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Peter Switzer
Expert
+ About Peter Switzer

About Peter Switzer

Peter Switzer is one of Australia’s leading business and financial commentators, launching his own business 20 years ago. The Switzer Group has since grown into three successful companies spanning media and publishing, financial services and business coaching.

Peter is an award-winning broadcaster, twice runner-up for the Best Current Affairs Commentator award for radio, behind broadcaster Alan Jones. A former lecturer in economics at the University of NSW, Peter is currently:

• weekly columnist for Yahoo!7 Finance
• a regular contributor to The Australian newspaper and ABC radio
• host of his own TV show, Switzer and Grow Your Business, on SKY News Business
• regular host of the Super Show on 2GB radio.

Testimonials

Dear Peter, What fun! You are really very good at what you do. I appreciated our time together and wish you continued success in all you do. Have fun (I know you will).

Jack Welch, former CEO, GE, and ‘Manager of the Century’ (Fortune magazine)


Peter, It was great to have worked with you – you really made the event come alive. I hope you enjoyed yourself. I know Steve Ballmer [CEO, Microsoft Corporation] did.

John Galligan, Director of Corporate Affairs & Citizenship, Microsoft Australia


Here’s a home truth, my only real education – or teacher who I actually ever listen to – is your interviews on Qantas. So thank you with sincere respect.

Sean Ashby, Co-Founder, AussieBum


Peter did a wonderful job on the night; keeping the program moving, working around changes to the run sheet, and ensuring each award recipient, and our sponsors, were made to feel welcome and important.
The feedback received from those attending has all been extremely positive.

Peter Mace, General Manager NSW, Australian Institute of Export


Peter, We would like to congratulate you for performing your master of ceremonies role in such a professional, entertaining and informative manner. We were impressed by your ability to tease out each winner’s story so that the audience gained maximum benefit from their collective business experiences.

Greg Evans and Nicolle Flint, Directors, Australian Chamber of Commerce and Industry


Hi Peter, I listened to you speak this morning and thought you were amazing. I am an accountant and in risk management and have never thought about doing a SWOT on myself – thanks for the tip!

Serife Ibrahim, Stockland Corporation Ltd


Dear Peter, Thank you for your valuable contribution to this year’s forum. Ninety-two per cent of delegates rated your presentation highly, commenting on its useful and topical content.

Catherine Batch, Head of Marketing and Communications, Indue


Peter has facilitated our CEO and CFO symposiums over the last three years. A true professional, he takes away the stresses of hosting and organising an event.

Justine Goss, Strategy Group

Will our stock market go up for the 5th week in row?

Monday, September 16, 2019

Every week is critical as we loom in on the early October meeting of key US and China trade negotiators. And while the stock market is giving off positive signs that a deal could be close, the share price waters have been muddied by a drone attack on a crucial Saudi oil facility.

Iran-backed Houthi rebels in Yemen have claimed responsibility for a drone attack on Saudi Arabia's Abqaiq plant. About half of the country's oil output has been affected and oil price and stock prices are bound to shoot higher today.

Energy stock prices will go higher today and businesses that are big oil buyers should lose a few friends. The level of internationally confusing forces is making investing harder and harder and it comes as we try to work out if our economy and our stock market are poised to go higher.

Over the month, our S&P/ASX 200 Index is up around 3% and for the year-to-date the rise is, wait for it, 20%. And if we throw dividends in, it’s about 22%.

But it’s not only the possibility that a trade deal will happen, which could unleash a global surge of business investment, upgrades to the growth outlooks of economies worldwide and a further leg-up for stocks.

The other big hope out there is that the Oz economy will soon show that it is economically rebounding from within. To date, the results are mixed. Personally, I was hoping that the Westpac consumer sentiment and the NAB business confidence readings last week would add to optimism seen elsewhere in the economy.

Like what? Here are the biggies to note:

• The auction clearance rates and house price rises in Sydney and Melbourne, which show that the huge housing negativity is bottoming out and starting to be replaced by at least guarded optimism.

 Excluding refinancing, the value of owner-occupier home loans rose by 5.3% in July, with investment loans up 4.7%. The number of owner-occupier loans lifted by 4.2%. 

• In trend terms, the share of first-home buyers in the home lending market hit a 7½-year high of 29.1%.

 Around $23 billion will be paid out by listed companies to their shareholders in the next four weeks.

 The Australian Industry Group (AiG) Performance of Services Index (PSI) rose by 7.5 points to 51.4 points in August.

 In trend terms, the Internet Vacancy Index rose by 0.4% in July – the first rise in seven months. Record vacancies exist for health and education workers.

• In seasonally-adjusted terms, average weekly ordinary time earnings (AWOTE) rose by 3.1% in the year to May – the fastest growth in six years. The average annual wage is $85,010.

