Pete Wargent blogspot


'Must-read, must-follow, one of the best analysts in Australia' - Stephen Koukoulas, ex-Senior Economics Adviser to Prime Minister Gillard.

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'I've been investing 40 years & still learn new concepts from Pete; one of the best commentators...and not just a theorist!' - Michael Yardney, Amazon #1 bestseller.

Saturday 30 June 2018

Turning Japanese

Sensei humour

This is way too cool not to share.

Japan's unemployment rate chart has spookily plotted out a map of Australia's entire Top End coastline stretching from Karratha up to Kakadu, and from Cape Trib down to Coolum.

Chart via Business Insider Australia Twitter feeds:

Source: Colgo/Scutty, Business Insider

Totally unreal - unconventional policy moves in mysterious ways!

And also handy news for the Japanese economy as it returns to full employment from the Lehman shock, with the jobless rate now at the lowest level in 25 years.


Friday 29 June 2018

Weekend reads - must see articles of the week

Is it really the weekend already?

So it is!

Here, then, are you must see articles from this week.

And please do subscribe for the free Property Update newsletter here.

Have a great weekend!

Coal fires up

King coal

Coal prices remain, erm, on fire.

ABC News reported on the trend here

This is terrific news for the Newcastle and Hunter Valley region, which had taken a temporary hit as the coal price collapsed a few years ago.

Although export volumes remain off their peaks, the coking coal price is up at around US$200/tonne - a far cry indeed from the nadir - while thermal coal is also cruising along at about US$120/tonne.

Whitehaven Coal (ASX: WHC) was trading at $5.80 today, a remarkable rebound from just 36 cents in early 2016, when it seemed for a time as though the company was flirting with insolvency.

Record mining profits, record employment, now record job vacancies thanks to Victorian infrastructure projects - that's a pretty handy combination which if sustained could push Australia back towards a Budget in balance in quick time.

Meanwhile in the housing market what's old is new again, with some resources regions moving towards rental shortages, especially in coal-fired locations.

Notably in Muswellbrook:

Source: SQM Research

Further north in the coal mining town of Moranbah, where real estate prices crashed by up to 80 per cent from the peak during the bust, it appears to be a similar story. 

Source: SQM Research

In Gladstone, meanwhile, where LNG investment is making a bit of a rebound, vacancy rates have declined from a horrifying 16 per cent in 2016 to 3.4 per cent in May 2018, and continue to trend down. 

I doubt so many housing market investors will pile in this time around - with investor credit harder to access even if they wanted to. 

26-year low for money growth

Tighter lending

Housing credit tightened as expected in May 2018, especially to investors.

Indeed the growth in lending to investors is slowing quickly, essentially now down to nil. 

With fewer interest-only loans out there in the market now outstanding investor credit accounted for 33.5 per cent of housing credit, the lowest share in 5 years. 

Housing credit growth was 5.8 per cent over the year to May 2018, well down from 6.6 per cent a year earlier.

Anecdotally a greater volume of mortgage applications is being rejected.

The Housing Industry Association (HIA) reported today that new home sales declined by a further 4.4 per cent in May, to be 12.8 per cent below the most recent cyclical peak.

Money growth slows

There was negative growth in both business and personal credit in the month of May. 

Broad money growth is now at the lowest level since October 1992.

Number one in that month was Eye of the Tiger by Survivor!

4 ways to bridge the credibility gap

Credibility is easy to lose, and tough to earn.

Here's how it's done.

Thursday 28 June 2018

Job vacancies at the highest level on record

Job vacancies flying

Labour market figures continue to defy the sceptics and pessimists, my semi-optimistic self included!

Although telcos, banks, and eventually construction companies may well be shedding staff in the years ahead, the strength of the services sector is overwhelming the bad news. 

Vacancies exploded 24.1 per cent higher year-on-year to a seasonally adjusted 236,000.

Not only is that the highest level on record, it's actually an acceleration in the annual rate of growth to the steepest trajectory since the post-crisis recovery period of 2010. 

The Tasmanian economy hasn't seen much change over the past year, with vacancies reportedly being filled by applicants quickly.

However, in all other states and territories there was significant, double-digit year-on-year growth. 

Western Australia in particular is now looking up, with vacancies up by 26.2 per cent over the year to May 2018, rebounding from a sharp decline.

But the real boom state is Victoria, with vacancies exploding 51.6 per cent from a year earlier to by far the highest level on record at 67,600. Boomtime!

New South Wales also remains at hot levels with 77,300 vacancies, a double-digit increase from May 2017. 

Commentary is almost pathologically inclined towards talking these numbers down.

But even accounting for the 301,000 or 2.3 per cent expansion in the labour force over the past year, driven largely by higher female participation, this implies that the unemployment rate will continue to fall towards 5 per cent as this record number of positions is filled.

