Very Good Pay for Low Productivity

A topic I’ve been thinking about involves wages, labour and productivity.

Particularly in Australia.

Bureau of Statistics data suggests that wage inflation is benign.

https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/wage-price-index-australia/latest-release

I am seeing the contrary. A range of people from hospitality workers, truckers to tradies being paid above award rates for their labour.

Sorry folks, but house cleaners are making $55 per hour. That’s the same as a registered nurse.

On the subject of labour, it is anecdotally evident that we have a shortage of labour. Whether that is spliced and framed between those willing and not willing to work (either subsidised or otherwise), available labour is scarce.

I’d like to be corrected with this next statement but productivity (any type that you wish to look at) is significantly lower than it was 20 or 30 years ago.

Certainly software has helped increase one type of productivity but generally in Australia, I think the drop in productivity commenced from the moment Bill Kelty became the Secretary of the ACTU in 1983.

The costs associated with hiring and keeping employees coupled with the difficulty in firing staff has manifested it into a growing gravy train of complacency and lack of productivity.

Now, it has spread into a common work vernacular.

Why does it take 18 months to build 5km of highway ??

Australia is a one-speed economy.

Slow !

September 1, 2021

by Rob Zdravevski

rob@karriasset.com.au

It’s a seller’s market

In the context of the Australian residential real estate market and specifically, the Perth market I was asked by an esteemed national accounting firm today for my buy, sell or hold opinion.

Following the discussion, I followed up with this email,

“In today’s meeting I gave you that current valuation case for residential property being expensive or at least fully valued, in citing a net earnings yield of 2% equating to a Price/Earnings Ratio of 50.

My other negative points included fixed or perhaps growing expenses (including rising interest rates).

Poignantly, should interest rates double, your client may still be able to service the debt, but others around him (especially those buyers of property in the past 2 years) may feel debt payment strain. This leads to a rise in listings and lower prices due to increase stock. Water does find its natural level.

On the other side of the financial statement, residential properties don’t have same ability to increase revenue in the manner or potentially the velocity in which a corporation can.

Invariably, higher residential prices have heralded new dwelling development which also increases stock.

But most subjectively, when you find clamouring buyers driven by scarcity and fuelled with low interest rates, it is identifiably a “Seller’s market” and not the other way around.

It may not be a time to ‘dump’ all holdings as it depends of your cost basis, the utility the property provides or the associated debt and holding costs but there are times to trim and sell assets when they are fully priced.

When it comes to residential real estate, a seller should greet moments when liquidity and buying interest is abound and forgo perfect timing, as the real estate market doesn’t afford you ’natural’ price discovery and quick settlement periods, unlike the stock market.

Catching the ‘fat’ part of the trade is perfect.
Preserving capital is paramount.”

August 24, 2021
by Rob Zdravevski
rob@karriasset.com.au

#property#realestate#Perth#Australia

ASX 200 Registers Rare Monthly Overbought Reading

This month, the ASX 200 has touched a “rare” Monthly (not weekly, but monthly) Overbought reading.

For the lack of a better word, I’m calling it rare as the chart below covers 35 years and this level has only been (generally) visited 5 times prior.

Such a moment is worth noting but it’s not an absolute ‘sell’ signal.

My work suggests a greater probability for higher prices or a ‘melt-up’ before we see a peak.

For now the upward trend remains intact and I’ll look for the index to touch 2.5 standard deviations (the upper end of the bands illustrated) above its mean before searching for exhaustion of the current bull market.

Keep in mind that prices can stay ‘overbought’ longer than expected and the constituents (and their weightings) have changed over the course of this charts history.

August 15, 2021

by Rob Zdravevski

rob@karriasset.com.au

The Delicate Game of Interest Rates & Inflation

Brazil lifts interest rates by 1% to 5.25%. It’s seen as its most aggressive move since 2016.

2 weeks ago, Russia, (another commodity reliant economy) hiked rates too.

It looks like both central banks are trying to curb inflationary pressures. Rising commodity prices are a notable contributor.

Invariably, rising inflation will send government bond yields higher.

Why are the central banks in other commodity sensitive economies such as Australia and Canada still holding interest rates around the 0.50% mark?

Are the Bank of Canada and the Reserve Bank of Australia foolishly towing the same line as other Western economies?

The British, German and French economies are vastly different.

This may turn out to be a perilous policy error.

Are the BOC and RBA not entirely politically independent?

Can it be that the Russian Central Bank is acting for the good of the economy and citizens or is it because Putin doesn’t need to worry about being re-elected and Scott Morrison does?

