Pete Wargent blogspot

Co-founder & CEO of AllenWargent property advisory, offices in Brisbane (Riverside) & Sydney (Martin Place) - clients include hedge funds, resi funds, & private investors.

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.

Invest in Sydney/Brisbane property markets, or for media/public speaking requests, email pete@allenwargent.com

Wednesday, 29 February 2012

Stocks to trickle higher after Dow breaks 13,000

More positive economic data overnight, so the Aussie market is likely to sneak a little higher today following approximate 0.3% gains in the US.

The Dow Jones again broke through the psychological 13,000 mark, edging closer to its all time high.

Stocks to watch in Australia include QBE Insurance which has had a diabolical time since January when they announced in a profit warning that a series of disasters would wipe their profits nearly in half.

A number of brokers have re-rated QBE to overweight since its share price has lost a lot of ground since Xmas.

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Don't forget to collect your free Bonds T-Shirts here for their birthday!  I got mine yesterday, I was the first to register with my birthday in November1976!

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First leg of the cruise today, sailing from Sydney to Brisbane tonight.  The boat looks absolutely spectacular.  Never done anything remotely close to a long cruise like this, so a little intrepid (especially after two cruise ship stuff-ups in the last week in the news) but very excited too.

Congrats to my little brother on his exciting Uni news!

Monday, 27 February 2012

Leadership vote

Julia Gillard and the ALP clearly have a new scriptwriter!

No longer are they "moving forward"...now they are "getting the job done", "voting for the top job" and "getting on with the job of governing".

Painful to listen to.  Vote results of Gillard v Rudd at 10.15am.

Gillard should take it out by a 2:1 ratio.

Thursday, 23 February 2012

Sydney property update

It's looking less and less like we'll get another interest rate cut soon, which probably means at least another 6 sluggish months for the property market.

Despite all the talk of doom and gloom, the SMH reported here that some 60 percent of Sydney suburbs actually saw a rise in values in 2011.

This is because it is the properties at the top end - which usually perform with more volatility - have been very weak.

A flick through the SMH's Domain pullout at the weekend confirmed what I had already suspected.

As the linked article also confirms, certain properties (units) are selling very well, particularly in suburbs like Bondi Junction (east) and St. Peters (inner west) which were both up around 6.5% in value for the year.

At the top end, luxury properties are not selling strongly.  No big surprises there.

Regular readers will know that for the future I have a preference for units, and particularly those located close to the CBD with great transport links.

With Sydney's robust population growth, a continuing trend towards smaller households and inadequate construction, these properties should continue to perform well over the long term.

Friday, 17 February 2012

Aussie dollar buying $1.08008 US dollars...

This story has some way to run yet, especially as economists are pre-emptively calling no further rate cuts (surely a little early to be saying that, at the very least until Greece has made its next debt repayment).

I wonder if any Poms will even come to the Ashes in 2013 if the pound sags any further (£1 buying $1.46 today)?

Also, check this out from the BBC:

Shares in New York hit levels not seen since before the 2008 financial crisis on Thursday after positive jobs market news.




Yet in Australia, at least partly due to the stellar performance of the dollar, we are still trading at single digit PE ratios...

The mismatch won't last forever, will our stock market head up or the US come down...?

Monday, 13 February 2012

Taxi or car ownership?

I recently caught up with Geoff Slattery, CEO of Slattery Media Group, a dynamic and energetic media company based in Richmond, Melbourne.
Geoff raised an interesting question: in these days of high fuel costs, consumer credit and expensive repairs, insurance and rego - rather than buying a car, would it be cheaper just to take a taxi every day?
Well, let’s take a look!  I need to make a few assumptions here, so let’s take the example of:
·         A Sydneysider, who lives 25km from work and travels 50km a day or 350km per week
·         A price of $1.50 per litre for fuel
·         10 year time horizon
·         Assumed zero inflation
·         For simplicity a flat cost of $2,000 per annum for rego, insurance, repairs etc.
·         Same fuel consumption for both cars (in reality the Prado’s would be higher)
Obviously there are infinite options, so let’s look at just three:
1 – Taxi every day
On the plus side, this is convenient.  No effort required. 
And now Australia's cabbies have satellite navigation you are less likely to be asked “I new to job, sir, which direction is Bondi, sir?”  - instead, you will now be asked: “How am I spelling Bondi, sir?”
On the downside, if you use the Taxis Combined phone line the voice recognition system will drive you insane and throw your phone at least once per week, which may cost you in new mobile phone charges.  “Did you say, dog’s eye?”…”NO!”
Cost $1.60 per km - $80 per day.
2 – Buying a new Prado on finance
Let’s try buying a Prado on Finance.  Brand new driveaway $98,734 as quoted by North Sydney Toyota car dealership.
Cost
New Prado
$98,734
Finance repayments
84 months, $300 per week
$105,840
Balloon payment
25% balloon payment
$24,684
Fuel cost over 10 years
350km per week, 8.3L/100km
$15,106
Insurance, rego, repairs etc
10 years x $2,000
$20,000
Depreciated value - 10 years
180,000km on the clock
($20,000)
Total cost
Over 10 years
$145,630
Cost per day
$145,630/10/365
$40


