Pete Wargent blogspot

Co-founder & CEO of AllenWargent property buyer's agents, offices in Brisbane (Riverside) & Sydney (Martin Place), and CEO of WargentAdvisory (providing subscription analysis, reports & services to institutional clients).

4 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.

"Unfortunately so much commentary is self-serving or sensationalist. Pete Wargent shines through with his clear, sober & dispassionate analysis of the housing market, which is so valuable. Pete drills into the facts & unlocks the details that others gloss over in their rush to get a headline. On housing Pete is a must read, must follow - he is one of the better property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

"Pete Wargent is one of Australia's brightest financial minds - a must-follow for articulate, accurate & in-depth analysis." - David Scutt, Business Insider, leading Australian market analyst.

"I've been investing for over 40 years & read nearly every investment book ever written yet I still learned new concepts in his books. Pete Wargent is one of Australia's finest young financial commentators." - Michael Yardney, Australia's leading property expert, Amazon #1 best-selling author.

"The most knowledgeable person on Aussie real estate markets - Pete's work is great, loads of good data and charts, the most comprehensive analyst I follow in Australia. If you follow Australia, follow Pete Wargent" - Jonathan Tepper, Variant Perception, Global Macroeconomic Research, and author of the New York Times bestsellers 'End Game' and 'Code Red'.

"Pete's daily analysis is unputdownable" - Dr. Chris Caton, Chief Economist, BT Financial.

Saturday, 30 June 2012

'Get a Financial Grip' - No.1 Apple i-Books bestseller ahead of Robert Kiyosaki's 'Rich Dad Poor Dad' and Dale Carnegie's 'How to Win Friends and Influence People'



Since this photo was taken, my book has gone all the way to number 1 of the Top 200 Business/Finance for Apple i-Books. Would be great if I could stay there!

Friday, 29 June 2012

How have equities done over 5 years?

The answer is in the chart below. This emphasises two things:

1) You need to take a long-term outlook to investing in shares (30-50 years ideally) - the 10 year chart, for example, looks much healthier!

2) Make sure you are investing in income-paying assets, then you can take your focus away from the share prices (note that I said 'prices' not 'values') and enjoy the dividend stream

Personally, I'm in a FTSE-tracker in the UK. The below chart is for the Australian All Ordinaries (XAO) but the trend is not dissimilar.

The All Ordinaries comprises the 500 largest listed companies in Australia by market capitalisation (and thus around 95% of the stock market as measured by market cap). The remaining 5% is made up of  a couple of thousand smaller companies and the 'penny dreadfuls'.

Former fund manager and author Peter Thornhill of Motivated Money, who I coffee'd with earlier in the week, favours investing in a well-diversified basket of industrial shares rather than the resources stocks, due to their stronger dividends and long-term outperformance.

Buy, hold, enjoy the income (dividends) and do something more interesting with your time than checking stock price charts. It's hard to fault the logic.



Source: www.asx.com.au

***

It's been a tough few years the United Kingdom, so hopefully the London Olympics will put a spring back in the British step?

Economy sliding into recession, the MCC is run by elitist twits (mind you, that has unquestionably always been true), too many people abusing the benefits system. As Poms, we generally acknowledge our shortcomings and aren't afraid to admit to them - but we've always done one thing better than everyone else...rock 'n' roll.

Have a great weekend all!

Thursday, 28 June 2012

2 minute suburb review: Elizabeth Bay

Out on my travels today I took a quick look and a few photos around Elizabeth Bay, a cracking harbourside suburb just 3km from the city of Sydney.

The good

Lots to like! Very central. A couple of lovely parks and the marina. Some beautiful art deco buildings too. Very easy to get to the city though I'm afraid one may have to mix with the hoi polloi on the way through, unless you're taking the Jaguar!

The bad

Not too much wrong with the suburb, except for the prices, which have performed very strongly indeed over the last decade (you aren't getting much change from a million bucks for a quality 2 bedroom apartment here). The proximity to Kings Cross might be an issue for some (though it might also be a plus to be close to many of the trendy spots, depending on your outlook).

2 minute summary

Yes, it's expensive here. But have you ever heard the phrase in investing: 'Follow the smart money'? Well, John 'Aussie John' Symond bought an amazing $4.1 million apartment with 3 bedrooms and terrace garden here in late 2011...and the last time I checked he's done pretty well out of his real estate knowledge over the years. It's a thumbs up for me.

PAYG Variation Forms

It’s coming up to 30 June, so for Australian investment property owners it is way passed time to complete PAYG Variation Forms. The tax office (ATO) can take up to six weeks to process these, so if you haven’t completed already, do it today.
What a PAYG Variation form is
Where you have an investment property or properties that are making an accounting loss (i.e. after depreciation etc.) a PAYG Variation form can reduce your effective rate of tax through the financial year.
This is preferable for many to waiting until next 30 June to recoup the tax paid via the tax return. After all, we can always put our own money to better use than the tax office will!
***
If you're having a miserable day, try to think: it could be worse. Sydney harbour tunnel blocked...and I'm going to a shareholder AGM today at the Radisson...there's always someone worse off than you!

