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.

Tuesday 31 May 2022

Stars align for SEQ

Interstate wave

South-east Queensland is now by far the most popular destination for Aussies, and population growth in the state has surged ahead. 

I took a quick look at the stats here (or click on the image below):

Record mining profits for Australia

Gold in them hills

Quarterly mineral exploration spend increased 5 per cent in the March quarter, to just shy of $1 billion, spurred along by high commodity prices. 

Although mining investment and construction has been flat, gold exploration has surged dramatically in recent years, tripling since 2014. 

This is largely of benefit to Western Australia, while Queensland has also seen a reasonable increase in exploration spend as coal and gas prices have surged. 

Record profits

Gross corporate operating profits increased by 10 per cent to a record high of more than $500 billion in Q1 2022, driven by the relentless surge in mining profits since 2016. 

Mining profits have nearly quadrupled over the past six years. 

Of course, this alone doesn't necessarily translate to stronger wages growth, given the boost to exploration expenditure. 

But nationally the wages and salaries account did show a solid increase of 1.8 per cent for the March quarter, and more than 5 per cent over the year to March 2022.

And in fact on a 'per hours worked' basis, the average hourly pay increased solidly in Q1. 

Decent numbers which will no doubt keep the Reserve Bank hiking for a while yet. 

Investors seeking an inflation hedge

Building approvals fall by a third

Building approvals fell further to 14,908, to sit at the lowest level since August 2020.

Attached dwelling approvals were -29 per cent lower than a year earlier, with Sydney and now Brisbane unit approvals trending lower. 

House approvals also continue to retrace post-HomeBuilder stimulus, to be -34 per cent lower than a year earlier. 

With multiple construction companies now going to the wall, residential construction activity will likely begin to drag on economic growth in due course. 

Credit impulse fades

Annual housing credit growth increased marginally to 7.9 per cent in April, though it has almost rolled over now.  

Owner-occupier credit growth is now in decline, with investor credit speeding up, rising from 5.3 per cent to 5.8 per cent in April. 

This is a much-needed increase, given the huge depletion in the available rental stock as the average household size declined through the pandemic. 

Overall, with housing credit growth no longer accelerating, the credit impulse suggests a slowing housing market, with prices in an outright decline in the upper price quartile of the market. 

Business credit was strong in the month, to be 11.4 per cent higher than a year earlier, hopefully a pre-cursor to productivity growth. 

Data dump

In other news, gross corporate operating profits surged to a record high, driven by mining profits, which have almost quadrupled in six years, leading to a surge in mineral exploration, especially in the Western Australian goldfields. 

The labour costs figures showed a solid increase in wages and salaries expenditure for the March quarter, and with an increase in inventories comfortably staving off the risk of a negative GDP print, interest rates will be hiked again in June. 

Overall, it seems that housing market investors know that interest rates are rising, but are continuing to seek an inflation hedge anyway, looking for lower-priced properties where rents will likely rise by 10 to 20 per cent this year. 

Property Pod: Peter Meek - what can you achieve in a decade?

Property Pod

This week on the Property Pod, former Chobani MD Peter Meek discusses what you can achieve in a decade (and more).

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

You can also tune in at Apple podcasts, Spotify, and the like.

And you can also listen at Youtube:

Sunday 29 May 2022

The rebirth of risk-free returns

Shift in space

Weekly housing rents are on the rise, as charted by Tim Lawless of CoreLogic (left slide), and partly explained by the Reserve Bank of Australia (in the right slide, which highlighted the decline in the average household size through the pandemic):

Source: CoreLogic, RBA

Property valuer and veteran housing market expert and analyst Greville Prabst questions whether housing prices can or will fall given the tightness of the rental stock (vacancy rates are tracking at around only 1 per cent), rapid rises in land prices and construction costs, and relatively low level of stock for sale:

Risk free rate is reborn

Prabst poses an interesting question, which probably doesn't have a yes/no answer.

It seems quite likely that with the risk free rate having increased then the frothiest, most speculative, most illiquid, and/or lowest yielding assets will be repriced lower. 

For example, many of the high-growth tech stocks in the US have lost half or more of their market value over the past six months, as the gigantic punt on the long end of the curve went into reverse. 

In the housing context, the upper quartile of the Aussie market - largely accounted for by properties in Sydney and Melbourne - has already experienced price declines, losing ½ per cent in aggregate over the April quarter (the other segments of the market experienced price increases over the quarter). 

This dynamic might also in part reflect that the premium end of the housing market tends to transaction via auctions, and therefore price changes are manifested on a more timely basis (h/t @beckyquick83). 

Source: CoreLogic

The 10-year bond yield in Australia - which may be taken to be a reasonable proxy for the risk free rate - has increased from a nadir of under 1 per cent following the onset of the pandemic, to around 2 per cent at the beginning of this year, to 3¼ per cent today. 

US inflation looking peaky

In the US there is a little more commentary surfacing about inflation potentially having peaked, and with more folks discussing possible interest rate cuts in 2023 bond yields have begun to decline again (the 10-year bond yield is back down to 2¾ per cent over there).

After a record 16 consecutive monthly increases, there was finally a decline in PCE inflation in April, to 6.3 per cent. 

In particular, there was a major reversal in non-durable goods (i.e. stuff that perishes quickly), which recorded the biggest drop since May 2020 (and the first negative result since October of that year). 

Of course, there's a huge amount of uncertainty in the world right now, and personally I wouldn't be betting on any Fed pause in interest rate hikes any time just yet. 

And in Australia, certainly, inflation is set to be a hot topic for some time to come, especially given rising rents and the surge in power prices, both of which are yet to feed through in full. 

If bond yields do begin to rise again from here one positive would be a corresponding drop in demand for worthless tokens, bored ape avatars, NFTs of fart jars, and the like. 

