Monday Smackdown

Monday Smackdown: Rents and the new normal, employment jumps and much more…

June 15, 2015 by Jon Giaan

Rents go new normal

According to RP Data, rents nationally grew by only 1.5% in the year to May – in line with falling yields in every asset market. Rents in Canberra, Darwin and Perth actually recorded falls.

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Employment jumps…

We had stronger than expected jobs figures last week, and the unemployment rate fell from 6.2 to 6.0%. Still the envy of the world. A lot of the jobs gain though has been in part time employment, so it’s not quite as strong as it seems.

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… but wages doing nothing much

Wages are still growing at a snails pace though…

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… but are in line with smaller increases in overall GDP

But this is just a reality of life in developed mature economy. Big gains are harder to come by. This is the new normal. Rents growth will be soft, and so will output and wages growth.

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Business Confidence strikes a brighter tone…

Business confidence has rallied to its highest levels in nearly a year, while conditions also lifted.

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… Because they’re making more money.

Company profits lifted, with ex-mining doing some heavy lifting against tougher times for miners. This should help the investment outlook.

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The Aussie dollar weaker, but not weak enough

The Aussie dollar continues to fall, as the US dollar rallies. But the Aussie battler is still strong by international standards, and though we’ve fallen against the US, other currencies (the blue line below) have fallen more. Keeps the door open to further rate cuts.

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It’s all about investors

This chart is sending a lot of blame investors’ way. This is housing finance, with investors on the break away.

Note though, that this doesn’t accommodate the shift from FHBs to First time investors, so it’s not as bad as people will tell you it is….

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Have a great week

Monday Smackdown: Lower interest rates, what bubble ?… Plus much much more!

June 1, 2015 by Jon Giaan

Everything worth knowing in less than a minute…

Rate Cuts are on!

There was enough weak news in the week to give the RBA the nudge it needs to cut further this year, especially with APRA pulling the banks into line. Credit growth is modest, and investment is failing to lift. Look for at least one or two more this year I reckon.

Credit Data says, “What bubble??”

Credit data were out for April, showing a pick up in housing credit, offsetting a slight fall in business credit. But look at it in over the long-run, and you wonder what all the bubble blowers are going on about… Credit growth remains modest and very sensible.

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Over the mining cliff we go…

The big news for the week was CapEx (business investment), and it certainly wasn’t good news. CapEx fell again in the March quarter and in trend terms, has fallen for 11 straight quarters, something we haven’t seen since the early 1990s recession.

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Transition keeps slipping…

Of course the fall in CapEx is all about mining, which we all knew was coming, but we’re not seeing other sectors of the economy pick up the slack.

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Mining States doing it tough

Construction work done fell most in previous mining boom states, QLD and WA.

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But home building was a bright spot

Through it all, residential construction continues to lift, with a focus on multi-unit construction.

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And if you build it, someone will sell it…

New Home sales posted their fourth consecutive gain in April, and are up 5% over the past 3 months, though again it’s driven by multi-units, which are up almost 60% over the year!

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… probably to someone in China!

New Data shows just how big the Chinese spending spree in Australia has become, with investment in a combined Sydney and Melbourne eclipsing New York and London. Not bad when you think about the relative populations.

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… Because China just has too much money.

China has entered it’s own QE (money printing era) and all the signs are there. The stock market has completely departed from actual levels of activity…

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and there’s a tech bubble that makes the dot-com bubble look like a walk in the park.

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Think about the wall of money that could be headed our way if stocks go out of fashion!

Have a great week

Monday Smackdown: Auction Clearances still stratospheric… Plus much, much more!

May 25, 2015 by Jon Giaan

Everything worth knowing in less than a minute!

Consumer Sentiment Surges

Both the ANZ and Westpac measures of consumer confidence surged in the week, poking their noses up above the long-run average for the first time in a while.

Why? Seems it was all about the budget, which was seen to be much friendlier and cuddlier than the last one.

To me, this tells us two things.
1. The government’s ‘warm and fuzzy’ spin strategy worked.
2. People are idiots.

Auction Clearances still stratospheric

The national auction clearance rate moved even higher this week to 78.4%.

Either we’re looking at one of the strongest booms in recent memories, or there’s something going on with the way Aussies relate to auctions. I think it could be a bit of both.

Foreigners love (new) property

Braclay’s has broken down the Foreign Buying data from FIRB. We knew that foreign property purchases had doubled in the past year. Now it seems that doubling is all about new (vs existing) properties. Though existing also posted decent growth.

Big Business getting Bigger

All this talk about young and nimble tech companies “disrupting” the business world – and someone forgot to tell big business.

