Pete Wargent blogspot

PERSONAL/BUSINESS COACH | PROPERTY BUYER | ANALYST

'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, 19 May 2022

Unemployment rate at 48-year low of 3.9pc

Unemployment at half-century low

Employment growth in Queensland may have been negatively impacted by flooding in April.

But New South Wales has added a massive 122,000 jobs over the past year, taking the state's unemployment rate to a series record low of 3½ per cent. 


Total employment increased 2.9 per cent over the year, significantly outpacing growth in the labour force of 1.2 per cent. 

Although monthly employment growth was only 4,000, full-time jobs surged +92,400 higher to a record high, so it was a better result than it looked.


As a result, the unemployment rate has fallen to a 48-year low of 3.9 per cent, which is a godsend for the Coalition going into Federal election polling day. 


Zooming in the graph, the unemployment rate ticked down from 3.93 per cent to 3.85 per cent in April, which is the lowest level since 1974 (when the annual inflation rate was above 15 per cent by the way). 


Hours worked were up 2.8 per cent from a year earlier, and hit a record high of 1.83 million.


Overall, strong figures still, and job vacancies suggest the unemployment rate can still go lower from here, although wages growth is still weak. 

Meanwhile, things are still fraying at the seams in the construction sector, with the nation's largest homebuilder suffering the untimely passing of its founder this week, and most of the major media outlets reporting on insolvency and collapse rumours. 

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Detailed analysis from James Foster here

Wednesday, 18 May 2022

Joining Owen Rask on The Australian Investors Podcast

Australian Investors Podcast

Really excited to catch up with the legendary Owen Rask this week.

Check it out here (or click on the image below):

You can also watch at Youtube here:

Wages growth...meh

Wages miss badly

Wages increased only 0.65 per cent in the March quarter, badly missing expectations of 0.8 per cent growth. 

Wages increased 2.35 per cent over the year (and barely any more including bonuses).

This is not exactly a graph which is screaming the need for interest rate hikes.

With real wages sitting at negative 2.7 per cent, households probably don't need an increase in mortgage costs to dampen consumer demand! 


Private sector wages rose 0.65 per cent for the quarter, while public sector wages growth really was dismal at only 0.56 per cent.


The ACT and Tasmania topped the charts with 2.8 per cent growth over the year, with the Northern Territory bottom of the pile in recording only 1.9 per cent wage price growth.


Apparently we need to hike interest rates urgently, though, to bring down energy prices, or something. 

Meh.

Tuesday, 17 May 2022

Hayden West: How to build a powerhouse portfolio by 32

Property Pod

This week on the podcast, Hayden West originally trained as a carpenter, setting up his own carpentry business by the age of 21. 

Now aged 32, he has built a powerful portfolio of residential and commercial investment properties in Moreton Bay and southeast Queensland.

I discussed with him how to go about looking at commercial properties - and other insights - here (or click on the image below):


You can also tune in at Spotify, Apple podcasts, and the usual other outlets.

And, of course, Youtube:

Vacancy rates record first rise in 2022 (SQM Research)

Rental crisis easing a touch?

Rental vacancies were stone dead flat in Sydney in April, at 12,758, according to SQM Research's latest figures. 

Melbourne recorded a modest rise from 12,400 to 12,655 vacancies, though this still meant a flat result in percentage terms for the Victorian capital at 1.9 per cent. 

This was driven by a jump in rental vacancies in the CBD, where the vacancy rate gapped a bit higher from 2.4 per cent to 2.9 per cent. 

Brisbane also recorded a flat result at a 0.7 per cent vacancy rate.

The trend in the major capital cities may still be down, despite flat results for the month. 

All other capital cities, which have seen extremely tight rental markets in recent months, recorded an increase in vacancy rates in April.

This is the first time we've seen an increase in rental vacancies in 2022, with the national residential rental vacancy rate increasing slightly from 1 per cent to 1.1 per cent, according to SQM Research.

Certainly in my neck of the woods (Noosa) there has been some tenant pushback against surging rents, and some properties are lying empty as a result. 

Asking rents have increased 20 per cent year-on-year for housing in Sydney, Brisbane, and Adelaide, and 10 to 15 per cent elsewhere, according to SQM's asking rents index.