Perhaps even lower, who knows?

The number of unemployed persons fell to 714,600 in May 2018 in seasonally adjusted terms, reducing the ratio of unemployed person per job vacancy to just ~3 (from variously above 5 in 2014 and 2015 calendar years respectively). 

Even the trend series ratio now increasingly looks very healthy, gliding lower to the lowest level since the early part of calendar year 2011. 

At the sectoral level, construction vacancies are now at the highest level in five years, possibly relating to infrastructure projects in Victoria, as noted here yesterday

There has been a big surge in the number of administrative and support vacancies, which may be a survey categorisation issue (but if you do need to pick a new secretarial applicant, here's the optimal way to do it!).

Finally, the healthcare and social assistance sector continues to generate a large number of jobs vacancies, but retail trade looks weak. 

The wrap

A supremely strong result here, all things considered, following on from a solid set of National Accounts, to be chalked up as another win for the Treasury and the Reserve Bank board. 

In related news, the Department of Finance released its latest monthly financial statements yesterday, which showed the rolling annual underlying cash balance deficit at just $10 billion, a thumping $5.8 billion ahead of the revised Budget profile for 2017-18.

That's a strong result indeed, driven by a surge in tax receipts.

And as prominent economist Warren Hogan has pointed out, Budget figures don't behave like this when the economy is floundering. 

Book competition (reminder)

I was shocked - shocked! - to discover that some readers have not entered this free book competition.'s not too late.

You can do so here.

Good luck!

Wednesday 27 June 2018

Engineering works on the rise again

Engineers back in demand

Positive news for the Australian economy as another issue that was supposed to cause the end of days is seen off.

Following years of seemingly endless declines from the 2012 peak, engineering construction activity was 14 per cent higher year on year at a seasonally adjusted $23.7 billion in the March 2018 quarter.

Public works has done plenty of the heavy lifting here, up 19 per cent from a year earlier to $9.5 billion, with infrastructure projects in New South Wales and especially Victoria a major driver of the rebound. 

Indeed there has been a tremendous increase in engineering work in Victoria since 2014, with activity in the state rising by two-thirds since that time. 

Queensland also saw quarterly activity lift to a 33-month high of $5.4 billion, following on from a wretched downturn as the mega-LNG projects transitioned to production.

Although mineral exploration and metres drilled are soaring again in Western Australia this has yet to translate into meaningful engineering work, with activity languishing at levels last seen in 2006.

Victoria kicked off some $11.5 billion of road/rail/bridge works in the March quarter, helping to lift the national quarterly value of engineering work commenced to the highest level since 2013.

Looking forward

The outlook for engineering employment and activity is bright enough, with the value of work yet to be done rising again, largely relating to roads and rail projects. 

If activity is really going to take off then we'd likely need to see a sustained rally commodity prices and in turn more mineral exploration translating into resources investment. 

How to form positive habits

Here's how!

Tuesday 26 June 2018

Beautiful one day; southern equity the next


What's that you say?

Everyone's moving to Queensland?

So they are!

Here's the incomparable Cameron with the stats.

Where are they coming from?

Sydney mainly...

Source: Kusher/CoreLogic

...and Melbourne...

...and pretty much everywhere else too.

This is a rational response to a price signal, with south-east Queensland offering great affordability and lifestyle.

This is a powerful trend because these interstate migrant-settlers bring equity.

There's a potential counter-point to this, being the higher than usual number of net overseas departures in the lead-up to Christmas.

I'd say you should hold your horses on that, because with so many temporary visas now on issue - especially to international students - the overseas movements are likely becoming more seasonal and we'll probably see a reversion in the March quarter. 

I looked at the trends in a bit more detail here

Monday 25 June 2018

Low wages growth? How and why to value yourself

It's been a tough period for employees, with wages growth grinding past record lows.

Here's why and how to value yourself, so others will too.

Sunday 24 June 2018

Commodities echo-boom tentatively ramps up

Job searches shorten

The median duration of job search in Australia was 17 weeks in May 2018, another modest improvement on the 18 weeks seen a year earlier. 

The year-on-year decline was helped by Sydney, where the annual average job search duration is down to 12.8 weeks, as well as Melbourne, where it is now down to 13.4 weeks.

Although not unexpected given the surge in labour supply from interstate, the average search duration in Brisbane has been stretching out lately.

There was a bit of more uplifting news for Perth in the monthly figures, with the 17-week median job search duration back in line with the national average, and well down from 20 weeks a year earlier.

The beginning of brighter days ahead?

Commodities echo-boom

It's now well over half a decade since the peak of resources construction in 2012, and the engineering construction activity figures for the March 2018 quarter will confirm a small rebound from the nadir when they are reported on Wednesday this week.