Bonds have been much out of favour with investors for obvious reasons, with wags famously quipping in the mire of the financial crisis that Treasuries were beginning to offer return-free risk (rather than their conventional risk-free returns).

But if the risk free rate rises back up towards 4 per cent then there will be less of a need for Ponzi schemes and degenerate gambling to protect the value of cash. 

Saturday 28 May 2022

1 million foreign arrivals set for the UK

UK immigration surge

The UK Daily Telegraph reports that more than 1 million foreign nationals were allowed to live in the UK in a single year, an increase of 35 per cent, breaking one of the key Brexit pledges to regain control of the borders. 


Following the controversial Brexit vote, the UK has seen more than 1 million foreign nationals to live in the country in a year. 

Of course, visas granted to EU citizens increased as expected.

But the real shock to Brexiteers has been the huge surge in non-EU visa grants, study grants, illegal arrivals, and other non-EU categories. 

Migration Watch charts the latest non-EU ONS figures  below:

Source: Migration Watch

There is likely to a battle for the best and brightest international students between countries like Canada, the US, the UK, and Australia...and the UK is off and running with 411,800 study grants to non-EU nationals, hugely outstripping the record 285,500 seen in 2019. 

Source: Migration Watch

The outdated National Health Service is already buckling after years of under-funding and failed attempts to modernise, so this will add to the pressures. 

Meanwhile, inflation in the UK is heading towards 10 per cent as energy and power prices surge. 


I looked at how Australia's population growth is likely to rebound here

The competition for international students is likely to be a key plank of migration policy over the next few years. 

Thursday 26 May 2022

Construction work on the way down

Construction outlook

Engineering construction has been fairly flat over the past couple of years, even in Western Australia and the coalfields, despite extremely high commodity prices. 

There was plenty of disruption to apartment construction in the second half of 2021, but a small bounce was recorded in the March quarter. 

There were more than 100,000 detached homes under construction at the end of the 2021 calendar year, which represented a record high. 

However, for new houses construction work done was very disappointing in the March quarter, dragging down work done in the residential sector into a quarterly contraction of -0.9 per cent, to be -2.4 per cent lower than a year earlier. 

The Reserve Bank is confident that construction will remain solid for the next two years.

These figures cast some doubt on that view. 

In truth, there were factors which probably pulled down the March result - some related to COVID shutdowns, and some related to the fortnight of flooding in Queensland and New South Wales - and the June figures will probably record a bounce as the rain eased. 

Another possible factor or explanation is that capacity constraints, the high cost of building materials and trades services, and numerous current and potentially looming insolvencies in the sector are starting to drag the cycle lower in line with falling building approvals. 

Maybe it was a bit of both. 


The Reserve Bank's Luci Ellis delivered another excellent speech on housing market trends through the pandemic, and the outlook.

It was interesting to see estimates on the decline in the average household size, the COVID impact on inner-city housing prices, and the expected rebound in population growth.

Well worth a read, as always.  

Monday 23 May 2022

Owen Rask: Making your vacation your vocation

Property Pod

This week on the podcast, the legendary Owen Rask joins me to talk investing in stocks, property, and super. 

Owen discusses his family background, escaping from Europe, his challenging upbringing, and how he turned his passion into a business.

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

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

And you can tune in at Youtube here:

Sunday 22 May 2022

All change, Australia


A quick 5-minute Sunday post on the election results.

After a gaffe-laden and fairly uninspiring campaign, to date the Labor party has polled at just 31.9 per cent of the primary vote in the 2022 Federal Election, a disappointing decline from 2019. 

The electorate has clearly had more than enough of the incumbent Coalition, too, however, and with its primary vote slumping to 35.3 per cent we're all set for a change of government.

The Greens, 'Teals', and other independents garnered a combined one-third of the vote, which as far as I know is unprecedented, and after preferences Labor will clearly canter home. 

To be fair, some of the decline in the Labor primary vote will evidently have been tactical, to ensure that independents defeated LNP candidates. 

At the time of writing, 71 seats have been called for Labor and 52 for the Coalition, with 13 still in doubt (76 seats are required for a majority government). 

Challenges ahead

Labor has previously won power from opposition in 1972, 1983, and 2007, and each time recessions were experienced, (although in 2008 no technical recession was recorded).

Of course, that's the post hoc ergo propter hoc fallacy in full swing, but it speaks to some of the challenges facing the economy, including the current weakness in real wages, inflationary pressures, and the cost of living crisis.

Through the election campaign, the ALP's Jim Chalmers was very strong and personable, and looks very much like a future Labor leader.

In fact since it's been three decades since a Labor PM served a whole term, so we might even see some jostling of positions sooner than one might expect. 

With Treasurer Josh Frydenberg facing being ousted and losing his seat to independent Monique Ryan at Kooyong, the Coalition leadership may yet lurch to the right, perhaps in the shapely form of Peter Dutton. But that may not happen. 

Balancing act

Overall, it was a strong showing for the climate-conscious parties, and a general message of dissatisfaction from the electorate, but the numbers show that Labor will comfortably form the next government.

A tricky balancing act lies ahead for the next couple of years, with the unemployment rate already at a 48-year low, a budget to be brough back into balance at some point, and a high headline inflation rate yet to be tamed. 

Still, the electorate has been shouting loudly for a change of leadership and an opportunity for a new direction...and, well, here it is!


Pepperstone recap, re. the election outcome and outlook:

Saturday 21 May 2022

Election eve: what you need to know

Election day

I talked property, Federal election policies, and democracy sausages with Nadine Blayney and Kyle Rodda here (or click on the image below):

I voted yesterday and the pre-poll numbers this year are going to be huge, by far the biggest on record.

Vote early, and vote often!

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. 


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. 


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. 


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).