 Employment rose for the 33rd out of 34 months in July, where jobs increased by 44,000. However, economists expected 14,000.

So far the impact of two interest rate cuts have helped the housing sector but not consumer and business confidence. Meanwhile, the tax cuts seem to be a slow burn but we need to see the economy heating up on the back of them soon. And that puts the spotlight on this week’s economic data.

On Tuesday, we see the latest RBA Board minutes, so we will see what the central bank is thinking about the economy and what they could do with interest rates.

Thursday brings the latest population stats and CommSec thinks we’re up 1.6% on a year ago and, on that day, we see how the job market was going in August. The news here has been better than expected but we don’t need to get any negative vibes from the all-important part of the economy.

The tip from economists is a 20,000 rise in employment, which would be a nice rise. Anything bigger could fire up optimists and make the RBA resists another rate cut in October.

That’s the key local influences for stocks and the economy going forward but overseas will have the greatest impact.

Nice-talking between Donald Trump and his Chinese trade buddies is crucial for stocks but so is what the US central bank decides on September 18. An interest rate cut is expected and should help Wall Street power higher but what the Federal Reserve boss, Jerome Powell says will have the biggest impact on stocks.

On one hand he has to say, if needed, he will cut rates more but on the other it would be great if he underlined that a trade deal is the injection the US and world economies need. However, I don’t think he’s prepared to put the pressure on his President, who is the greatest rooting, tooting, tweeting leader of the free world, ever!

It’s another big week for economies and stocks, let’s hope we get the kind of good news that will KO the negativity associated with madmen with drones bombing oil facilties!

 

What a wild, weird and wacky week for optimistic economy watchers!

Friday, September 13, 2019

For someone like me who adds up the positives for the economy and markets that we invest in and then deducts the negatives, this has been a week of two halves. Firstly, the local economic data was more bad than good, which worries me that another interest rate cut might be needed locally, even before Cup Day. But secondly, the news from abroad was more good than bad, if you can see more negative interest rates in the EU as something that can be cheered.

Before explaining that last wild and wacky point, let me inform you that the ‘weirdlings’ in the stock market were positive about more negative interest rates, as the German DAX was up 0.41% and the French CAC put on 0.44%.

OK, let’s rewind on the week in bullet point form. Here’s the bad stuff that had me worried:

The value of personal fixed loans (to households) for motor vehicles fell by 3% to a 4-year low of $1.165 billion in July, to be down 9.1% over the year.

The NAB business confidence index fell from +3.8 points in July to +1.4 points in August. The long-term average is +5.9 points. And the business conditions index fell from +2.6 points in July to a near 5-year low of +0.5 points in August. The long-term average is +5.8 points.

The Westpac/Melbourne Institute survey of consumer sentiment index fell by 1.7% to 98.2 in September.

Against these negatives, excluding refinancing, the value of owner-occupier home loans rose by 5.3% in July, with investment loans up 4.7%. The number of owner-occupier loans lifted by 4.2%. In trend terms, the share of first-home buyers in the home lending market hit a 7½-year high of 29.1%

This was on top of very good auction clearance rates in Sydney and Melbourne in the highs 70% region, which suggests the property market is throwing off its recent huge negativity.

That said, the failure of both business and consumers to get more positive made me negative about our economy. My only offsetting positive thought was that the impact of the interest rate cuts and the tax cuts might need a few more months to really affect a household’s bottom line.

Also, there has been a lot of negative headlines about recession and that weak economic growth number, which said we were growing at only 1.4%. Combined they could easily explain the current pessimism.

This is how CommSec’s Craig James looked at the consumer sentiment number: “Consumers are feeling just OK at present with the latest sentiment index dropping below the 100 level that separates optimism from pessimism. Still, the latest confidence result is a victim of bad timing – the economic growth figures released last Wednesday were the weakest in a decade. The ‘news’ that most people remember hearing about over the past week was “economic conditions”. (News from ‘overseas’ was also high up the ‘recall’ list – again largely negative news.) Having said that, the economy has entered its 29th year of growth, extending the record expansion. But strangely that didn’t feature in a lot of media reports.”

There was one other standout news item from earlier in the week, which was a plus, but I’ll hold that for the moment.

The second half of the week brought the following that excited stock markets worldwide:

• First, President Trump agreed on Wednesday to delay an additional increase in tariffs on Chinese goods by two weeks, to effectively let the October 1 trade talks be conducted without the tension of raised tariffs, which were supposed to start on that day.

• This news followed other positive soundings that were coming out from officials close to the White House and Beijing.

• CNBC reported that “the US Treasury Secretary, Steve Mnuchin said the President could “strike a deal with China at any moment but wants a good deal for American workers.”

• The European Central Bank cuts its deposit rate by 10 basis points to -0.5% — yep, that’s a negative interest rate!