As I looked at in more detail here, Australia has already experienced a renewed surge in mineral exploration, driven by Western Australia, Queensland, and New South Wales, in that order.

To date, the surge in exploration spend and metres drilled has been driven mainly by gold and a range of base metals. 

Meanwhile, solid global demand for commodities has helped to lift annual mining company gross operating profits to record levels at $110.6 billion.

Notably, the as the mega projects exports ramp up and reserves are exploited, a new wave of capital investment and drilling will eventually fall due for the bulk commodities and LNG. 

Some of this is already imminent, with Santos GLNG set to invest $900 million in upstream developments across Gladstone's gas fields in 2018.

With iron ore exports still hammering along, BHP recently announced that it is set to invest about $5 billion in the South Flank iron ore project, while Fortescue Metals Group is set to tackle a new mine, 'Eliwana', at an estimated cost of $1.3 billion.

Employment recovery

It's interesting to look at how some of the struggling labour markets around the traps have fared over recent years. 

Geelong's deteriorating labour market in 2014 in the face of a raft of industry closures was quickly arrested in 2015, partly through public sector initiatives, and the region is now faring well on Melbourne's coat-tails.

The Hunter Valley also bounced back reasonably quickly as coal prices surged, aided by its proximity to Newcastle and Sydney. 

For the more disparate resources-influenced regions, the downturn has been less forgiving for longer. 

Townsville appears to be through the worst now, although its recovery was partly thwarted by the Yabulu Refinery closure announcement.

Meanwhile, mining employment is back in demand in Queensland, with a 46 per cent year-on-year increase in SEEK job advertisements reported for the sector in May 2018.

This is likely to even more beneficial for regions such as Mackay, where unemployment has already declined very rapidly from the 2015 peak, which is great to see!

To date, much of the resources hiring has been operational in nature, rather than relating to capital investment. 

But that could be about to change.

Although nobody wants to get too excited at this stage, this would be hugely positive news from Perth to the Pilbara, and from Gladstone to the Galilee Basin.

Stock of IO loans quickly reduced

IO curbs effective

In August 2017 I attempted to estimate the value and timing of forced interest-only ('IO') resets as a result of tighter lending standards. 

Since that time many rational borrowers have elected to switch to principal and interest (P&I) loans to benefit from the more attractive mortgage rates on offer. 

APRA's quarterly ADI figures showed that the flow of new IO loans was under 16 per cent for a second consecutive quarter. 

This dynamic combination has had a marked impact on the stock value of outstanding IO loans, declining by $93.2 billion of 16.1 per cent year-on-year.

As a share of ADI residential term loan exposures IO loans have therefore been reduced to 31 per cent as at March 2018, well down from close to 39 per cent a year earlier. 

Most borrowers appear to be handling the switch comfortably.

Those most impacted are likely to be portfolio investors, although many of this cohort built their portfolios over a long period of time, building equity and cashflow in doing so. 

Some may have to sell a property or two in order to reduce debt. 

The share of higher loan-to-value (LVR) ratio lending continued to tighten in the March quarter, having already declined considerably since 2014. 

The latest figures relate to the first three months of 2018, so it's difficult to know whether the Royal Commission had any further impact over the following period through to June.

It's interesting to note that the major lenders have lost some market share over time.

Yet bank share prices saw a punchy rebound this week, possibly relating to a short squeeze, or more likely a pervading sense of relief as the media loses its appetite for daily stories from the Royal Commission. 

Saturday 23 June 2018

Weekend reads

The must see articles of the week are summarised for you here.

Subscribe for the free Property Update insights here, along with more than 100,000 others.

Don't forget to check out this free book competition too.

Have a great weekend!

Friday 22 June 2018

Sydney unemployment rate falls to 4.2pc

Manufacturing picks up

Construction employment declined a bit over the three months to May 2018.

As detailed in our free sample report for fund managers and investors, the looming and potentially sharp downturn in construction jobs from century-highs as a share of total employment is a key risk in Australia. 

However, there was an offsetting strong increase in manufacturing and public sector employment in the quarter. 

Manufacturing employment being on the rise again might be something of a surprise given auto industry closures, but manufacturing is quite a broad term, incorporating food manufacture for overseas consumers, for example. 

And this dynamic has helped to keep the annual average number of unemployed persons declining, albeit glacially, down to 723,900 from 768,400 at the September 2015 peak. 

Sydney's unemployment rate declined again to just 4.2 per cent in May, taking the annual average unemployment rate for the harbour city down to 4.49 per cent - that's the lowest rate since 2008, and hardly the dynamics typically associated with a protracted housing market downturn. 

At the other end of the spectrum Hobart's unemployment rate leapt to 7.3 per cent in May.

Hopefully that's an anomalous blip, rather than a surfeit of interstate migrants heading to Tassie without a job (it rarely pays to read too much into a solitary month of original figures)!

