Pete Wargent blogspot

Co-founder & CEO of AllenWargent property buyers agents, offices in Brisbane (Riverside) & Sydney (Martin Place) - clients include hedge funds, resi funds & private investors.

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

"Pete Wargent 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.

"Pete's daily analysis is unputdownable" - Dr. Chris Caton, Chief Economist, BT Financial.

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Sunday, 25 September 2016

Good health? (4-4-2)

Operation ouch

Earlier this year, a very close family member had a medical operation, and had to be be put under general anaesthetic, a bit of a troubling time for all of us. 

I have to say the staff at Brisbane's Mater Hospital were wonderful, and extremely professional.

It was particularly reassuring when the anaesthetist explained to me in a sober fashion the risks and the odds of complications.

Despite the obvious gravity of the situation, I couldn't help but calculate for myself with a wry smirk some odds of my own: that as an anaesthetist there was a thirty per cent chance he would own a negatively geared investment property.

Alas, the chap was rather too busy handling life-saving operations, and the right moment to enquire of him never seemed to present itself!

Overall, the standard of care in Australia's heath service is simply out of this world. In fact, after a week of outstanding care, I think most of us were trying to think of ways in which the stay could extended for a little while longer.

Having been privileged enough to live in a developing country quite recently - which has no health system at all to speak of, but with the option to 'medivac' myself back to Australia in case of emergency (an option sadly unavailable to locals) - we really don't know how lucky we are Down Under.

A more recent and characteristically underwhelming experience in Britain's National Health Service reminded me just how many light years ahead Aussieland is in this regard.

I mean, it's 2016 and the NHS still can't even manage to install computers (they had a crack a few years ago, tipping a lazy £12 billion or so into a system that was ultimately unworkable and scrapped).

I've recently been reading a book on Prime Minister Tony Blair's terms in power in the UK - despite unloading tens of billions of Chancellor Gordon Brown's precious pre-crisis pounds into the NHS, the organisation is still a shambles, and you can lose entire days of your life stuck in British waiting rooms.

Don't get me wrong, the NHS nurses are an amazing bunch, quite possibly the closest thing there is to angels in Great Britain. And the doctors and consultants, often brought in from overseas, are undoubtedly highly qualified.

But even the greatest nurses and hired specialists could only ever operate within the system that has existed - a bit like telling Diego Maradona he's coming to England to play under Mike Bassett* in a 4-4-2 formation, alongside Geoff Thomas and Andy Sinton. Ain't gonna work!

Even to a complete dunderhead like me it's obvious that the NHS needs to be privatised and sorted out by market forces, but realistically as an employer of 1.2 million heads the service in its present form is worth too many votes for the pollies to risk such a shakedown, so we're probably stuck with it.

No, although perhaps few of us realise it, Australia's health service is comparatively speaking a modern marvel. 

Mining employment now retracing

Moving swiftly on to the Aussie Detailed Labour Force figures for the August quarter, it will be a tough gig for Australia to record such a high level of employment growth as it has been over the next 18 months as mining employment sinks back towards its long run average. 

Although the retracement in mining investment may now be around 80 per cent done, the drop-off in mining-related employment probably still has quite some way to fall.

Total year-on-year employment growth of +179,400 or +1.5 per cent is tracking back towards the long run average, and is now only slightly ahead of the rate of population growth at +1.4 per cent.

Mining employment declined by a further -21,300 over the past year to 211,300, to be 23 per cent below where it was the peak of the mining boom in 2012. 

The stand-out secular trends over the past three decades have been the addition of a thunderous +987,000 workers in healthcare and social assistance - an obvious growth sector as the population bith grows and ages - and the shedding of -170,000 manufacturing positions on a net basis. 


Of course, people love to whinge that Australia doesn't make anything any more. All we do is just dig up red dirt can coal, and ship it to China, while simultaneously buying expensive houses from each other.

It's not strictly speaking true. For one thing, manufacturing still accounts for 886,800 employees.

The Reserve Bank tackled a related issue in a speech last week, where it noted that nearly 80 per cent of employment is now in the services sector (compared to just 1.7 per per cent in mining), with growth in non-routine and cognitive positions likely to represent the future.

In fact since 2010, about 95 per cent of net new employment has been in the services sector (but, of course, all these news jobs must be for baristas and real estate agents!).

Having worked in the mining myself through the resources boom (I probably got out a bit too soon in hindsight - the boom continued all the way through until 2012, defying Deloitte's repeatedly gloomy forecasts) and then later in real estate, I'm probably not the best-placed person to make the counter-arguments.

But tourism and the education of international students have become Australia's latest two boom industries, boosted as the dollar returns from the stratosphere.