In America, the overall revenues of Fortune 500 companies have risen from 58 percent of nominal GDP in 1994 to 73 percent in 2013.

So much for the new economy.

Have a great week!

Monday Smackdown: Stamp Duties Zombie on… Plus much, much more!

May 18, 2015 by Jon Giaan

Everything worth knowing in less than a minute:

Stamp Duties Zombie on

No one wants them, the Feds want to kill them, but Stamp Duties won’t die. Why? Because thanks to them the states are rolling in cash. Figures show NSW took in a record $6 bn, and Vic took in a booming $4.2bn.

… and you just can’t talk sense to addicts.

All about Auctions

The national average auction clearance rate remains around record highs (78%), with evidence that the number of auctions each weekend is actually increasing, especially in Melbourne.

Household confidence steadies on rate cut…

and so does business confidence…

But we’re still waiting for a decisive rebound in both. What will it take?

Rental Growth slowing

National average rental growth is slowing (down to 1.7% y/y), but it’s driven by falls in Perth (4.2%), Darwin (-4.7%) and Canberra (2.6%).

The major capitals are still growing strongly. It pays to be fussy in a market like this…

Iron Inquiry looms…

The PM has backed calls for an inquiry into the nation's iron ore industry and oversupply.

Fortescue Metals Group's chairman Andrew Forrest has been doing an incredible job of getting everyone to see his own interests as the national interest. (Check out his website ourironore.com!)

WA Premier Colin Barnett labelled the proposal as “pointless”, and I’d agree.

But Atlas goes back to full production anyway

Atlas, an iorn ore junior who paused production when prices fell to recent lows, is now back in the game as iron ore prices hold above $60/t.

If prices hold, the whole inquiry could be redundant by the time it happens.

Budget goes warm and fuzzy

The ideology of the previous budget was swapped for careful politicking and a ‘something for everybody’ approach. It’s getting harder to tell Tweedledum from Tweedledee in Canberra these days.

My favourite post-budget moment: Hockey being interviewed on the 7.30 report:

Sales: The Government's spending as a percentage of GDP is 25.9 per cent. That is the same as the previous Labor Government (was) spending at the height of the global financial crisis.

Hockey: Not true. They got to 26 per cent.

Sales: You're at 25.9 per cent!

And if Abbott wants to be remembered as the infrastructure PM, he’s going to have to pull his finger out. CBA has this estimate of Australia’s infrastructure stock:

Pick of the Budget

But one bit of good work hidden in the budget detail was a plan to force people on a Significant Investor Visa (SIV) to invest the required money in start-ups. Previously they could just invest it in corporate bonds – effectively sticking in the back. Get the investors to actualy invest. Great idea!

Education Boom goes to High School.

Huge boom going on in overseas High School student numbers. In NSW, there’s been a 25 per cent increase in new, full fee-paying international students in just 12 months.

Each student pays up to $14,000 a year in fees to study in the public system, often on top of about $300 a week to live with an Australian family, raising at least $33 million each year, although the figure could be much higher.

60% of these students come from China.

Ireland goes Solar Farms

Ireland’s first solar farms could be operational by the end of 2016, with backing from Macquarie Bank.

So sunny Ireland is trying to become a world leader in solar tech.

What are we going to do? Grow potatoes?

Have a great week!

Monday Smackdown: The high-rise era is here… Plus much, much more!

May 11, 2015 by Jon Giaan

Everything worth knowing in less than a minute:

High-rise era

Australia is in the middle of a housing boom, but it’s all about the high-rise baby. Dwelling approvals for 4+ stories are through the roof. Watch this space. If an oversupply will open up anywhere it will be here first…

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Foreign Buyers go next level

FIRB-approved applications for foreign investment in housing doubled (+102% y/y) in 13/14 to a record high $34.7bn. Within this, the majority 78% share was directed to new housing at $27.2bn (spiking 152% y/y) – of which a 79%+ share was concentrated in NSW and Victoria alone.

And my guess it has a lot to do with the boom in high-rises above…

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Unemployment steady(ish)

The unemployment rate edged up to 6.2%. Still healthy. Going nowhere. Compare it with the US and see the bullet we dodged.

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Retail Trade Solid

Retail trade was up 4.5% over the year – that’s a pretty tidy result. Driven by spending on household goods, which tends to reflect household confidence.

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Banks cop a bashing

Bank stocks were hit during the week, with weaker profits than expected (though still pretty freakin massive)…

… and rumours that banks are planning voluntary caps on lending to investors to avoid APRA getting heavy handed with them.

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The Budget Cometh

Everyone’s watching Canberra this week ahead of the budget. Rumours are Hockey’s been sidelined and Cap’n Tony has chaired every meeting.