It's worth noting that not all markets have seen such strong increases, and there may be something of a base effect in these numbers (i.e. in many cases rents went down, and now are going back up again).

Source: SQM Research

Overall, there may be some easing of the rental crisis underway, but it hasn't stopped landlords raising asking rents by another 1.4 per cent over the past 30 days, according to SQM Research. 

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The RBA released its May Meeting Board Minutes this morning.

It appears that if the wage price index figures are strong tomorrow the cash rate target could well be lifted by 40 basis points in June, to 0.75 per cent...but let's see. 

Monday, 16 May 2022

Inflation expectations drop 0.3pc points in April

Inflation peaking

The TD-MI monthly inflation gauge turned slightly negative on the headline measure last month, at -0.1 per cent in April. 

Now Roy Morgan sees inflation expectations ticking back down from 5.8 per cent to 5.5 per cent, for the same month.

Source: Roy Morgan

The main driver was the fuel excise cut, and brings inflation expectations back into line with where they were from 2009 to 2014 (when the actual underlying inflation rate was in the target band). 

Sunday, 15 May 2022

Untethered: breaking the buck

Tether breaks the buck

A few years ago I started writing a blog post about the unaudited backing of the Hong Kong company Tether - which was ultimately charged with lying about its misstated reserves and fined - but after a couple of thousand mostly fruitless words I gave up on writing it. 

Firstly, because it gradually dawned on me, not for the first time, that I didn't have a single original thought in my head.

And secondly, because since the company was both unaudited and basically unregulated I couldn't see a way it would actually blow up in any case.

Unstable coins

After public blockchain protocol Terra (and Luna) face-planted and blew up 100 per cent of its tokens and $45 billion in market cap this week, not-so-stable stablecoins have suddenly crept back into the financial news pages as a topic of note.

And then Tether temporarily caused a stir when it also broke the buck. The $1 peg remained broken for some time, and briefly traded as low as 95.1 cents. 


A Herculean effort from the instos saw the dollar peg 're-Tethered' in time, for want of a better phrase, but there may be a twitchy week or two ahead.

Any bank or currency run which gains momentum can be devilishly difficult to stop in its tracks, and in the unregulated Wild West there is no lender of last resort if the shit does prove to hit the fan.

Steadying the ship

Tether previously claimed that its gargantuan market cap was largely backed by billions in Chinese commercial paper, although ostensibly nobody in financial markets has ever heard of them making a trade. 

With the huge Chinese developer Evergrande lurching onto the precipice of default, there had been some nervous speculation that Tether might be adversely impacted.

But now - somewhat ludicrously - the company claims it has changed tack, apparently offloading their Chinese "commercial papers" (sic), and stating to the Financial Times that it can't disclose any details of its new ~US$40 billion investment in US T-Bills for fear of revealing its "secret sauce".

Which is to say - since the company refuses to be audited - nobody knows which organisation holds the assets, where exactly they hold them, or for that matter which firms are handling the trading on Tether's behalf. 

There were already more red flags than a matador fight here, but not knowing the lexicon cf. "commercial papers" also seems...sub-optimal. 

Anyway, redemptions appear to have steadied for now, so hopefully there will be no further significant withdrawals this week, as even at a trimmed down US$76 billion Tether is no small cookie in the game.


Thar she blows

Nobody can pretend to know what happens next in financial markets, but it's worth noting that some of the valuations have been obliterated at the more speculative end of the tech space, before the Federal Reserve has even tightened interest rates beyond 1 per cent. 


With the Fed set to tighten by another 50 basis points in June, and then another 50 basis points in July, as the central bank's balance sheet now shrinks in the second half of 2022 it appears pretty likely that something else might blow up.

It's impossible to say what, exactly, but for investors managing their own capital it's something to bear in mind. 

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Super scheme

The Coalition has announced that first homebuyers may be able to use $50,000 of superannuation to buy a first home, if it wins the election.

Unlike previous moves Labor can't or won't match this policy, as the union super funds wouldn't allow superannuation to be used in this way (since it would reduce their management fees).

So this is one point of difference between the major parties going into polling day. 

If it gets up, then it's obviously a bullish moving for housing, not least because wealthy parents may gift funds to their kids sooner to grow in a low-tax superannuation environment for their first home. 

Friday, 13 May 2022

Arrivals filtering back, slowly...

