well, especially because a lot of your healthy food as well, you know, that's super expensive. But at the same time, two-minute noodles,

26% more expensive now than they were at the start of the pandemic. You could get a megal ring for like 50 cents. Oh, yeah. That was a good meal. Was it? Was it a good meal? I don't know. Nutritionally, no.

Put an egg on it. A head of lettuce in early March was like $6. Now, I understand that we had the weather events and stuff, but that's prime lettuce. That's winter lettuce prices. Yeah, well, and look, as someone, I toured the Hawke's Bay a few weeks after the cyclone, and someone pointed out this field,

and they were like, that was tomatoes. I was like, what do you mean it was tomatoes? That's just mud. Like, yeah, no, there's nothing there. But the same with, I mean, kumara up near Dargaville and that, I mean, they should be like four bucks a kilo in summer, and they're like 14. That sort of stuff has been hit hard.

Onions coming out of Pukekohe, you know, same with potatoes. It's all the good, fun stuff. It's all the flavour. It's all the flavour. It's the flavour and the starch. Along the same lines as the recession, should I be saving more or investing? I guess if you're in that position

where you do have a little bit of extra money, should you just save it in an account or invest it? But then the share markets have been very volatile, haven't they? We've all seen our Kiwi savers go up and down. Absolutely. I think there's a little bit of maybe all of it going on. It depends on your financial situation. I think there's a little bit of maybe all of it going on. It depends, you know, if you're not quite, it depends on your financial situation. I think there's a few elements.

One, if the stock market is down, and it is at the moment, then maybe there's a few deals to be done. Now, that doesn't mean you pour all of your cash in there, but maybe you think, oh, well, if this is going to go up in a few years' time, and I've got enough money that I'm not using it anywhere else, maybe that's the sort of place I put it. Like a long game. Very much the long game. If I'm like, hey, maybe I want to buy a house in a few years' time, maybe I'm thinking about putting it probably more at the moment into a term deposit than just straight into the bank account

that isn't making any money. Because at the moment, you know, it's hilarious talking to people. They're like, hey, where do you make money this year? And it's like, hey, maybe the question is where you lose the least money. Oh, Brad! But you've got to be serious here. You think about this, though. You think about this, though.

You think about the stock market. It's been in decline at various points. You look at housing. House prices have been going down. Now, although inflation's at 7% and your term deposit rate's more like 4.5%, maybe 5%, at least you're making a bit of money in nominal terms, and you're not going as far backwards. So there's various options, I think, that people are looking at at the moment.

For a lot of people, it is a little bit of both. You don't sort of pour, just like SVB was foolish to pour all of their money into one area, sort of a little bit here and there. You have some payments to go into your shares, your hatch, your whatever investment account and similar. You have some other money that goes into savings. You've got maybe some long-term savings and a term deposit. You've got some short-term savings so you can have a holiday. Maybe it's not overseas because it's really expensive to fly, but maybe you go and take a car out to the Wairarapa for the weekend.

We saw some great Thailand deals, didn't we? We saw some great Thailand deals last week. But Brad, $500 one way. Hayley's been told she's not allowed to go to Thailand. It was $1,000 return to go to Bangkok. That's pretty good, Brad. That is pretty good. That is pretty good.

And once you get to Thailand, it's cheap. It's practically free once you're there, Brad. It's basically free. You basically get all that money back, Brad. Can you talk to Aaron? Talk to Aaron. Who are you trying to convince here at the moment? Because it ain't me.

I'm trying to convince Aaron that we need to go. Next question. Why can't the banks and the government agree on a course of action for inflation? Are they at kind of different... Well, I mean, look, when it comes to the banks, they're always looking for profit. And at the same time, when it comes to the government, I mean, those guys have been flip-flopping all over the place in recent times. Remember last year when they were like, right, no more fuel cuts, fuel tax cuts, we're going

to get rid of them. And then this year, new prime minister, oh, let's keep them for a while longer. That would have been a political suicide. It would be like we're putting the tax back on. Well, look, I absolutely agree, but you think through to when, I think end of June is when that currently comes off. Are you telling me that a government's going to whack tax back on four months out from election?