Volume measures show tightening

One final point of interest here is that although it is often reported (and how!) that the underutilisation rate in the labour force has been elevated for some time in Australia, when you look at the amount of extra work sought by Aussies, the volume measure has been gradually declining over the past three years. 

This is arguably at least as important than the headline rate of how many heads want more work, because although there are people in the serious position of wanting a full time job but only able to find part time work, equally there are also many part-timers that wouldn't mind finding a few extra hours. 

This more instructive (but almost never reported) measure of underutilisation has declined across each of the past three years from 7.88 per cent in May 2015, to 7.35 per cent in May 2018, in original terms.

It's a glacial improvement, then - but it's an improvement nonetheless!

Thursday 21 June 2018

Regulatory foot remains on lender throats


The regulatory slowing of mortgage lending maintained its firm stranglehold in the first quarter of 2018, with interest-only lending remaining at just 15.7 per cent of new residential term loans by value (a far cry from 45.6 per cent at the September 2015 peak). 

Both the stock and flow of interest-only loans has been significantly reduced by the introduced macroprudential measures. 

Tighter loan-to-value (LVR) ratios also continued to be applied in Q1, with just 6.8 per cent of new residential lending at LVRs of 90 per cent or greater in the March 2018 quarter. 

Our detailed analysis of the latest mortgage lending trends, including findings from liaison with brokers, will be loaded into the monthly reports for subscribers. 

Population growth quicker than previously estimated (slowing from higher-highs)

Population growth rate: slowing from higher-highs

A somewhat confusing set of figures from the ABS today, with a final rebasing of population estimates from the 2016 Census shaving nearly 20,000 off the estimated resident population of Australia, leaving the population clock now at just a tick over 24,950,000.

That means that the population clock is now projected to hit 25,000,000 in August 2018, a little bit later than scheduled.

Interestingly, through, the latest revised figures also showed that the growth in the estimated residential population was quicker during the first half of last year than previously reported, peaking at 408,179 over the year to June 2017, before easing back a bit to 387,969 (or 1.6 per cent) by the end of the calendar year. 

There was an unusually high number of international departures in the March quarter.

It remains to be seen if this dynamic is sustained, but it seems likely to relate to the high number of international students we are now seeing in Australia.

In effect, with more than 2 million temporary visas on issue, Australia's 'resident' population is becoming more seasonal (we are seeing this impact a lot in rental markets these days).

The revised numbers showed that net overseas migration into the three most populous states was pacier than previously reported in the early part of last year, with immigration into Sydney temporarily sending New South Wales off the top of the charts (literally so in this case).

Annual immigration into Western Australia has now increased steadily for four consecutive quarters, with the three most populous states now easing, if you take these figures at face value. 

The auditor in me has a sneaking suspicion that there might be a cut-off issue with some of these numbers - however, it does seem that the pace of immigration could be slower this year than last, for a range of reasons as better explored by Signor Pascoe at the SMH and the New Daily.

Points north

The latest estimates showed a whopping 7,733 upping sticks on a net basis for Queensland over the 3 months to Xmas 2017 alone, the highest quarterly number since the heady days of 2005.

Moving to Queensland - you can't get more aspirational than that!

Over the year to December 2017, net interstate migration to the Sunshine State exceeded 22,500, the highest in more than a decade and mainly at the expense of New South Wales. 

At least Sydney has a high number of young migrants coming in, which helps to keep a lid of the ageing of the population.

Western Australia and South Australia continue to lose significant headcount interstate, however, largely to Melbourne where the labour market is thriving, which is a troubling trend for these states.

Population growth in the Australian Capital Territory quickened to 2.2 per cent, the fastest rate since 2012, while the Northern Territory has seen its resident population growth slow to all but zero. 

Queensland in focus (filling up)

The revised numbers for Queensland show a bit of a dichotomy, with the estimated growth in the resident population both slowing and yet quite a bit quicker than previously reported.

With residential construction activity in Queensland already nosediving by a third from the peak, this in turn accounts for the five consecutive declines in Brisbane's vacancy rates

Incidentally, you can see these impacts for yourself in inner-city Brisbane, with previously untenanted tower blocks now sporting furniture on 100 per cent of balconies, not that you can easily make this out from my casually snapped Polaroids. 

The wrap

Today's release showed population growth still tracking at around 1.6 per cent or 388,000 in 2017, but having slowed from higher-highs (if you can get your head around all of that).

Over calendar year 2017 the annual growth in Australia's estimated resident population was greatest in Victoria (143,400), New South Wales (116,800) and Queensland (81,500) respectively. 

Recently reported trends suggest that total population growth might be trimmed back a little from these levels, perhaps towards 350,000 or 1.4 per cent.