Pete Wargent blogspot


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

'One of Australia's brightest financial minds, must-follow for accurate & in-depth analysis' - David Scutt, Markets & Economics Editor, Sydney Morning Herald.

'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.

Thursday 29 November 2018

If better is possible...

NSW investment boom

Short and sharp from me on the CapEx data today.

Actual investment was quite flat over the third quarter of the calendar year at a seasonally adjusted $29.4 billion, while fortunes have diverged significantly around the traps.

In the economic powerhouse state of New South Wales the quarterly trend investment for private capital investment tore 12 per cent higher over the year to September 2018 to a record high of $8.22 billion. 

No wonder Greater Sydney has created almost 120,000 new jobs on a net basis over the past year, with plenty more coming down the pipe!

Building and structures investment exploded 20 per cent higher over the year in NSW, while plant and equipment investment was up by a pretty solid 5 per cent. 

Huge investment numbers for the Premier State (click to expand the graphic): 

Now imagine what might be possible if we could actually make it into shops and get around the joint!

There was also steadier trend growth in Victoria, South Australia, and Queensland, while Tassie was off the charts with capital investment up by a ripping 33 per cent over the year to September, albeit from a low base in this cycle. 

Unfortunately this was offset by shrinking investment in Western Australia - the quarterly trend now a walloping 62 per cent below the heady 2012 peaks - while Ichthys LNG investment has now dropped off the charts for the struggling Northern Territory. 

On the plus side a number of iron ore and other resources projects are now hoving into view for WA, so from a sentiment perspective the bottom is now likely to be in out west. 

Brighter times ahead

Despite the modest actuals the Reserve Bank will surely be well pleased with this release, with the fourth estimate for 2018-19 capital investment rising all the way up to $114 billion, a substantial double-digit lift from the third estimate of $102 billion.

We haven't seen a quarterly upgrade in expectations of this magnitude for just shy of two decades. 

The additional investment is planned and expected largely for the services industries, although investment in both mining and manufacturing also appears set to rise. 

Overall, it was a sluggish result for actuals due to the seemingly endless drag from the resources jurisdictions, but Sydney is firing and the expectations for investment recorded a solid improvement. 

Quote unquote

Comments from D&D Live

Wait, did I say that?

Some alleged quotes from this week's event in Sydney via Business Insider Australia, (replete with my 'Karl Power' approach to photobomb appearances). 

Click on this link or on the image below to read. 

Still getting pinged by fighting fantasy sci-fi geeks about inadvertent #DnDLive hashtag abuse - it's a Dungeons & Dragons thing, apparently - so we might need to plan that one out a bit better next time!


Aussie Q3 Private CapEx figures are due out this morning, including the widely watched Estimate 4 for 2018-19 plans. 

The market median forecast is for a moderately positive result on actuals, and for 2018-19 plans of a so-so $108 billion (or thereabouts). 

Modest downside risk on commercial building is my two-penn'orth.

More at 11.30am...

Wednesday 28 November 2018

The end is nigh...

...for the housing downturn.

So sayeth the Domain Group (click to expand their 2019 forecasts):

Source: Domain

I'm not much of a crystal baller - the usual caveats, legal disclaimers, terms and conditions, and regional variations apply...

Construction weakening

Fewer cranes

Much softer numbers for construction in Q3 2018, to feed into the GDP result. 

Somewhat old news by now, but the value of apartment building work done peaked somewhere between April and June this year, with the pipeline falling away now. 

The value of apartment building work two peaked about two years ago in Queensland, with the unit market in Brisbane now looking much more in equilibrium than it was. 

The September quarter also saw a much weaker result for engineering, and this was in spite of the tremendous ongoing strength in infrastructure construction in New South Wales and Victoria. 

The slowdown reflected weaker activity levels in Queensland, South Australia, and Western Australia, as well as a dramatic drop-off in the Northern Territory as the Ichthys LNG project now transitions to the production phase. 