Can The Da Vinci Code crack the stock markets?

1, 1, 2, 3, 5, 8, 13, 21….
The Fibonacci sequence, created by adding the previous two digits to get the next one. Thanks to Dan Brown’s Da Vinci Code, most of us have heard of it.
Brown has Sophie Neveu’s grandfather write the Fibonacci sequence in his own blood when he dies. Later in the story, Brown (never shy of milking a good idea) has the heroes open a Swiss bank safe with the code ‘112358132’.
Golden section
The curious thing about the Fibonacci sequence is that the ratio of each number to the next gradually converges on a very special number: 0.618.

Fibonacci Sequence
Ratio of number to next number
1
1.000
1
0.500
2
0.667
3
0.600
5
0.625
8
0.615
13
0.619
21
0.618
34
0.618
55
0.618
89
0.618


The number 0.618 is known as the golden ratio or the divine proportion and is ubiquitous in nature, though nobody really knows why – the wingspan of moths, the design of a seashell, the skeletons of animals, the veins of plant leaves…it’s everywhere.
The golden ratio, sometimes presented as 1.618, is also known by the Greek letter phi or, in maths,  ϕ. This ratio has been known about for centuries, even by Leonardo Da Vinci himself.
In Angels and Demons, Dan Brown (never shy of milking a good idea) has Robert Langdon mention all of this in one of his speeches to students.
Relevance to stock markets?
Technical analysts – those who place a reliance on share price charting to drive their trading ideas - believe that they can use the golden ratio to predict the extent of a stock market retracement, and to help them time an entry to a share trade.
They believe that the human brain is so hard-wired to the golden ratio that share traders cannot help but respond to it.
My view? Look, I can’t write swear words because this blog gets emailed to dozens of subscribers and the profanity filter will send it right back to me. But it’s a load of tosh, isn’t it?
It is said that even if you give a technical analyst a totally randomly generated selection of numbers and put them into a chart, they start to see head-and-shoulders patterns, double-bottoms, dead-cat-bounces and charting patterns beyond number.

Your time would be far better spent resolving to take a long term view of the stock market and investing in a reasonably well-diversified fund or LIC that pays you dividends. Then forget about the share price for a decade or three.
Summary
Q. Can the Da Vinci Code crack the stock markets?
A: No.

Wednesday, 27 June 2012

The Ascent of Money (and leveraged property plays)