The last projections we saw expected a feeble return to surplus in 2020. That was before the collapse in commodity prices. This one must be worse, but will probably see a similar projected return to surplus…

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… but if you believe that, I’ve got a bridge in Sydney going cheap.

RBA gets all social media-y

The RBA has launched decisively into the 21st Century, and has started publishing ‘infographics’ on the state of the economy. Share with your friends.

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The Thirsty Country

Stats show that alcohol consumption (per person) in Australia has fallen to a 50-year low.

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Beer consumption has been falling for a long time now, but in recent years, wine has also started falling (though I personally feel I’ve been pulling my weight).

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Sometimes I wonder what is happening to this great country of ours.

Have a great week everyone.

The Giaan Investor Review Report

May 5, 2015 by Jon Giaan

Each week, I jot down interesting bits and pieces as I come across them, like a scrapbook I guess, and I use it to build a picture of what I think is going on.

In recent months I’ve started forwarding it around to friends and mentoring students. Friends started forwarding it to friends, and I’m getting more requests to join the distribution list, even though I haven’t officially set one up.

So anyway, I thought, why not just share it with everyone. It doesn’t cost me anything since I’m doing it anyway. And the more knowledge we have, the better off we all are, right?

So welcome to The Giaan Investor Review Report. This is just a hodge-podge of whatever data and news I find interesting. Sometimes I’ll give a little commentary on what I think it means. Sometimes I won’t.

Give it three mins. Read the stuff that interests you, and you’ll be as well-informed as any analyst out there.

Enjoy
JG

Auction Clearances still pumping

Holding around record levels. 87% in Sydney. 83% in Melbourne. Tubthumping. The market has never seen anything like it.

(I’m starting to wonder if there’s been a cultural shift towards auctions… Is the market really this strong?)

House prices strong, but increasingly Sydney-centric

Latest RP Data shows Ozzie houses growing at 8.1% y/y. But Sydney is the main story, growing at 14.4%. Melbourne gets silver at 7%. Bris gets bronze on a barely also-ran 2.5%. Perth was flat. Darwin fell.

City narratives are dominating national stories.

May rate-cut is on

The odds are shortening for a rate-cut in May, with renowned bank-watcher (and some say the RBA’s leak distribution channel of choice) Peter Martin writing in the SMH:

Concern about a deteriorating economic outlook and a resurgent Australian dollar will force the Reserve Bank to cut interest rates on Tuesday…

Among the concerns driving the bank is a realisation that unless it cuts its cash rate on Tuesday, financial markets will stop believing that it is prepared to cut and push the dollar even higher.

Of most concern to the bank is new data on business investment plans, which shows that not only is mining investment set to fall sharply in 2015-16 but that non-mining investment is expected to fall as well, despite the talk about new economic drivers emerging to take the place of mining.

Although the Bank is concerned about the effect of another cut on Sydney house prices, it is prepared to rely on its sister regulator, the Australian Prudential Regulation Authority to ensure banks do not cut their lending standards…

The RBA is acutely aware that the upcoming federal budget will do little to boost the economy…

The RBA is playing chicken with the markets. If they don’t move, the dollar pumps higher, and no one believes anything they say. At the same time, Canberra is in Austerity mode, so no help there.

(Martin has picked the last two cuts.)

Prices give them lots of room to cut if they want to:

The ABS says the cost of living is up a piffling 0.9%. Inflation and rumours of inflation seem banished from the earth. At the same time, wages are up 1.3%, so Aussies are (technically at least) better off.

Iron Ore Prices Jump… a little.

Iron ore prices ended the week up 20% on their recent trough. It’s enough to put some high-cost miners (like Atlas and FMG) back in the black, but in the scheme of things isn’t much to write home about.

Here’s a sobering thought: Deloitte Access Economics reckon that falls in the iron ore price in the past 6 months (which feeds into profits and therefore taxation revenue) have left such a gaping hole in the budget, that even if you extended the GST to all fresh food, it wouldn’t cover the shortfall. Ouch.

Negative Gearing Aussies approach critical mass

According to the ATO, there are now 1,967,260 negative gearing property investors across Australia.

Whatever you think about neg gearing, 2 million voters is a political force to be reckoned with.

Govt get serious about foreign purchases

Abbott has announced plans for legislation to crack down on illegal foreign buying, including the potential of jail time. Not a moment too soon. Should be before parliament by June, and taking effect from December. I’ll cover the details later this week.

White-sex sells property

Here’s something cute. What do you do when you’re having trouble moving apartments in China? Get foreigners to stand around in their underpants for no good reason. Looks like it works.

There you go. What do you think? Is that useful to you?

Have a great week
JG