The top 200 largest stock index in Australia (XJO200) has run into long term resistance in May as it failed to breach the 5925 level. After hitting the resistance level late April and early May the XJO index has fallen around 200 points from the recent high of 5925.
Since forming a double top and confirming the reversal lower in May, the XJO index of the top 200 largest stocks is set to continue to fall further as it takes a breather from the recent strong run over the last 12 months. The road ahead for the index isnt clear as a number of major headwinds are approaching making further gains difficult.
Monthly Chart Review
Can The XJO Breakout Of The 5925 Resistance Level?
From a number of technical indicators the XJO index is likely to pause from its recent strong rally higher as it runs into some exhaustion within its uptrend.
Since the the XJO index is in a uptrend that has been running for a number of years as shown in the chart below, its likely that the index will head lower towards its long term uptrend around the 5525 which is its first level of support. If the index continues on its reversal lower towards support it could be several months before we see the chance for the index to make another run higher towards 5925.
XJO Headwinds - Potential For A Break Of Long Term Uptrend
The momentum indicators are supporting a move lower over the next few months leading into earnings season in Australia. In addition the slow stochastic is approaching its peak upper level on the monthly chart and about to cross lower. If the slow stochastic crosses over like it did back in March 2015 (See chart below), we would most likely see considerable correction in the XJO index over a 12+month period resulting in a break of if its long term uptrend. If this was to occur the only thing that could potentially reverse the move lower would be consecutive drops in interest rates by the RBA and or Government stimulus.
Australia's Macro Headwinds Could End The Long Term Uptrend
The other headwind facing Aussie stocks for the remainder of the year and 2018, comes from the macro picture in Australia, as the slowdown of the real estate market has begun with prices starting to fall in Sydney and Melbourne in May (See article below). The property boom up until recently has been driving the economy and a large part of the GDP growth. However this appears to be over as a number of interest rates from the banks, has finally stopped the strong real estate growth in prices. Together with construction boom spending now falling as the banks continue to tighten lending standards likely to slow the economy as well.
Below is a few recent articles outlining the headwinds stocks, real estate and the economy are facing over the coming months.
Weekly Chart Review
The weekly chart of the XJO shows a similar story to the monthly chart, with the index making a double top as well as the momentum indicators falling as the buying spree reaches exhaustion within the XJO index.
The only difference with the momentum indicators is that momentum has turned negative sitting at -62.2 and the slow stochastic has turned several weeks ago and looks to continue to move lower of the next few weeks.
On the weekly chart I would look out for a pull back in prices, potentially to the target area drawn on the chart around support of 5570. The key to watch is if the XJO index breaks down further closing below the blue uptrend line on the weekly chart.
If the weekly uptrend (blue line within target area) is broken all bets are off as we could see a move down all the way to around 5000 over the next few months.
Add in the earnings season which starts in late July, there is potential for a lot more volatility over the next 3 months.
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Disclaimer: This post is for educational purposes only, and all the information contained within this post is not to be considered as advice or a recommendation of any kind. If you require advice or assistance please seek a licensed professional who can provide these services.
The Aussie apartment boom that has turned into an epic bubble with record sky high prices, is showing all the signs for the perfect storm which will ultimately pop the apartment boom bubble. With the popping of the apartment boom, it will simultaneously bring down the Australian economy, as the apartment market is set to have a sizeable correction in 2017 and 2018.
A short Look At Australia's Real Estate Market.
Australian real estate prices have been going up for over 25 years with hardly a pause in between since the late 80's. The last time real estate prices fell considerably was when Australia last had an official economic recession back in 1987, when interest rates skyrocketed to around 17-18%.
The chart below show the price growth of real estate, rents and CPI since mid 1987. Initially the price growth of Australia's real estate market climbed steadily taking 11 years to double in 1988. From there the price growth continued to accelerate with the next 100% increase in price taking 4.5 years to reach.
An interesting observation on the chart below is that real estate prices have risen by over 700% since 1987, yet rents have risen just under 300% over the same period. This chart clearly shows that the majority of the price growth was not supported by a fundamental increase in rents to support the higher prices, but rather an massive surge in mortgage debt over the same period drove prices higher.
Rising Credit Leads To Booms & Contractions In Credit Lead to Busts
Professor Steve Keen in the interview shown below highlights his own reasons why he see's a recession coming in 2017 for Australia.
