Pete Wargent blogspot


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Monday, 20 May 2019

Banks rip as Labor loses election

ScoMo boost

Stock markets are well and truly off and running this morning.

The ASX is now trading at the highest level since 2007.

The banks are faring especially well as the threat of a range of housing taxes from the ALP has been removed. 

Westpac (ASX: WBC) is up by a massive 8 per cent in early trade.

NAB and ANZ are also both up 7 per cent respectively.

Commonwealth Bank (ASX: CBA) tore 6 per cent higher to above $77, eclipsing anything seen all the way through the banking Royal Commission. 

The second tier banks saw strong gains, though not quite in the same league, perhaps indicating something of a power shift back towards the major lenders. 

There were also strong gains for private health insurers in early trade, with Medibank and NIB both recording double digit percentage gains. 

The election result is a very significant one for banks, partly due to regulation, partly due to perception, and largely because it improves housing market dynamics by removing some of the poorly thought through reforms on negative gearing and capital gains tax. 

How good is this election to win?

Hit the ground running

Not even a day later from the Liberal election victory plenty of the media narrative has subtly shifted towards this being an effective 'hospital pass' and a bad election to win.

Hmm, if you say so.

I don't imagine the line would've been quite so much that way had Labor won as predicted.

And if there's one thing this week has shown it's that groupthink, echo chambers, and media narratives can sometimes be off the mark. 

The reality is that the preceding two elections were arguably tougher ones to win, at a time when either nominal GDP growth was weak or the collapse in mining construction was dragging mightily hard on the economy.

But the mining downturn is now over, and commodity prices have roared, just as the Aussie dollar has weakened to multi-year lows. 

Australia is thus set to benefit from an unprecedented surge in iron ore, coking coal, thermal coal, and LNG revenues, as well from its many other commodity and services exports. 

The Budget is effectively back in the black, and there is ample firepower to deliver a salvo of personal tax cuts over the coming half decade.

Labor is in disarray and back to wiping its slate clean on tax policies and reassessing its stance on coal, so ScoMo could easily get six years in power if he gets the economy humming. 

And with inflation so low real wages are finally rising again at the best pace since 2012 (all the more so when including bonuses).  

Another benefit to low inflation is that the Reserve Bank can safely deliver rate cuts, beginning with 25 basis points in a fortnight's time.

Credit where it's due

It almost goes without saying that the main hurdle for Morrison is the housing downturn and the associated drag from dwelling construction. 

There will certainly be a so-termed 'positive shock' from the lack of changes to negative gearing and capital gains taxes. 

And the government has also promised a new first homebuyer deposit scheme effective 1 January. 

Meanwhile, new fixed mortgage rates are still falling to record lows. 


It's a truism to say that our housing markets are fragmented, but there's a risk of this becoming more so the case while credit restrictions remain in place. 

Stock turnover has now officially fallen to the lowest level on record at just over 4 per cent - it's hard for a labour market to fire up when people aren't moving, let alone furnishing and renovating - and new listings have plummeted. 

For example, we've seen some huge sales results for houses in the $2 million plus range in Sydney's eastern suburbs (including in Clovelly, Queens Park, Waverley, Bronte...and now even across town in Strathfield) as wealthy buyers squabble over what's close to the greatest dearth in quality new stock listings in memory.

Meanwhile on the city fringe valuations are coming up short and transactions are falling over like ninepins. 

Jobs in the development and construction industry are at high risk, with so many developers totally unable to access finance. I genuinely think the government has no handle on what's coming down the pipe here. 

The prospect of mortgage rates below 3½ per cent may be beguiling for those that can borrow, but too many wannabe market entrants are being knocked back (or, more accurately, aren't bothering to apply in the first place as they know they'll be knocked back). 

Looking at bond yields and futures markets an assessment rate buffer of 250bps should be plenty. 

Sunday, 19 May 2019

Coalition swept to victory (webinar registration)

Election webinar

Pollsters and bookies were left stunned on polling day as PM Morrison swept to victory within a few short hours.

This appears to have been another case of behavioural herding and 'shy Tory' self-censorship, roughly in the spirit of Trump's victory and the Brexit vote.

Certainly on social media most of the political voices I follow are outspoken Labor voters, but the Liberals won easily in the end. 

The Coalition ran a successful scare campaign on Labor taxes, while some material swings in Queensland and the Hunter Valley suggested that the jumbled stance on coal was a vote-killer for Labor. 

From what was observed at investor conferences over the past fortnight the proposed reforms on franking credit refunds also went down like a lead balloon with the over 65s cohort. 

Given it was essentially a one-man victory, PM Morrison will presumably hold plenty of sway in the Coalition circles for the next few years.

Stock markets will adjust quickly to any real or perceived impacts of the campaign and poll results, as they usually do, with perhaps a short-term bounce for banks and miners to follow.

Markets will likely still price in a couple of rate cuts this year, but maybe December 2019 indexed swaps which are pricing in even further easing will cop a bit of a hit. 

Naturally there are some more structural factors to consider in terms of the economy and a looming Budget surplus, personal tax cuts to land in workers' pockets effective July 1 and more to follow, property taxation, the first homebuyer deposit scheme, and the now-remaining in place capital gains tax discount. 

One of the many points we'll cover in our forthcoming webinar on Tuesday is how to build a strategy for all seasons, and for governments of all stripes. 

We've had a big subscriber response but you can still find the details and reserve your webinar seat here

Weekend reads (Wealth Retreat reminder)

Wealth Retreat 2019

The must see articles of the week summarised for you here at Property Update.

