The Experts

Peter Switzer
+ 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.


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

Good news! Good news! Read all about our economy!

Wednesday, January 17, 2018

By Peter Switzer

Good news! Good news! Read all about it! But before I deliver the good news, let me go back a day.

Yesterday we learnt the debt ratings agency Fitch was worried that this year banks could experience problems with those customers who could start reneging on their loans. The SMH picked up on this and I pretty well said that this was a BS story because interest rates won’t rise much this year, and, let’s face it, most of us will be able to cop one or two rises before we start feeling the pinch.

In fact, I reckon most of us can endure four 0.25% rises, even more, but after a 2% rise some poor souls who over-borrowed will feel the pinch. But don’t get too stressed unless this is you, as this happens in all housing cycles.

Interestingly, on the same day, the SMH’s sister newspaper (The AFR) ran with real news rather than speculation about mortgage woes right now, and its revelations contrasted starkly to what the Herald told us.

Buried away in the property section on page 30 was the following headline: “Home loan delinquency rates show improvement: Moody’s.”

Over recent months, I’ve had to endure BS stories about so many Aussies coping with mortgage stress, usually based on a survey of about 200 households and generally conducted by some second-rate organisation praying for some PR.

Well, despite its problems in the past connected to missing the GFC, Moody’s is regarded as a first-rate organisation. And I suspect it has lifted its game to make up for past mistakes. So, Moody’s says our mortgagees are in better shape than was expected.

This is what the AFR reported: “Home loan arrears tracked by credit rating agencies declined from June to September 2017, with the shadow lending sector experiencing the biggest improvement in arrears rates.”

Also, the Moody’s report showed where it used to take 28.7% of a household’s income to meet home loan repayments, it’s now 27.4%.

So, at least for 2018, you can stop worrying about mortgagees.

And the same might go for retailers, who were set to be gobbled up by Amazon, if you believed newspapers, with the latest numbers telling us a very different story. “Sales rose by 1.2% in November after increasing by 0.5 per cent in October – the strongest outcome in 4½ years,” wrote Ryan Felsman, Senior Economist, CommSec, last Thursday. “Spending rose across all states and territories, led by electrical and electronic goods, together with household and other retail goods.”

The good news keeps rolling in, to the chagrin of card-carrying doomsday merchants, with consumers, not surprisingly getting more positive by the week.

“The weekly ANZ/Roy Morgan consumer confidence rating rose by 1.2 per cent to 123.5 last week - the highest level in four years and well above the long-run monthly average of 112.9,” revealed CommSec’s chief economist Craig James yesterday. “The reading on personal finances is the second highest in nine years of records.”

Need more good news? Well, a week ago we learnt that job vacancies rose by 2.7% to a record 210,300 in the three months to November and job vacancies are up 16.1% on a year ago – the strongest annual growth rate in seven years!

And foreigners are adding to the good vibes too, with international passenger traffic to Australian airports rising by 4.5% to 3.37 million in October, up from 3.226 million a year ago. The number of international flights to Australia rose by 3.2% to 16,772 in October, up from 16,259 a year ago.

And those who argue that the housing sector will have a shocker this year haven’t seen these latest figures — the total value of dwelling approvals rose by 14.8% to $7.7 billion in November – a new record high.

For those who think I only report good news, here’s a less than great piece of data, with the Australian Industry Group Performance of Construction index falling by 4.7 points to 52.8 in December. However, any reading above 50 signifies expansion or growth of activity. And in case you don’t watch indicators like these ones (like I do), the index has expanded for 11 consecutive months!

And for good measure, in case you’ve done the numbers, car affordability for we Aussies has never been better. A worker on the average wage needs just 23.2 weeks of wages to buy a Ford Falcon, Craig James says, and that’s down from 26.7 weeks of wages five years ago. That said, I have to say: can we still buy Ford Falcons, Craig?

Finally, no one seems to link the possibility that we will see business borrowing a lot more this year. That will not only help the economy grow, it will even help bank profitability.

Why should businesses borrow? Well, try this from Craig James: “According to the NAB monthly survey, business conditions are close to the best they have been for 20 years. While the business conditions index eased from a 20-year high in November, the rolling average stood at a 9½-year high. Business confidence is also above the long-term average.”

Finally, more and more economists are becoming relatively positive about better wages growth in 2018. Paul Bloxham, HSBC's economist, sees the improvement in consumer confidence relative to the already strong business confidence as a plus. "It's just a matter of time.” He told the AFR that consumers will get more positive like businesses are now.

"Businesses are confident, profitable, investing more and taking on more staff. As a result, we expect the economy to head towards full employment in 2018 and for this to lead to a pick-up in wages growth, which should support household incomes and make consumers more confident."

