Monday, 20 September 2021 — Albert Park

By Callum Newman Editor, The Daily Reckoning Australia

[3 min read]

• Callum’s latest idea getting closer to fruiting
• Philip Lowe’s big reveal
• Plus, what are you waiting for?

Dear Reader,

1. A couple of weeks ago I got the publisher here, Woody, to agree to share some of my last paid issue with you…the Delta Dominator!

I was very happy with how it came out.  

It recommends a stock that a) benefits from the rolling lockdowns and b) is primed to make more money when property listings start ratcheting up as the real estate market gets going full bore again.

And what do we see in the news of late?

From The Age on the weekend:

‘A flood of buyers and sellers is expected to hit Melbourne’s real estate market this weekend as it springs back to life after the news that in person inspections can now go ahead.’

Indeed. The article goes on to say that listings soared 150% in a week after Melbourne came out of the last lockdown.

It’s a partial end to lockdown right now, to be fair, and much to the exhaustion of my wife stuck with two kids on school holidays.

But the opening up of Victorian and NSW economies is within range now. The market can see it coming.

That means the time to be buying stocks that benefit is now…to get set for the consumer return brewing.

Sometimes, the news can look bleak out there if you focus on the pandemic and the mainstream press too much.

Don’t forget anyone who’s held onto their business and job is saving a fortune right now.

Plus, we have massive ASX dividends showering down in September too. 

That pent-up demand is going to go somewhere. Granted, I may not be right on my way to play this recovery. But, adjusted for risk, I really like it.

You can still access the issue here if you want to read the idea. 

Because last week saw a starting gun fired for the next phase of the housing boom…

2. …And it came from the Reserve Bank of Australia. Philip Lowe gave a speech.

One where he pushed back on the idea that the RBA is responsible for house prices.

Here is what he said:

‘While monetary policy is contributing to higher housing prices at the moment, the way to address these concerns is through the structural factors that influence the value of the land upon which our dwellings are built.

‘The factors include: the design of our taxation and social security systems; planning and zoning restrictions; the type of dwellings that are built; and the nature of our transportation networks. These are all obviously areas outside the domain of monetary policy and the central bank.’

Señor Lowe is quite right.

The most important sentence is the bit where he mentions the influences on the value of the land where dwellings are built.

Notice he does not reference the usual reasons trotted out as his overriding factor: inadequate supply, immigration, wages, foreign buyers, and blah blah.

I’ve heard all of these for years.

It didn’t matter a damn that immigration stopped to a standstill after 2019. The market skyrocketed anyway.

You know this.

Here’s one advantage of watching and reading and trading every day the market is open, for years, as I have.  

Philip Lowe wrote a piece in 2015 where he concluded that Australia’s obsession with house prices was, in fact, an obsession with land.

I read that report.

I even cited it in one of my own at the time.

Does anyone remember this except me and him? Probably not.

For do you care what a dry bureaucrat babbles on about as you go about your day-to-day living?

No, and nobody else does either.

And yet you can build an entire investment strategy around that one insight. It’s certainly worth a damn sight more than you’re paying for it right now too.

For it is not Philip Lowe’s insight, it belongs to the classical economist who recognised, in the words of Adam Smith, the ‘peculiar’ nature of land.

Land produces a rent. Not a commercial rent where the user pays the landlord, but an economic value of its own.

Hence the term ‘rent seeking’. This is chasing a reward without a commensurate dose of effort or risk.   

Who gets these rents wins. In our culture, a lot of those are homeowners.

Nobody — developers or investors — cares for your carpet or your taste in wallpaper.

What they want to see is whether your property can benefit from a rising locational value — the earnings of land. 

So what are you waiting for? Dr Lowe is even telling you he won’t raise interest rates on you for another two years at least.

Low debt costs? Rising land values?

Up and away we go.

Regards,

Callum Newman,
Editor, The Daily Reckoning Australia