Weltanschau
My long meeting with Motivated Money’s Peter Thornhill yesterday caused me to question why we involve ourselves in leveraged property plays at all. After all, as he advocates, we could solely invest in an industrial index of profit-making, dividend-paying stocks for the next 30 years with very little risk. It is no bad thing to question our motives and viewpoints: it serves us well to continually view ourselves critically.
As Niall Ferguson* points out in his brilliant book The Ascent of Money, it is well known that a low-risk approach to investment should include a substantially diversified portfolio of assets, and yet conventional knowledge (that we should buy our own home) causes us ‘to bet the house on, well, the house’. In the US, two-thirds of the average portfolio consists of the place of residence. The ratio is still higher elsewhere.
The answer I came to is that, ultimately, we all have our own perceptions and world-views, and we feel compelled to invest accordingly. Soros believed the pound would fall so he shorted the pound. Trump believed in the future of New York real estate and so he built huge projects in Manhattan.
Modern history also shows us that while property is by no means a uniquely safe asset class, it does behave very differently to a ‘pure’ investment asset class such as equities. Home ownership rates are high in Australia at around 70%, and we are encouraged to become owners of property. For this and other reasons, real estate prices can often be higher than a multiple of rental income would seem to justify.
Historical evidence for the ‘safe as houses’ theory
Governments have long had an interest in property markets and see the idea of a ‘property-owning democracy’ as a useful way to promote their own popularity. We have also become familiar with the idea of a ‘stakeholder economy’.
In the United Kingdom, Margaret Thatcher promoted the idea of Mortgage Interest Relief at Source (MIRAS), before selling off many of the public housing projects cheaply and turning 1.5 million residents in to home-owners. This move increased Britain’s home-ownership rate through the 1980s from 54% to 67%.
In the US, the tax deductibility of mortgage interest is seen by many as sacrosanct, and George W. Bush famously declared that ‘we want everybody in America to own their own home.’
Housing is not uniquely safe
Australian property has been a less volatile asset class than Australian shares, in part due to its illiquidity and in part due to high ownership rates. There is a twist, however, and that is that over the last couple of decades governments and central banks now aim for price stability and low inflation. The cost of this can sometimes be high interest rates which put pressure on leveraged property owners.
We are all familiar with the events of the bursting of the sub-prime bubble. Earlier still in the US, the Savings and Loan crisis caused enormous distress in areas where property supply had run rampant (such as Dallas, Texas). In Britain, too, property values fell by nearly one fifth between 1989 and 1995.
With the Australian property market currently in a correction phase, this makes it vitally important that investors do not stray far from areas that are in continual high demand.
A ‘Stevens put’?
Share traders in the US in the latter half of the 1990s joked that they lived in the age of the ‘Greenspan put’ – meaning that having Alan Greenspan in the Fed presented them with the option to sell stocks at a higher price in the future (Greenspan having only raised interest rates once between 1995 and 1999).
Some have argued that the Reserve Bank in Australia (RBA) is doing more than one might reasonably expect towards supporting property values. Certainly, RBA rhetoric in its releases regularly refers to weak housing prices, but it is probably unfair and overstating the case to say that we have a ‘Stevens put’ in place.
To the great consternation of dedicated equities investors, some government policies do specifically target supporting home ownership, such as the First Home Owners Grant.
Sydneysider viewpoint
Humans are notoriously poor at learning from history. What we should have learned is that in difficult times such as these, we should steer well clear of areas where housing developments and rapidly increasing supply are rampant, and stay well away from those in which outright speculation is the order of the day.
This is where our ‘global real estate analyst’ friends in the US have got it wrong. There is no one property market in any city, let alone any country. Property prices in the lowest quartile behave markedly differently to those in the premium sector. Anticipating the future price movements of real estate is definitely not as simple as dividing a median property price by a median income figure.
While the NSW population continues to grow at around 80,000 people each year and dwelling approvals remain so weak, and, crucially, while credit markets continue to make funds so readily available to property buyers, the inner/middle-ring Sydney apartment market in the close-to-median-price range will not collapse. With vacancy rates so low in supply-constrained inner- and middle-ring suburbs, any fall in unit values will be quickly leapt upon by opportunistic buyers.
The fall in Sydney’s unit prices in the last 12 months according to RP Data is…oh, prices went up? Right. Well, that’s my point encapsulated. I'll leave it there for today.
***
*I met Niall Ferguson back in my dishevelled youth when he interviewed and - quite correctly - rejected me from a place on his Oxford University history course.
They were three good reasons for my failed application. Firstly, I had long hair (which is by no means a black-ball offence for Oxford, but is probably a yellow card). Secondly, I was an opinionated little twit (ditto). Thirdly, and most pertinently, I had ticked the incorrect box on the application form and thus applied for the wrong course, which above all else demonstrates why I was not a suitable candidate for Britain’s most prestigious faculty of learning.
If I do meet Ferguson again, I will tell him this though: his writing is fabulous.

Monday, 25 June 2012

Chris Gray: property in Sydney's eastern suburbs firing

I shared a coffee with property expert Chris Gray today and was interested to hear his views on the market.
Chris is well known in property circles as the long-time TV presenter of Sky News Business show Your Money Your Call and his own TV show Your Property Empire. You may also have seen him as the resident property expert on Channel Ten’s very popular The Renovators.
Having successfully built a property portfolio of more than $10 million himself, Gray now helps others to do the same as the founder and CEO of Empire property.
As these guys are in the market every day as Buyers Agents, they are well placed to gauge what is happening in the property market on a more detailed level.
Properties at the premium end are still selling reasonably well in the eastern suburbs of Sydney (the suburbs in which Empire are specialists), but the real action is in the investment grade unit market.
Chris cited a recent example of one client he had to bid at five separate properties for (the other four being bought above the price they were prepared to pay). Bidders are still being gazumped in this median sector of the market.
This reflects what I was discussing in my blog post yesterday, and that is the relative liquidity of the credit markets.
Mortgage rates are low, banks are still lending at high loan-to-value ratios (LVR) and there is plenty of idle cash around waiting to be deployed by investors.
***
If you think my blog has taken on a little of a property bias over the past week, you’ll be happy to know that I intend to balance this up over the next few days.
Tomorrow I am meeting one of Australia’s most respected share investmeint investors (and best-selling authors) for a coffee (there’s that caffeine intake issue again), so will be interested to hear his views on share investment.
The Aussie share market failed to fire today in spite of the solid trade on the Dow on Friday. The ASX 200 (XJO) was down around 1% with an hour to the closing bell as investors took a cautious view on global growth.

