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).

5 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 finest property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

"Pete 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'.

"The level of detail in Pete's work is superlative across all of Australia's housing markets" - Grant Williams, co-founder RealVision - where world class experts share their thoughts on economics & finance - & author of Things That Make You Go of the world's most popular & widely-read financial publications.

"Wargent is a bald-faced realty foghorn" - David Llewellyn-Smith, MacroBusiness.

Thursday, 19 June 2014

SA budget crisis - deficit of $479m (property owners hit with annual hike)

Budget crisis in South Australia

From Business Spectator:

"The South Australian government is warning of a possible hospital closure in order to deal with a budget crisis it blames on federal cuts.
Treasurer Tom Koutsantonis said SA would need to slash $332 million from the health system over the next four years unless the Commonwealth reversed its massive underfunding of the states.
This could come from closing a hospital, abolishing hospital departments, changing hours of operation or from other cuts proposed by those involved in the health system, he said as he delivered his first budget.
"However, it must be stressed the nature of the federal government cuts means the health system is no longer viable in its current state," he said.
"We are not taking anything off the table. What we are going to do is to have a conversation with the people."
The budget for 2014-15 delivers a deficit of $479m, a deterioration on last year's forecast of $431m but better than the $511m predicted at December's mid-year budget review.
A surplus of $406m is forecast for 2015-16 and $776m the following year, rising to $883m the year after.
Net debt in 2014-15 will be $4.5 billion, jumping to $7.1bn  in 2015-16 when the new Royal Adelaide Hospital comes on the books.
As I highlighted here, there are genuine concerns about the local jobs market in South Australia with unemployment continuing to rise all the way up to 6.8%, way above the national average, and a net position of zero jobs being added in the labour force for years (click charts):

Unfortunately, employment growth in South Australia is only forecast to remain soft. Business Spectator continues:
"The government has forecast very modest employment growth of one per cent in each of the next four years. The treasurer said the budget included $689m to fund election promises, including its share of the Gonski education reforms.
He said the federal cuts included $655m in health spending alone, half of which SA will now raise through removing current discounts on the Emergency Services Levy.
This will result in property owners being hit with an annual hike, although pensioners will be exempt. "For the median household in metropolitan Adelaide this increase will equate to about $150," he said.
The levy pays for organisations such as the Metropolitan Fire Service and the ambulance service. The other half of the $655m required in health system savings will have to be identified unless the federal cuts are not reversed.
The treasurer said the closing of a hospital, for example, was not a fantasy horror scenario, adding "I'm not going to promise people there will not be dramatic results".
Government executives and ministerial advisers will have a pay freeze in 2014-15, while public servants including nurses and doctors will have their annual wage increases limited to 2.5 per cent.
The government will suspend spending $234m over the next four years, funds earmarked for hospital infrastructure upgrades. The money may be redirected to other health facility projects.
The government will also withdraw from the compulsory third party insurance business, and raid the Motor Accident Commission's current $1bn surplus to the tune of $500m, which will be used for roadworks."

Mine closure

Indeed, not a great day for South Australia all round, with it also being revealed today that the Cairn Hill mine faces crisis as plummeting iron ore prices claim their first victim - the operating company, Termite Resources being forced into administration.

As I noted this morning, I formerly worked in copper mining in South Australia (as an FC), and one of the serious challenges facing the state is that the copper price has flatly refused to recover and sits way down at only USD$3.06/lb.

Unlike some commentators, I don't pretend to have an inside track on the issue when I obviously don't, but I note here that a copper spot of US$3.06 in concert with other commodity price declines does not portend particularly well for the long-awaited expansion of South Australia's vast Olympic Dam project.

I really and truly hope I am wrong about that. 

In fact, there may be reason to believe that I just might be, since London Metal Exchange (LME) Warehouse Stocks have been declining sharply for months now. Clearly much depends on the level of ongoing demand from the Chinese mainland, although there are some indicators that the Chinese economy may be slowing.

What I can't figure out for the life of me is that commentators are still continuing to predict a property "boom" in Adelaide, despite having been wrong about that for more than half a decade, with prices not even matching inflation, let alone booming (click chart):

I'm certain that there could be an Adelaide price uplift in these times of record low interest rates, but a sustainable property price boom...really?

A cursory analysis of the ABS Lending Finance data, which I'm now convinced that most don't bother with, shows that investors certainly aren't choosing South Australian property, since they are far too busy piling into the Sydney market (click charts):

In any case, people need jobs to buy property, and when the local and state economy isn't creating jobs, then sooner or later population growth will surely stagnate too.

Don't the expert commentators read the economic data (seriously worrying)? Or do they read it and choose not to acknowledge it (arguably even worse)?

I never get any answers to these questions, of course, they're merely rhetorical blogosphere propositions.

Sure got me stumped, anyway.