No. They'll kick that down the road and end it after the election, right? Or maybe they won't ever end it. I mean, those sort of things, that's the issue with those policies, really hard to unwind. But what I would say is that there is a bit of, I guess, indirect coordination because, for example, this year, the Reserve Bank raised their official cash rate by 0.5 percentage points.

It went up. You didn't see any change in one-year fixed rates, though, and that was because a lot of banks have already moved their interest rates in anticipation for the Reserve Bank moving their OCR. And I say that because what that suggests is that although we're thinking there's further increases to the official cash rate this year, I don't think that you'll see as much of a movement in some of those fixed mortgage rates. You will in the floating rate.

I mean, you look at the moment, at the moment across New Zealand, you can find a 6.5% one-year fixed mortgage rate. That's fairly normal. Your floating mortgage rate, though, is 7.99. That's a fair amount more, and that will go up. Question, why do so many Australians have a floating mortgage rate? It's like, isn't it 80%, 90% of mortgages in Australia are floating? Really?

I've never looked at the majority of them. But it's a really low rate. It is. We talked about it a little while ago, and then I looked it up, and I was like, what? Because my friend from Australia was like, oh, no, I'm just on a floating, and I'm like, you're mad. That's crazy, but over there it's the lower rate.

It's like 4% or 5% floating. We're a mixture, but the only reason we've got floating is so you can use it, because we're renovating, right? Yeah, you need a bit of working capital. You need a bit of like, you borrow it and you've got to spend it and then pay a lot for it. That's the thing. A lot of people do that.

You'll have a small amount in floating so that you can do that sort of more variable spend. You've got some that might be locked in for a year and you might have another half of it locked in for two years or something like that. That's very normal. Imagine if you could go back two years and lock in for a year and you might have another half of it locked in for two years or something like that imagine imagine if you could go back two years and lock in a five like a five for you say this i know someone that did it and i at the time i was like wow why would you do that

because everyone else was like 2.2 well now i look at i'm like jeez that's that's yeah dude that would have been so helpful pass brad my laptop with this graph. This is a graph. Guys, we are talking finances. The percentage of mortgage rates that are floating, the percentage around the world, countries. Australia is third. Is it third? Does that look right to you? Finland first, then Norway, then Oz.

And it's down the bottom. I always think they must be doing it right. We're doing it wrong. They always do everything else right. The Scandinavians don't muck around they do good furniture they do great meatballs great chocolate

and great floating rates look at brands really into this graphic it's just interesting looking at them this article lists some of the reasons that Australia doesn't have long term fixed mortgage rates like the US it's interesting because over in the US you you get like a 25, 30-year mortgage rate. In New Zealand, you get like, I think at the moment, most people are on a one-year fixed

mortgage rate. They're not even doing long ones, are they? Isn't it like two at the moment? Yeah, and that's sort of still, if you're lucky, I mean, we have rates that go up, I think, to five years. There was one of the banks that they had a seven year a few years back and they got rid of that because they were like this is just not worth it no one's taking it because people people in New Zealand with housing don't think that short that long term we think a lot more short term right I've got no idea I'm gonna go and investigate this next pod next pod I'll come back look forward to it love that Great investigates. I love it. Play ZM's Fletch Vaughan and Hayley. Play ZM. Okay, our next question from our beautiful listeners.

Is now a bad time to start a new business with the recession ahead? I think a lot of that depends on what the business is going to be. Like if it's, look, in clothing and footwear and similar, and Kiwis aren't quite as keen to spend, and there's that pullback in discretionary spending, maybe you need to really make sure you're doing your homework to see if there's actually money available. But, you know, I think there are always opportunities

as much as there are challenges. A lot of that would be that sort of research. Is there a market out there at the moment that wants to buy your goods or service? Because I think, like I say, at the moment, Kiwis are prioritising their money, they're putting them into the essentials first. You put food on the table, you put fuel in the car,

you put a roof over your head. Stuff after that is a lot more discretionary. So we're seeing a pullback in home renos, for example. We're seeing a pullback in people going out to bars and restaurants. We're seeing a pullback in that clothing and footwear. You just described the three pillars of Haley Sproul. I deliberately didn't look over there as I said. You put your hands on her face after you said renovations

and then you said clothes and then food and going out and eating and drinking. My favourite was when he's like, some people have a small amount on a floating. Look, you are going to be the entertainer of the year when when it all comes off we come around for i mean actually that's like i'm pretty sure i've already been disinvited from ever going around if you can convince braddy if you can invent convince my aaron that we need to go to thailand in july you will be welcome on our expensive deck anytime Anytime. Anytime. And I will feed you expensive Pumina. Should I be pushing for a... No, you shouldn't be.