Borders open

Arrivals into Australia increased in April, having declined to almost zero in last year's lockdowns. 


Source: ABS

Preliminary arrivals figures of 575,000 were still absolutely miles below their decade average (in April 2019 there were 1.67 million arrivals into Australia, for example). 


Source: ABS

Arrivals are becoming to filter back from New Zealand, India, the UK, and other key countries in Asia and Europe. 

To date, however, Chinese arrivals have not bounced, mainly due to China's domestic travel restrictions.


This has implications for Australia's Universities, until normal service can be resumed. 

Only 28,000 international students arrived in March, some 60 per cent lower than the 2019 figure. 

A long way to go, but at least international travel is off the lows. 

Thursday, 12 May 2022

Inflation peaks, but...

Core inflation still punchy

Grateful to econodata wizard James Foster for staying up last night to analyse the all-important inflation figures from the US, especially given that this certainly isn't my wheelhouse. 

Headline inflation fell sharply to 0.3 per cent in the month, largely driven by declines in energy prices (-2.7 per cent).

That's the good news!

However, the core rate of inflation was stronger than expected, at 0.6 per cent.

Headline inflation slowed to 8.3 per cent for the year, and core inflation slowed to 6.2 per cent.


Durable goods inflation has now peaked, but food prices were still rising. 

Overall, it was good to see year-on-year inflation has now peaked, and will decline from here.

But services inflation was still strong, largely because shelter makes up 40 per cent of it, although there was a broader-based punch to this figure than just rising rents.

To my untrained eye, I assume this means that sticky services inflation won't slow down until rents and other shelter costs start to roll over significantly, which may take some time.

All of which means further rate hikes will follow over the second half of 2022. 

Market reaction

The NASDAQ fell a further 3.2 per cent overnight, with ARKK down another 10 per cent, and Beyond Meat getting murdered after hours on its latest released numbers to be down 33 per cent over the day (so that's another big growth story stock that's lost 90 per cent of its value). 

MicroStrategy dropped another 27 per cent fell back to where it was in 2020, when it began hoovering up Bitcoins in earnest on a leveraged bet. 

And listed exchange platform Coinbase fell another 30 per cent, to be down 85 per cent from 6 months ago, reflecting some pain in that space. 


Of the tech stocks, some of the big names are starting to look more attractively priced than they were, having kicked off 2022 with some sharp declines. 


Disclaimer: who knows where the bottom is, and there may be more to come. 

In summary - and I'm no expert in the dynamics of US inflation - but from market pricing and breakevens it looks like the Fed is still behind the curve given the surge in services inflation, and will be hiking rates towards 2-3 per cent forthwith. 

Stay safe out there.

Wednesday, 11 May 2022

Lessflation

Tech sentiment declines

Investor sentiment has been getting flogged, as almost everyone must be aware by now from the news headlines, with the NASDAQ dropping by a quarter from the highs. 

Plenty of the pandemic favourites - such as Netflix and Zoom - have lost up to three-quarters of their valuation.

Coinbase reported its results and fell dramatically again on underwhelming revenue after hours to a share price of $60, down from above $340 in November.

ARK's famous "Innovation" ETF has followed Coinbase in falling to under $40/share after hours today, having peaked at over $155/share early last year. 

There's also been some volatility in crypto world after Terra's stablecoin, the world's 4th largest, broke its peg and crashed, while Bitcoin briefly touched below $30k yesterday.

Upstart Lending fell 40 per cent after hours, and many buy-now-pay-later stocks fell 30 per cent over the past 24 hours. 

This suggests consumers binged on their stimulus cheques, and overspent on credit, but now the bills are falling due. 

Goldman and Citi have announced that they are exiting the wild west SPAC business, as speculative sentiment has unravelled. 

For those of us with more of a value bent there's been some belated gratification, with the energy sector now a clear outperformer since the 2020 meltdown, and Warren Buffett finally unloading the elephant gun in recent months to buy billions of dollars of Occidental Petroleum and other energy stocks. 

Peakflation?

The interesting thing is that the Federal Funds rate has only reached 1 per cent (although US fixed mortgage rates have spiked dramatically over the past few months). 

Consumer credit use has shot up at the fastest pace on record in the US, and there's been some significant demand destruction already.

