Pete Wargent blogspot


'Must-read, must-follow, one of the best analysts in Australia' - Stephen Koukoulas, ex-Senior Economics Adviser to Prime Minister Gillard.

'One of Australia's brightest financial minds, must-follow for accurate & in-depth analysis' - David Scutt, Markets & Economics Editor, Sydney Morning Herald.

'I've been investing 40 years & still learn new concepts from Pete; one of the best commentators...and not just a theorist!' - Michael Yardney, Amazon #1 bestseller.

Saturday, 6 June 2020

Yes, the property market is about to bottom

Property rebound

See here for why (or click on the image below):

Weekend reads

Must see articles

This weekend at Property Update a look at what happened to home values in May, and more.

Click here to read (or on the image below):

You can subscribe for the free Yardney podcast here, where I was this week's guest.

Friday, 5 June 2020

Housing demand soars (REA)

Buyers back

Buyers are back, and there's very little quality stock on the market for them to squabble over.

From Cameron Kusher at REA Group:

Here come negative rates (or massive asset purchases)

Interest rates set to go negative

Aaand...the Aussie dollar has now cracked through seventy cents.

'Ignore Bill Evans at your peril' - via Kirchner here (or click on the image below):

Tourism services surplus hits record

Record rolling surpluses

There was another enormous trade surplus in April 2020, this time coming in at a seasonally adjusted $8.8 billion, just behind the record high of $10.5 billion in the preceding month. 

The big picture is that imports have plunged, while exports have held up. 

Aussie exports boomed through the month of March, but then fell back in April -11 per cent to $37.5 billion, which is broadly speaking back to where they were in February.

Coal and services exports have been falling away, but iron ore and gold have been exceptionally strong. 

Outbound tourism has plummeted by an astonishing 99 per cent through 2020 year-to-date, with outbound travel effectively blocked. 

That's an awful lot of Aussie dollars staying at home, more than offsetting the decline in inbound tourism services credits, which have dropped by -43 per cent. 

This is also net bullish for the Aussie dollar, which has soared from 53 US cents to 69.4 cents, complicating the 'adjustment' or recovery. 

Tightening conditions?

Overall, Australia's handling of COVID-19 has been extremely successful, partly reflected in Q1 GDP being only marginally negative.

Still policy can always do better, with financial conditions possibly now tightening. 

The rising Aussie dollar is partly reflective of commodity price strength, especially iron ore which has exploded back to $100/tonne.

But the Reserve Bank has engaged only in 'Claytons QE', engaging in comparatively little activity since the first week of May - with the central bank only buying a small share of bonds (especially as compared with, say, New Zealand) - while the heavily reliance on fiscal has seen the Aussie dollar screaming higher. 

There's also been an abject lack of demand for the widely touted $90 billion term funding facility, and there's a risk of fiscal underspend with, for example, the renovation stimulus missing the mark. 

Australia has pulled off a masterstroke in containing COVID-19, but risks the recovery dragging on longer by unnecessarily allowing financial conditions to tighten. 

Oh, and as for the pay freezes: just plain daft.

Thursday, 4 June 2020

Podcast: Wealth accelerators

Wealth podcast

This week on the Yardney podcast we discuss the 7 wealth accelerators.

Tune in here (or click on the image below):

GDP heads into the abyss...

Recession all but locked in

GDP growth was estimated at a seasonally adjusted -0.3 per cent for Q1, leading to the inevitably mind-numbing 'recession we had to have' headlines.

Over the year GDP growth slowed to +1.4 per cent. 

Q1 could yet be revised up, of course - especially the very significant negative drag from inventories - and therefore the technical definition of a recession may yet be avoided. 

However, given that GDP growth in Q2 will clearly be severely negative this is largely semantics.

Nominal GDP growth over the year is floundering again.

Real net national disposable income, as a proxy for living standards, has been fairly flat over the past six months. 

And the terms of trade have held up well to date, well above the long-run average.

Meanwhile, the interest payable on dwellings continues to fall, now down to the lowest level since 2009 despite the dramatic increase in the dwelling stock over that time.

Stimulus mixed

With the Reserve Bank fading quietly into the background, the government must now do the heavy lifting with its fiscal stimulus.

The Aussie dollar has accordingly soared back towards US 70 cents, in turn slowing the adjustment process. 

The terms of the $688 million renovation stimulus missed the mark completely, leaving such a skinny cohort of prospective qualifying applicants that the government needn't have bothered with it. 

Essentially you must own a house and undertake an expensive renovation within the next few months, but without having a high income (while a whole heap of renovation options are excluded): 

Perhaps some retirees might qualify for a grant, and maybe a few young homeowners with wealthy parents.

The terms of the HomeBuilder grant scheme for new homes are far better targeted, and will undoubtedly be a net positive for the industry. 

Wednesday, 3 June 2020

Melbourne holds up building approvals

Melbourne approvals strong

Building approvals held up at 15,294 for a modest -1.8 per cent seasonally adjusted decline in April 2020. 

The surprisingly solid result was driven by Melbourne's ongoing appetite for building units. 

...and Melbourne's appetite for building houses, for that matter.

There was also a tiny uptick in public sector dwelling approvals.

And non-residential approvals remained sound up until the end of April.

Overall, building approvals are a long way below their peaks, but have settled at a rolling annual figure of 174,000, down from the peak of 242,000 in August 2016. 

Stimulus package

The government knows that it can't successfully plug the hole in residential construction while the borders are effectively closed.

But what it can do is unleash a huge buyers grant for new dwellings and a stimulus for renovations in parallel. 

Watch this space.