I wouldn't say that. I can't answer. I'm sorry. I can't answer. It was a straight face. I feel like I need a cigarette after this. Should we be? I don't know.

I mean, after your conversations before, guys. Next question. That's for free. That's the one thing we can do for free. Should I be pushing for a pay review that aligns with inflation or not rock the boat with my employer? I don't think you have to rock the boat by asking for a pay increase. And I mean, it depends, right? Like if you rock into the boss's office and you're like, hey, dude, inflation's at 7.2.

I demand it. I must have that money. Otherwise, I'm out. Things aren't going to go down well for you, I wouldn't have thought. And sort of saying, look, can we have a chat about pay, but also about what I've been doing. I've been working here a long time, a short time, whatever it might be. I've been working hard. These are the sort of things I've delivered that you've asked me to do. This is why I think I deserve that sort of pay increase. That's something that as a business manager, you go, look, maybe I can see what I can do.

And hey, you never go in with the offer that you expect. You go in with something higher. That's how negotiation works. You say, hey, I'm looking for 10%. They say, oh, look, budget gives me like 4%. And you're like, how about 6? A little negotiation. Maybe we could, yeah, do that.

I feel like you can do that. You don't want to go in too hot and real overbearing and just completely trying to demand it stick the knife in if you will because you don't want the knife to come back your way um but equally you sort of want to go on with a bit of having done your research having a bit of an idea not only of what you want but why you've got a case because if the case is i just want more money that might well be your reason but come up with something better to negotiate and discuss with or apply for another job and have that job back to fall back on or as leverage and i think as well i mean look at the moment we are seeing a little bit of a shift around in the jobs market um you know the number of job ads for example has pulled back to sort of more normal

pre-pandemic levels so we're not expecting that um you'll continue to sort of have that ability to demand higher and higher pay like we saw particularly last year when there was a lot more pressure. But again, you can always have those conversations. And if you're in the right sort of workplace with the right sort of boss and colleagues, that is a conversation that actually, as a boss, you're going, I want to keep this talent. If they are a good worker and have just profiled all the amazing things I've done for my company, I've then got to think about well if they go I've got to not only pay someone to come in and do that job, I've got to get them up to speed which is going to take months I've got to make sure they can actually do that sort of thing

that's hassle and it's money and it's time We've asked you this in the past before and I think it's a hot little question is it a good time to buy a house right now because the housing market's down, houses are cheaper and then on But rates are expensive and on the back of that is is it a bad time to sell a house right now because the housing market's down, houses are cheaper. But rates are expensive.

Rates are expensive. And on the back of that is, is it a bad time to sell a house right now? Buying, selling houses. Look, I just want to cover the rates bit at the start. Your rates are never going to go down. So if that's your constraint, you're going,

should I buy a house now or in the future? Well, they're not going to be any cheaper in the future either, I wouldn't say. You mean interest rates. I mean interest rates. Oh, I thought you meant rates mean interest rates, not council rates. I thought that as well. Rubbish and recycling is always a tip. And then one thing that probably needs to go up is rates

because the city infrastructure. What are you doing? Shut up. The city infrastructure, not mine. I'm rural. I'm already paying for your poos to be flushed into the system. I'm going to tank for my poos. Rates need to go up, but not mine, I'm rural I'm already paying for your poos to be flushed into the system I'm going to tank for my poos! Rates need to go up but not mine

But rates like infrastructure in cities around New Zealand, so outdated and everybody wants it to be better but nobody wants to pay for it. Absolutely, I mean this is the thing that stuff keeps breaking around us and there's so much to do and we never get to it. Now on interest rates though, yeah interest rates probably will go up a bit more.