• And the ECB will buy 20 billion euros worth of bonds a month for as long as it takes to stimulate economic growth!

The man who once said “whatever it takes”, the ECB boss, Mario Draghi, told his last press conference: “In view of the weakening economic outlook and the continued prominence of downside risk, governments with fiscal space should act in an effective and timely manner.”

• The ECB also made it easier for banks to source money to lend to business.

These positive moves are desperate stuff and gives reason for a doubting Thomas and Nervous Nellie to fear that this good news is only positive if you can ignore the problems it’s trying to eradicate.

That said, you have to hope that Donald Trump and his team understand that his trade war needs to end or de-escalate to help the global economy rediscover its economic growth mojo.

And on that subject, earlier in the week, UBS’s economics team tipped the September economic growth number would come in at 0.8% and the end of year growth figure would be 2.4%, which is way up on the 1.4% result we saw for the year to June.

They think tax cuts will be a game changer for our economy. And if we can get the positivity from a trade deal on top of an improving attitude in the housing sector, then we could be off to the races around Cup Day! That should return great dividends from the stock market. And in 2020 we could see more jobs as well as wage rises.

I don’t want to ponder the opposite but when I do I can understand this fact from earlier in the week. The total alcohol consumed in Australia lifted slightly from 55-year lows of 9.48 litres per capita in 2016/17 to 9.51 litres per capita in 2017/18.

Yep, a slowing economy, falling house prices, a trade war and a scary election can lead to greater reliance on the bottle. This economy of ours needs to improve to reduce the chances of us all becoming drunks!

 

Stock market smarties aren't recession believers!

Thursday, September 12, 2019

Belief that a trade deal will happen is not necessarily shared by a number of the experts who I regularly interview for my Switzer TV stocks program on Monday, but Wall Street has a different view. 

Developments for the stock market, gold and the bond market are suggesting those who were making recession calls might have jumped the gun.

And it comes as President Donald Trump is keeping the pressure on the US central bank or the Fed by telling the “the Fed boneheads” to cut interest rates to zero “or less”! But don’t think he’s saying this because he thinks the US is heading towards recession and it needs zero rates, no, it’s because he says the US should refinance its debt!

That said I suspect their more method in his madness than meets the eye.

This guy, unlike any conventional politician, is always up for making a deal that suits his bottom line. More on that later. 

Overnight the Dow Jones Index was up 227 points or 0.85% and helping this trend that has persisted this week is a more positive view on a possible trade deal. As an example, CNBC says that Wall Street remains focused on U.S.-China trade relations. “Beijing released a tariff exemptions list for products from the U.S. on Wednesday morning,” Fred Imbert reported. This is all ahead of the October 1 trade talks that could be critical to what ultimately happens to stocks.

One stock that has symbolized the problems of the trade war has been the big earthmoving machine operator Caterpillar. Over the past five days, since the news has been more supportive of a trade deal happening, its share price has gone up 10% (see chart below).

Caterpillar Inc. (CAT)

That’s a big jump but certainly gives us a sneak preview of what might happen to stocks generally if a deal can be scratched out between the US and China. 

By the way, a deal doesn’t mean both parties back down, but an agreement is reached so investors can work out what companies will be positively and negatively affected. Right now the uncertainty is holding back both professional and amateur investors from going long stocks.

And with interest rates so low, savers are being forced to risk going into the stock market to avoid having to accept 2% with their term deposits, if they’re lucky!

This week the AFR reported that Rob Kapito, the co-founder of Blackrock — the biggest fund manager in the world with $10 trillion under management — says there is $25 trillion of cash sitting on the sidelines. A lot of this money would be sucked into the stock market if the trade war threat disappeared.

“We're in a world that is flush with cash and is underinvested. And therefore my global outlook would be for stock markets across the globe to continue to grind higher, and for rates stay low for longer,” he said.

However, the stock market looks too risky for nervous investors and that’s the challenge all wealth-builders have to comprehend.

Yesterday, the Westpac consumer sentiment number disappointed falling 1.7% to 98.2. Any number under 100 means pessimist consumers outnumber optimists and when those surveyed were asked about the wisest place for their savings, the proportion of people that answered ‘don’t know’ lifted from 6.4% to a record (24-year) high of 8.7%.

A bank term deposit has historically been the wisest place for your money because it is government guaranteed up to $250,000 but with interest rates so low and likely to go lower, especially as Donald Trump weighs in, it forces people up the yield curve to more risky investments.

We created the Switzer Dividend Growth Fund (SWTZ) to be a ‘safe-ish’ alternative to a term deposit but it is clearly more risky because there are no government guarantees and your capital can go down with a stock market slide. On the other hand, the fund that captures primarily 30-40 dividend payers, based on history, did shock me yielding 7.9% in net terms last and 11.2% gross for the year to August.

