Pete Wargent blogspot

Co-founder & CEO of AllenWargent property buyer's agents, offices in Brisbane (Riverside) & Sydney (Martin Place), & CEO of WargentAdvisory (providing subscription analysis, reports & services to institutional clients).

5 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's one of the finest property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

"Pete 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 & charts, the most comprehensive analyst I follow in Australia. If you follow Australia, follow Pete Wargent" - Jonathan Tepper, Variant Perception, Global Macroeconomic Research, author of the New York Times bestsellers 'End Game' & 'Code Red'.

"The level of detail in Pete's work is superlative across all of Australia's housing markets" - Grant Williams, co-founder RealVision - where world class experts share their thoughts on economics & finance - author of Things That Make You Go Hmmm, one of the world's most popular & widely-read financial publications.

"Wargent is a bald-faced realty foghorn" - David Llewellyn-Smith, 'MacroBusiness'.

Thursday, 26 May 2016

Downdraft!

Capex crunch continues!

The capex crunch continued in the first quarter of 2016, with quarterly expenditure all the way down to a seasonally adjusted $30.6 billion from a heady peak of $46.2 billion in the June 2012 quarter.

Total private new capital expenditure was down by a seasonally adjusted 5.2 per cent in the quarter, and by a punishing 15.4 per cent over the year to March. 



Mining investment has absolutely capitulated down by a whopping 30 per cent year-on-year, and by 46 per cent from June 2012 from $24.2 billion to just $13.1 billion.

Low interest rates have helped capital expenditure in other selected industries to rise by 18 per cent since June 2013 from $14 billion to $16.6 billion (the "other" part of the survey isn't comprehensive, so this may mask some rare promising news). 

Nevertheless the collapse in mining capex is wreaking all kinds of havoc on the headline numbers. 


At the state level Queensland has already taken most of its medicine with total capex down by a colossal 53 per cent since June 2012 as the state's major LNG projects transition into the production phase.

Capital expenditure in the Northern Territory has also suddenly dropped in rather dramatic fashion, down by 46 per cent since Q3 2013 (hello Darwin property market crunch).

The major declines still to come will be in Western Australia, where more than $10.8 billion of capital expenditure was still recorded for the quarter, albeit this was some 35 per cent below the extraordinary June 2012 peak. 


Pain beyond pain

There was a marginal improvement in the second estimate of capital expenditure for 2016-17 to $89.2 billion, driven by other selected (i.e. non-mining) industries, although the second estimate for total new capex was still down by 14.6 per cent from the prior year equivalent figure. 

And a glass half full person might argue that mining investment has to complete its retracement sooner or later.

That said, there is no believable way to slap lippy on this pig - a number of Australia's resources regions and housing markets face a truly brutal period ahead.

By way of just one of many possible examples, Domain reported today that house and unit prices have declined by about 10 to 14 per cent over the past five years in Townsville, with "no end in sight" for the struggling market.

Rental vacancy rates are at about 7 per cent.

And today's detailed employment figures suggested that the trouble in the Tropics may have a way to run yet.

The total number of unemployed persons in the region has jumped to what is by far the highest level on record at 15,700 persons following recent high-profile industry closures, and the unemployment rate climbed to a fresh 13 year high of 13.9 per cent.

Remember monthly original data is volatile, however, so it would pay to consider the trend over a longer period of time than just a few months. 


Rental market vacancy rates are also high and/or rising in a number of other regional resources-influenced cities, including Gladstone, Whyalla, Mackay, Mount Isa, Bowen, Emerald, and a whole raft of others. Vacancy rates have fallen from stratospheric heights in Chinchilla, but dwelling prices have had a rough trot in the meantime.

The media reported yesterday that the Hazelwood coal mine may close, which would represent further adverse news for the Latrobe Valley following the untimely fire there. However, talks of closure may simply be premature extrapolation.

The strongest regional markets this year may include the Gold Coast, which has a number of stars aligning, including the lower dollar and a surge in Chinese tourism.

The wrap

While not exactly a surprise, the figures elucidate the true scale of the mining investment collapse.

They also make the projections for a return to a budget surplus look like a comedy of errors. 

Futures markets are pricing that the Reserve Bank will be cutting interest rates again before the end of the year - and from looking at these downbeat figures, so they will.