Steve highlights a number of reasons for his prediction, including a deteriorating terms of trade, the ending of the mining investment boom, the Government's pursuit to cut spending and a reduction in foreign buyers for real estate among others. However, the most important reason is a deceleration of credit / mortgage debt. Based on Steve's research and economic models the deceleration of mortgage debt growth is the leading cause for all economic downturns globally including the US, Japan and Europe economic recessions, with a correlation close to -1. What all his research showed is with the deceleration of mortgage debt growth, lead to a collapse in real estate prices which then lead to an economic recession in those countries.
Due to this research, Steve believes Australia will react the same way as other countries based on slowing growth in mortgage debt. Especially, as the conditions have already begun to slow based on the bank's tightening their standards overall. However, most of the lending restrictions imposed from the banks are for off the plan apartments and existing apartments within most major cities around Australia.
Given Australia was recently ranked number 4 in the world in the UBS global real estate bubble index, see: Australia's debt addiction fuels record real estate bubble, its easy to see that prices could fall over 20% as lending conditions continue to tighten and their effects take hold.
Why Are Banks Tightening Lending Conditions With Record Real Estate Prices?
The simple reason is that the banks do not want to be caught in a credit crunch like they faced back in 2008 and 2009 where they had to have the RBA and the US FED provide considerable financial assistance to keep them afloat.
Right now the banks can see what everyone else can see if you look at all the data publicly available. Australia will face a major oversupply of apartment dwellings over the next 1 - 3 years from a major ramp up of approvals of apartments. The growth of approvals over the last 7 years which you can see in the chart below, is leading to a big jump in the construction of apartments with a number of them being competed in the next 18 months.
Due to the rapid increase in approvals there has been a massive spike of cranes currently being deployed in Australia, to handle the apartment boom that is currently taking place. As you can see below in the chart Sydney and Melbourne are leading the way in Australia, dwarfing most major cities in the US including New York and LA.
With all the current construction for apartments taking place from the buildup of approvals, especially in the last 3 years, Australia is facing a glut of new apartments that are about to be completed in 2017 and 2018.
Knowing the upcoming glut of apartment completions is about to come available on the market soon, the banks have taken action to protect their capital by providing most of their tightening around new and existing apartments within the CBD's of Sydney, Melbourne and Brisbane where most of the construction has taken place.
Highest Housing Completions = Biggest Housing Price Fall
The chart below shows a comparison of house prices in Australia, UK, Spain, US and Ireland with an accompanying housing completions chart.
The most obvious data from the chart is both Ireland and Spain had the biggest fall in prices during the GFC in 2008 relative to the other countries shown. Those 2 countries also had the largest ramp up of new housing completed from 2000 - 2007.
Surging Bond Yields Leads To Higher Mortgage Rates In Australia.
Back in October US Government 10 yr bond yields were sitting at around 1.55%. Fast forward one month and rates are now sitting at around 2.3%. A 0.8% increase from the October levels (see chart below). The reason why this is a big deal, is that the US Government bond yields are what are utilized to benchmark most of the different types of retail and commercial loans.
In Australia the banks also rely heavily on overseas markets and especially the US markets to provide the necessary funding to support their loan book. So as bond yields have skyrocketed in such a short period in the US, it has already led to the banks in Australia lifting rates by between 0.20% - 0.60% on their fixed loans as their funding costs have jumped dramatically.
With mortgage rates rising and lending conditions being tightened its becoming more difficult for developers to sell their off the plan apartments as investors find it more difficult to access bank lending to finance their purchases, resulting in a slump in demand for off the plan apartments.
Melbourne Developer Offers $21,000 To Encourage Buyers
In an attempt to lure buyers to a new off the plan development in Melbourne, a large well known developer is now offering $21,000 to investors in an attempt to sell their $420,000 1 br apartments in Southbank Melbourne. The idea is to match the investor or first time buyer's 5% deposit of $21,000 to least assist them in meeting a 10% deposit.
The problem that this Melbourne developer and other developers will find, is even with this huge financial incentive, many of the banks in Australia have lifted their minimum deposit requirements for off the plan apartments in major cities to between 15% - 25% deposit.
Apartment Bubble Bursting Leading To Australian Recession
Similar to Professor Steve Keen's prediction that a recession is coming to Australia in 2017 or early 2018, I also believe that the perfect storm of conditions are developing that will soon pop the apartment bubble that has been taking place in Australia.