Paul could be right or he could be too positive, but I reckon the run of data recently gives him a real chance of being the most informed economist in town. We will find out by year’s end how smart Paul Bloxham is but, for my part, his story and all of the good news that has been coming our way, really needs to be shared with the people out there who determine where our economy goes — you guys.

I hope the above makes you confident that 2018 might end up being a lot better than you expected.

Go you and Australia.


Investors bash banks at their peril in 2018

Tuesday, January 16, 2018

The bank bashing continues in 2018 with some fund managers trying to talk investors out of putting their money into the ‘easy investment’ option of buying the banks for dividends and some capital gain. Meanwhile, the debt ratings agency, Fitch Ratings has warned that bank bad debts will rise this year.

By the way, this isn’t a new warning. I’ve seen it for the past four years and this new year bank bashing could again be proved wrong.

And even though the banks are bound to be clobbered by the Royal Commission and Bill Shorten’s Labor Party, as they try to win the next election kicking the guts out of the ‘despised’ banks, there’s a good chance that punting on banks in 2018 will prove to be a good bet.

Before I advance my reasonably positive views on banks as an investment option, let’s see what Fitch sees in its economic crystal ball.

It thinks economic challenges will hurt the industry’s bottom line. "Profitability is likely to slow in 2018, reflecting low interest rates, slow asset growth, competition for assets and deposits, higher funding costs, and a rise in loan-impairment charges," it said in an outlook report.

Anyone predicting slow profits for our banks has often ended up with egg on their face but I do concede there are forces that could stop banks using their usual tricks to build up their earnings, which came in at $30 billion for the Big Four last year, as Fairfax’s Clancy Yeates tells us.

That said, Fitch still bets each way, saying our banks will remain “very profitable” compared to overseas banks.

But what gets me thinking how crazy the likes of Fitch is, is that they say lower house prices and high debt levels per household will affect borrowers this year and their ability to spend, if borrowing costs rise. However on the other hand, “low interest rates” was seen as a problem for the banks’ respective profitability!

You can’t have it both ways — either rates are going to rise or not. If rates rise, then bank profits are helped and do you seriously believe that one or even two rate rises would tip people over the edge?

I can see three or four causing some problems but one or two? With apologies to Leyton Hewitt at Australian Open time — ah, c’mon!

According to Clancy, even Fitch’s report said that “the major banks hold about two thirds of their loans against residential property, but the report said a significant decline in mortgage asset quality was unlikely unless interest rates or the unemployment rate rose sharply.”

Fitch thinks banks will have a few problems in the retail sector but November’s best numbers in over four years suggests we all might be announcing the death of retailers because of Amazon a little too quickly.

My economic crystal ball says the economy is stronger in 2018 than last year and interest rates will rise around mid-year to September because of the healthy economy. Unemployment will be falling, business borrowing will on an uptick and banks will do OK, despite the Royal Commission bank bashing.

Last year, the CBA paid a dividend of $4.21. If that dividend is maintained this year, on a current share price of $81.71, that’s a yield of 5.1% (before franking credits send the return towards 7%). If the share price in a good year for the economy goes up by 3%, then someone could get 10% this year out of one of the best banks in the world, even with their management problems!

And don’t forget, in April last year CBA was nearly an $88 stock, and two years ago was a $96 stock. Of course, it has had some publicity and customer service issues, a bank levy, capital requirement demands from APRA and the Royal Commission, but if we get a stronger economic year than what Fitch is predicting, then that 10% gain from our banks this year is not a far-fetched punt.

And anyway, even if it’s not as good as predicted, you still are invested in a quality investment, even if you don’t like all of its past.

As I’ve always told my readers, listeners and viewers: “If you don’t like what banks do to you then get even — buy their shares!”


Stocks are set for a big week and here's why this is an important one!

Monday, January 15, 2018

The next five days for our stock market could prove crucial for the rest of the year, if history can be believed. One of the little ditties from the annals of market history has been this quote: “As goes January, so goes the rest of the year.” 

The first month of the year has been one of the good predictors of how the stock market will perform over the entire year.

To be precise, the numbers say that if the stock market goes up in January, it has a 60% chance of ending higher at the end of the year. Of course, it would be more convincing if the figure was 80% or 90% but it is what it is.

To date, we are up 1% on the S&P 500 Index, however, the Yanks are up about 4%, which seems crazy given how high US stock markets are above their record highs. Meanwhile, we’re still a long way below our record high of 6828.7. In fact, we start the day at 6070 and I think we’re a damn good chance to see 7000 this year, but I’d like the January effect to help us along by ending positive for the month.

Early signs are promising with the futures market for our S&P/ASX 200 Index — the so-called SPI — indicating a 31 point gain for stocks for the first day of the trading week.