But like I said, I think that a lot of those fixed mortgage rates are already, a lot of the heavy lifting's been done. And importantly as well, if you're going to the bank at the moment and you're saying, hey, can I get a mortgage? They're not only saying, can you make the current 6.5% mortgage rate, they're saying, can you make 8.5%? Yeah, that's what, when we borrowed a little bit more money for our renos, they did it at 8.5, and that was

months ago. Yep, and it probably hasn't moved too much further since then. I think I heard maybe of a 9 recently, but at the same time, if you're able to make that mark at the moment, you're probably feeling comfortable enough about your ability to repay. I think what it highlights, is it a good time to sell at the moment? It depends a little bit

on why you're selling. Some people have no choice. If you're needing to move for a job or whatever else it might be, sometimes you might have to sell. You could think about renting. There's other options. But look, let's be real. House prices are in decline at the moment. They've currently seen their largest fall in modern history. They're down 16%

from their peak. That's more than the GFC. But they're still 24% more expensive than pre-pandemic. They need to come down more, don't they? For affordability, yes, but I think as well, what we're seeing out there is that for- You also shut up, please. But see, this is the interesting thing.

I mean, Hayley, your place, you're not going to sell it immediately after you renovate it, and I think that's the big thing. Some people will be sitting there and looking at, you know, one of those online sites and go, oh, no, my house is now worth $200,000 less than when I first looked. Well, when you first looked, did you have the money in the bank no it's still a paper number so until you actually sell that's when the value is realized or not so i think there's a little bit of um don't worry too much on the up or the down there depending on what your

position is so another question following up from that our mortgage mortgage interest rate's going to come down anytime soon i don't think that's quite as... Sorry. Yeah, it upsets me too. We're all emotional. I'm so glad you got this because I was, like, close to breaking. Sorry, can you do that one again? Yeah.

So on the back of that, our mortgage rate... So on the back of that, our mortgage interest rates going to come down anytime soon? I don't think that's quite as likely. I mean, look, inflation is still at 7.2%. The Reserve Bank wants to see it between 1% and 3%. We're still a long way from there. And it's been 7.2%. It's been above 7% for just about the last year. So we've got a little bit of time before that comes back.

What I think you're likely to see at the moment some further increases by the reserve bank uh to the official cash rate that'll flow through a bit into people's sort of mortgage rates throughout 2023 into 2024 you might well you will have hopefully seen the reserve bank stopping raising interest rates at that point they'll be thinking about when they can start to bring them down. You're likely going to need to stimulate a bit of economic activity at that point. But if you're the Reserve Bank, you don't want to take your foot off the brake too early. You don't want to let inflation try to roar back. So I think there'll be a period where they'll go up for a little bit longer, then they'll hold for a period. Now, I'll be thinking that's sort of six months to a year. So it's more into 2024 before they might start to come down.

But again, at the moment, let's be clear, all of our expectations have seen interest rates go higher and higher than what we first thought. And so if I was someone who was thinking about it into the future, I wouldn't bet the house on interest rates coming down necessarily in a year's time, but there's certainly a chance that they could. It's good that you're even mentioning coming down because I've said things like,

oh, you know, when things go back to normal or like when the price of food comes back down or the price of building comes back down and a lot of people are like, it won't. No, no, it won't. And I was like, what do you mean? Because we're all going, oh, everything's going to kind of settle back down

to where it was before this all went crazy. Interest rates are going to do that? Like a little, like they may not go back to the sweet 2.2. No, think he wants a 1.99 i want a 1.99 please but so the interest rates will come down but a lot of other costs a touch yeah and i think i mean interest rates like 2.22 was insanely low like you if i'll bring a chart in next time of interest rates over time like that stuff was insane so even 6.5 is still low. Yeah, I mean, you'd be looking probably at the moment between sort of 6 and 4 to be like a normal-ish range, if you will.