Sunday, 24 June 2012

Soros’ Theory of Reflexivity (applied to Australia’s property markets)

The Soros Theory of Reflexivity
Despite all of the phenomenal success and wealth he has achieved as a fund manager, George Soros would prefer to be remembered as a philanthropist, and, particularly, a philosopher. His theory of reflexivity recognises the fallibility of human understanding and how this impacts financial markets.
Classical economics talks much of supply/demand curves and markets returning to equilibrium (or reversion to the mean). What Soros recognises is that expectations of future price movements can themselves impact asset valuations: rising prices can attract more buyers, and falling prices can attract more sellers. Sometimes prices can move into far-from-equilibrium territory and a bubble ensues.  
This is easily demonstrated in more liquid financial markets (such as stock markets) where overlaying a graph of Earnings per Share (EPS) versus stock price movements repeatedly shows that the stock prices over- and under-shoot EPS ‘fair value’ cyclically.
Real estate markets, having different characteristics such as the use of leverage or debt, sometimes act in a boom-bust manner, where the willingness of credit markets to lend influences the value of the collateral itself. Credit availability can become a short circuit. Here's Soros:
Only once in a blue moon does a prevailing bias set in motion an initially self-reinforcing but eventually self-defeating process. It happens only when the prevailing bias finds some kind of short circuit that allows it to affect the fundamentals. This is usually associated with some form of leveraged debt or equity. Both market prices and economics conditions may then move far beyond anything that would be possible in the absence of a short circuit, and the correction, when it comes, may have catastrophic consequences.”
Real estate bubbles
Back in 2008, Soros recognised that several property markets had developed credit expansion that might indicate the presence of a bubble: notably the USA, UK, Japan, Spain and Australia.
The USA found its own short circuit in the collapse of Lehman Brothers and the bursting of the sub-prime bubble. Credit markets froze and the financial system went into meltdown. Lending standards had fallen to unprecedented lows in the US and the fallout was monumental, as demonstrated in the graph below.
In Australia, however, the financial crisis saw interest rates fall and real estate prices continue to rise. There was no short circuit and lending standards were notably higher. This is particularly germane to Australia’s property markets of today which are now in the correction phase of the cycle – the credit markets are still relatively liquid.
Fixed mortgage rates are available well below 6%, and, crucially, banks are still often lending at 95% loan-to-value rations (LVR), which explains why, to date at least, the correction has only been moderate as noted in my post here.
Super-bubble?
Soros also notes the possibility of a super-bubble. Lending criteria were relaxed in the 1990s and real estate prices took a very significant upwards turn.
Graph 1: Real House Prices and Fundamentals
Might house price to income ratios at their current level be an anomaly or is expensive real estate the 'new normal'? Could house prices return to 3 times incomes? Perhaps, but the truthful answer to this is that nobody knows.
Graph 7: House price to Income Ratios
Soros notes that the ability of credit markets to reinvent themselves and create new lending products has been entirely unpredictable in the past, and will continue to be unpredictable in the future.
Insurance
This inherent uncertainty is precisely why I feel so strongly about only investing in the right types of properties in supply-constrained inner/middle ring suburbs in capital cities experiencing significant population growth. This is also why I am extremely wary of remote locations, speculative ventures, areas of low/variable demand or niche investments.
Observe what has happened in other countries. For example, compare the difference between the Tampa real estate market (bust) and that of, say, New York (more stable). In England, many regional markets have fallen in value by more than a quarter leaving owners with negative equity. Meanwhile in many of London’s inner- and middle-ring suburbs domestic and international funds continue to flow, and prices are higher than they have ever been.

Saturday, 23 June 2012

Money-saving tip for 2012/2013

Use less electricity and gas.

Gillard's controversial new carbon tax will whack nearly 10% extra cost on household electricity and gas bills, but the total increase in electricity bills will be nearly double that, with apartment-dwellers looking likely to cop most of the burden.

So replace that reverse-cyle air-conditioning with a jumper is my top tip for this winter.

2 minute suburb review: Wooolloomooloo

Woolloomooloo is a bit of an enigma, not least because of how difficult it is to spell.

Having been down there today, I thought I'd write a 2 minute suburb review. I'll keep these suburb reviews coming as I visit different places.

The good

No question about this: proximity to the city. A 5 minute walk across The Domain (though perhaps not on your own at night) to Macquarie Street at the top end of the city.

The bad

Woolloomooloo still seems to be a slightly uncomfortable mixture of new and old, a suburb of 'three halves' if you like.

On the wharf, there is the premium apartment dwelling, behind the Woolloomooloo Bay Wharf Hotel there is the established housing commission property, and then there is 'party central' at the back of the Holiday Inn, Potts Point (also known as Kings Cross, though officially there is no such suburb in Sydney).

At times, it can be noisy, with the naval base and Thales located in the bay too.

2 minute summary

Woolloomooloo is a very exciting little suburb and potentially a very interesting place to live. The problem for property investors is the lack of appropriate property types.

The wharf might be an excellent place to live and rent, but an investor would be expected to pay some very hefty strata fees for maintenance of what is, according to the Guinness Book of Records, the world's largest wooden structure. The restaurant set on the wharf can be a noisy lot too.

Might be some great capital growth in the suburb over the long-term as demographics change and proximity to the city becomes paramount, but over the shorter-term, I'm not so sure.