The fund was helped by Bill Shorten’s threat to take away franking credits for retirees which made a number of companies give out special dividends. This fund targets a 5-6% return plus franking credits but when someone goes for this or a fund like it, they are going up the risk curve to get higher yield.

Interest rates will not rise quickly for a long time so investors or wealth-builders will have to cop lower safe returns or sneak up the risk curve, but as I’ve pointed out, it comes with a gamble.

The signs of a possible progress on a trade deal are promising for now with the gold price falling over the past week, as the chart below shows.

Meanwhile the out-of-favour small cap companies in the US shown in the Russell 2000 index have made a nice comeback over the week, which says smart market players are feeling more confident to invest in companies that could be KO’d by a trade war-created recession. This small cap Index is up 5% over the past five days and again is a nice sign, which I hope is a prelude to something great on trade. 

Russell 200 Index

Source: finance.yahoo.com

On the “boneheads at Fed” slur from Donald, as always there’s method in his apparent madness. He doesn’t want interest rates at zero or less but he wants another rate cut from the looming Fed meeting on interest rates.

He says with rates at zero he could refinance US debt at unbelievably low levels but deep down his main game is that a good trade deal with low interest rates would lead to both the US economy and the stock market flying high, which would KO any talk about recession in an election year.

Let’s hope China plays ball with Donald or else it could be a recession and a crashing stock market.

 

ASIC wants us to stop enjoying steak, red wine and owning a home. That’s un-Australian!

Wednesday, September 11, 2019

ASIC could make getting a loan hard again! The chances of a borrower getting a loan are set to rise or fall on a decision by the Federal Court after the Australian Securities and Investments Commission was told its anti-bank stance on how they lend was excessive and unrealistic. Not happy with that, the regulator is appealing the decision that saw a judge say just because someone eats wagyu steak and washes it down with Grange (or words to that effect) doesn’t mean they can’t meet their loan commitments.

And while there are many positions a reasonable person could take on how thorough a bank should be when granting someone a loan, the critical factor for the economy, and effectively your job and your business’s profits, is that restricted lending was a prime cause for our economy seeing economic growth fall from around 3% to 1.4% in the year to June 30.

The coincidence of tougher lending standards from APRA and ASIC contributed to the fact that about 20% of borrowers, who used to get loans before banks were told to be tough on borrowers, were knocked out of the loan and therefore the property market.

This explains a lot about why house prices dropped in Sydney and Melbourne and why our economy slowed down over the past couple of years.

The history of these court battles started when ASIC slammed Westpac with a $35 million fine for lax lending standards when approving loans. The bank copped it rather than fighting the case, given the bad PR banks got out of the Royal Commission.

However, the fine effectively had to be ratified by a Federal Court judge and Justice Nye Perram basically said someone’s past spending shouldn’t lead to a presumption that they can’t change their ways to pay off a loan.

In the past, banks used something called the Household Expenditure Measure (HEM) to assess a borrower’s ability to pay interest on their loan but critics, such as ASIC, said this measure left a lot of stuff out, such as does the family have a big private school fee bill to contend with?

The impact of the Royal Commission and APRA’s insistence that someone should be able to pay a loan back if interest rates go over 7% (even if they’re borrowing at 3.5%) meant a lot of borrowers copped a “Computer says no” when they asked for a loan.

Don’t get me wrong, banks should be more forensic when they give out loans but the history of defaults and loans in arrears isn’t anything to be really worried about. A study by Moody's found that the proportion of Australian mortgages that were more than 30 days in arrears has increased to 1.58% for the year to November 2018.

Now this was a year when the news about house price falls and a slowing economy should have created a much more worrying story about mortgagees in trouble but that 1.58% number isn’t spooking me.

The SMH’s Elizabeth Knight summed up the core issue in writing that “the findings of the primary case in the Federal Court boiled down to a recognition that lenders have a legal obligation to assess whether borrowers can service their interest costs without hardship.”

And that’s fair enough. But why not simply subject all bad loans to the wrong people to the Australian Financial Complaints Authority or AFCA? If the banks have lent irresponsibly, then make them subsidise the borrower to keep them in their property!

Banks should not become a part of the nanny state with this idea of “responsible lending” but they should be involved in sensible lending. If they lend stupidly for greedy profit reasons, then let them be heavily punished by having to even forgive a lender his or her loan!

That will make for sensible lending.

 

A negative economist jumps on board the positive train!

Tuesday, September 10, 2019

Doomsday merchants who hate my tendency to underline the often ignored economic positives (especially by the media), won’t be happy to hear that UBS economist, George Tharenou, thinks the tax cuts will pump up the September economic growth number to, wait for it, 0.8%.