So I think that's the sort of area that you'd probably be targeting. But you're right, everything else, you're not going to see those food prices come back. You're not going to see building costs come back. What you will hopefully see is that they don't advance quite as fast and over time people's wages and similar will help them catch up a bit to it. That's the hope. So how did the US and the UK manage to have interest rates

that sat around 2% for so long without tanking it? Is it just a bigger economy? I mean, that's going to be part of it. But also you look at the UK economy at the moment and they are tanking it now. Yeah, yeah. So it's starting to go up now but for so long like a mate who's got a place over there

has lived there for ages. His parents were like oh yeah, this is interest rates have always been this. Right. Now it's the highest it's ever been. Yes, it's skyrocketed up. I think what you also saw

in the US and the UK is that they had bond buying programs. They had that quantitative easing money printing if you will a lot more than us it's no it's totally not good and and it's the sort of thing where new zealand avoided that for as long as we did because we still had interest rates to move whereas over there they basically

dropped them so low so quick even before the pandemic that they had to go and buy lots of other stuff as well right uh two more questions left we kind of touched on uh if you have spare cash um should you be investing we touched on that before have spare cash, should you be investing? We touched on that before. But spare cash, investing versus paying off debts, i.e. credit cards or mortgage. Generally speaking, get rid of those debts. And it depends on what it is. Like credit cards, for example, I had a look before, before I came in studio. A low interest rate credit card is like 12.9% interest.

Now, if you're finding an investment return of better than 12.9%, let me know. Because I'll come and invest. I'm jumping on. As long as it's not too risky. So I think, look, some of those real high ones, yeah, get rid of them first because they are going to more than eat away at any of the good returns that you're getting through. Your mortgage is a little bit different.

You might well sort of want to put a – or think about slightly higher payments if you're able to without sort of triggering various changes. But you're not going to pay all of that off immediately. Your student loan, in general, if you're in New Zealand, you leave that well alone. That thing erodes away over time with inflation. So you best just pay it off at the rate that you have to. There's a minimum rate and you do that.

And then investments, again, I think a lot of it comes down to what are you investing in and how risky are you willing to be, if you will, how much return do you want to find? But it is that balance. Do you want some savings in case you need some money right now? Do you want some investments maybe for the longer term? Do you want to take away those debts so they're not above your head and it might restrict your ability to get a mortgage or similar in the future?

Because your R bond's running at about a 19% return, isn't it? Yeah, it is. But everybody else is running at a massive, massive loss. Yeah, but also look at my skin. It's French. Pretty sure it's a pyramid scheme, but okay. Okay, what do you think? Last question.

Once, and this must be nice, once I have paid off my mortgage. Who ticks this in? Should I close the account or keep it for future borrowing? Look, as someone who hasn't even got a mortgage myself, I feel like I'm very much out of my depth on this question. Look, I feel like that's probably a conversation for your bank. Go and have a yarn. Figure out what that maybe future borrowing might be.

And if you need that sort of facility, your bank might well have options where they say, yeah, we can keep it open, or there's sort of like a maintenance fee or something. But other times, you might well sort options where they say, yeah, we can keep it open or there's sort of like a maintenance fee or something. But other times you might well sort of want to go now that I've got the house, I'm just I'm going to I'm going to chill for a year. I'm going to celebrate and sit in my house and do nothing but socialize in my house because it's mine now. It's mine. I just thought when you said before about student loan, don't worry about it.

Let it erode itself away into inflation. I was like, oh, my God, I hadn't thought about that. Do not pay your student loan off any faster than you have to, unless you're going overseas. Because it accrues interest. But if it's interest-free and you're making the minimum payments, it's literally like... The value of that loan will erode over time in real terms.

And the value of it becomes irrelevant because, say, $10,000 in... I never thought of that. Neither. But it's the same premise of buying a house and sitting on the value of a house and being like, well, the debt against the house is a million dollars, but because I've had it for 20 years,

it's now worth $4.5 million. Yep. Yep. And it's the sort of thing, look, yes, you want that money to be recycled back into the government so they can help other students and all that sort of thing. I want nothing more. But it's the sort of thing.

She pulled the ladder up behind her. She got up and then she took the ladder up behind her. Boink. Those ladders are expensive too. Yeah, I know. That's why she smelted it down and turned it into plates. What sort of, what do you do out at your house with the rural backlands? You don't want to know, Brad.

You don't. You don't. It's best we don't know. Right. So you want to keep the money recycling into the system to help Yeah, sorry. You want that money to go back into the government. But at the same time, just from a purely financial point of view, you are

best to pay that off at the minimum rate. That's the best financial decision. I mean, again, have a bit of a think. There's always going to be different horses for courses. But generally speaking, that's your best way of paying it off. Because it means as well that your money that you're spending at the time you can you could well invest that in something that will make more money over time that could then pay off your

student loan and similar like your student loan doesn't have any interest on it so if you put it even if you put any additional money let's say that you're need to pay 200 bucks a week or whatever it was on your student loan and instead you got300 a week that you thought you could put towards it. Now, that extra $100, you could put that into a savings account, a term deposit or similar, get 4% or such. You're earning more money then over time that could eventually... And then you can put it on the loan if you want. If you wanted to.