By the way, if you haven't registered your interest for Wealth Retreat 2019 yet, you can do so here.

Friday, 17 May 2019

Ton up!

Iron ore goes vertical

A budget bonanza heading Australia's way here, with iron ore's 62% Fe benchmark spot price blazing to $101.74 per tonne on Brazil's supply disruption issues. 

With the Aussie dollar now at around multi-year lows of 68.77 US cents there's some serious income on its way from iron ore, coking coal, and LNG exports.

Post-election webinar: extra 50 seats

Webinar: extra seats

4 million Aussies - including me - have already voted early, which tends to mean that the later votes will swing towards the Coalition.

Overall, however, the election is looking rather like a Labor victory.

But the likely composition of the Senate is well worth spending some time understanding, as this will directly impact what happens over the next 6-12 months. 

We've had to extend the election webinar seat numbers due the previous allocation being filled up in less than two hours this morning.  

We've opened up another block of 50 seats, so reserve yours below (don't worry if you miss the time as we are recording a video and can email it out to you later):

Join me LIVE on Tuesday 21st May @ 10:30am AEST for a Post Election Investment Strategy Conversation.

You couldn't help but know that it's election time in Australia.

And there are plenty of scare campaigns out there about what various policies might or might not do to the economy, to stock markets, and to housing markets.

For example, franking credit refunds are in the spotlight, there may be tax rate increases for some individuals, and there are some significant changes proposed for the way In which investment property is taxed.

There will be some changes ahead (though some may fail to become legislated).

But change can also bring opportunities.

In this must-see webinar we will cover off everything you need to know.

Webinar Details

Tuesday 21 May 2019
Time: 10:30am - 11:30am AEST
Reserve your seat - click here (even if you can't make it, register and I will make sure you get a copy of the recording).
P.S. Whenever you’re ready here are a few ways I can help you step up to the next level:
1. Grab a copy of my free book Next Level Wealth by downloading it on this website.
It’s the roadmap for building a 6-figure passive income stream and financial abundance.
Click here to download.
You can also subscribe for my FREE DAILY BLOG here.
Why not join my Facebook group and come to join the conversation there too?
2. Submit the enquiry form for a free 15-minute diagnosis call, and for qualifying applicants, a free 45-minute strategy session in person.
Click here to book your free session.
3. Sign up for my 12-month Next Level Wealth coaching program.
If you’d like to work with me privately to target and achieve 7-figure results, get in contact via the enquiry form and I’ll get in touch personally.
Places are strictly limited and applications will be assessed on a first-come first-served basis. Learn more by clicking here.

Thursday, 16 May 2019

Money too tight to mention (rate cut 18 days away)

Market pricing update

Only in December was the Reserve Bank expecting the next move in rates to be up, but tightness in credit flows and falling housing prices have had far-reaching impacts on consumption and with construction to follow. 

Not much help has been forthcoming from fiscal measures.

Meanwhile a number of lenders are tightening their mortgage lending assessment criteria even further with regards to credit card facilities, expenses, and other assessment variables.  

One prospective but hapless borrower had a $1.19 outstanding bill questioned this week, eclipsing the $3.50 query I encountered a few days earlier. Crazy times. 

Meanwhile bond yields continue to get punched down to fresh record lows. 

Can't swear on the blog as it bounces subscriber emails, but markets appear to be pricing the risk of things turning into a bit of a fustercluck.  

Terry McCrann at the Herald Sun has just reported that an interest rate cut in June is now certain, and that the four big banks will pass on the cut in full on variable mortgage rates. 

According to McCrann on the newswires a second cut will not automatically follow in July, pending further unemployment readings. 

Line ball

Jobs still a-comin'...

Interesting jobs figures once again today, with employment up +28,400, taking annual employment growth all the way up to +322,900 or +2.58 per cent, which isn't far off double the rate of population growth. A weak composition this month, though, with full time jobs falling. 

Employment was all about New South Wales in April at +25,000, taking the annual gains for the Premier State to +130,000, ahead of Victoria (+124,000), and Queensland (+51,000). 

Unemployment now rising

The unemployment rate increased to the highest level in 8 months at 5.20 per cent, so if NAIRU is around 4½ per cent as previously implied then we're a long way from that and drifting further afield. 

Zooming in the chart, the trend for unemployment has increased for 4 consecutive months now, to 5.11 per cent. 

Rising participation is a good thing, but the underemployment rate jumped from 8.2 per cent to 8.5 per cent, again pointing to plenty of slack. 

More folks have been pulled back into the labour force in Melbourne and Sydney, but hanging out a bit in regional Queensland lately delivered a timely reminder that many other parts of Australia are lacking in propulsion. 

New South Wales (4.3 per cent) and Victoria (4.8 per cent) have low unemployment rates, but it is not so elsewhere. 

Finally, the trend annual growth in hours worked improved a bit to +2.8 per cent, hinted at a glimmer of hope. 

Pressure building

Some good news on total employment and hours worked, but with the unemployment now rising again interest rates are deemed likely to fall, and soon. Even HSBC is now calling for immediate rate cuts, having been hawkish since forever. 

While the RBA could make a case for sitting pat the forward-looking indicators have turned badly against the prevailing jobs momentum, with SEEK's advertisements down more than 20 per cent year-on-year (election timing may have been a factor). 

Wage price growth was also soft in the first quarter of 2019. The Reserve Bank's mandate now includes hitting an inflation target of 2 to 3 per cent, on average over the medium term, and full employment.