It sounds better than a taxi, but what about parking?  And you'd better hope you don't blow a head gasket...
2 – Buying a 10 year old Rav 4 for cash
Let’s try buying a 10 year old Rav 4 for cash.  Residual value only scrap.  Fuel costs as for Prado.
Cost
10 year old, 100,000 on the clock
$15,000
Finance repayments
Bought for cash
-
Balloon payment
No balloon payment
-
Fuel cost over 10 years
350km per week, 8.3L/100km
$15,106
Insurance, rego, repairs etc
10 years x $2,000
$20,000
Depreciated value - 10 years
180,000km on the clock
$nil
Total cost
Over 10 years
$50,106
Cost per day
$50,106/10/365
$14


The lower depreciation and lack of finance charges save you nearly $100,000 over 10 years.  You won’t look as cool, but you’ll have better holidays.
3- Get a bike
Cost per day will be as near to zero as makes no difference - and you’ll get fit!
Unfortunately with the state of the cycle lanes in Sydney, you’ll quite possibly end up in Waverley or Rookwood rather sooner than you had planned.
Summary
With fuel costs set to rise and traffic increasing by the day, you're probably best to get a Yaris or, better still, live near a train station.
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Finally heading back to Sydney today, 15 months after leaving.  Can’t wait!

Tuesday, 7 February 2012

RBA keeps rates on hold

3 days ago, 13 of 14 surveyed economists predicted a rate cut and the markets were 85% sure too, but then a slew of positive economic data came out that gave the Reserve Bank the breathing space to leave rates on hold.

On balance, this is probably the right decision - the bank has kept its powder dry until it meets again next month.  In the meantime confidence is seeming to rise with eyes still fixed on Greece.

Watch this space though.  As I have highlighted before this could mean party time for the Aussie dollar. After today's announcement the Aussie was buying well over 108 US cents and it wouldn't surprise me at all if that goes to an all-time high of 111 cents over the next fortnight.

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Watched the J. Edgar movie in Melbourne today, and overall it was jolly good.  There should be more biographical films. 

Friday, 3 February 2012

SMH's Ian Verrender on the "property crash"

From Ian Verrender of Sydney Morning Herald, one of the most sober and realistic economic commentators, and one who is rarely given to hyperbole:

"Those gleefully predicting a US-style crash in the Australian property market are so far wide of the mark it beggars belief that anyone bothers to listen.

In fact, about the only place there has been a US-style property market crash in the past few years is in the United States of America, a catastrophe sparked by reckless lending and a total failure of regulatory oversight that ricocheted around the globe in 2007, sparking round one of the global financial crisis.

Those US-style excesses (loans to borrowers with no ability to repay) were almost universally repelled in this market. As a result, we've largely avoided the after-effects."

This is pretty much in line with my views.  More likely than a crash is a "prolonged hibernation" after the debt binge - a period of flat or slightly falling values while household incomes catch up.  It's the way property values tend to work unless there is severe unemployment (nope, or, at least, not yet - and not that likely given Australia's unique position in the commodities market) or very high interest rates (nada).

The curve ball would be European debt contagion and the break-up of the EU, but if this happens, as Verrender points out, we'll probably have a whole lot more to worry about than just a slip in property values.

Of course, a couple of US commentators are predicting 50-55% falls in the next 3 years as I noted in my post here.  This would suggest that values should be falling by 1.5% every single month. 

We'll see how this pans out through 2012.

Thursday, 2 February 2012

AUD pumped up again on economic growth hopes

AUD now buying $1.07415 US cents today.

OK, I've heard the arguments for not cutting interest rates next week.

The last two inflation readings have been 0.4% and 0.6%.  This might be the start of an uptrend, I get that.

So what if the next reading is 0.8%?  By my calculations, even that would mean we are sitting very pretty with a reasonable annualised inflation rate, the target rate being 2-3%.

Meanwhile the Aussie dollar is costing our exporters dear. 

So it might be a case of cutting rates in February and then waiting to see what happens for the next CPI print...

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Best value stocks right now

Best value Aussie stocks at the moment in these uncertain climes - no question at all in my mind - it's the major miners BHP and Rio Tinto, as highlighted by the SMH here today.

Single digit Price-Earnings ratios to invest in these behomoths, with commodity prices steadily sneaking upwards, very appealing.

While the short-term outlook is as ever uncertain, investing in these companies for the long term entails only a low risk.  They have untapped resources that the smaller miners can only dream of.  This allows them to rationally allocate their seemingly limitless capital through the good times and the bad.

BHP is a little more diversified and in that regard is a less volatile prospect.  Rio is more focussed, so the opposite applies.

Spent a couple of weeks up in the Pilbara and Port Hedland a few months back and the sheer scale of these operations is totally mind-blowing.  I am, by my own admission a total mining and resources nerd, but I could sit and watch those monumental 80-carriage iron ore trains being loaded up all day (actually, I know I could, because I have).

Rio Tinto's Dampier Salt Joint Venture was pretty darned fascinating too.

BHP is expanding its Port Hedland output to 240 million tonnes of iron ore through the new shipping berths.

It's absolutely mind-blowing what that little corner of the country means to Australia.  And they gave us that Red Dog movie too, which history may prove to be of lesser significance...

Disclosure: I hold shares in BHP.

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Only in Tasmania for another 3 days before heading back to the mainland.  Looking forward to being able to feel my fingers again. 

Off to a wind farm in the West Coast wilderness today and to check out the chairlift at 'The Nut'.  This may prove to be a mistake from a temperature perspective.  If any of my extremities freeze off, I'll dictate a blog post tomorrow. 

Note to self: bring gloves to Tassie next time.

Have been noting with interest the news stories on Julia Gillard's supposed slipping grasp on power...