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.

Thursday, 20 February 2014

Recession?

Recessions

We are all products of our environment and experience. I despise recessions. Can't help that, I just do. 

I was born in a seemingly thriving city with full employment, a "city on the move!" where the future seemed bright for all.

But when the steelworks, the factories and the coal mines started closing, unemployment rose from only 4% in 1978 to 11% by 1981. 

Fortunately for me, I was still a nipper then and not searching for a job, but I can remember very clearly what it was like in the city's tower blocks (grim). 

By 1984, the city had an unemployment rate of 15.5% as the percentage of those employed in manufacturing fell from half to less than a quarter. 

Then in 1984-5 the national miners' strike was head-quartered in the city...and the rest you have probably heard before.

What I find most amazing when I read chat forums today is just how matter-of-fact people are when discussing the high suicide rates on the estates. "Anyone remember people throwing themselves off the top of the towers each weekend?". "Yeah, me too. Quite a regular occurrence...". 

Bias

Does this kind of thing impact my view of the world today? Too bloody right it does. 

When I analyse data, I suffer from confirmation bias, just as we all do. 

If my analysis tends towards the upbeat and looking for positive news to confirm my belief that Australia is not headed for recession any time soon, then the root cause of that is explained above, and I will never be able to elicit sympathy for people who clearly hope for job losses.

What I had never realised until the advent of the internet, is that there is a whole community of people who actually want there to be a recession, to 're-set' the economy. 

Being a Brit, I've lived through a few recessions now, and in my experience at least , it doesn't really quite work like that

Unfairly, it often tends to be those with capital reserves who are able to take advantage of lower asset prices, while the have-nots may grapple with lower wages, increased living costs or the evil spectre of unemployment. 

That said, it is true that recessions can have a useful role to play in clearing up the excesses of the past. 

Since the world plunged into the abyss from 2007 onwards, lest anyone needs reminding, there has been a long, drawn-out debate about whether Australia will fall into a recession. 

Personally, I've never subscribed to that view although many have disagreed with me over all these years.

The good news is you don't actually need to listen to my views, or indeed to those of the recessionists, since we have a fully independent body which employs a couple of hundred economists in order to assess where are most likely headed: the Reserve Bank of Australia (RBA).

Unemployment

Unemployment is forecast to increase a little through the next few quarters and then fall again in 2015:

"The unemployment rate has continued to move higher and the participation rate has declined noticeably. These factors are likely to continue to weigh on employment growth in the near term, and the unemployment rate is expected to remain on an upward trend for several quarters. 

This outlook for the unemployment rate over the next year or so is little changed from the previous Statement. 

In 2015, the expected improvement in the non-resource sector should underpin an improvement in labour demand, with growth in employment increasing gradually and the unemployment rate declining."

The RBA sees low interest rates stimulating the economy and labour markets. 

Growth and inflation forecasts

The RBA released its most recent output growth and inflation forecasts two weeks or so ago on February 7:


Source: RBA

One of the neat things about Australia having a long-standing and independent Central Bank is that they can use their track record to tell you how confident they are of their own forecasts.

Inflation is forecast to stay roughly within the target range of 2-3% until June 2016. 

The implication of this is that interest rates may stay at historically low levels for some time since the RBA's base case is for inflation to remain at around 2.5%  until 2016 (commensurate with the employment forecasts above).

Good news for homeowners and borrowers, less good news for savers.



As for the economy, the RBA projects GDP growth of:

-year ended June 2014: 2.25%

-year ended December 2014: 2.25% to 3.25%

-year ended June 2015: 2.50% to 3.50%

-year ended December 2015: 3.00% to 4.00%

-year ended June 2016: 3.00% to 4.25%


Looks like that recession will just have to wait a while.