That’s huge! And if he and his economist-buddy Carlos Cacho are right, it adds credibility to a lot of my “don’t worry be happy” recommendations. And if this economic revelation (which we won’t find out about until December because calculating stats is a slow business) happens to bump into a stock market surge because President Trump cracks a trade deal, then we could be off to the races!

But what do I mean when I say “races”?

Faster growth from the $7.8 billion worth of tax gifts on top of two (maybe more) interest rate cuts should lead to a treasure trove of goodies. I really hope George is on the money. And let me say, Mr Tharenou is not generally a “glass half full” kind of guy so for me to be rooting one of his big calls is a big call in itself.

Let me list what a better growth number in September could lead to:

1. It should lead to more jobs and lower unemployment.

2. Higher consumption, which George says goes from up a low 1.4% in June to a good 2%, which is good news for retailers and sellers of services.

3. A growth snowball would start rolling, taking our economic expansion from a worrying 1.4% to 2.2% this financial year and then 2.6% in the following year.

4.  The better growth will put less pressure on the Treasurer to cut into the budget bottom line because there’ll be more jobs and tax collections.

5.  Stronger economic growth has to help a lot of companies, whose profits have been hurt by a slowing economy, which has to help stock prices.

6.  Higher growth improves the ratio between Household Debt and GDP, which has been something that has been used by doomsday merchants to predict Armageddon on so many fronts.

7.  A stronger economy puts more of a floor under house prices, with a recession capable of reigniting the house price drops that started in mid-2017, while a pick-up in growth should do the opposite.

8.   A period of convincing growth could even see the RBA surprise many economists and not cut interest rates again. That’s a longer shot prediction but it’s exactly what the RBA would love to see happen.

9.  The better economic environment should lead to improved business and consumer confidence and business investment would in all likelihood start to rise noticeably. It would especially spike if all this goes in concert with a Trump trade deal.

10. All the above should create the conditions to help wage rises go to a higher level from the current low, albeit slightly improving level we’ve seen recently.

The overall effects of all the above would help to fight the funk that has hung over our economy since a litany of events have held back growth. The challenges have included the trade war, huge bank lending restrictions, the related house price slump, the election anxiety syndrome, the Shorten policies that still dog Labor today, a revolving door of Prime Ministers and concerns about bond markets predicting recession.

Clearly, I have looked for the best case scenario but I like it when someone like George Tharenou, who doesn’t easily go long on positivity, starts talking up the economy.

By George, I hope he’s right!

 

Is our economic rescue plan made in China?

Monday, September 09, 2019

China saved the world economy in the GFC by a huge injection of stimulus but now it has to save itself, with the Trump trade war starting to bite. Confronting an economic slowdown with exports to the US down 18%, Beijing has signalled it will inject $185 billion into its ‘Trumped’ economy.

And while this is a sorry implication of the fallout of the trade war with the USA, any stimulus for the Chinese economy will have knock on positive effects for our economy.

We need to see signs this week that the post-election ScoMo effect, on top of the two interest rate cuts along with the tax cuts, are starting to boost business confidence and consumer sentiment.

Fighting these pluses are the negatives of the trade war and persistent omens out of the bond market that a recession is in train.

The confidence figures out this week will be important for Treasurer Josh Frydenberg, who’s stoically resisting calls to ‘up the ante’ on fiscal stimulation. To date, he has leant against undermining his trek towards a budget surplus, despite the Reserve Bank Governor pleading with him to take the pressure off him and his cash rate of interest, which now is at 1% and could go as low 0.5%, if most banking chief economists can be believed.

Early calls aren’t out on business confidence but it has shown an improving trend, although it still languishes below the long-term average.

NAB Business Confidence

The jump in confidence was the ‘election is over’ effect and ScoMo would’ve loved that jump from zero to 7. But reality started to bite in June when the number dropped to 2, but July brought back a rising trend. This needs to be added to in August or else the negative effects of a negative number could turnaround what looks like a potentially positive trend.

The NAB number is not predicted, so it’s fingers crossed. But early consumer confidence forecasts suggest we could see a 3.5% spike, which would be a real shot in the arm for the economy.

And given the two interest rate cuts, the tax cuts and wages are just starting to sneak up, the Treasurer would really like to be able to point to the economic scoreboard and say, I don’t need to hurt the developing budget surplus.

At first blush, bad news for the Chinese economy could raise red flags for our economy but over the course of the trade war, which has been going on for around 18 months, our trade surplus has been a standout plus.

“The trade surplus fell to $7.27 billion in July from a record $7.98 billion in June,” reported senior CBA economist Ryan Felsman last week. Australia has recorded 19 successive monthly trade surpluses. The rolling annual surplus was a record $52.27 billion in the year to July.