This coincides with a pretty important week for local economic data readings, with December car sales out on Tuesday, the latest housing borrowing numbers, building activity and consumer confidence on Wednesday, the December job numbers on Thursday and tourism as well as lending figures on Friday.

Last week we registered a great retail result — up 1.2% for November. This was the best outcome in 4½ years!

Other data released continues to point to an improving economy, which has to help company profits and, in turn, power stock prices higher but we will need the over-hyped US stock market to keep rising if we expect to beat our former all-time high, which we haven’t gone near since the GFC!

Sure, we could rise 13% by beating our former record high but we’d need the Yanks to go up at least 10% to ensure we’re not over-affected by any new US-negativity over the course of 2018.

The Trump tax cuts and how they will affect millions of US smaller companies is likely to be a nice powering along factor for stocks.

The US stock market has had the best 10 days of a new year since 2007 and it’s not all tax cut driven, with better-than-expected company profit news now kicking in.

On Friday, J.P. Morgan Chase, BlackRock and Wells Fargo all reported better-than-expected quarterly results and this augurs well for the reporting season in the States that has just kicked off.

Earnings are expected to be up 11.2% for US companies in the fourth quarter of 2017, which we’re seeing unfold right now. 

“All 11 S&P 500 sectors are expected to post increases in both earnings and revenue, according to FactSet,” CNBC reported. “This would be the first time since 2011 that all the sectors in the S&P 500 posted sales and profit growth for the same quarter.”

It’s looking promising for the rest of January as more company results are revealed, especially when it’s tipped that the first quarter profit numbers of 2018 will be better than the previous quarter’s results! That is, they will beat 11.2%!

If US stock markets keep feeling the love of an improving US economy along with its corporate sector, and the Oz economy keeps looking up, then our reporting season, which kicks off in February, just might also surprise on the higher than expected side.

The critical numbers this week will be the job figures, with the consensus going for 20,000 new jobs in December but these have been beating expectations over the past year.

The November numbers meant we had gone 14 months in a row with job gains and that was 383,000 in a year! I’m hoping this story keeps being strongly positive and I’m also hoping the building figures show the sector is stronger than some negative types out there have been predicting.

If our economy keeps looking stronger than was expected, the Yanks can maintain their market positivity as well as profitability and then our reporting season surprises on the higher side, then we really might be off to the races with our stock market in 2018.

That’s what I’m punting on and I suggest you take my tip!












Strong retail figures make it Gerry Harvey 1, Amazon and the media 0

Friday, January 12, 2018

Expert doomsday merchants got a timely reminder of how wrong they have been for some time, with retail numbers coming in shockingly high in November. And it makes me wonder, will any media experts say sorry to Gerry Harvey?

Remember, retailers of Harvey Norman and JB Hi-Fi were supposed to be devastated by Amazon but the likes of Gerry kept telling us that he had the threat covered.

Back last February, HVN was a $5.15 stock but with negative views on retail,  Aussie consumers and the looming black cloud called Amazon dominating expert commentary, Gerry’s share price slumped to $3.65 by early November.

But anyone who was a Gerry-believer or believed me when I argued that the Oz economy is getting better faster than many economists and other ‘experts’ were arguing, has seen HVN’s share price climb to $4.39. Let me do the maths for you — that’s a 20% gain! Go Gerry!

I bet his chuckling right now with his beloved Magic Millions gee-gee auctions and race day on this week.

Adding credibility to this share price spike was November’s retail figures, which were the best in four and a half years. Sales in the shops and online rose by 1.2% in November after increasing by 0.5% in October, and that’s the strongest outcome in 4½ years. 

Another reason for Gerry and JB’s boss, Richard Murray to smile was the fact that spending rose across all states and territories, led by electrical and electronic goods, together with household and other retail goods.

Of course, this is early days with the arrival of Amazon just starting and it will take time for this internationally strong online retailer to start eating into the locals’ market shares and that’s why I was always pondering on my Sky News Business program why the market was so negative on two of the best retail businesses ever.

Well, true believers in our retail giants are getting their rewards now but undoubtedly, over time, Amazon will hurt their businesses but we underestimate Gerry and Richard at our peril. These guys have customer loyalty and geographic closeness to their customers, so the battle will be intriguing.

Away from this retail stoush, the recent run of economic data continues to support my view that our economy is set for a good 2018 and, if I’m right, the stock market should also deliver nice returns.

Let me give you some economic catch up facts in case you’ve been in holiday mode:

  Job vacancies rose by 2.7% to a record 210,300 in the three months to November. Job vacancies are up 16.1% on a year ago – the strongest annual growth rate in 7 years.