The great Aussie housing shortage a myth?

Interesting article from Leith van Onselen here in the Sydney Morning Herald noting how the housing shortage is a myth based upon revised figures from the Census.

Leith raises some good points though I would raise a few counter-points:

Macro vs Micro

Firstly, a serious property investor, while doubtless interested in these macro trends at an Australia-wide level, is not particularly interested in what is happening 20km south-west of woop-woop.

If you are following the property market on a day-to-day basis, you will be keen to identify areas and supply-constrained suburbs where rents are rising and vacancy rates are low.

Dwelling approvals

As I noted in my the approvals for new dwellings are lower than the growth in the population. So regardless of the present situation, demand is going to out-strip supply going forward.

Despite all the smoke-and-mirrors raised by journalists regarding the Census, the fact is that between 2006 and 2011 the respective populations of NSW and Victoria increased by around 400,000 people.

Invest where the jobs are

Ultimately, people want to live near the business centres where there are jobs. This is true for new immigrants and Aussie who already reside here.

As Andrew Wilson pointed out in his SMH article last week, new housing approvals located more than 50km from the centre of Sydney are not a great solution to the housing issue (and that's why I favour investment in units in the inner/middle ring suburbs).

Worryingly, for the housing bears, despite all the talk of a huge price correction, dwelling values have simply refused to fall very far (and in some cases, have not fallen at all).

Early indications from RP Data suggest that the twin interest rate cuts in May and June may even have seen prices rising again in June and seem likely to pick up through 2013.

***

The US stock market shrugged off worries of bank downgrades to finish the week on a high, with the Dow up 0.5%.

***

A glorious sunny Saturday in Sydney.

Only 6 weeks until City-2-Surf so about to get out and power-walk around the Opera House and Botanical Gardens (I haven't graduated as far as running very much yet). Sponsor me here if you can spare $5 for OzHarvest...every little helps!

Busy afternoon, as I'm going to the rugby international this at the Sydney footie stadium, Australia vs Wales. Go Wallabies!

Friday, 22 June 2012

Froth and bubble for the Flying Kangaroo

Some time ago, I mentioned in my post here why historically investing in airlines has often been a painful experience for investors: highly competitive and cut-throat industry, highly regulated, high cost of fuel...

Qantas has now warned that it may go under if state-sponsored Etihad is allowed by regulators to buy a stake in Virgin Australia (and then undercut Qantas prices).

It's going to be a miserable day of trade anyway on the ASX, but particularly so for Qantas, the news sparking a sell-off and the share price dropping another 2% to just $1.11.



Source:www.asx.com.au

What would you do with $1 million?

My publishers Big Sky Publishing are doing another book giveaway promo as noted here.

Simply jump on their Facebook page and answer the question above.

Last time, the winner said she would buy up the rights to Doctor Who then travel the world. Interesting choice, see if you can top that...!

Property Observer: House prices falling; unit prices more resilient

As I discussed at some length here and in other posts. Property Observer discusses the same topic in an article today by Cameron Kusher from RP Data here.

Across each major capital city, the unit market has been more resilient to falling values over the past year compared with detached houses. This would seem to suggest that affordability barriers in the market are encouraging home buyers to look for more affordable housing options such as units and townhouses.

The reasons for this trend emerging then: lack of affordability of houses, stronger rental yield from units for investors ,and units are becoming increasingly 'acceptable' for younger generations to live in - there is no longer a stigma attached to living in a flat rather than a house.

Units can also be located in far more convenient locations: close to work, close to train stations, close to shops and restaurants.

I'm expecting the trend towards unit-dwelling to continue over the long term as the population continues to grow (as confirmed in the Census data yesterday).

***

An unhappy 24 hours for those who take a short-term view of their stock market investments with the Dow Jones down 2% or 250 points as growth expectations are moderated.

The possible solutions, as always, are the same. Taking a longer-term view, investing in index funds for the long haul or, better, a portfolio of the highest quality blue chip shares.

Try to 'switch off' the stock market noise, ignore the day to day gyrations of the market, and remember that over the long term, shares have been a very strong growth asset.

Go and mow the lawn instead of watching every tick of the stock market chart!

Thursday, 21 June 2012

What's the score on the population clock?

Answer per the Australian Bureau of Statistics population clock as of today: 22,648,500.

The ABS notes a growth in the Australian population of 302,600 people in the year to December 2011, a very healthy increase of 1.4%.

And where are the people heading?

Everywhere except Tassie is the short answer, but the clear standout is Western Australia.

Graph: Population Growth Rate, Year ended current quarter
Source: www.abs.gov.au

Living or investing in the CBD?

CBD investments

I've talked many times on this blog about the benefits or otherwise of buying investment property in the centre of Australian capital cities.

Personally, I steer clear. While there is often a decent demand for city living, my main concern is that a glut of supply can come on the market at times due to the lack of height restrictions on tower blocks.