When the correction in apartment prices takes hold, it will have a domino effect on the Australian economy, leading to a contraction in economic activity in Australia. The reason for this is because the real estate industry and related industries now has the largest contribution to GDP at around 28%. (See chart below)
With record amount of apartment construction taking place over the last few years, fueling a considerable amount of GDP growth, I believe the slowing of the construction industry will start to subtract heavily on GDP growth in 2017 and 2018 leading to Australia's first recession in over 25 years.
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The world has changed a great deal in the last 85 years in terms of how the markets and the economy functions as well as how we see them operating. Slowly over time we have added and implemented more and more policies, regulations, controls, mechanisms and various forms of stimulus in an attempt to smooth out business cycles booms and busts. Central Banks (CB's) and Governments have tried very hard to shorten the busts / recession cycle by lowering interest rates and extend the boom cycles in each and every business cycle over the last 85 years.
Now we fast forward to 2016 and the chief aim is to never experience a bust / recession / depression or deflation ever again. Central Banks (CB's) have taught us that they are all bad things and that we must avoid them at all costs.
These CB's have tried multiple policies and even some new experiments like negative interest rates in attempt to keep the global economy from experiencing a slow down or any amount of deflation. How bad is it really if the price of everyday items like food, rent and fuel becomes 1 or 2% cheaper each year. For the average income earner around the world their money will be allowed to go further if prices fall.
The more we have tried to control every aspect of the market, capitalism and the economy, the harder its becoming to not lose total control of these very things. However I believe we are already in the process of losing control of one of the most important things, the real economy. Presently all the Central Banks have done an excellent job at keeping the Financial assets Ie Stocks and Bonds markets up at or near record highs , while the actual economy has been unable to improve in real inflation adjusted terms over the last 10 years.
Real Assets At All Time Lows
If we take a look at the chart below, it illustrates perfectly the complete distortion of over 85+ years of controlling mechanisms, policies and Central Bank experiments have done to the relative value of real assets compared to financial assets.
This chart goes all the way back to 1925 and currently we are at an all time low, for real assets (Houses, commodities, fine art, jewellery etc) relative to financial assets of stocks and bonds. All the stimulus and attempts at controlling the markets and economy have only influenced the price of financial assets. Financial assets are more easily influenced and controlled through electronic exchanges, rather than real tangible assets which are much harder to manipulate on a global scale.
In the video below, Ray Dalio and company deliver a frank assessment on how we have reached the physically limits of the system. As we have artificially pushed markets and demand higher through debt accumulation, lowering interest rates to zero and by ballooning the derivatives market.
Increasing Volatility And Valuation Divergence
The chart below provides a good understanding on the ever increasing huge swings in volatility the financial markets have experienced. Central Banks began to introduce and try new stimulus and policy ideas in the early 2000's to reduce the busts / recessionary periods, causing large swings in the prices of the financial market as well as the valuations.
The most recent round of stimulus that began in 2009 with Zero Interest Rate Policy (ZIRP), followed by QE 1, 2, 3 and negative interest rates have stretched out the valuation of the S&P 500 relative to US productivity. Up to 1995 / 96 US productivity moved in sync with the S&P 500 stock market. This is clearly no longer the case as the chart indicates a strong divergence in valuation.
This week we received the latest monthly industrial production number in the US and showed that the year on year figure remains negative.
Since mid 2014 you will notice that industrial production data used to coincide with the value of the S&P 500 index very well. Now industrial production has been falling for 2 years and the stock market is near nominal all time record highs.
One of the policies that the Central Banks have utilized to try and control the economy, markets and financial assets values is to physically adjust interest rates up and down. Since the 1980's when Paul Volcker raised interest rate to around 18% to combat high inflation, we have been steadily lowering them all the way to zero.
Why Lower Interest Rates No Longer Work?
Presently the federal funds rate is at 0.25% as you can see from the chart, however lower interest rates are no longer having the desired effects to stimulate the real economy anymore. One of the reasons for this is the fact we have reached the limits of our debt bubble cycle. We can no longer leverage ourselves any higher despite having interest rates at close to zero .
Leveraging Corporate America
One of the many side effects of lowering the federal funds rate to close to zero, has been the leveraging of US companies to levels higher than the 2007 and 2008 peak before the GFC crisis. Debt to equity is approaching 60% for non-financial companies, as the incentive to load up on debt has never been so high. But is it really helping corporate America?
What Is The Debt Being Utilized For?