• Approvals by local councils to build new homes rose by 11.7% in November, after falling by 0.1% in October. It was the strongest monthly outcome in 12 months. In trend terms, approvals rose for the tenth straight month, up by 0.9%.

• The weekly ANZ/Roy Morgan consumer confidence rating rose by 4.7% to 122.0 last week - the highest level in four years and well above the long-run monthly average of 112.9.

• According to the Federal Chamber of Automotive Industries (FCAI), new vehicle sales hit a record high of 1,189,116 units in 2017, up 0.9% on a year ago.  

The CBA Purchasing Manager’s Index (PMI) for the services sector rose to 55.1 in December from 54.0 in November. The index is at 5-month highs. 

• The Australian Industry Group (AiG) Australian Performance of Services Index (PSI) increased to 52.0 in December from 51.7 in November. The index remains over 50, signifying expansion of the services sector.

Over the year to October, the proportion of occupied seats on domestic flights hit a 6-year high of 79%. Load factor on the Sydney-Melbourne route was at record highs.

• International passenger traffic to Australian airports rose by 4.5% to 3.37 million in October, up from 3.226 million a year ago.

 • Job advertisements declined in December, falling by 2.3% to 167,656 ads, after rising by 1.1% in November but December is not a great month for new hiring but, for the year, job ads are up a healthy 10.8%.

Right now, more and more economists are jumping on the “wages will rise more strongly in 2018” bandwagon and business investment expectations are also beating the forecasts of those who have difficulty believing that the sun will shine every morning!

Go Gerry and the Oz economy and get ready for a great 2018!


Fake news! Thank God for Germans and the Internet!

Thursday, January 11, 2018

After hearing and reading about a World Bank story in the press that brought warnings about the global economy and financial markets, I was surprised at the extent of the negativity. My assessment is more positive and so my response was basically: “What does the World Bank know? Those guys have often been well off the pace!”

Where was their warning pre-GFC? But one day on, I realise that, like many others, I’ve been a victim of what Donald Trump calls “fake news”!  And I thank the Lord for the Internet and Germans for setting me straight.

I won’t name the news outlet that ran with the ominous warnings about our economic and market outlooks. Suffice to say, it focused “on the other” hand warnings that most economists will give you after holding an alternative view. Sometimes they talk about the short-term view but then compare it to the longer-term position or they can point to potential problems if policy-makers don’t take certain steps.

These scary references are often picked up by those in the media who believe they are doing some community service by scaring the pants off normal people who never test the source of their news.

Well, I’m not normal and I do test my sources, and in this case the news is excessively negative.

Over in the UK, one newspaper took the World Bank’s view and came up with: “After better than expected growth in the global economy, the World Bank says financial markets are vulnerable to unforeseen negative news.”

And there was more.

“Financial markets are complacent about the risks of sharply higher interest rates that could be triggered by better than expected growth in the global economy this year …”

So this journalist threw away the good news of “better than expected growth in the global economy this year” to focus on “unforeseen negative news”. 

Come on! 

That’s one-eyed half-news and borders on fake news. And by the way, if I hadn’t got up this morning and gone on the Internet to test out the negativity of that story, I would never have discovered the website, which is the home of Deutsche Welle. This is the international broadcasting news unit out of Germany and here’s how they covered the story.

Compare this headline with the negative news coverage above: “World Bank upgrades growth outlook on strengthening recovery.”

And the first paragraph shows us what news used to do and it was called telling us the truth. This is how this story starring the World Bank ran: “The global lender has surprised analysts by predicting better-than-expected global growth. But the bank also warned of fading potential mainly in advanced economies due to aging populations.”

I’m not against negative news stories, so long as positive ones are given at least equal coverage.

Why do I care? Well, we have a consumer confidence problem in this country and it affects consumption, economic growth, business profitability, jobs growth and even the bottom line of the Federal Budget Deficit.

All up, there is an economic problem that does not need unnecessary negativity, which adds to related social problems.

All Australians should care about our social issues and, ironically, many of our more leftish news outlets, which talk down the economy, seem very preoccupied with how governments don’t do enough about our social issues.

Of course, apart from politicians’ short-sightedness, our leaders often lack money to help people and that’s why a strong economy needs to be encouraged not ‘bombed’ by bad journalism.

Let me share what thought its valued readers needed to see from the World Bank.

“According to the World Bank's Global Economic Prospects report released Tuesday, the global economy is expected to grow by 3.1 percent in 2018, after a better-than-expected performance in 2017 that boosted global gross domestic product (GDP) by three percent last year.

“In its twice-yearly report, the bank noted that for the first time since the global financial crisis, all major regions of the world were experiencing an uptick in economic growth.”

And the Bank itself said: "The current, broad-based growth acceleration is a welcome trend and could be self-reinforcing." 

