What’s Next for the ASX? You’ll Find a Big Clue in Train Stations

What’s Next for the ASX? You’ll Find a Big Clue in Train Stations

Today’s Daily Reckoning Australia is taking you to the United States. But we’re not going to discuss the trade war rhetoric or international relations today. We’re going to go house shopping.

After all, that’s what plenty of Americans appear to be doing. I can say that because Harvard University just released its latest State of the Nation’s Housing report. It’s been issued annually every year for three decades.

Good news for the economic outlook! The rate of people renting is in decline and home buying is rising. That’s no surprise.

America is due to see an additional 12 million households form over the next 10 years as millennials move into their peak earning years and the baby boomers live longer, plus net migration.

It should be affordable too. Median monthly payments on a modest home are actually lower in real terms than they were in 1988.

That’s despite some prodigious gains in some US housing markets since the bottom around 2011. It’s all thanks to lower interest rates. The outlook for growth here is very good.

This might all seem a bit ho-hum to you sitting here in Australia, like me. But it’s vitally important. The mainstream news will always quote the US stock indices, but rarely anything about this.

That’s despite the fact that the average US consumer generally doesn’t own stocks. But they do own houses.

Healthy real estate and job markets will drive US consumer spending. A US recession seems a distant prospect for now, while these other factors appear so strong.

We can say the same thing about Australia.

There are plenty of people who love to scare us all with how high private debt levels are here.

Not so fast on that. I saw some figures this week that suggest this is not as extreme as nominal figures appear.

If you net out the level of deposits against the gross debt, you get a debt figure of 100% of income and not 200%, as is often bandied about.

That’s not necessarily going to save some geezer who’s geared to the hilt and bought at the peak of the mining boom in some regional town.

But Australia is probably less vulnerable to a systemic real estate collapse than most people assume. Repayment statistics are close to their long-term trends.

There’s also the intriguing development of the NSW government deciding to establish a ‘Future Fund’ in its latest budget, with an initial $3 billion in the kitty.

Here’s why this is worth keeping an eye on:

Should a real estate problem appear, or even general slowdown hit in NSW, it takes no imagination whatsoever to conceive the politicians pouring this money into the economy to jack things up again.

But on the whole, it seems a worthy initiative. And it’s not as if things are too troubled out there right now.

Australia’s largest listed landlord, Dexus Property Group [ASX: DXS], announced yesterday it would book a 9% rise in the valuation of its portfolio over the full year. Rents rose particularly strongly in Sydney. Management likes the outlook for the foreseeable future too.

And if you do happen to live in Sydney or Melbourne, you might want to keep an eye on what’s happening around the train stations.

The Australian reported earlier in the week that the big infrastructure companies like Lendlease are going to pitch to the state governments to build major towers over new train stations. So let’s keep an eye out for what’s approved.

All in all, it looks as though the Aussie economy will keep ticking over. But we’re here to make money from the stock market, which is a different thing.

What can take it higher?

Look no further than the big miners, according to global resource fund manager Evy Hambro. He told a conference recently that they have the strongest balance sheets in a generation and have huge streams of free cash flow.

But investors are still wary from the years of their capital mismanagement. The upside is that it’s left their assets undervalued.

I recognise that he’s talking his own book, considering he runs a fund that invests in companies like BHP and Rio Tinto. But I do agree the outlook for commodity stocks is a lot brighter than many people think.

There’ll be wobbles and dips on the way, but the rising Asian middle class isn’t going away. In fact, it’s getting bigger every day.

My suggestion: Ignore the doom-mongers and start accumulating the best stocks you can get your hands on now.


Callum Newman Signature

Callum Newman,
Editor, The Daily Reckoning Australia