Huge new developments can mean that your property is suddenly competing with a great many others with many of the same characteristics as yours. Property investors in general should look for scarcity value.

Strata fees in the hotel-style developments can also be especially painful.

One demographic change that I haven't discussed before is the influence of Asian immigration. In Sydney, for example, approaching 20% of the population is now Asian which is a natural consequence of our immigration policies correctly noting our geographical location in the world.

It's at least worthy of consideration whether new immigrants are more comfortable with high-density living than those who have arrived on Aussie shores before. After all, tall tower blocks have not seen apartment prices held back too much in Hong Kong! Food for thought, anyway.

Living in the CBD

This is a new thing for me, and after a week or so, on balance I'm enjoying it. My last 5 or 6 places of residence have all either been in Pyrmont or the eastern suburbs.

You can certainly never get bored in the city, particularly now as the CBD no longer 'dies' at the weekend. The big new Westfield and the QVB mean that the city is as alive as ever on Saturdays and Sundays.

Yes, there is the general hum of traffic noise to consider (and police sirens, and recycling trucks tipping bottles, and couriers playing bugles - why do they have to do that near my apartment? - and...*insert random city noises here*).

But overall, I'm loving it so far. It's very convenient for everything. And here's the clincher: every night I can step downstairs and look at what you see below.

Worth listening to a terrible bugle rendition of The Last Post any day of the week!

Preliminary Census Data from the ABS

The Australian Bureau of Statistics (ABS) will release its Census Data at 11.30am today, which will be of particular interest to property investors.
The preliminary data released shows that the ABS will report a steady increase of Australia’s population but to a lower absolute figure than their mid-2011 estimate.

Of course, the journos will have a field day with this – “300,000 people go missing!” - but in reality an error rate of around 1.25% is not particularly surprising.
As I’ve discussed in these parts before, the ABS is fighting a very tough battle to collate real-time information on a timely and accurate basis.
Moreover, the estimate made in 2011 was based upon projections and we must expect some margin for error:
Population estimates for Australia and the states and territories are updated by adding to the estimated population at the beginning of each period the components of natural increase (births minus deaths, on a usual residence basis) and net overseas migration.
The counts are devilishly difficult to complete accurately, in part due to the transient nature of some of the population, the large number of Aussies who may be overseas at any given point in time and, partcularly, the difficulty of measuring net overseas migration.
The big ‘winner’ is expected to be Western Australia which will show a sharp increase in its population.
Again it’s a case of looking beyond the headlines, particular if you are analysing statistics from a property investment angle.
For all the talk of “people going missing” and “vanishing Aussies”, a more considered look at the figures tells us that since the last full Census in 2006, the respective populations of Victoria and NSW both increased by approximately 400,000 people, which represents a very solid rate of growth.
Hopefully, the stats will also help to stick a sock in the mouths of the (far too many) Aussies who drone on about us being overrun by boat people.
From a purely numerical perspective, if we are talking about a population that increases at around 300,000 people per in a year, the illegal immigrant factor is a highly immaterial element (*please insert sock*).
***
You may have noticed that I have recently begun to ‘tag’ posts to my blog which, theoretically at least, helps search engines such as Google to direct relevant traffic to my blog page.
My blog’s daily stats do tell me which search terms have been used by new visitors to the site.
Over the past month, three of the search terms that directed traffic to me where: “Anyone? Anyone? The Laffer Curve?” (did I really write that? Apparently so...), “Singapore’s coolest building” (I definitely did write about that) and “best rat race movies” (erm, OK...). 
So I think you’ll agree that the tagging experiment is a roaring success so far...

Wednesday, 20 June 2012

UK inflation down to 2.8%

UK inflation falls as the price of crude oil has dropped and the effects on the new VAT rate are bedded in.

This will be a relief to the Bank of England after inflation touched a stonking 5.2% in September last year following the introduction of the new VAT rate (VAT is similar to GST in Australia - VAT in Britain now has a standard rate of 20% since January 2011, by the way!).

The Bank of England is compelled to write an 'open letter' to explain what's going on if inflation stays above 3% for more than three months in a row. So they'll be happy this month!

What this does mean is that the printing presses will quite probably be back on soon - expect another cool £50 billion or so to be pumped into the economy (quantitative easing or 'QE' of £325 billion and counting so far already in the last 18 months) in a desperate bid to stimulate the floundering economic growth.

The lower inflation also introduces a significant chance of the interest cash rate going down, down, deeper and down as early as next month...by another 0.25% to the bargain basement level of 0.25% in order to breathe life into the ailing economy.

Unemployment in the UK is also well above 8%.

Now, remind me again: what have we all been complaining about in Australia?

Tuesday, 19 June 2012

Interest rates seem likely to stay put in July

So it seems, anyway. The Reserve Bank's Minutes from its June meeting released today state that it was a finely balanced decision to cut the cash rate by 0.25% on June 5.