Overall, a weak result across all sectors of construction: new houses, new apartments (ex-Sydney), commercial, and engineering. 

Renovation work - a small part of the puzzle - was solid.

Devils and Details live

Unpluged at the Ivy

It was a pleasure to be invited along to speak at Business Insider's much-anticipated Devils and Details Live event.

It was a full house at the Ivy in Sydney with all tickets sold out and none available on the day. 

I sat on a couple of panels - on one of them Bill Evans, senior economist at Westpac, gave his view on interest rates (no hikes in 2019), and Joanne Masters, senior economist at ANZ, added some thoughts on the indicators that ANZ are watching.

Stephen Koukoulas put forward the case for a rate cut. 

Cameron Kusher of CoreLogic added some housing market texture, and Con Michalakis from Statewide Super...well, Con was Con. 

Some of the other panellists include Laura Fitzsimmons, Vice President at JP Morgan, James Whelan of VFS, Eleanor Creagh of Saxobank, and a former Waverley cricketing associate of mine from about a thousand years ago, Adam Smith of OFX. 

Super event, many thanks and well done to Colgo and the team for hosting it.

Epping stock

Epping in focus

It's interesting look at housing stock trends around Sydney. 

Overall stock on the market is higher than a year ago. but if you're looking for a house in the east there aren't many listed.

So where is the stock piling up?

Here's one hotspot: Epping. 

Rental vacancies in the suburb are pretty punch too, with all the new completions.

Lots of new supply through this cycle.

Image result for epping sydney

Tuesday 27 November 2018

Arrears tick down

Arrears ease

S&P's performance index for Australian prime mortgage saw arrears tick down from 1.36 per cent in August to 1.33 per cent in September.

September is typically a good month for mortgage payments, with more borrowers likely to get themselves into trouble over and following the Christmas break.

90+ day arrears were at 0.74 per cent, a little higher than the prior year figure of 0.66 per cent. 

The index is watched closely at the present time due to the large volume of loans having reset from interest-only. 

This has resulted in some loans going into arrears. 

Arrears are thus higher than a year earlier when the index reading was 1.08 per cent.

That said, arrears do remain low outside the resources capitals and regions. 

Sydney unemployment rate starts with a 3

Slow wages

So when does wages growth pick up?

Michael Pascoe at The New Daily investigates.

It's a good question, with a number of potential underlying factors and causes. 

Nationally wages growth had begun to rise on the most recent quarterly measures, to a  year high, but from very low levels. 

Skills shortages are beginning to emerge, in parts of the construction sector.

Another industry with a looming skills shortage is rail.

Hopefully money growth loosens up a bit so that the wages growth cycle isn't killed before it even begins.

In previous cycles rate hikes have not begun until nominal wages growth reached at least 3.2 per cent (2002), and even as high as 4 per cent (2007). 

In the private sector wages growth has yet to rise above 2.1 per cent, so there is a way to go here. 

Monday 26 November 2018

State of the market

Big year for crypto

Crypto year-to-date change in market cap by currency (click to expand):

Source: Coin360

A bit of red around on the screens this year.

Sunday 25 November 2018

Connecting the dots

Some Sunday wisdom from the greats of business and investing.

Wise words!


Here comes the surplus

Crushed at the polls

Interesting 48 hours for the Coalition, having been crushed in the Victorian elections at the hands of Labor.

I haven't checked the final results, but voting was so one-sided it was effectively all over by 7pm.

Not too long now until the Federal election, and it all looks pretty gloomy for Prime Minister Morrison.

Some interesting news that quietly slipped out on Friday is that the government's financials are in enormously good nick when compared to the Budget profile. 

The year-to-date cash balance showed a deficit nearly $9 billion ahead of the Budget profile (with the year-to-date deficit of $15 billion miles ahead of the $24 profile deficit).