As is so often the case in these arguments, the truth lies somewhere betwixt and between.

It's true that mining and real estate are actually both relatively small employers in absolute terms.

In fact since the peak of the mining boom in 2012 rental, hiring, and real estate hasn't created a single new job on a net basis.

Yet indirectly these two industries account for a huge volume of economic output, as well as stamp duty revenues for state governments...not to mention national income in the case of resources exports.

Despite the annihilation of mining construction jobs since 2012, total construction employment actually increased by +21,300 in the year to August. That's all those cranes you can see on the skyline, the apartment super-boom, which is property-related work.

Residential construction employment is probably looking a bit peaky now, although the non-residential sector still has some gas in the tank.

The challenge since 2012 has been that the multiplier effect of all those mines and gas projects being constructed over a decade of excess has gone massively into reverse. Which explains why so many resources regions are in disarray, and wages growth and inflation have been so soft.

Another example worthy of note: over the past year by far the most jobs were created in the professional, scientific, and technical sector at +76,700, but digging deeper into the numbers about a quarter of those positions were in architecture or design (i.e. also real estate, if indirectly).

On a less upbeat note, for reasons that aren't entirely clear, employment in retail trade appears to have soiled itself, at least temporarily. Hopefully this miserable trend will not persist! 

Over recent times many of the new positions created in Australia have also been part time in nature which is keeping wages growth low, and inflationary pressures even lower. 

The one overriding positive point to note is that after four long years of decline, but no recession, both resources investment and employment will eventually stop falling at some point in the not too distant future.


*(Warning: contains explicit language).

Saturday, 24 September 2016

Weekend reads: Must-see articles of the week

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Friday, 23 September 2016



The Detailed Labour Force figures confirmed that Greater Sydney had the lowest unemployment rate in August 2016 at 4.7 per cent, while Greater Brisbane has also been trending down nicely on this measure. 

In truth, though, these headline unemployment rates mask under-utilisation across most employment markets.

It's not that hard to see why employment growth is slowing in Australia. The Sydney jobs market, which was firing, has lost its fizz of late.

Brisbane, too, is not creating as many jobs as it was, while Perth, Hobart and Darwin are in negative territory year-on-year (as are several of the 'rest of state' markets, including regional Western Australia, Tassie, and the NT Outback). Not that great.

Overall then, year-on-year employment growth has sagged to +182,500, with a high share of that work being part time in nature. 

The net new jobs that have been created have been in Melbourne, regional New South Wales and Victoria, Sydney, and Brisbane. 

Regional struggles

Lest you think otherwise, I don't have any personal gripes with Townsville. 

It's merely that this data series doesn't provide figures across that many sub-regions, and Townsville provides a useful snapshot of the trends that have played out across many resources regions. 

Total employment here is 27 per cent below the 2010 peak, largely thanks to a combination of the mining downturn and a drought.

There are 15,600 unemployed folks in the Townsville region, and the unemployment rate is 14.5 per cent. 

Resources regions will recover eventually from the collapse in investment. In fact, I expect the nadir in mining investment will be reached within the next 18 months. 

But it will take time for the slack in Australia's labour force to be taken up, and potentially a very long time.

Impossible to say what will happen for sure, but if I was a punter I'd have a few bucks on the cash rate being in a range of 1 to 2 per cent for the next three years, maybe more.

Cooling towers


Residex uses a slightly different methodology to some other indices, but its latest update is another tick in the cooling market box in August, as new supply comes online.

Sydney's median houses price is now up by just +1.2 per cent from a year ago, and unit prices +3.8 per cent.

House prices in a number of markets are now some way below their cyclical peak.

Residex full report is here.

Skyscraper boom

Population boom

Victoria's population growth has exploded, the state's headcount increasing by a thunderous +38,808 in the first three months of 2016 alone.

In fact, total population growth in Victoria has accelerated away to such an extent that even in the face of record apartment approvals and a surge in dwelling starts vacancy rates in Melbourne have been tightening

A chart of the ratio of population growth to dwelling completions explains why - on this metric dwelling completions are actually tracking below their long run average. 

Throw in the number of potentially empty apartments owned by non-resident Chinese investors and the head-scratching equation is solved.

Of course, there is a record number of apartments presently under construction in Australia, so Melbourne's supply will catch up to demand eventually, probably in 2017 (at least in aggregate, though the supply delivered will be horribly mismatched). 

In New South Wales too, after years of under-building the ratio of population growth to completions was still tracking above the long run average by March 2016. 

However, with interstate migration to Queensland picking up, by today in September we have probably now some way closer to crossing the supply/demand rubicon for this Sydney property market cycle.

In previous cycles when the ratio sank below 1.5 the Sydney market was flooded with supply.