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On the topic of housing supply, the AFR just reported that Australia’s biggest home builders have suffered a 23% fall in new housing starts last year.

Housing starts for Australia’s 100 largest builders fell to a decade-low in FY23, the lowest since 2013.

And while starts fell, insolvencies rose 73% as builders, saddled with fixed price contracts, struggled with labour shortages and rising input costs.

On the topic of housing supply, the AFR just reported that Australia’s biggest home builders have suffered a 23% fall in new housing starts last year.

Housing starts for Australia’s 100 largest builders fell to a decade-low in FY23, the lowest since 2013.

And while starts fell, insolvencies rose 73% as builders, saddled with fixed price contracts, struggled with labour shortages and rising input costs.

AMP’s chief economist Shane Oliver thinks the ‘level of immigration should be reduced’ to improve ‘poor’ housing affordability in Australia.

In a research note, Oliver wrote:

‘The role of high immigration levels (now about 500,000 per annum) can’t be ignored. On our estimates it needs to be cut back to nearer 200,000 people a year to line up with building industry capacity & to reduce the supply shortfall.’

Oliver argued ‘deteriorating housing affordability is something to be concerned about as it is driving increasing inequality and could threaten social cohesion’.

Threaten social cohesion! Interesting claim.

What’s not in any doubt is that housing affordability is deteriorating.

Oliver provided a great chart to illustrate:

Oliver cited the 2023 Dermographia Affordability Survey, which found the median multiple of house prices to income for major cities in Australia is 8.2 times versus about 5 times in the UK and the US.

Sydney has a median multiple of 13.3 times!

Why the level of immigration should be reduced. The attached note looks at the key drivers of poor housing affordability in Australia and particularly the role played by high immigration levels. https://t.co/jiWXtkMgKa

— Shane Oliver (@ShaneOliverAMP) September 20, 2023

Sigma Healthcare [ASX:SIG] is flat in late trade on Wednesday after publishing its half-year results.

• 1H24 net revenue down 8.4% to $1.68 billion
• EBITDA up 77.6% to $36.7 million
• NPAT up to $11.2 million from a $1.5 million loss

How did revenue fall but profitability jump?

Sigma said 1H24 operating expenses fell 21% YoY.

As for the revenue drop, Sigma attributed it to ‘discontinued operations in the current year’ and waning sales of rapid antigen tests (RATs).

Adjusted for sales of RATs and the disposal of hospital assets, ‘wholesale sales’ were up 7.5% to $1.5 billion.

It’s interesting sales of RATs are down, considering I just bought ten after contracting COVID for the very first time.

BNPL firm Sezzle [ASX:SZL] is up 18% in afternoon trade after an August trading update.

The buy now, pay later firm is having a better year than its peers, actually eking out a 12-month gain of 7%.

Its nearest coeval — Zip [ASX:ZIP] — is down 65% over the past 12 months.

Others, like Openpay [ASX:OPY], have collapsed entirely.

So why is Sezzle sizzling today (sorry)?

Revenue for the month of August rose 44% YoY to US$14 million and 12% month on month.

Total revenue as a percentage of underlying merchant sales (UMS) continued to rise, up 188bps YoY to 8.7%.

How is Sezzle managing to raise its take in these times?

It didn’t say.

In August, Sezzle managing to record a net profit of US$600,000, ending the month with US$60.7 million in cash on hand.

Excerpt from Greg Canavan’s latest piece for Money Morning.

***

Many people think the climate discussion is a political or ideological debate. For some, it is.

But for me — and this is why I’ve been writing to you about it and conducting interviews on the subject — it’s an economic and investment debate.

Transitioning from a dense and efficient energy source to a less dense and efficient energy source has never before been attempted in economic history.

If we invest more of our capital stock and human resources in delivering our basic energy needs, it will raise prices and lower our standard of living. It’s as simple as that.

Energy is the most essential input into any economy, whether basic or advanced. High energy costs act as a restraint on economic growth and living standards.

The explosion of growth that occurred in the Industrial Revolution was due to technological advancements that came from harnessing energy. Steam from burning coal transformed the world and brought millions out of poverty.

It wasn’t all rainbows and lollipops. You can read Dickens’s Hard Times to get an idea of that. But it was immeasurably better for most than the serfdom and subsistence living that came before it.

But here we are, nearly 250 years later, trying to go in reverse.

Mark my words, if we let this continue, watch costs rise and your standard of living fall.

Let me give you some examples of the absurdity that is Australia’s energy policy.

The first is our refining capacity. Energy writer Doomberg raised this in a recent essay:

‘Although its [Australia’s] oil consumption has remained relatively flat at approximately 1 million barrels per day since the end of the global financial crisis, its refining capacity has been cut by two-thirds to just under 25% of its total needs, forcing the country to become increasingly reliant on imports.

‘In recent years, the closure of the Clyde Refinery in 2012, the Kurnell Refinery in 2014, the Bulwer Island Refinery in 2015, the Kwinana Refinery in 2021, and the Altona Refinery in 2022, have chipped away at the nation’s industrial resiliency. The sole remaining crude oil facilities in Australia are the Lytton Refinery in Brisbane, operated by Ampol, and the Geelong Refinery, operated by Viva Energy.’