Source: Commonwealth Government

This is mainly thanks to a sharp fall in unemployment and stronger commodity prices, leading to a tremendous surge in tax receipts, combined with lower payments. 

The latest labour force figures revealed annual employment growth surging back up to 2½ per cent, or +308,100, with an unemployment rate at a six-year low of 5 per cent. 

The Budget has been in deficit for more than a decade, but on these numbers a surplus might be withing striking distance as soon as next month when the mid-year Budget update is normally scheduled. 

The electorate may not like them much - an understatement - but at least this is a strong result for the Coalition's management of the Budget. 

Saturday 24 November 2018

Weekend reads

Must read articles's the weekend already?

How did that happen?

I did finally make it out of Melbourne, at least, after multiple delays!

Here are your weekend reads, summarised for you at Property Update (or you can click on the image below). 

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

Have a great weekend all!

Friday 23 November 2018

Sydney and Melbourne to triple in size?

Mascot mayhem

Casting my mind back to the year 2000, when I was working as an itinerant delivery driver in the areas around Sydney Airport, the general consensus back then was that Sydney would be 'a bit of a nightmare' over the coming months in the build-up to the Olympics.

Without the need for much encouragement, I took the cue and went on a surfing holiday up to the coast.

In reality there was relatively speaking very little traffic around Mascot in those days, there were certainly no long queues at Patchett's Pies (or the Mascot Inn), and airport deliveries could be made more or less on a whim. 

It was all pretty relaxed, at least by the frantic London standards I was more familiar with. 

That's changed quite a lot over the past couple of decades, and with today's extreme high winds and dust storms causing flight cancellations one might expect that Kingsford Smith will be a scene of merry mayhem this afternoon...

Projecting it out

The latest ABS projections show that under a medium scenario Greater Sydney's population could be close to 10 million by the year 2066, with the high range scenario seeing a city population approaching 12 million. 

Source: ABS

Sprawling Greater Melbourne is absorbing people even more quickly than Sydney these days, and the projections for the Victorian capital are fairly similar, rising from 3.3 million at the time of the Olympics to more than 10 million by 2066, with the high range scenario running to well above 12 million. 

The projections for the capital cities tend to range from very large to gargantuan.

The scenarios for the regions of Australia, on the other hand, are far less clear-cut.

The projected population scenarios for regional Victoria, for example, range from solid growth to a sharp decline over the medium-to-longer term. 

Australia is a very large country and this seems illogical.

But as Infrastructure Australia has also pointed out, people tend to follow job opportunities, and infrastructure spend tends to follow the migration (due to the more assured return on investment). 

Zipf's law

I wrote a little about why the larger cities can attract faster population growth some years ago at Property Update here.

As if to underscore the point, Sydney's annual population growth was about 65,000 per annum when I wrote that, while today that figure is closer to 100,000 per annum. 

The reasoning isn't always entirely clear, but typically immigrants follow opportunities to large and familiar cities, which creates demand for housing and amenities - transport hubs, shopping malls, schools, servos, and other infrastructure - and then the construction itself adds further to demand and output. 

Proximity can create the potential for productivity gains, while thanks to synergies a doubling in population might only require a 75 per cent increase in certain amenities, known as the 3/4 power law

That's the theory, anyway. 

In practice, there are many more moving parts, including planning regulations and government measures.

Good luck to anyone with a flight to catch today.

Unfortunately that particular cohort includes me. 

Sydney unemployment rate under 4pc

Sydney powers on

Greater Sydney's economy has added a stunning +118,700 jobs over the past 12 months, sending the monthly unemployment rate for the harbour city all the way down to 3.96 per cent. 

It's the first time this reading has been under 4 per cent since way back in 2007.

On an annual average basis Sydney's unemployment rate declined to fresh decade-lows at 4.39 per cent in October 2018.

That said, Melbourne has the strongest trend, with a monthly unemployment rate of just 4.25 per cent, representative of a marked improvement over the past year. 