On the downside, the Bank warned that the new interest rate rising part of the economic cycle brings risks but these are well known and basically are in the hands of central banks. If they raise rates too fast, then there could be problems in late 2019 or 2020 but given the calibre of central bankers, it remains a low order risk for a few years.

Another concern was the ageing populations and its impact on productivity but this is such a broad issue, which really tests the competency skills of economists who somehow understand the link between productivity, age of workers and where technology is heading.

To me, this was a throwaway line about some of the uncertainties out there, which are many. However, the good news story is that the global economy is on the improve, so get out there and make hay while the sun shines.

Thank God the Germans believe in the value of positivity. I must say I never imagined I’d write something like that!


Ignore doomsday merchants and make your economy great!

Monday, January 08, 2018

By Peter Switzer

For some Australians, the working year starts seriously today as the festive break becomes something of Christmas past and work for 2018 begins. Then there are those who don’t get to this point until after Australia Day. Whenever it starts for you, be assured the year before us will be good for your economy.

I’m using the term “your economy” pointedly rather than “our economy” because I’m trying to make you think about that little cycle of you earning income, spending it, saving it and investing it, which defines your economy.

My decision to write about what you need to do boost your economy via earning more income, spending it better, saving more of it and investing it wisely was inspired by the usual negativity that media outlets virtually trot out daily!

However, this time they were encouraged by a Federal Government tipping the current mini-resources boom will go off the boil this year. Governments have to forecast important things that will determine the size of the Budget Deficit. And because they’re so supposed to be honest and transparent, they need to report both good and bad news.

Fairfax tells us that “In fiscal 2017, the resources and energy sector is tipped to see record high exports earnings. But this is expected to be short-lived.”

The Department of Industry, Innovation and Science predicts a weaker outlook for 2018, with exports earnings from the sector dropping. 

Exports earnings are tipped be around $214 billion in this financial year, ending next June but they will fall to around $200 billion the following year.

OK, that’ a $14 billion fall but it’s only 6.5% fall and is hardly a story of disaster deserving of a headline like: “2018 ‘the end’ of resources boom as commodity price drops bite.”

OK, prices might fall but other parts of our economy could get better, such as employment, private sector investment from the non-mining sector and the dollar might fall to offset the price falls in the mining sector.

What I’m arguing is that this negative mining story doesn’t have to be bad news for our economy and anyway, the Government department in question is not always right with its forecasts.

In fact, the Fairfax story ended this way: “Export earnings growth in fiscal 2017 were $3.3 billion higher than anticipated in the government’s previous quarterly report after prices for coal and iron ore were above expectations.”

My survey of economists tells me that 2018 will be a better year for economic growth, unemployment, wage rises, business investment, the stock market and your superannuation.

House price rises in Sydney and Melbourne will be coming off the boil, making it easier for people to buy a house. Interest rates will start to rise this year but we might only see one hike but those savers who want term deposit rates to go higher will be happier.

All of this you can’t control but you can have more impact on your own economy and this is what I suggest you do ASAP.

First, write down what your money goal is for 2018. It could be to earn more, save more, invest more and learn more.

Second, once you know what you are shooting for, think through how you will make it happen. It might mean looking for a new job, going for a promotion, starting a part-time business, which you’ll grow into a full-time operation, ramping up the business you might now own and so on. It could even mean saving more and then investing in stocks, which I think will do well this year.

Third, be realistic about how good you are at making your goal happen. And if you have self-doubts about your own motivation, then start reading a book like Tony Robbins’ Awaken the Giant Within. If that doesn’t suit you, opt for an accountant, a financial planner, a business coach or even a life coach to ensure you beat your biggest problem — you and the procrastination that has plagued your progress forever.

Fourth, seek out the kind of information you are reading right now. Go to websites like mine, listen to radio stations like Talking Lifestyle, where I do my On The Money program and watch TV programs like mine on the Sky Business Channel.

Of course, there are others and as many as possible should become a part of your life as you start swapping bad and unproductive influences for positive, good ones that will collectively help you change to ensure your money goal gets kicked.

There is an old saying that “if nothing changes, nothing changes” and that’s so relevant to think about at the start of a new working year.

I’ve always like the old piece of advice that “if it’s to be, it’s up to me” and unless you’re prepared to change you, your economy, in all likelihood will not do much.

It’s thought Einstein once defined insanity as “doing the same thing over and over again and expecting different results". Even if he didn’t, he should have because it’s at the core of why so many people don’t progress.

And one different thing I’d recommend you look at is hanging out with better people who’ll help you improve you and your economy.

I hope you have a great year and I hope we get to hang around together either here each morning and/or on my radio and TV shows.


US companies won't waste these tax cuts, which could delay the next recession!