The accumulation of more debt relative to assets would be ideal in the short term if companies were utilizing the debt to fund new innovation, capital expenditure and additional capacity for future growth.
The reality is that a large majority of the debt accumulation has been utilized to fund buybacks of company stocks to artificially boost earnings per share (EPS) which in turn helps stock prices rise despite the company profit not actually growing from this strategy.
The chart below shows that share buybacks have more than doubled since 2012 to $161 Billion in the 1st quarter of 2016, as more companies engaged in artificial growth strategies rather than invest in their own business models.
IBM a large technology company that has been an consistent innovator issuing several thousand new patents each year. However even though IBM still continues to issue several thousand patents, the company has been steadily increasing its debt levels (See chart below) to allow it to participate in stock buybacks.
IBM Increasing Debt & No Growth
These higher debt levels has allowed IBM to engaged in stock buybacks with the additional funds at their disposal. Unfortunately for IBM the stock buybacks have not helped the actual company as it has struggled to grow over the last few years.
The chart below is a perfect example how a large company has tried to control its EPS through artificial boosting its profits with stock purchases funded through debt. However the actual result is that IBM's revenue (which can't be artificially adjusted through stock buybacks) has been falling since 2012 as the company continues to struggle to grow its top line and bottom line numbers.
Netflix, which is relatively young technology company that provide online streaming of TV content, is a company that has been investing large amounts of money into the companyto deliver new and original TV content, as it differentiates itself and reduces its reliance on licensing content from other media companies.
On the 18th October Netflix announced its latest quarterly result, which was above estimates for EPS and subscriber growth. However the interesting thing that investors didn't seem care about is that Netflix free cash flow is going the wrong way and accelerating. It burned through $506 million in a single quarter and just over $1 billion over 3 quarters. (See chart below) The stock ended up jumping around 19% after reporting its results.
Because of the huge drain of cash despite reporting a profit, Netflix did mention it will be tapping the markets for an increase in debt soon. Because interest rates are so low the market does not care that Netflix is essentially, borrowing more money to make new TV shows to attract more members. The current business model is simply not sustainable, especially when the company spends $142 to add one new subscriber.
If Interest rates were set by the market and were not manipulated by Central Banks the actual interest rate would be significantly higher to encourage savers to part with the capital. In this scenario Netflix business model would not survive in its current form.
The last chart summaries very simply, how "we have lost control of the real economy by trying to control everything". Global GDP estimates continues to decline as global stocks continue to increase, as Central Bank balance sheets fund global stocks higher.
Lastly this MUST WATCH video Rick Santelli makes a simple request to Central Banks.
One by one real estate markets across the globe have begun to pop as the record real estate bubble has turned to a slow down in prices and growth. Multiple regions and real estate markets have begun to cool despite record low interest rates and Quantitative Easing (QE) stimulus.
Until recently the global real estate markets had been one of the best performing asset classes over the last 7 years, as Central Banks coordinated efforts to stimulate the economy in 2009 and further in 2012 - 2016 brought interest rates around the globe to record lows. Some countries even went negative with the objective to ensure GDP growth continues.
The Tipping Point Of Stimulus - Too Much Of A Good Thing
Eventually though any market will reach the limits of what artificial stimulus can do to prices and demand. Whether its auto / car market, think of the cash for clunkers stimulus and the more recent auto subprime loans bubble in the US, or whats happening right now with real estate prices in different countries. Eventually demand begins to wane even when stimulus remains or increases. This happens when too much of a good things begins to take hold and stimulus actually becomes a negative to demand.
Pizza Eating Example:
If your hungry and you love pizza you decide go to a pizza restaurant. The demand for eating pizza is high, however eventually the demand or desire for more pizza will start to fall until you reach the point of when you don't want no more pizza. Your desire or demand will not change even if the pizza price falls by 50% making it easier to buy more. Why because you reach the limits of your own consumption and demand eventually disappears.
This simplified example works in a similar way to economic stimulus in asset markets as it does for the rise and fall in demand for pizza. Everything has a limit where extra stimulus stops being effective.
Luxury Manhattan Real Estate - Latest Market To Correct
The luxury real estate market in Manhattan is one of the latest markets to cool as it pop its real estate bubble. In the chart below you can see the declining trend in growth in prices in Manhattan. Since January 2015 where growth was around 8% pa, the level of growth has continued to fall each month to February 2016. Where the data shows that it has gone negative to close to a 1% fall in prices.
