Pete Wargent blogspot

Co-founder & CEO of AllenWargent property advisory & buyer's 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.

"The most knowledgeable person on Aussie real estate markets - Pete's work is great, loads of good data and charts, the most comprehensive analyst I follow in Australia. If you follow Australia, follow Pete Wargent" - Jonathan Tepper, Variant Perception, Global Macroeconomic Research, and author of the New York Times bestsellers 'End Game' and 'Code Red'.

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

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Wednesday, 24 April 2013

Markets anticipate rate cuts and go on a field day

Bumper trade for stocks

A bumper day for stocks, then!

The market jumped upwards (XJO by +1.72%) in response to what was perceived to be a favourable (i.e. benign) inflation report which I detailed here.

The market anticipates a further interest rate cut - in fact it now anticipates two cuts or 50bps - to just 2.50%.

Happy days indeed for owners of shares in Commonwealth Bank (CBA) which jumped up by more than 2% up to a new high of $71.73. CommBank is now the largest company in Australia by market capitalisation, even bigger than the mighty BHP Billiton.

Pharmaceuticals company CSL also blasted on to new highs of more than $62, way up from $27 in mid-2011.

Meanwhile, low interest rates have also stimulated some property markets. 

Perth prices have been growing rapidly, while Sydney's prices, as expected, have driven on to all-time highs.

Unfortunately for Adelaide, prices are still below where they were a year ago and are below their previous peak, in spite of the record low stimulatory interest rates. As I noted here, South Australia has been hit by a number of project cancellations following a correction in certain commodity prices.

Source: APM
Metropolitan vs Country

I'm often asked why I prefer markets like inner- and middle-ring Sydney and properties in and around London to regional property markets, such small towns or those located 100-500+km from the cities where rental yields might be a little higher.

The answer, in one word, is: risk.

If you pick a hot regional market or mining town to invest in you might do well in the short-term.

Property is not a short-term investment, however, and you should aim to own property in markets with a diversified range of industries and forms of employment. There is absolutely no point in picking a market which is hot for 6 months while a mine is being constructed if prices then ease again immediately thereafter.

Property is a long-term investment and you need to own quality, desirable properties where the population and demand is growing rapidly but the supply of land for release is constrained.

If you speculate in cheap regional markets at today's elevated levels of leverage, you are introducing  a significant risk - in my opinion.

Towns with few industries

When I was growing up, Stoke-on-Trent in the middle of England was known as the home of pottery in the UK, although Britain's manufacturing industry has died a long, slow death in truth.

Before that, however, Stoke was a genuine boomtown setting all kinds of records for coal production, with the famous Chatterley Colliery becoming the first in Britain to mine more than 1 million tonnes of the black stuff. As late as 1992 the awesome Trentham Superpit was still churning out the last of its 2.5 million tonnes of coal.

The coal industry once employed more than 20,000 men in the town.

In 1994, the last of the pits was closed down and today all that remains today is the ugly slag-heaps which you can still see on the skyline. The steel industry in the town, sadly, went the same way.

Today, despite a rapidly growing wider UK population over the decades, the BBC reports that houses in Stoke are selling for one pound.

Meanwhile in London prices are reportedly some 17% above their previous peak.

I can't tell you what will happen to regional markets in Australia over the next few decades, but it appears doubtful that the desirable suburbs in capital city markets will ever become significantly cheaper given the massive population growth being experienced.


Read me on Property Observer today here.