Friday, December 22, 2017

Good news begets good news and this argument of mine was given support when a survey of US chief financial officers found that some 60% would actually use the Trump tax cuts for useful purposes.

Admittedly, 41% of the CFOs were honest enough to say that they could increase stock buybacks, which is less desirable from an economic perspective but it will be good for raising US stock prices. Anyone long on stocks and recognising how Wall Street leads our stock market, can’t be too upset at this news.

That said, the CNBC survey showed 29.2% of these company bean counters said they would “increase their headcount”, while 33.3% of a third thought they’d raise wages. And 29.2% wanted to use the tax cut savings to “increase R&D spending”.

All three actions represent stimuli that has to be good for US economic growth and this too feeds into company profits and, ultimately, share prices. In total, the survey points to these President Trump tax cuts being a real fillip for company bottom lines, economic growth, job creation and stock prices.

But it’s not all win-win — you’d have to expect inflation starts to get a real wriggle on in the USA over the next couple of years. This will force the Federal Reserve to raise interest rates and it will be the pace of these rises that stock market heavies will watch closely, like the way a Labrador watches a sausage at a barbeque!

Interestingly, this week’s tax cut legislation raised the yield on the 10-year bond in the US, and that’s seen as a good thing.

In the hard-to-understand world of the bond market, there are short-term and long-term bonds. If short bonds have a higher interest rate or yield than long-term bonds, we say the yield curve is inverted or sloping negatively.

In the US, this has been a prelude to a recession and historically has happened about eight quarters (or two years) after the yield curve turns negative.

If these tax cuts push up long-term rates, it could delay the arrival of the next recession and if they produce more economic growth rather than too much inflation, too quickly, then these Trump tax cuts could actually delay the arrival of the next recession.

Overnight, the US stocks went higher and that’s a good sign that these tax cuts still have the capacity, especially when they produce real economic growth, to keep US stocks creeping higher. And that will help our stock prices head north as well over the next couple of years.

So what about the so-called Santa Claus rally? Will we see some more rises between now and year’s end?

You’d think Wall Street would’ve had enough after a huge year — the S&P 500 Index is up 20% this year so far! —  but these tax cuts have feed the fire in the stomach of market bulls.

"The seasonal Santa Claus rally is at hand, and we think it will help prevent a pullback before year-end,” said Katie Stockton, chief technical strategist at BTIG in the US.

“Our sentiment readings are not yet sending a collective warning, and breakouts continue to outnumber breakdowns." 

God love those positive, dear little Yanks.


Trump tax cuts mission complete! Where's the stocks surge?

Thursday, December 21, 2017

By Peter Switzer

At long last the US Congress has made President Donald Trump look like a winner, with his tax cuts now given the green light. It was mostly expected and that’s why Wall Street’s response overnight was not excessively spectacular. But if the tax bill had been rejected, we could have been looking at a 10% stock market slump!

So if you want some good news, well, try this: we dodged a bullet. And this sets the US economy and, therefore, the world economy, for a pretty good year ahead. That is good news for a ‘dig’em up and export the stuff’ place like Australia.

This might be accepted, but you still could be asking: where is the Santa Claus rally that these tax cuts were supposed to have brought? And to answer this I’d suggest you look at the stock market scoreboard because Santa has been sneaking around since early October here in Australia and some of those stock market gifts have been Trump tax cut related.

Our S&P/ASX 200 index finished yesterday at 6082.8. On 4 October it was 5652.10, so that’s a 7.6% gain, and, if we added in dividends, we’d be looking at a 9% gift for the true believers who stuck with stocks after a disappointing run from May to the end of September.

Over that time, the positivity about the economy and where stocks were heading was so weak that we couldn’t get past 5830 but at least we didn’t want to slump below 5650. It was like a case of key market influencers holding out for some additional blue sky to add to the revelation that the world economy was growing in synchronization for the first time post GFC.

And Donald Trump, dressed in a Santa suit with a bagful of tax cuts, was going to be the blue-sky delivery boy.

The more likely these tax cuts would get through Congress, the more the stock market felt the ‘love’.

The best test of how the Yanks had held out for the tax cuts is seen in the Russell 2000 index, which looks at the smallest 2000 companies in America’s group of biggest 3000 businesses on the stock market.

From mid-August, the Index went from 1357 to its current level of 1544. That’s a 13.7% spike!

Why is this so important? Well, a lot of big US companies use a whole lot of tax tricks to reduce their tax bills to around 21%, or lower, but many smaller companies pay close to 35% plus some extra state taxes.

These companies will be the biggest gainers from these tax cuts and many of them are more locally based than the export-oriented outfits at the bigger end of town.