San Francisco area has been another hot real estate market that has started to cool down, despite being a trendy place to live and close to employment opportunities. With several big Technology companies headquarters located in the area.
In this short video below its give you a good understanding how the bullishness of the real estate market has tapered off, as the real estate sales and prices have soften and the time taken to sell has increased compared to a year ago.
One of the reasons why the San Francisco real estate market has started to cool despite low interest rates and stimulus is due to the fact the employment levels in the area has peaked, and has been stagnating since September last year with no growth recorded in employment in the area. This has effected rental demand and rental prices have begin to come down also weighing on the San Francisco real estate market.
Based on the indicators and the employment data the trend for this real estate market is not looking good going forward.
Across over to Vancouver real estate market in Canada, has experienced a spectacular fall in prices in a very short period of time. (See chart below)
Similar to San Francisco real estate market, Vancouver had experienced sharp rises in prices over the last few years as foreign buyers and local demand drove up prices. This was due to record low interest rates forcing investors to find a destination to earn a return on their capital, as cash and bonds income continued to fall. However recent tax increases for foreign buyers in Canada has effected demand dramatically in the area, with prices falling sharply since July this year.
The video below gives you a snapshot of the current Vancouver real estate market and the fallout from a sharp drop in home sales in the region. On a bright note they expect the market to remain relatively stable moving forward. Given the global backdrop in real estate trends this assumption may change.
In the UK commercial real estate has been experiencing a slowdown since the beginning of the year and was in the process of cooling before the Brexit vote dampened confidence for this asset class further causing further pain for the sector.
The graph below shows the trend in property deals value falling compared to the same month year ago. The trend is clearly falling faster as February through to May show steeper falls than January.
The falls in property deal values is most likely the consequence of income and capital growth returns continuing to fall each month since reaching the peak in October 2014 of 12.95% return, to the current return of 5.91% in March 2016. (See chart below)
Australia's real estate bubble has continued to remain red hot in bubble territory despite warnings from BIS and other groups on debt levels. To see the article click here Australia's debt addiction fuels bubble.
Despite the residential real estate market continuing to perform strongly in Australia, the Australian real estate investment trust (REIT) sector which predominately focuses on commercial real estate, has experienced sharp falls in prices since August. The REIT sector current price has fallen back to the levels set in April this year despite setting a yearly high back in July this year.
Why It Feels Like Everything Is OK
This chart below shows exactly why it appear that everything seems to be OK even though each month another real estate market across the globe starts to cool as their bubble pops and deflates.
The chart below shows global GDP expectations for 2016 overlapping the global stock market and global central bank balance sheet levels.
The chart shows the blue line which represents global central bank balance sheet continuing to increase, and the global stock market following this trend up with it since the start of this year.
What this indicates is that the global stock market is being held up by artificial stimulus as the stock market no longer reflects global GDP movements to the downside.
I'm aware that not every real estate market around the globe has started to pop. In fact some markets like China and Australia residential market are continuing to go higher.
The signs however are getting stronger as more and more real estate bubbles popping are emerging each month. Eventually more real estate markets will be effected, as the stimulus effect on demand starts to fade. Coupled with the fact global GDP continues to fall and the effect it will have on employment levels will cause real estate markets to fall in more regions.
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Australia's obsession with real estate over the last 50 years, has created a generational debt addiction and record levels of private debt to GDP of over 200% (see chart below). Because of the record debt levels Australia now has a real estate bubble and just received confirmation with the title of coming 4th, behind Vancouver, London and Stockholm in the UBS Global real estate bubble index.
See link for full story on UBS Global Bubble index - www.zerohedge.com/news/2016-09-27/global-housing-bubble-biggest-these-six-cities
Our private debt levels relative to GDP has been steadily rising since the 70's (see chart below), surpassing the USA and most advanced economies. Besides pulling back so slightly in 2009 and 2010 due to the GFC, we have not looked back. Since Australia's debt levels have kept rising, real estate prices have followed suit, as people outbid each other to drive prices higher. This in turn has further fueled more speculation into real estate as asset prices rise year after year without hesitation.
In contrast to the USA and advanced economies, Australia's private debt to GDP levels are at record highs, where as the USA private debt tapered off from 2009 - 2012 as the consumer deleveraged, after millions lost their homes. Since then the private debt has been going sideways relative to GDP, which explains one of the reasons why growth in the US in the last few years, has been so sluggish compared to previous recoveries from a recession.