You still shouldn't in most general regards, but that's the way that the student loans work. Wow. Great advice, actually. I would like to see a Venn diagram of people that bitched about um student loans becoming interest-free and people who've done exactly the same thing with houses oh 100 i bet it's almost this is almost one tiny circle as someone who had a seven percent rate on their student loan did you and paid it off the week before helen cl it's all free. Oh, please.

This was fun to witness in real time. I find this very hard to swallow. Mine was all interest-free, baby. And I lived in New Zealand. But you think as well, I mean, like, sometimes you now get the first year free as well. So, I mean, I was quite gutted to miss out on that. I don't think it's a good policy, you know,

from an economic point of view, but, like, you know, if they would offer you free. So you would rather have student loan, or you'd rather have no free uni? I'd rather that we use the money from fees free to target things. If we think we need lots of nurses or lots of teachers or whatever, instead of saying, everyone, you can have your first year free and do whatever, you could say, hey, look, we'll make the nursing courses free.

Yeah, it's like how many white girls doing comms at AUT do we really need? I don't mind that, but okay, so the other thing there, the other thing there before we get kicked out of studio, is probably the most important thing there is also, if you're going to do something like fees-free, you can make some real easy adjustments to make it a bit better. Instead of paying people for their first year, say that you'll eventually pay off their first year

once they've completed the degree. So instead of people that sort of go through and, you know, do a year a little bit, you sort of go through and do a year, a little bit, you sort of go, actually we'll pay this at the end and make it a bit more of an incentive. Once you graduate. And you graduate and you get a nice little bit of this. No, but are you better to pay it off like five years down the track once they've worked in New Zealand? Because they're all going to leave.

Correct. To Australia. You could definitely do that. But I guess with all of that, with all of those issues, I'd almost rather say to people that, look, let's figure out where we desperately want and need more talent in an area. Builders. There's so many.

Actors. Give them that skills that we need. Do we need more actors? We need more trained, skilled actors out there. Are you casting shade on the current talent out there? Yeah, a little bit. She's bored. She's bored with them.

She wants some fresh blood. Same faces every time. I'll be working on my dad joke, so maybe I'll give it a crack. Give it a bit of comedy. Let's go. I'm going to stand up. Brad Olsen, amazing as always.

We've answered all of our listener questions. Very insightful. Shocking, but again, it's kind of nothing new in terms of, we weren't expecting you to come in and say it's all good you haven't invented a better system yet

no we talked about communism not being the right answer capitalism not being the right answer apparently this late stage capitalism

is really fucking really I also remember though you all coming up with ideas last time of how you'd make additional cash on the side

and none of those I think I mean have they how have they gone? They would have all folded by now. Yeah, they folded. Yeah, I mean, they were all sort of risque in various regards. Well, I'm sort of upscaling Salvation Army furniture and flipping it off for a higher price. That's entrepreneurial.

Thanks, I made 20 bucks. And they're only two and a half years. Breakfast is on Hayley this morning. Yay! Lanky's on Sprout. I think in all seriousness this is the sort of thing like we're not going to

solve the problems of the world all in one hit but at least if people are thinking about these sort of things they're starting to have the conversations a bit more

they've got a little bit more info to go on that's the sort of thing where look we know that there are more troubling times coming this year if we put our heads

in the sand then we're sort of goners. Otherwise, we can sort of chuck our heads up. We can figure out a bit of a pathway forward. That, I think, is where the listeners are going with this. Bad news, Brad. Thank you, as always. See you.

See you later. Actually, I'm going to have to stop you there. That's copyrighted. Susie Cato is a very good friend of mine. She's already sued me twice. So if you could maybe get her to drop her litigious action that would be great. Tell her I'll review her five stars

if she does the same for this podcast and then she tells all her friends. And if you're listening maybe give it five stars as well.