Most economists in the USA think these tax cuts will deliver higher economic growth and, therefore, better company profits but the growth gains might not be as big as many have been hoping.

That said, the economists could be too conservative in their calculations but nearly all see it as a plus for 2018. I see it as a plus too, albeit with a little more enthusiasm than my US economic buddies.

This from Action Economics in the States sums up why many experts think US stocks can go higher next year: a “big wealth effect” from the tax cuts is expected in 2018 and “negotiations has led to a pulling forward of the tax cut benefits into the first four years.”

All up, this tax cut story has delivered the stock market plus that was expected over the past three months and so no one should be too disappointed about the possible absence of a rip roaring Santa Claus rally over the next two days because we’ve kind of had it.

And he’s brought the gift that keeps on giving, stock-wise, for at least a couple more years.

Go Santa, aka Donald T!

The 2018 earnings for US companies tells us why the Trump tax cuts have been powering up stocks.

According to the professionals who do the numbers earnings per share for these powerhouse businesses of Wall Street without the tax cuts would be up 8-11%. However, with the tax cuts the gain is tipped to be 13-18%!


Would-be bitcoin buyers must read this before punting

Wednesday, December 20, 2017

As the year nears its usual ending, I have to say that this often-called ‘money guru’ is sick and tired of one persistent question: “Is bitcoin a good buy?” And even more, I hate having to say: “I don’t know.”

It doesn’t look like the kind of investment that I recommend to people. It looks more like a punt on the racehorses. And if you’re buying in now, it looks more like a big outlay on a long shot in the Melbourne Cup.

I interviewed the President of the Bitcoin Society (or some name like that) about three years ago on my TV show and he was referring to a hotelier in the Wooloomooloo area, who was accepting bitcoins for accommodation. Then they were worth about $200 and that was a more understandable punt. However when you’re being asked to invest $20,000 and when the price can drop $1000 overnight and then rebound $2000 the next day, I have to throw my hands up and say: “Stay away unless you can afford to lose $20,000.”

Three weeks ago, I told my subscribers to the Switzer Report that I thought Fortescue was a good investment. I quoted research done by expert analysts who study the company, the outlook for iron ore prices and other relevant price-determining factors. Its share price went up 8% over that time and this is the kind of ‘advice’ I feel comfortable about because there are a lot less unknowns.

But with Bitcoin, it's the classic Donald Rumsfeld descriptor of something head-scratching: "There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we know we don't know. But there are also unknown unknowns. There are things we don't know we don't know."

With bitcoin there are so many unknowns and as the greatest investor of all time, Warren Buffett has advised us — don’t invest in anything you don’t understand!

My old mate, financial planner Noel Whittaker, put it sensibly in Fairfax publications: “In my opinion, Bitcoin fails every investment test. If you buy government bonds, you receive a guaranteed income plus principal repayment at the end of the term. 

“If you buy shares, you can make a decision based on the financial statements and profitability of the company. If you buy real estate there should be a nexus between the land value, the cost of improvements, and any potential rental income. In other words, you are making the decision on concrete information.”

But that wasn’t all he said. “Bitcoin works on the greater fool theory: a fool buys today in the hope of on-selling to a greater fool tomorrow. It's more like the allegory of the box of strawberries sold from person to person at ever-increasing prices. 

“Finally, the buyer who had paid $100 for a box of strawberries that had cost only $5 a few buyers ago, stopped the cycle by opening the box. To his dismay he found the strawberries were rotten! When he complained, the response was, "but these strawberries were meant to be sold – they were never meant to be eaten". Each buyer had bought with one aim – to resell for a higher price to a fool who still believed in the impossible dream. At least your Bitcoins can't rot. They never really existed.”

And this revelation has to be a worry.

“The Swedish founder of Emil Oldeburg has sold all of his Bitcoin, saying the cryptocurrency is ‘the riskiest investment you can make’.”

“Speaking to Swedish website Breakit, Oldeburg said Bitcoin was practically unusable because of the long waiting times for transactions and the unusually high transfer fees.”

But wait there’s more!

“An investment in bitcoin right now I would say is the most risky investment you can make. It is an extremely high risk,” he said. 

“I've actually sold all my bitcoins recently and switched to bitcoin cash.”

On the subject of unknowns and bitcoin, this worried me from the terribly British-named Financial Conduct Authority.

“The financial regulator has issued a stern warning against a speculative frenzy over initial coin offerings (ICOs) in cryptocurrencies such as bitcoin that have been promoted by celebrities including Paris Hilton,” the Guardian newspaper reported. “The FCA said anyone investing in ICOs should be prepared to lose all their money, with some of the schemes floated potentially outright frauds.”

I have to say this new ‘coin’ business looks crazy. The number of cryptocurrencies available over the Internet as of 27 November 2017 is over 1,324 and growing!