Income Vs Real Estate Prices
A key ingredient to determining whether an asset is in a bubble is to compare the current value of an asset compared to income / rent levels.
The chart below shows since 1986 rents and construction prices have risen 25% -30% adjusted for inflation, compared to housing prices which have risen by 270+% adjusted for inflation over the same period.
If you take a look at household income it has risen by approximately 50% adjusted for inflation since 1986, which explains why its has become increasing difficult for first time buyers to get into market.
The exponential rise in real estate prices from the mid 80's has been clearly supported predominately by an equally significant rise in the level of private debt, rather than being supported by increases in household incomes or rent prices.
Australian Real Estate Bubble Parody Video
Below is a short real estate parody video that shows the crazy lengths Australians go to so they can participate in the real estate bubble as the fear of missing out drives their decision making.
Even though this is a parody the reality is, the themes shown here resemble behaviours similar to the current state of the Australian real estate market.
Real Estate Now The Biggest Contributor To GDP
Australia has experienced a record breaking 25 years of GDP growth without experiencing a recession, which is defined as 2 quarters of consecutive GDP declines.
Since the mining boom has slowed the last few years, the real estate and related industries have become more important within the economy, as it has been a big contributor to Australia's GDP growth.
Looking at the chart below of Australia's Industry share of GDP, I have outlined in black - Ownership Dwellings, Rental, Hiring and Real Estate, as well as Finance and Insurance. These 3 real estate industries account for a combined 20.3% of Australia's GDP.
When you combine the construction industry 7.7% contribution to GDP, of which real estate construction would be a considerable component of the construction industry. You realize that real estate industry is the single biggest industry by GDP in Australia, and any downturn in real estate prices and or construction activity would impact on Australia's GDP considerably in the future.
Lastly I wanted to show a real life of example of a house that was sold this week to illustrate how much real estate prices have risen. The picture of the house below is a 2 bedroom house located in Greenarce, a suburb that is 17km away from Sydney. It sold for AUD $926,000 and features 545 sqm of land and is un-renovated.
If you want to take a look at Australia's REIT's sector review and how it is holding up, despite record levels of debt and low interest rates you can click on the link at: Aussie REIT Sector Review
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Australian REIT Sector In Review
The Australian real estate investment trust (REIT) sector has experienced a strong selloff in price in the last 6 -7 weeks. After reaching a 52 week closing high of 1,557.86 on the 1st August, the sector began to experience weakness around the same time as global bond yields started to rise sharply from record lows. Click my previous post: Is the bull market in stocks ending? where I cover the rise in Government bond yields and its potential impact on global stock markets.
Because REIT's typically use short term (3-6 year) lending facilities to gear their real estate portfolios. The fall or rise in Government bond yields over time, directly impacts the interest rates banks charge when the REIT's refinance their lending facilities. Hence the net income levels are directly impacted from changes in Government bond yields over time.
The REIT sector is usually a relatively stable sector, with lower volatility normally compared to other stock sectors. This is due to the long term rent contracts that are typically in place with commercial real estate portfolios. This makes them quite secure and stable as these rental contracts make up the bulk of the annual revenues for the majority of stocks within the REIT sector.
A Downtrend Has Started
Taking a look at the sector on a daily chart, you can that after reaching its high for the year on the 1st August, the sector began to show weakness and started to fall. The selling continued and its uptrend ended around the end of August which I have marked with the black circle below.
Once the uptrend was broken and reversed trend, the selling accelerated with sharp falls occurring over a 2 week period. This was coupled with an increase in volume (see chart) in the last 2 weeks which is a bearish sign.
However on a positive note for the sector, after touching the support level of 1,360 it was able to rally higher and finish off the lows reached mid week.
Looking ahead the sector needs to stay above the 1,360 support level over the next few weeks, in order to consolidate before looking to close above its new downtrend (see chart), to consider resuming its previous bull uptrend again.
Viewing the REIT sector on a longer term horizon with the weekly chart, the overall picture is actually quite positive compared to the daily chart. You can see within the chart that the sector is still with in its long term uptrend that began in August 2011.
Last week the sector reached the support level of 1,355/60 and also touched its uptrend before bouncing off the lows during mid week and finished slightly higher at 1,387.66. This is a positive sign that it was able to respect the long term uptrend and bounce of support.
The Key Issues For The REIT Sector
While the sector still remains in in uptrend for now, its important that it remain within its uptrend and not close below its trend to form a reversal and new long term downtrend.
