Pete Wargent blogspot

Co-founder & CEO of AllenWargent property advisory & buyer's agents, 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

Monday, 21 January 2013

Where are we today on the economic clock?

Time
Economic explanation
Explanation
1 o’clock
Rising interest rates
To steady growth and inflation
2 o’clock
Falling share prices
Falling profits and confidence
3 o’clock
Falling commodity prices
Construction decreasing
4 o’clock
Falling overseas reserves
Funds passed between Central Banks
5 o’clock
Tighter money
Debt expensive and harder to source
6 o’clock
Falling property values
Property downturn
7 o’clock
Falling interest rates
To stimulate the economy
8 o’clock
Rising share prices
Increasing profits and confidence
9 o’clock
Rising commodity prices
Construction increasing
10 o’clock
Rising overseas reserves
Funds passed between Central Banks
11 o’clock
Easier money
Debt cheaper and easier to source
12 o’clock
Rising property values
Boom


It’s funny how some things in life change and others stay the same. If you go to London these days you will be given a copy of the Evening Standard for free. In a bid to compete with other free newspapers, the Standard had to become a freebie too.

The economic clock was first printed in the newspaper in 1937 and is still fairly relevant today.
The clock is designed to show how economies move in cycles.

The last decade

From December 2001 when the cash rate as set by the Reserve Bank was just 4.25% through to March 2008, Australians endured a period of rising interest rates up to a peak of 7.25%.

Property and share markets had grown very strongly and inflation was often a worry.

Then in 2008 the tide turned as the financial crisis began to take effect.

Corporate profits fell and consumer confidence was shattered. Stock markets plummeted.


The economic  clock shows that in such an environment (at 3 o’clock) commodity prices are likely to get hammered as demand dries up.

Did this happen? Yes. And how! Note the desperate performance of the copper spot through 2008, nearly hitting $1.00 USD/lb. At those kind of levels many projects become unviable and are mothballed.


You might recall how easy it was to source a mortgage in 2007. No deposit needed!

As confidence fell funds became much tighter and harder to source, which naturally cooled Australia’s property markets.

But then interest rates were dropped to just 3.00% in April 2009 which stimulated the economy…and house prices jumped.

The cycle continues…

Economies do move in cycles and although it took some time confidence slowly began to return and share prices rose again.

Commodity prices have recovered too, and slowly but surely debt is becoming easier to source again.

Who knows it may not be too long until 100% mortgages are all the rage again.

Although we should have learned our lessons about the dangers of dishing out too much debt, humans tend to be fairly poor at learning from past mistakes. We tend to forget incredibly quickly.

So where are we today?

Interest rates have been again dropped to just 3.00%. Property prices in some markets have begun to creep up and share prices are flying.

The iron ore spot price has staged a remarkable recovery after plumbing the depth of below $90/tonne.

The US debt crisis will cause some concern in the short term but most commentators think that 2013 is likely to be a good year for investors…as indeed is suggested by the economic clock.
Stock markets look likely to continue their fine run over the course of the year. 

The next big economic news will be the CPI (inflation) data this week. If the underlying print comes in at 0.6% for the quarter or lower then this will leave the RBA more room to drop rates yet again to 2.75%.

What the RBA's chart below shows is that some property markets may have topped out for now. The booming price growth in Melbourne, for example, may be followed by a prolonged period of flat or falling prices.

The immediate outlook for cities such as Sydney, Brisbane and particularly Perth seem to somewhat brighter.

In these big capital cities affordability can sometimes be an issue, and for this reason apartments have been outperforming houses in many of our markets over the last half decade.

Dwelling Prices graph