And then there is the tax office issue. If so many people are making capital gain on buying and selling bitcoin, why wouldn’t the ATO want to charge a capital gain tax? And why wouldn’t all tax regulators around the world have the same idea? And why wouldn’t all central banks be worried if cryptocurrencies spread like topsy and were uncontrollable and not easy to monitor?

This is digital disruption that not only could hurt an industry (just like what Uber did to taxis), it could disrupt government policy.

I think regulation could be the biggest threat to bitcoin and its impersonators out there.

Good luck if you have a punt on bitcoin but don’t think it’s an investment — it’s a gamble like the four-legged lottery called racehorses.

By the way, I don’t think bitcoin will disappear but its high prices undoubtedly will.


Should you believe the 'prophets' of doom for 2018 or are good times coming?

Tuesday, December 19, 2017

By Peter Switzer

Don’t believe the guess merchants out there who are predicting economic slumps because the housing boom is going off the boil. Sure the house-building sector will slow up and overall house prices in Sydney and Melbourne will either fall or see small rises, depending on the suburbs in question, but Armageddon is not on.

In the home of crazy and negative economic stories that is Fairfax Media, the latest headline is: Mid-year update: “Housing investment rates to fall, raising the prospect of long-term downturn.”

I have to ask: is this misleading on purpose or just a dumb headline by a sub-editor looking for big attention, which he or she is getting from me? They got me in!

Of course, if I could ignore this story, I would, but lots of people read Fairfax newspapers, including me, but their willingness to spread economic doom deserves a bit of attention.

Let’s start with the headline first. While the Government in its Mid-Year Economic and Fiscal Outlook statement says that housing investment would fall by 1.5%, this number has been viewed by some economists as “optimistic”.

The writer links jobs and growth to the housing sector, implying that if housing investment falls by more than expected, then the Government might have an economic downturn on its hands.

If that impression is left behind, let me convince you that this is crap.

Economic forecasting or guessing isn’t easy but the consensus of economists think we can grow faster in 2018 than 2017. We’ve grown at 2.8% this year and the Reserve Bank thinks we will top 3% next year. That’s not a downturn.

When growth beats 3%, unemployment falls and that’s not a downturn.

Right now, the stock market is heading up and this big ‘casino’ generally bets on what it thinks will happen to profits in six months’ time or so, the key market players don’t see a downturn on the horizon.

Chief economist at the broker Morgan’s, Michael Knox (who’s a good tipster) sees the S&P/ASX 200 Index at 6250 next year but it could easily go up to 6700. From where that Index is now that would be an 11% gain. If you throw in dividends of 5%, then a 16% gain doesn’t look like the stock market is betting on an economic downturn.

To be fair to Fairfax, the story did point out that, “In March, the OECD warned of a ‘rout’ in Australian house prices that would lead to a new economic downturn, as both prices and household reached ‘unprecedented highs’.”

That sounds ominous but let me assure I could have made a fortune on betting against OECD predictions! This would only happen if the economy collapsed and unemployment spiked but the opposite is the more likely scenario.

Even the likes of News Corp’s economics commentator, Terry McCrann, who can often be negative, is positive on our economic prospects for next year. And even Fairfax’s own economics guru, Ross Gittins, reckons the strong jobs market now must be a good omen for the economy going forward.

Thankfully, the story was not entirely one-sided. Buried at the bottom of the story was this little chestnut: “Recently published research by the Commonwealth Bank found residential construction had reached its peak but a public infrastructure boom would help offset any economic loss for the sector and its 1.2 million employees.”

Well, that kind of kills the aspect of the story that suggests housing investment falls will KO the economy, doesn't it?

"There is a construction rotation under way in the economy," said Commonwealth Bank economist Kristina Clifton. Thank you Kristina for some balance and real economic analysis.

Right now, in 2017, the economy is getting better and the improved indicators now point to a better 2018, despite the likelihood that housing investment should go off the boil.

The good news is that business investment is expected to surge in 2018 and we’re now in a construction boom, where the demand for engineers is at record highs. There is an infrastructure boom on the way here and around the world, which partly explains why commodity prices are high and tipped to stay high. This from CommSec’s senior economist, Ryan Felsman says it all: “Today’s job market release was the last ‘top shelf’ Australian economic data release for 2017. It certainly didn’t disappoint with 61,600 jobs created – the largest monthly increase in two years. It has been an exceptional year for jobs growth – the second fastest annual increase on record - with around 383,300 jobs created over the past year.”

But wait, let’s end with this one from Ryan: “And all the leading indicators point to further job growth over the next six months.” 

You might not be an economist but who do you want to believe about our economic prospects next year? I don’t need to hear the answer.




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