As a result, we ship in the majority of our refined petroleum from South Korea and Singapore…not exactly next-door neighbours.

Australia’s mining industry runs on diesel, and we have just a month of inventories. That means we are especially exposed to supply chain issues. As Doomberg’s article pointed out (quoting from Bloomberg):

‘An increasingly stretched global refining system means fuel-price volatility is set to become more common, according to top oil executives. A lack of spare crude-processing capacity due to under-investment, and shutdowns happening more frequently with refiners ramping up on better margins and deferring planned work were common themes at the APPEC by S&P Global Insights conference in Singapore this week. That’s left fuels like diesel and gasoline vulnerable to sudden swings when there are unplanned outages…

‘The market is overly sensitive to any unexpected supply disruption anywhere,’ [Frederic] Lasserre said. “Everyone knows there’s no plan B. We have no stocks, and we have no excess capacity anywhere.”’

But hey, who cares, we’re going electric!

https://www.moneymorning.com.au/20230920/australias-energy-not-climate-emergency.html

Interesting data yesterday from Seek.

Australian job ads are down 20.5% on a year ago.

And applications per job ad rose for the six straight month in August, up 6.5% from July alone.

According to @seekjobs Australian job ads fell by 1.8% in August 2023 and were 20.5% lower compared with a year ago. Applications per job ad increased for the sixth consecutive month, rising 6.5% from the month prior. #ausecon #auspol @CommSec pic.twitter.com/9XP3hbYxW4

— CommSec (@CommSec) September 18, 2023

Australian petrol prices hit a record high this week — as many of us have noticed, gasping at the bowser.

Regular unleaded prices peaked at an average of $2.22 a litre.

City Index market analyst David Scutt blamed the weak Aussie dollar and the rising oil price.

As Scutt told Nine News:

‘The Aussie dollar has been very weak over the past two months.

‘At the same time, you’ve had crude oil prices and gasoline prices that have surged on the back of very tight marketplaces and the like.’

It’s even worse across the Tasman.

The New Zealand Herald reported yesterday retail petrol prices are expected to rise as much as NZ$3.50 (A$3.22) a litre for 91 octane by Christmas.

Happy holidays.

Doing my bit to support Australian inflation expectations.

Petrol prices hit record high and show no sign of coming down, motorists warned https://t.co/hXtubRBC1n

— David Scutt (@Scutty) September 20, 2023

 

90% of stocks are fairly priced.

At least, that’s what some buy-side analysts think.

Retired hedge fund manager Brett Caughran — who now runs Fundamental Edge — frequently points out 90% of stocks are ‘somewhat fairly priced’.

But he didn’t take this as bad news.

Because, at ‘nearly all times, at least 10% of stocks are meaningfully mispriced’.

The smart money chases those exceptions.

That’s where the alpha lies…

But how much of this is true?

Are markets really that efficient?

What if we take five stocks at random from the ASX 200 and value them? Will the valuations be similar to the market’s?

That’s what I sought to find out.

https://www.moneymorning.com.au/20230919/are-most-asx-stocks-efficiently-priced.html

Speaking of ‘higher for longer’ interest rates.

The latest episode of What’s Not Priced In focused heavily on the topic.

For Greg Canavan, the consensus of ‘higher for longer’ may be disrupted by ‘lower and sooner’.

Is inflation re-accelerating?

Will rising oil prices push central banks to raise rates further?

Is a recession still likely?

And are markets overvalued?

As for what's not priced in? Recession continues to be a risk underpriced by the market. https://t.co/P4iiqZBRce

— Fat Tail Daily (@FatTailDaily) September 14, 2023

Speaking of ‘higher for longer’ interest rates.

The latest episode of What’s Not Priced In focused heavily on the topic.

For Greg Canavan, the consensus of ‘higher for longer’ may be disrupted by ‘lower and sooner’.

Is inflation re-accelerating?

Will rising oil prices push central banks to raise rates further?

Is a recession still likely?

And are markets overvalued?

As for what's not priced in? Recession continues to be a risk underpriced by the market. https://t.co/P4iiqZBRce

— Fat Tail Daily (@FatTailDaily) September 14, 2023

Higher for longer.

That seems to be the mantra of the firming consensus.

US Treasury yields have hit a 17-year high overnight, suggesting the market is positioning for the Fed to keep rates high well into 2024.

The influential 10-Year Treasury yield reached a session high of 4.371% overnight, the highest level since November 2007.

 

Higher for longer.

That seems to be the mantra of the firming consensus.

US Treasury yields have hit a 17-year high overnight, suggesting the market is positioning for the Fed to keep rates high well into 2024.

The influential 10-Year Treasury yield reached a session high of 4.371% overnight, the highest level since November 2007.

 

Good morning.

Hope everyone is well.

The market is not exactly exciting at the moment. But let’s see what’s making the news.

Good morning.

Hope everyone is well.

The market is not exactly exciting at the moment. But let’s see what’s making the news.