In fact it's possible, if perhaps unlikely, that the US may already be in a technical recession.

Many commodity prices have also been getting walloped back down. 

All of the talk of late has been about global inflation getting out of control, but Goldmans are now out revising their year-end personal consumption expenditures (PCE) inflation figures down for the first time since prices took off last year. 

They are now growing more confident that both headline and core PCE inflation have already peaked in year-on-year terms.


Source: Goldman, Hatzius

That doesn't mean there's no inflation around - these revised figures might still imply quite a lift in core prices over the next two years of up to, say, 8 per cent - but we might start to see some of the more alarming inflation predictions tapering off from here. 

Tech investors are probably hoping so - one to watch with interest this week. 

Monday, 9 May 2022

Simon Kuestenmacher: Don’t bet against Australia

Property Pod

This week on the Property Pod, Simon Kuestenmacher from The Demographics Group explains how the pandemic changed living trends and demand for property.

He also explains why he wouldn't bet against Australia.

Tune in here (or click on the image below):


You can also tune in at Apple podcasts, Spotify, and anywhere else you get your podcast fix. 

And, of course, you can listen at Youtube:

Saturday, 7 May 2022

US unemployment flat at 3.6pc

Unemployment flat

The U.S. economy added a solid +428,000 jobs in April, pulled back slightly by net revisions of -39,000 to the February and March totals. 

The net result wasn't a million miles away from market forecasts in the end. 


The unemployment rate was unchanged at 3.6 per cent, a slight miss on expectations. 


And average hourly earnings were 5.5 per cent up from a year earlier, at $31.85, perhaps hinting at a slight easing of inflation pressures. 

Currency markets weren't much moved, and the stock market was a little lower, with some commentators expecting the Federal Reserve to hike by 0.75 percentage points next up.

How property will fare with rising rates

ausbiz news

I joined Annette and Scutty to discuss on ausbiz TV here (or click on the image below):

Thursday, 5 May 2022

The Big Picture podcast

Big Picture

I joined Michael Yardney to discuss the Big Picture trends.

Tune in here (or click on the image picture):


Building approvals sinking

Building approvals sink

Private sector house approvals continued to roll over, to be 32 per cent lower than a year earlier as the stimulus fades and the twin rising costs of materials and construction bite. 

Perth has seen the sharpest reversal, but the trend is essentially down across the board. 


Attached dwelling approvals in the private sector fell 30 per cent in March to be down 41 per cent from a year earlier, with Sydney posting some very low numbers in March, and Brisbane now rolling over. 


This is in spite of surging arrivals, with around 100,000 more temporary arrivals forecast to arrive by July than had been expected only a few months ago.

In February over 1,000 public housing units were approved in a month for the first time sine the tail end of the Rudd stimulus, but as a source of housing supply the public sector is cactus. 

Construction activity in the residential sector looks set to decline from very high levels now.

With most new arrivals likely to be renters, where is everyone going to live?

Wednesday, 4 May 2022

Average mortgage size hits new record

Housing loans up

Housing finance rebounded +1.6 per cent higher in March.

Investment lending hit a record high of $11.7 billion for the month.

This is much needed given the chronic shortage of rental properties (after many investors sold through the pandemic). 


Queensland continues to see the strongest trend for investment lending. 

Owner-occupier loans, on the other hand, have stalled - albeit at a very high level. 


The average new mortgage size continued to increase to a record high, though this figure will undoubtedly be pared back if interest rates are hiked sharply. 

Vacancies at 1 per cent

Domain reported a national vacancy rate of 1 per cent in April (down from 1.9 per cent a year ago).

A bit more rental supply has come into a number of the tightest cities, while Sydney and Melbourne are now tightening quite quickly, as the big cities come back to life post-pandemic.  


Melbourne's vacancy rate has fallen to 1.7 per cent, from 4 per cent a year earlier.

Meanwhile Sydney's vacancy rate declined to 1.4 per cent, well down from 2.7 per cent a year ago. 


Hiking cycle begins

First hike

The cash rate target was increased by 0.25 percentage points, from 0.10 per cent to 0.35 per cent yesterday.

From the Reserve Bank of Australia:


Source: RBA

Consumer confidence is already bombing at the prospect of elevated inflation, per ANZ Research:


James Foster steps you through all of the key points here