A big-spending China, to offset the negatives of the Trump trade war, could mean more stimulus for our economy, which could mean even more trade surpluses. And all this builds a case for China to be more responsive to the idea of a trade truce, which might mean that it is more amenable to concessions.

I’ve always contended that the months leading into November will determine whether the RBA will be forced to cut on Cup Day. The run of economic data and the trade negotiations will be critical because if this trade ‘pow wow’ makes no progress (and even an escalation of tariff impositions happen) then not only will stock markets drop but a recession worldwide is a real possibility.

Go the economy and the trade negotiations!

 

Can you feel it coming in the air tonight, oh Donald?

Friday, September 06, 2019

Anyone who doubted the role of the trade war in the struggles of the stock market saw over the past 24 hours just how wrong they are. And the reaction to the news that negotiations between Donald Trump’s ‘tradies’ and China’s trade negotiators or ‘tradies’ are getting close to where an agreement is more a chance has excited markets.

How do we know?

Well, the opposite of what has been happening has been unfolding since yesterday, with the gold price falling and other safe haven assets copping it, while bond prices fell as their yields started to rise. If this doesn’t make sense, just think that the things that had caused the inversion of the bond market’s yield curve (which most normal people don’t understand) has become less of a problem.

And with the Dow Jones Index up over 400 points before the close, as I write, you don’t have to be Terry McCrann or Ross Gittins to see the link — trade deal and stock markets up and less need for interest rate cuts.

But can we trust the latest signs that maybe a deal is in the air and is there something attractive in the timing of this? And could Donald be even thinking that “not even I can keep stretching out my famous Art of the Deal?”

I hope so. And so does CNBC, which ran with this headline: “Reliable China insiders hint that this round of talks could lead to a breakthrough.” Of course, words such as “hint” and “could”  are still used but imagine if they get swapped for “declares” and “will”. That would have a huge market response, where I could be talking about a 1000-point move overnight!

I said last week that Wharton School business professor, Jeremy Siegel (one of the best US academic market commentators) believes a deal could send stocks up 10-20% but a “no deal” could have the reverse impact!

The planned October trade negotiations meeting will be the 13th since all this began and the editor-in-chief of the Global Times out of Beijing, Hu Xiji, thinks a deal is in the offing. “There’s more possibility of a breakthrough between the two sides,” he said in a tweet Thursday.

Hu is seen by trade spotters as being the “deep throat”, who seems to have the right connections and cred when it comes to calling this high-level game of political ping pong between Trump and Xi Jinping.

Of course, it’s crazy to get too excited about Donald and a trade deal but this market reaction shows what might happen if the US and China crack an agreement.

And the timing is becoming crucial.

Stock market history shows the November-April trading period is great for shares and if President Trump makes a deal over October, it would set Wall Street up for a huge Santa Claud rally and provide insurance against a recession showing up in 2020 ahead of the US election.

But the wins aren’t just for America, as a trade deal would ignite business confidence worldwide and here in Australia, which would boost investment, economic growth, job creation and stock prices.

This would be the gift that keeps on giving, until stock markets go too high and interest rates start to rise! Now that would be a ‘tradies’ job well done, if they can make it happen in October. On the flipside, October is famous for big crashes but I don’t even want to contemplate such a possibility!

 

Only President Trump can save us!

Thursday, September 05, 2019

Just as Australia got another poor economic growth number, prominent local economists see another interest rate cut coming. And it comes as a former US central bank boss, Alan Greenspan, says negative interest rates will happen in the US in time.

If that’s right, I’d be surprised if we can dodge that hard-to-believe bullet.

For those who missed the ‘drama’ of the National Accounts yesterday, which brings us the numbers to work out our economic growth rates, the June quarter saw the Oz economy grow at 0.5%. This took our growth rate of 1.7% for the 12 months to March down to 1.4%.

This is a bad number, helped by a great export showing, mining investment and government spending. However, it’s worse than it looks because here in Australia we add up the past four quarters and, until this quarter, we had a big 0.9% growth in the July quarter of 2018, pumping up the annual growth number. That has now been replaced by the 0.5% number we got yesterday, so it makes a bad number look worse.

In case you’re not economists, our mob like annual growth just over 3%, as historically it has meant unemployment falls. So, if you’re not worried about a low 1.4% growth figure, then you’re possibly very rich, you don’t care about your fellow Australians who could end up on the scrap heap, or you’re a short-seller of stocks hoping to get rich out of a stock market rout, if these numbers are a prelude to a recession.

Westpac’s chief economist Bill Evans thinks the 1.4% growth screams another rate cut is coming and it’s hard to argue against him. But I’d say three things.

First, our Reserve Bank Governor, Dr Phil Lowe, would love not to cut rates again. Second, to avoid another cut, the economic case has to improve for our economy over the next one-two months. And third, Donald Trump might be our only hope to stave off another rate cut.