And then the next morning at 11.30am the Australian National Accounts from the ABS showed that Australian GDP was actually cruising along at 4.3% in the year to March 2012.

Oops.

To me, it does call into question the wisdom of having such rigid dates for Reserve Bank meetings.

Surely the Board would have loved to know the GDP result before making its decision (and surely they would have left rates on hold too)?

In fact, take a close look at the wording they used: they "did not have time to assess the effects of earlier reductions in the cash rate".

Waithing another 24 hours wouldn't have hurt.

The Board considered whether the recent information warranted a further reduction in the cash rate.

The arguments were finely balanced. Recent domestic data generally had not suggested a significant weakening in conditions compared with the forecasts a month earlier. Moreover, there had not been time to assess the effects of the earlier reductions in the cash rate. However, there was clear evidence suggesting a softening in global conditions, and uncertainty about the future in Europe had increased significantly. While spillovers had been limited thus far, there was a reasonable likelihood that the tendency toward precautionary behaviour both abroad and at home would intensify.

Given this, and with inflation expected to remain in the lower part of the targeting range over the next year or so, members considered that there was scope for monetary policy to be a little more supportive of domestic activity. Members judged that a reduction in the cash rate of 25 basis points, combined with the earlier reductions, would mean that monetary policy would be providing a measure of stimulus that would be expected to flow through to the domestic economy over the coming months.

6 things that can cripple your credit score

If you are considering taking out a mortgage, you want your credit score to be in the best shape it can be.

Here are 6 things you should avoid in order to protect your score:

1) Paying utility bills late

2) Forgetting to pay your rent (you'll probably get away with this, unless your landlord takes you to court)

3) Reducing income - for example, if you are made redundant or go part-time

4) Repeatedly increasing your credit card limit

5) Failing to pay a small-time vendor - unlikely to be reported by the vendor themselves, buf if they factor the debt or pass it on to a debt-collection agency, you will probably be issued with a black mark...

6) Not paying your credit card balance

Point 6 is the most common problem today.

Moderate use of credit cards and paying them off each month is the best defence against a poor credit score.

Also consider improving communication - if you can't pay your lender, try to negotiate a payment break or just paying interest for a month or two - without them reporting you!

Deloitte highlights two-speed/patchwork economy

More great stuff from the lads at Deloitte Access Economics.

Have come to expect nothing less from them.

Note the final point on 2011 Census population figures to be released soon by the ABS - will be very interesting reading, particularly for property investors, I expect (I was on a roadside campground in the Northern Territory so will be recorded on the 2011 Census as an itinerant!).

  • Despite ongoing pessimism surrounding the state of the economy, Australian economic data has been healthy of late. The latest National Accounts data showed an impressive 1.3% GDP growth in the March quarter, and total growth of 4.3% over the year
  • In addition, and despite the reporting of some high profile job shedding, the number of people with jobs in Australia has started to rise again
  • Employment grew by 1.0% in the year to May, with 111,000 new jobs created. That rate of growth is still well below longer term trends, but it has been enough to keep the unemployment rate steady at around 5%. Most of that jobs growth has also been a 2012 story. Over the past six months, the Australian economy has put on 87,000 new jobs, almost all of which are full time
  • Over the past year mining is clearly the standout, with mining employment up 26.8%, easily the fastest rate of growth in any industry, adding 58,000 new jobs
  • [patchiness] is evident in employment too. Construction, transport and warehousing, retail, and manufacturing have all been big losers, with cumulative job losses of 136,000 jobs over the same period
  • There are also...different stories across the States. Western Australia has recorded the strongest employment growth over the past year, up 4.0%. Some 27,000 new mining jobs account for over half of the State's employment growth. Above trend growth was supported by the health and social assistance, professional services and manufacturing industries
  • Overall, while high profile corporate cutbacks are still in the headlines, recent labour force data has shown that a modest jobs recovery has commenced.

Macro movements
  • Spanish banks received a €100 billion bank bailout this week, while Spanish bond yields passed 7% for the first time and Moody's cut their sovereign debt rating to Baa3. That puts them only one cut above junk, and on negative watch.

The week ahead
  • The Greek election was held on the weekend, with a victory being claimed for New Democracy and thus for Greece remaining within the Eurozone. What remains to be seen is how hard the new government pushes for a relaxation of their bailout terms – and what that does for the bailout's credibility
  • Early responses in global markets have been positive, and the Australian dollar is up in Monday morning trade
  • Domestically, the ABS will be releasing the first waves of data from the 2011 Census. Importantly, that provides important detail on population numbers and characteristics

Monday, 18 June 2012

A sad day for Fairfax Media

A part of the stock market’s bounce today was driven by Fairfax Media (FXJ – share price up well over 8% as I write this) who released an ASX announcement today entitled ‘Fairfax of the Future’.

