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.

Friday, 7 March 2014

Wealth effect (retail jumps)

Out and about

Yesterday morning, I had a coffee at Max Brenner on Margaret Street with a girl I used to work with in the mining industry, then rather fancy tapas lunch at Circular Quay with an old cricket mate turned investment banker, and, not feeling much like cooking in the evening, got a Thai takeaway to watch the rugby league last night.

A neat microcosm of Sydney, that.

My missus tells me that she also had lunch out for a friend's 40th, and bought her mate a present from Tiffany's.

Hmm, so much for this being a blog about finance: spend less than you earn and invest the difference. That little lot adds up to an expensive day. 

The odd thing is, I'm pretty sure that two years ago, we'd have felt less inclined towards spending like that. But interest rates are way down.

Share markets are way up. Sydney home values are booming, and so too are house prices in London. Even without drawing lines of credit, we're wealthier. 

We're not the only ones.

Without fail, I make the comment every weekend to my better half that in Sydney at the moment it feels like what it must have been like to live through the US golden age of consumerism in the 1950s.

People have got money thanks to rock bottom mortgage rates and by heck they are spending it!


Incomes

A couple of observations, though. 

Firstly, this has not been an income-led phenomenon. Wages are only growing at 2.6% y/y, which is historically the lowest we've seen in the history of of the wages index.

It's mostly been about the massive affordability dividend gifted to home owners since the interest rate easing cycle began in November 2011, since which time we've had the equivalent of another eight interest rate cuts, which frees up a lot of cash to spend each month. 

Mortgage arrears are nowhere to be seen in Australia, tracking at just 1.37%, as compared to, say nearly 20% of mortgages being 3 months in arrears in Ireland. 

Another noteworthy point is that while certain profligate people have been shopping at Tiffany's, it's largely been about eating out, restaurants, drinking and similar consumption-based recreation. 

Last Tuesday, to celebrate some good news, we tried to go for a Japanese lunch and couldn't even get a seat. Granted, it was close to the large Macquarie Bank office on Shelley Street...but on a Tuesday lunchtime?! 

This is Sydney at the moment, the city of takeaways, restaurants, food and drink consumption.

Repeat

Of bad and annoying habits, I have several.

I repeat myself a lot - once I get an idea in my head, I tend to keep banging on about it.

I often get prematurely excited (only with regards to ABS data, mind).

And I repeat myself a lot.

Regular readers will know that for the past 6 months I've been saying over and over again that retail trade is doing just fine.

In fact, I reckon it is already going strong, whatever people might be trying to argue elsewhere.

It feels like I'm living in a parallel universe sometimes, since even until recently there have been articles talking about a spending recession.

I know that Sydney is not Australia, but still, this is definitely not what my eyes have been telling me...but what about the data?

Retail print

And so to yesterday's figures, after prints of 0.7% m/m and 0.5% m/m, yesterday the market expected a Retail Trade print of 0.4%.


Bears have tried to play this down as a blip or a one-off, but there is no other realistic way to describe that than as a huge beat. A real belter of a retail figure.

In any case, the prior month was also revised up as well to 0.7%.

The statistics now show that for six months, retail trade has been rising at an annualised pace of 9% (at seven months it's been the longest run of monthly gains since 2005-7), and for the last 3 months we now are at progressing double digit annualised speed!

We haven't seen anything remotely like this since the stimulus of 2009.

And where are we spending all this money? Well, all over the place, but as you can see with your own eyes, a huge chunk of it is going on cafes, takeaways and restaurants.

And the ABS confirmed this yesterday:

"The seasonally adjusted estimate rose 2.0%. By industry subgroup, the trend estimate rose for Cafes, restaurants and catering services (1.7%) and Takeaway food services (0.3%). The seasonally adjusted estimate rose for Cafes, restaurants and catering services (2.7%) and Takeaway food services (0.9%)."

Cafe's Restaurants and Taekaway Services


Graph: Cafes, restaurants and takeaway food services

Source: ABS

Wealth effect

The wealth effect has been well known about by us Poms for years. 

In fact, it's even a part of the Monetary Policy wording over in Blighty, and here's exactly how the Bank of England describes it:

"Lower interest rates can boost the prices of assets such as shares and houses. Higher house prices enable existing home owners to extend their mortgages in order to finance higher consumption. Higher share prices raise households’ wealth and can increase their willingness to spend."

And the data from the Office National of Statistics proves it:


Source: Nationwide

Does the wealth effect work in Australia too?

Cameron Kusher of RP Data charts the information, so draw your own conclusions (it does):


Source: RP Data

Strong data

Yesterday, we also got reported a trade surplus of $1.4 billion, another big beat against a forecast of only $100 million. Resources exports are booming. The economy is heating up.

Add to this in the past week:




-Coles announced yesterday a massive $1.1 billion expansion plan. The retail sector is set to add 109,000 jobs over the next few years. 

Low interest rates are working. Futures markets increasingly believe that the next move in interest rates is up. 

Make the most of low rates while it lasts, I say. Max Brenner anyone?

---

Some amusing reactions to yesterday's retail trade release.


Although, sadly, most of us continue to lack Christopher's majestic eloquence...