Let me explain. On Dr Phil not wanting another rate cut, he can only avoid that if our economy unambiguously looks stronger but if that’s possible, we might need more time than two months.

As August has just ended, we’re generally dealing with only July data at best and to expect the tax cuts to be working yet is too much. If those tax cuts (ranging from $255 to $1,080) are going to give the economy a much-needed boost, you have to see better spending over August and September. Phil might string it out until November to see if October brings more spending, meaning Cup Day will bring not only a four-legged lottery drama but a “will they cut?” media frenzy as well.

And then there are the June and July interest rate cuts, which have helped auction clearance rates spike in Sydney and Melbourne and must have helped house prices rise in those two states, as we saw this week.

This is how CommSec’s Craig James saw it this week: “The CoreLogic Home Value Index of national home prices rose by 0.77% in August - the biggest increase since April 2017. And capital city home prices rose by 1.01% – the biggest lift since March 2017. But regional home prices fell by 0.1%.”

Also, the 0.5% growth number for the June quarter looks better if we use the US method of multiplying the quarterly figure by four to give you an annualized result of 2%. The RBA adds two quarters together and multiplies this by two to get an annualized number — and that too would be 2%.

Our real growth might be more like 2% rather than 1.4% but it’s still under the magical 3% number that brings unemployment down.

I reckon tax cuts, two rate cuts and a dollar at 67.98 US cents should be good growth stimulators but this Trump trade war is hurting global economic growth and business confidence, which then KO’s the prospects for business investment.

On that subject, last week we saw planned business investment here spike. “The third estimate of spending in 2019/20 was $113.4 billion, up 10.7% on the second estimate for 2018/19 and the strongest growth in seven years,” Craig James noted. And this was a good omen but plans are not the real McCoy.

The US Federal Reserve is being pressured by Donald Trump to cut interest rates to offset the negatives of the trade war so if a trade deal was made, the pressure for cuts would decrease, as the stock market would be heading skyward.

Alan Greenspan thinks the slow global growth explains why there are $US16 trillion worth of negative-interest rate bonds (or their equivalents) around the world. The demand for gold shows worried investors just want to protect what they’ve got. That’s why Donald better end this trade war madness soon or else we’ll see negative interest rates as a forerunner to a serious recession.

Central banks will try to avoid this but they are running out of firepower. A trade deal would be the circuit-breaker we had to have.

Go Donald!

 

The curious case of the disappearing deficits

Wednesday, September 04, 2019

It’s the curious case of the disappearing deficits, with our chronic problem with trade and budget deficits vanishing, despite our economy is growing at only 1.8%, which could fall to 1.4% today.

The AFR’s Matt Cranston talked about twin surpluses, which contrasts with the bad economic times of the 1980s when we had twin deficits in concert with double-digit inflation and unemployment!

The twin-deficits were budget and trade deficits but there were really three deficits because we had huge current account deficits as well. The current account adds the big interest repayments to overseas lenders along with other income payments, such as dividends to foreigners who invested in our companies.

Until we saw the latest trade figures, some economists thought today’s economic growth number for the June quarter could go negative, after inventories or stocks in shops and factories fell bigger than expected. But the exports surge will probably keep it all positive.

That said, the annual economic growth figure is expected to drop from 1.8% to 1.4%, which are terrible numbers and it adds to my curiosity about disappearing deficits. This kind of low growth usually hurts budgets but employment has been strong and that doesn’t usually happen. Strange economic days indeed!

Boy has our economy changed! And it’s all since we deregulated the financial system, reduced trade protection and embraced what Paul Keating told us was “microeconomic reform”.

Of course, this was just a fancy economic term for getting rid of stupid productivity-killing practices created by short-sighted trade unions and selfish business leaders, who wanted to avoid competition to protect their profits.

All that has not only made our local businesses and workforce more internationally competitive, it has also helped us become better traders with the rest of the world.

Recently, we not only racked up 18 trade surpluses in a row (that says our trading of exports is outweighing our buying of imports), we have also seen a current account surplus for the first time since 1975!

In the June quarter it hit $5.8 billion and that means if you add our trade surplus (exports bigger than imports) to what we pay out or get in from rent , dividends and interest to and from overseas, then we are no longer in the red (at the moment).

This is a huge win for us as we are a small population country with a lot of economic potential and that’s why we borrow from overseas. These borrowings keep our economy firing along and partly explain why we have grown for 28 years without a recession. But the debt has worried a lot of people.

If this trend can be sustained, it will be a plus for the economy and national finances.

If you want to see the pay off for all these changes/reforms since the Hawke-Keating-Howard governments, have a look at this unemployment graph.

To many of you, this might look like numbers and squiggly lines but to me it shows desperate people out of work, unhappy families and misfortune, that contracted over time. So changes that make these jobless outcomes less likely have to be respected and celebrated.

