A few months ago we commented here on an article in the AFR speculating that Gen Y may soon be buying a house cheap from boomers who have no-one else to sell to and why renting makes more sense than buying. Since Roger bought the bigger family home in 2006,he has argued that house prices would cease rising to new highs – especially the six and seven bedroom variety.

Whilst the mere mention of Australian housing and prices can stir up passionate and spirited argument for and against house price rises, just this morning I stumbled across the below series of charts produced by Citigroup’s Matt King.

Similar to the M/O ratio which plots P/E ratios against the ratio of the middle-age cohort, age 40–49, to the old-age cohort, age 60–69 from 1954 to 2010, Matt looks at the relationship between the inverse dependency ratio (the proportion of population of working age relative to old and young) and maps that against real house prices over time. This produces a longer-term measure of prices home owners are willing to (or have to) pay for housing.

The charts are a powerful representation of a force driving all economies and prices: demographics. Whilst prices have somewhat lagged the dependency ratio on the way up, give or take a number of years and almost every country here shows that the peak in real estate prices is highly correlated with the peak in dependency ratio.

Its worth contemplating whether the recent past, characterised by rising gearing levels and falling price to income ratios (affordability) is the new normal, or whether, as we transition into an environment where there are more pensioners than workers and therefore fewer people to ‘downsize’ too,what may transpire in the future in Australia is anything like the experience in the US, Japan, Ireland, Spain and the UK.

As always, delighted to hear your thoughts.

by Russell Muldoon Posted in Insightful Insights.

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Although it has taken a while for our alert earlier this year to flow through, project delays, cancellations and profit downgrades are mounting as the mining services sector confronts its post-capex-boom. To name a few: Macmahon is shedding staff and cutting pay rates, Emeco’s hiring rates have collapsed with an industry wide surplus of idle heavy machinery, Diploma Group is no longer proceeding to build a 244 man camp near Tom Price for Rio Tinto, ALS is reporting no growth, Ausdrill severed its earnings guidance and Orica wrote down the value of its equipment finance division, Minova, by $367m.

Continue…

by Russell Muldoon Posted in Energy / Resources, Insightful Insights.

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Following on from Tuesday’s 0.25% rate cut, economists expect the Reserve Bank of Australia to again cut by 0.25% in November 2012. The cash rate would then stand at 3.00% which is the same rate we saw at the low point of the GFC. This should give readers some insights into the slowdown being recorded at present. And as some commentators are predicting Australia’s terms of trade to soon decline by 15%, year on year, there is no pickup in sight.

This is reflected in Australia’s ten year Government Bonds currently yielding 2.93% which compares with ten year Government bond yields in Japan, Germany, the US and the UK of 0.8%, 1.5%, 1.6% and 1.7%, respectively. Whilst this is great news for anyone with debt, savers are being punished and are earning less than the long term rate of inflation. Worse when taxation is taken into account. We believe investors in Australian and indeed the world are in one of the greatest bubbles in the financial markets today. One in which they are happy to take negative returns but yet still face the risk of losing a lot of their capital when inevitably one day economies get moving again.

This to us is not a viable investment strategy.

by Russell Muldoon Posted in Insightful Insights.

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Do Gerard Lighting Group (GLG), Woodside Petroleum (WPL), Vocus Communications (VOC), CSL (CSL), Credit Corporation (CCP), Silex Systems (SLX), Boart Longyear (BLY), Mineral Holdings (MIN) and NRW Holdings (NWH) make the coveted Skaffold A1 score? Watch this edition of Sky Business’ Your Money Your Call broadcast 25 July 2012 to find out, and also learn Russell’s thoughts on the state of the Australian residential construction market. Watch here.

by Russell Muldoon Posted in Companies, Insightful Insights, Intrinsic Value, TV Appearances.

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