Or perhaps it’s because the Household Debt to GDP for Russian’s and Brazilians is 22% and 37% respectively,

while in Canada it’s 113% and Australia’s is a world topping 123% ????

August 6, 2021

by Rob Zdravevski

rob@karriasset.com.au

Russia aggressively hikes interest rates

I found this news interesting.

https://www.reuters.com/business/finance/russia-raises-key-rate-65-sharpest-move-since-2014-2021-07-23/


Is the world’s 11th largest economy ahead of the curve and crowd when it comes to managing inflation or does its strengthening currency hinder growth and exports?

Incidentally, South Korea and Australia are ranked 12th and 13th

Westpac’s hitting resistance and holding support

Another price chart I am watching is that of Westpac Bank (WBC.AX).

I often post technical charting comments on Linkedin but my equity investing work always starts with identifying themes or trends and then moves onto fundamental mathematical analysis (balance sheets, income statements etc)…….

I use technical analysis to help with my price entry and exit as numbers and price charts make wonderful patterns which also assists with probability.

I am fundamentally bullish on banking stocks, however I have lightened some bank holdings as they recently reached historically overbought prices and fully valued valuations.

In Westpac’s case, it was a prudent thing to do. After all, the stock rose 57% from $16.50 (my buy price) to $26 within 10 months.

The high was $27.12.

It’s currently $25.60.

The share price capitalised what I thought was more than 2 years worth of earnings. So at that price (in June 2021) I asked myself do I want to pay this price (buy the stock) which is already factoring in 2024’s earnings?

From here, I think Westpac’s price trades below $24.50 (breaking that lower trend line) and makes a visit to $22.30.

Buying it 13% cheaper would be nice.

p.s. that line floating through chart is the 100 week moving average.

I’ll review this picture in late July/early August.

* this is not advice, just personal commentary.

July 2, 2021

by Rob Zdravevski

rob@karriasset.com.au

As goes Oil, so does the AUD

And as a follow up to the previous Brent Crude oil post,

the chart below may tell us what happens to the Australian Dollar compared to the U.S. Dollar…..

should Brent Crude decline

June 28, 2021

by Rob Zdravevski

rob@karriasset.com.au

Bullish on Aussie Banks

After 5 years, I have now become bullish on Australian banks.

For example, Westpac Bank’s 2021 forecasts have it trading below 1x book value, on a P/E of 11 and the dividend yield should be 5%, not including the franking credits.

Furthermore, I think its net interest margins will increase (as longer dates interest rates rise) and all of their bad news and fines are no longer “new news”, Westpac’s stock price also has traded at monumentally oversold readings…….not on a daily nor weekly basis, but on a Monthly reading.

See the chart below and you’ll see it’s only happened twice in 27 years.

October 19, 2020
by Rob Zdravevski
rob@karriasset.com.au

Political Trade Destruction

Dear Australian #auspol politicians involved in incompetent trade and diplomatic rhetoric……it is in the “Chinese” tea leaves, that Iron Ore is next on the list of ‘sanctions’. I just wish the media would call them sanctions. It would sell so much more advertising…..

Politicians who are inexperienced in business and unable reading the geopolitical mood are causing more damage than their pea brains can possibly imagine.

Don’t they understand that a backbencher from an obscure political seat calling for an “inquiry into the origins of a Chinese flu” is a badly weighted bet and ramifications of the rebuttal can hardy be comprehended by someone inadequately positioned to speak in a manner within a nation’s parliament.

In these circumstances, political table-pounding seldom prevails over commercial reality and necessity.

Don’t look know, but to the complacent producers of current and future ‘sanctioned’ products, our politicians are doing some effective price mean reversion on behalf of your wallet.

October 13, 2020
by Rob Zdravevski
rob@karriasset.com.au

First day of September wipes out August

Below is a continuing chart I’ve been posting for a while to disprove the illusion that the Aussie equity market is NOT screaming to new highs.

For the past 3 months, the ASX 200 has been trading sideways and today’s headlines from the Australian Financial Review following todays close of business was…..

“ASX wipes out most of August gains in single session.
The S&P/ASX 200 dropped 1.8 per cent on the first day of September, falling back to where it traded on August 3”

It’s a bit sad that the first day of September’s trading erased the WHOLE month of August’s efforts.

In fact, the ASX 200 is trading back to where it was on June 3rd, 2020.

The age of the stock picker is back….

September 1, 2020
by Rob Zdravevski
rob@karriasset.com.auASX 200 sideways

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