Today we’ll get a crumby growth number and many media outlets will have gloomy headlines. But this data is for the months April, May and June, which has a lot of election, Bill Shorten policies, restricted bank lending, house price drops and trade war fears in them.

Both business and consumer confidence were affected by the above challenges and the stock market slumped in the second half of 2018.

I think the September growth numbers should be the start of an uptrend, though if the trade war worsens I could have to downgrade my optimism, which is not easy!

For now, I’d refrain from being too spooked by bad headlines coming out of these old news growth numbers.

 

C’mon Aussies, think outside the square

Tuesday, September 03, 2019

This isn’t an anti-Labor piece but an anti-dumb politician plea for economic intelligence. It’s also a tip to Labor to learn from one of the smartest guys ever — Edward De Bono.

Thankfully Treasurer Josh Frydenberg has taken my tip (or someone’s tip!) and got on the front foot to warn us that the economic growth number we get tomorrow will be weak but the September one is bound to be better. He referred to what I pointed out yesterday that two months of the June quarter were pre-election and that wouldn’t have helped the economy.

To that the AFR tells us that the new kid on the block, Labor’s Treasury spokesperson, Jim Chalmers, returned fire with something that underlines his newness, saying: “Ridiculous contributions like this explain why the Treasurer’s shrinking in the role.”

I have high hopes for the promising Chalmers but he won’t win over any of the disaffected older Labor voters by simply playing name-calling politics. Chalmers’ predecessor, Chris Bowen, made the mistake of playing silly politics when he was economically smart enough to take on former Treasurer, Scott Morrison but instead he toed the Bill Shorten party line and ran with policies that were so objectionable that in frustration he told the media if people didn’t like Labor’s policies “they didn’t have to vote for them”!

It looked like arrogance but it might have been frustration. For example, he might have known that if Labor put a $10,000 cap on franking credits for retirees, Bill now might be PM.

If they didn’t spook investors in the property market with promised changes to negative gearing and the capital gains tax discount, they might have kept some voters who were worried about their own house prices.

If Chris or Bill had said to the electorate before the election that their policies were sound but they would be delayed until the economy is strong enough to take these changes, then they would have grown in political stature, rather than shrinking into political pygmies.

Economists like me knew our economy was slowing and it wasn’t being helped by a pile of negative headwinds such as:

• The trade war.

• The Labor-inspired Royal Commission into the financial sector, which hit the stock market while doing some good work to clean up an industry that is a huge driver of the All Ords.

• Bank lending was being restricted because of APRA and Royal Commission pressure.

• House prices were dropping like Aussie tennis players at the US Open right now.

• The fact most people expected Labor to win.

• Labor’s policies were tough on property players, self-funded retirees and small business owners concerned about things like “the living wage”.

• And wages haven’t been doing much for a long time as digital disruption makes life hard for conventional businesses, such as bricks and mortar retailers.

If you can’t look at these scary economic issues and not see why our economy might have been slowing in the June quarter and why Labor should have pulled back on the anti-business and anti-investor rhetoric, then you have the same one-eyed problem that explains why Labor lost the election.

When I interviewed Labor-stalwart Graham Richardson before the election at our Investor Strategy Day (with over 800 people present), I asked about Labor’s policies on negative gearing and franking credits. He used one word: “Dumb!”

Richo was arguing from a political point of view but I would argue it from both a political and economic stance.

Jim Chalmers has to realise that the team of Bob Hawke and Paul Keating lasted in power between them from 1983 to 1996 because they didn’t appear as anti-business and weren’t economic nincompoops.

Bob Hawke gave me the best education in politics when he explained his anti-traditional Labor policies by saying that he couldn’t do much for his constituents if he wasn’t in power!

After interviewing him a few times, Edward De Bono (the man who gave us the term “lateral thinking”) taught me that the high achieving winners “think outside the square” to solve problems and to be champions in business, sport, music and even politics.

Labor and Jim Chalmers should show themselves as being economically literate and flexible because the last election showed we aren’t dummies and we might like a lot of Labor’s social ideals but we (the majority) don’t want rabid left-wing economic solutions to our problems. That’s why Jim needs to think outside the square.

If Jim wants to ignore my words, he should take stock of this chart of the NAB business confidence survey.

The business confidence was falling for seven months before the election. It spiked on the election result in May and then fell but is now trying to rise again.

Business like most of us thought the Coalition was dead party walking and Labor was a shoo-in, and that was not good for business confidence.

If Labor can become less scary for business, entrepreneurs and investors, who risk their capital to make stuff, back stuff and employ, whether you like them or not, they can become a real possibility of forming government.

But they need to think outside the square, and getting to know us, as a group, better might be a really good start.

 

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