Sadly, one of the results of Fairfax’s proposed restructuring is to be 1,900 redundancies over the next 3 years.

Paradoxically, share prices often respond positively to news of redundancies (and adversely to proposed acquisitions) as investors anticipate cost savings.

The company has had a rotten 5 years since mid-2007 and always seems to feature high on the ASX's short-selling reports, as sceptical investors believe that the future of physical newspapers is a bleak one and doubt Fairfax's ability to adapt to the digital age.

Fairfax is the publisher of newspapers the Sydney Morning Herald, as well as The Age in Melbourne and the Canberra Times.


Sydney expensive? Yes, we had noticed...

Another week, another article about pricey Australia.

Don’t forget to look beyond the headlines, though!

Six of the world's 30 most pricey cities for expats are in Australia, a survey has found. Sydney has claimed the title of Australia's most expensive city for expatriates, narrowly missing the top 10 globally but coming in 11th in the latest Mercer cost-of-living survey.

The home of the Opera House was followed closely by Melbourne at 15th most expensive and Perth sneaking in the top 20 at 19th.

All rose from their ranking the previous year, with Perth climbing 11 spots from number 30.Mercer principal Nathalie Constantin-Metral said Australian cities had experienced some of the biggest jumps as the Aussie dollar strengthened against its US counterpart.

"Demand for rental properties has also increased significantly in all the Australian cities we rank,'' she said in a statement.

"Coupled with very limited availability, the result has been very tight markets and increased prices.'' The survey took place in March when the Australian dollar hovered above parity with the greenback.

Sure, we know that Australia is expensive - nothing new there! - and some of our housing stock is seeing some easing in values, but sometimes these ‘affordability’ articles are actually in part a discussion of exchange rate movements – rather than actually being about affordability.

OK, so the strengthening of the Aussie dollar might be a nasty surprise for returning expats, but this is not quite the same discussion.

That’s not to say that affordability isn’t an issue in some areas, but one welcome consequence of the low inflation prints, weak retail figures and global uncertainty has been the affordability dividend delivered by the slashing of the cash rate from 4.75% to 3.50%.

There are some very competitive mortgage rates coming to the fore too. Variable mortgages at under 5.75%; nice work if you can get it.

I’ve only been back in Australia a week after an extended period of time travelling and it was absolutely fantastic to take a walk around Circular Quay and Darling Harbour yesterday.

It always amazes me to hear how much Sydneysiders criticise their own city!

As I mentioned in my blog post the other day, I was lucky enough to travel to 25 countries over the past year, which was an amazing experience, but I can tell you there is no better place to live (in my wildly biased opinion...) than Sydney.

Perhaps sometimes we shouldn’t be quite so surprised when Sydney and Melbourne are cited as among the 15 costliest world cities in which to live? Always causes some debate this one...

***

A pro-Euro win at the Greek election saw some bounce back into stocks today, the Aussie All Ords up more than 1.75% as I write this.

Also notable is that despite four interest rate cuts (one of which was a ‘double’ cut of 50bps or 0.50%) the Aussie dollar has snuck back above 101 cents today as a little confidence returns.

I discussed the reasons for the dollar’s resilience and the likely outcomes going forward in my post here.

Friday, 15 June 2012

No parity party this time...

As I mentioned in my post here, there is every chance that due to foreign investment in the new 'safe haven' that is the Aussie dollar, the exchange rate with the US might stay at historically high levels for some time, in spite of a raft of interest rate cuts since late 2011.

Sure enough, today the Aussie dollar finished the working week back above parity at US$1.004.

Interesting to remember all the silliness of 3 and 4 November 2010 when the financial talking heads were making dopey remarks about us holding "parity parties" as the dollar appreciated above US$1.00.

More sensibly, partying has barely rated a mention this time.

From a purely selfish point of view the strong dollar has been marvellous - having travelled to 25 countries in the last 18 months, I can confirm that it has never been better to be a travelling Aussie!

As so often in life, though, there is a trade-off.

Exporters have had very rough couple of years (cf. the long, slow demise of BlueScope Steel, and the domestic tourism industry must surely have suffered - at least, judging from the relatively small gathering of Barmy Army at the Ashes last time around).

Despite what we like to believe, Australia is fairly heavily reliant on foreign investment, particularly from Asia.

The share market is still lacklustre with the XJO (ASX 200) threatening to dip back below 4,000. And property is gradually sliding downwards in most areas too.

A strong dollar discourages foreign investment - foreign investors receive less value and introduce foreign exchange risk to their investments.



***

Have only been living in Sydney CBD for 72 hours or so, and have already nailed two celebrity spots.

Kochie with umbrella (Elizabeth St.) on Wednesday, on his way to Channel 7.

And today, the ginger chap with the odd name 'Chit Chat' from TV music channel MAX (Cnr Elizabeth/Market). Does he count as a celebrity - it's hard to say these days?