I'm down in Melbourne this week, and it's pumping. 

Victoria is creating so many job vacancies right now - both in its capital city and in the regional centres - that it appears likely to be the best performing economy in 2019. 

Greater Adelaide's annual average unemployment rate is now under 6 per cent, which represents a vast improvement from 7½ per cent in 2016. 

The annual average number of unemployed persons continued to decline steadily in October on another improved monthly reading. 

And the median duration of job search was 17 weeks in October, down moderately from 18 weeks a year earlier. 

The improvement here was driven by Greater Brisbane and Melbourne. 

Pay rises loom

October tends to be a seasonally strong month for unemployment, but there's increasing evidence - anecdotal and otherwise - of employers finding it progressively harder to source appropriately skilled workers.

This is especially so in construction and project management on the back of the $50 billion+ infrastructure boom. 

Solid growth in nominal GDP and profits should also help to see household incomes rising into 2019.

With the next financial update likely to show a Federal Budget swinging towards surplus, the next six months is set to be a battle of election promises and packages, and a targeted campaign against Labor's proposed tax grabs. 

Thursday 22 November 2018

Transactions dry up

Like the deserts miss the rain...

In my day-to-day experience transaction after transaction in the housing market is being delayed, knocked back, or outright rejected on some of the most trivial matters I've come across. 

The pendulum has swung back so far that stock turnover has now sunk to the lowest level in nearly 30 years, since the time of the early 1990s recession. 

Via the Scutt at Business Insider:

And this is legit analysis by market experts (not the bogus 'record lows' reported every quarter from the preliminary ABS data). 

State budgets are being shredded as stamp duty receipts have evaporated. 

Curiously the Reserve Bank has spent the last few years assuring everyone how high lending standards are and how low financial stability risks are, a view well supported by the remarkably low level of mortgage arrears, and bank loss rates of close to zero. 

Paradoxically, a problem is now being created, because banks are faffing around with forensic analysis of plain vanilla home loan applications. 

Pro tip for aspiring homeowners: go easy on your household pet food expenditure, folks!

Stranger than fiction...

Australia eyes off 50 million population

Big Australia gets bigger

The ABS released its population projections figures today, a series that always warrants a fair level of interest. 

The projections look at different scenarios for migration, fertility, and mortality, and project a range of scenarios from an Aussie population of 37½ million to almost 50 million by the year 2066.

New South Wales remains the populous state under all scenarios with its population potentially ballooning as high as 15 million, while the high growth scenarios also see Victoria (14½ million) and Queensland (10 million) adding very substantially to their headcount. 

Western Australia is, as ever, hard to predict, but my bet is that it will have a significant growth cycle in its economy sometime soon. 

Strong migration: bipartisan support

No doubt the release will be tortured until it confesses to any number of memes, but just three observations here today. 

Firstly, previous forecasts and projections have significantly underestimated actual population growth - and it's worth considering for a moment why this is.

The key reasons were laid out by the Intergenerational Report: governments tend to like immigration because new migrants grow demand in the economy - in aggregate, if not always in per capita terms - new migrants are younger than the average Aussie, and they tend to work and pay tax for a long time. 

This has become known as the 'demographic dividend' because:

  • lower immigration would lead to slower economic growth;
  • lower immigration would lead to an ageing population; and
  • lower immigration would lead to lower participation rates (with an adverse consequences the tax take)
On that basis governments of both stripes may prefer to look at diverting demand away from the two main capital cities rather than cutting immigration.

Living longer

A second point is that with today's rapid rate of technological change, healthcare and medicinal breakthroughs could see life expectancy increase far more rapidly than we can imagine today.

This would play havoc with forecasts and potentially see population growth exceeding even the high range estimates.

A third and final observation is that if the population does grow as assumed by the high range forecast, then further growth in the Aussie population would not be preventable, even under a draconian and highly unlikely zero immigration policy.

