Why Aussie Housing Won’t Collapse This Year

It is a volatile start to the year in markets, with so much uncertainty about the economic outlook.

Much of that is over China. Equity strategists are forecasting global recession for 2016.

Just last month, high profile fund manager John Hempton of Bronte Capital, and economist Jonathan Tepper, made public their short positions on the Australian housing market.

They’re predicting prices to fall 50% in Sydney and Melbourne and about 80% in mining towns.

Tepper is also warning of sharp falls for bank shares, in the order of 80%, and cuts to bank dividends. His forecast is for the Australian dollar to trade at 40 US cents.

This the very gloomy backdrop in which the reporting season took place.

Does it worry you?

Today I’ll show you why the Aussie economy is a lot better than most people think.

The share market tells you these guys are wrong

If things were as bad as Tepper and Hempton suggest, I would expect to see this reflected in the profit and loss figures of companies. Most of them are currently reporting their half year results.

Let’s take a look at some of the listed corporate results posted this season.

Construction resource provider Boral Ltd [ASX:BLD] delivered strong half year profit, up 31%.

Property developer Stockland [ASX:SGP] delivered a 51% jump in profits.

Annuity provider Challenger Ltd [ASX:CGF] saw first-half profit jump 80%.

Home builder AV Jennings [ASX:AVJ] has lifted its first half profit by 39%.

Furniture retailer Nick Scali posted record results, lifting profit by 41%.

Likewise Fantastic Furniture [ASX:FAN] reported profits up by 43%.

Hearing implant provider Cochlear Ltd [ASX:COH] saw first-half profit climb 32%.

Underwear and bed linen maker Pacific Brands Ltd [ASX:PBG] saw first half profit up by 44% and paid its first dividend in two years, despite the FX headwinds.

Sydney Airport [ASX:SYD] posted full year profits that were up 379%.

Cancer treatment developer Sirtex Medical Ltd [ASX:SRX] reported a 47% lift in first-half profit.

Domino Pizzas [ASX:DMP]delivered record first half profit up 50%.

Property digital media business REA Group Ltd [ASX:REA] saw half year profit up 28%.

Harvey Norman Holdings Ltd [ASX:HVN] saw half year profit up 30.6%.

Pharmaceuticals group Mayne Pharma Group Ltd [ASX:MYX] saw revenues more than double. Profit was up 393%.

Corporate Travel Management Ltd [ASX:CTD] posted net profits up 36%.

Footwear retailer RCG Corporation [ASX:RCG] more than quadrupled its revenue from $49 million to $220 million and saw net profit up 208%.

Self storage facility owner and operator National Storage REIT [ASX:NSR] saw net profit up by 35%.

Qantas Airways Ltd [ASX:QAN] posted its best half year result since privatising, with profits up 239%.

Australia’s largest private hospital operator Ramsay Health Care Ltd [ASX:RHC] posted profits for the first half up by 17.5%.

Caltex Aust Ltd [ASX:CTX] posted record revenues, and annual profit was up 27%.

The Commonwealth Bank [ASX:CBA] delivered a record breaking first half cash profit of $4.8 billion, up 4% on the same period a year ago. The dividend remained intact despite conjecture that it may be cut. Loan losses were stable and low by historical standards.

The reporting season has seen more than half of the results beating expectations. 69% have seen their profits rise on the same period last year.

Given the constant mainstream reporting of concerns over China and plunging share markets, it should have been the worst reporting season in years. But it wasn’t.

The reported results suggest that infrastructure spending, housing construction and strong consumer spending are all up.

And many of the factors in the financial background, such as the lower dollar, inbound tourism, low oil, low interest rates, steady GDP growth, stable employment conditions and increasing population growth, may well continue throughout 2016.

So credentialed fund managers and economists can go on shorting Australia and forecasting economic recession. They always will anyway.

But if the reporting season is anything to go by, they may just have to wait a little while.

Australia’s economy continues to hold steady in the face of slackening demand for commodities, particularly from China. That’s in contrast to other large resource exporters such as Brazil.

Australia is moving away from a resource dependent economy, and steady job figures suggest the transition is going fine.

The reporting season results are consistent with what Cycles, Trends and Forecasts has been saying for some time. We’re not predicting property to fall. And despite share market volatility in 2016, we’re not expecting a complete share market collapse either.

Leaving the mining sector aside, the reporting season has surprised most analysts.

Almost 90% of those reporting half year earnings reported a profit, near record levels.

And 69% of the half year companies improved their profit results. That’s the highest percentage in the 12 reporting seasons that Commsec have covered.

A record 91.2% of companies issued a dividend, and almost 77% of half year companies lifted or maintained dividends.

It suggests the doom and gloom brigade will have to bide their time for now.

If you’d like to know where the economy is really headed, from the man with the best forecasting record in the business, go here.

Terence Duffy,

Lead Researcher, Cycles, Trends & Forecasts

From the Port Phillip Publishing Library

Special Report: The biggest stock gains can come from the least likely places. While the ASX fell 9% in the 12 months to November 2015, one tiny, hated mining stock soared 1,200%. What seemed like an ugly, bad investment quickly transformed every $5,000 worth of shares into $65,000. This is the power of ‘10-bagger’ companies. Where will the next one come from? Read Greg Canavan’s special Crisis & Opportunity presentation to find out…(more)


Terence Duffy is an analyst and chartist, specialising in researching economic trends and cycles.  His primary focus is housing and land affordability. But you can also depend on him to offer his unique analysis of stock market charts. As Terence will show you, the charts often forecast, well in advance, the good or bad news to come.


Money Morning Australia