The other key consideration or clue for the long term direction of the REIT sector, and whether the long term uptrend remains in tact, is the direction of Government bond yields. If the uptrend that has recently started for Government bond yields continues and keeps rising, then its most likely that the sector will end its 5 year bull run.
Disclaimer: This post was for educational purposes only, and all the information contained within this post is not to be considered as advice or a recommendation of any kind. If you require advice or assistance please seek a licensed professional who can provide these services.
Australian Investors have a strong love affair with real estate as an investment vehicle, with Aussie real estate prices rising seemingly year after year, making it a clear favorite investment choice to invest over other asset classes like shares.
Today Australia now has its first official property exchange called BRICKX, where you can buy and sell real estate by the brick. Each brick can be purchased for as little as $100 each, making owning real estate an much easier option for investors.
One of the drawbacks or challenges traditionally for investing in real estate is the high cost of entry for most properties in Australia with the median price around $580,000*. With the BRICKX exchange you can purchase one brick or a number of bricks of a property within the exchange, which significantly lowers the entry cost into real estate to one brick or $100.
Each property within the exchange is split among 10,000 bricks with each investor allowed to own up to 5% of the bricks for any single property.
The other benefit of the BRICKX exchange is that it provides an investor with a more liquid option to exit their investment compared to traditionally owning the entire property.
The BRICKX exchange currently has 5 properties so far available with 4 of them in Sydney and 1 in Melbourne.
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Disclaimer: This post was for educational purposes only, and all the information contained within this post is not to be considered as advice or a recommendation of any kind. If you require advice or assistance please seek a licensed professional who can provide these services.
Commonwealth Bank (CBA) is the largest company listed on the Australian stock market (ASX 200) with a market cap just over AUD $123 Billion.
Being the largest company on the ASX it is a widely held stock among investors directly as shareholders and indirectly via managed funds and super funds both domestically and internationally.
Similar to Woolworths that was recently reviewed on this blog see: Has woolworths wow turned a corner?
CBA had experienced strong and consistent share price gains over a number of decades and has been a very popular stock for that very reason.
Below you can see that CBA has joined a great run from the $5.80 a share range back in 1992 to the more recent highs achieved in March 2015 of just over $96 a share.
More recently CBA has been struggling to reach new highs in its share price. Since touching the $96 level last year the stock has been in a downtrend and bouncing off the $70 a share range to form a strong support level.
Below on the weekly chart you can see the level marked with a black line labelled - $70 strong support level, has so far not been breached, as CBA is currently trading just under the $72 a share level today.
If CBA was to break the $70 support level the next support area would be around the $64 a share range shown below with the black line labelled - $64 next level of support.
Zooming in on the stock you can clearly see since October last year that CBA has been bouncing off the $70 a share level a number of times and is close to approaching the $70 level for the 4th time in 12 months.
CBA just recently reported its earnings last month and based on the market's response sending the share price from around $78 a share when they announced their profit result to just under the $72 a share today the market believes the profit results were underwhelming for the largest bank and company in Australia.
Disclaimer: This post was for educational purposes only and all the information contained within this post is not to be considered as advice or a recommendation of any kind. If you require advice or assistance please seek a licensed professional who can provide those services.
Australia has had an infatuation with real estate for a number of decades now, as many Australians have generated significant wealth through real estate as the local market has been rising steadily since the early 1980's.
Among a number of industries that have done very well from the popularity and boom of real estate prices has been real estate agents who typically charge around 2% plus marketing costs to vendors wanting to sell their real estate. Based on the median price property in Australia of just over $600,000 nationally the typical cost charged by agents averages around $12,000 plus marketing cost which can range but usually are around $2,500 bringing the total to around $14,500.
This where a new entrant to the Australian market comes in, based in the UK and has just expanded to Australia, Purplebricks is launching and is bringing a new low cost fixed fee disrupting listing model to the Australian real estate market.
By tapping into the latest digital media technology Purplebricks can lower the cost to sell real estate and is offering their service for a fixed fee of $4,500 per property. This includes all marketing costs including advertising on popular local online real estate sites like realestate.com.au.
Having listed in the UK and with a decent starting marketing budget of $17.2 million Purplebricks are looking to make a big impact in Australia as they look take market share from the local competitor real estate agency's.
For further information visit:
http://www.afr.com - Subscription required
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I am a private trader and equities investor that loves the trading and investing world, following the markets and everything in between.