Growth would become self-perpetuating due to the rate of natural population increase (birth minus deaths). 

The wrap

Overall, this was an interesting set of figures which implied that even with immigration helping to slow the ageing of the population, the number of Aussies aged 85 or above will double over the next 25 years, while the dependency ratio would increase under the medium scenario.

It was further interesting to note in a PTUA report released last week that - although there are ever more cars on the road - peak car usage and come and gone, with Aussies now more and more likely to embrace public transport.

There's a lot you can take from today's population projections, but for now those are some observations for you to be going on with! 

Wednesday 21 November 2018

Honest broker

Notes from the RC

Interesting aside from the Royal Commission, via Business Insider:

Every good Royal Commission needs a scapegoat, of course, and it seems as though Comyn is aiming to throw mortgage brokers under the bus next (there's been plenty of that going on this week). 

I have no dog in this race, by the way.

In fact, in many ways life would be easier for everyone else if mortgage brokers took the heat for the entire financial services industry.  

That said, I can't for the life of me figure out how Comyn has come up with $6,627 for an average broker fee.

Maybe it's a 'mean' figure that includes some very sizeable commercial loans?

Of course, it is true that the average broker-originated loan size and therefore fee has increased, along with the average mortgage size overall through this cycle.

But by my reckoning the typical broker fee would be something with a two in front of it at a commission of about 0.6 per cent. 

Maybe Comyn is adding in five years of trails for a typical loan duration, I'm not sure.

In which case, they can't seriously be suggesting that mortgage brokers do half a decade of ongoing client care work for free? 

Or maybe they are - nothing much would surprise me these days.

Without trails brokers would simply be looking to churn loans every couple of years as they do in certain other countries, which is hardly a desirable outcome. 

Rage against the machine

There was also a general outcry about a small handful of brokers earning big dollars.

The fact is that there are some big deals written out there, so a small number of brokers will earn good money. 

And anyway some people will earn big dollars in any industry.

That's as it should be.

And, by the way, if someone has a big year of income then the tax office takes back about a third of it.

Figures assembled by the Mortgage & Finance Association Australia (MFAA) in 2017 showed an average gross commission income for mortgage brokers - before operating costs - of $142,000.

Hardly excessive once the costs of running a business are factored in. 

Now, banker executive remuneration, on the other hand...

Devils & Details UNPLUGGED

Devils & Details UNPLUGGED

Learn some trivia about me here ahead of next week's event.

There are six day's remaining to snare a ticket.

See you there.

Tuesday 20 November 2018

Property crashes! (podcast)

Credit crunch?

More podcast action for you this week.

Tune in here, where we discuss the prospect of a property crash.

More to come next week too!


Monday 19 November 2018

Where the demographic tsunami hits

Where the young migrants head

I've posted some research previously to show how Australia's population pyramid is benefiting from a starburst of 25-34 year-olds thanks to the country's immigration programme. 

This is visibly helping to slow the ageing of the Aussie population. 

Intuitively it's always seemed likely that the younger migrant cohort would gravitate to the University precincts and inner suburbs of the capital cities. 

But here's some startling research that shows just how different population pyramids are around the traps, by Demogog Blog's Simone Alexander.

The blog notes:

"As a global city, Sydney attracts a disproportionate share of Australia's migration intake, so when net overseas migration is high it tends to have a positive effect on Sydney's growth rate".

In Camden there are many families with young children, for example, out on the greenfield sites of the urban fringe. 

Meanwhile the south coast has many older inhabitants.

But the inner suburbs of Sydney are experiencing an explosion in the 25-34 year-old cohort, due to the prevailing powerful levels of net overseas migration.  

Despite there being fewer children as a share of the population in the inner city of Sydney, almost half of the population here is aged 20-34, due to the employment, education, and lifestyle opportunities. 

The ABS will release its latest population projections on Thursday this week, which is always useful to recalibrate a few expectations. 

Stay tuned for that.