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

War on banks continues but I have bigger fish to fry

Monday, September 25, 2017

By Peter Switzer
How stock markets respond to a headline like this from CNBC — “US bombers fly off North Korea's coast in show of force as official says conflict 'inevitable’” — is bound to be interesting today for share players but the story that’s hogging the business headlines is the decision by the banks on ATM fees.

After CBA got the ball rolling for reasons I don’t need to go into here, given the PR disasters the bank has gone through of late, now Westpac, ANZ and NAB have killed off the $2 fee paid when we use a "foreign ATM", that is an ATM of another bank other than yours.

That will be a $500 million windfall for bank customers who get their money from holes in the wall around the country. But I have a bigger story to cover and it’s more important than the news that banks want more information on lenders before they get a loan.

It sure looks like Treasurer Scott Morrison’s little chats to the bank bosses, who’d prefer to avoid a Labor-promised Royal Commission, are starting to have an impact on our beloved banks.

That said, it will be interesting to see how these ‘forced’ changes in their practices will affect their share prices and our super!

But I have a bigger fish to fry as I promised a listener last Thursday on my radio program On The Money (on Talking Lifestyle) that I would solve her very special problem, which I think she shares with many Aussies.

The first part of her problem is in fact very unique to her. You see, she’s in her low 30s and owns three investment properties and the bank won’t lend her any more money, despite, on her calculations, that she can service another loan!

Yep, this is a very special young lady, who must be a pretty good income earner with a high tax bill to get three loans for three properties and it wasn’t surprising that she asked me: “How can I build my wealth in other ways, if the bank won’t lend to me for another investment property?”

This girl is aspirational and even inspirational!

Of course I suggested it was time for her to think about stocks but this is where she stumped me when she said: “But I don’t like or trust shares.”

Like many Aussies, she trusts property but not shares. This is understandable because few shares have had the consistent growth and the low levels of drama that say owning a property in Paddington in Sydney has had.

It has been a consistent price riser but, that said, if someone bought at the top of the market in the previous cycle, they might have made a loss if they sold not long after they bought. Sure, over time, the price rises resumed and over the past three years they have spiked brilliantly for homeowners in this blue chip suburb.

And those who own a place in Albert Park, Melbourne would have a pretty positive view on property when they read recently that house prices were up 40% in one year!

If I compared a Paddo terrace to blue chip stocks like CBA (even with its recent dramas), it was a $26.75 stock in the GFC and is now $76.62. On the other hand, it was a $59 stock before the GFC and a $92 stock in March this year.

However, if you bought the stock in 1991 at $6.79 when it listed, you would have made a 1,166% return on your investment! With shares, it’s great to buy at the right time but if you bought CBA at the top before the GFC, you’re now up about 30% plus you’ve had about 10 years of dividends at about 6%, so you’re up about 90% in total. And that’s with living through the closest thing to a Great Depression the world has seen since the 1930s.

By the way, properties on the Gold Coast and Palm Beach in Sydney fell over 30% during the GFC, so not all properties (just like shares) are equal.

My young listener could do a number of things to build her wealth after the bank has said no to another investment home loan, such as:

  • Buying a home to live in and paying it off quickly as this is tax effective, though I think she is a Robert Kiyosaki disciple and therefore only wants to rent but own lots of investment properties.
  • Salary sacrificing more income into super so she benefits from the magic of compound interest over the next 30 years.
  • If she has a redraw facility on any of her home loans, take money out at home loan interest rates and buy a collection of blue chip shares, an Exchange Traded Fund or ETF for the top 200 stocks, or even have a look at our Switzer Dividend Growth Fund, which is designed to be a consistent income payer.
  • Start a part-time business, say advising people on investing in property and then grow it into a big business!
  • Go to an honest financial planner/accountant and lay her life goals, her income, her expenses and other assets and liabilities on the ‘lawn’ and let an objective set of eyes look at her situation so an integrated plan gets constructed. This is my best piece of advice for her.

I remember a fund manager saying to me that he worked with a financial planner who was a tax expert and after looking at someone’s whole story, he’d invite them in and pass them a note which read something like this: “I will save you about $40,000 in tax and other fees a year, based on your current circumstances and I will charge you $10,000 a year to keep advising you of opportunities to build your wealth.”

Obviously, he got a lot of clients but the point I want to make to my young listener is that free advice is often worth what you pay for it. However what I’m writing here is an exception to that rule!

And for those who worry about stocks, the best way to overcome that is to start buying after a crash and then let the money ride higher crash after crash. The chart below shows what has happened to $10,000 since 1970 and 2009, which was the year after the GFC market crash:

Generally, I argue timing the market is hard and even costly but for a young person they could easily wait for a crash to happen and then buy the best companies in Australia, and even overseas, and then just let the investment ride.

The blue line shows how $10,000 becomes $453,166 over 39 years, despite six big market slumps.

The best advice I can give someone who yearns to build wealth is to get advice and insights even if it comes from books, websites, newspapers, radio, TV, etc.

Make making money a goal and you’ll make it happen, especially if you learn from people who have actually done it.

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World’s richest woman’s death reminds me of a great sales lesson!

Friday, September 22, 2017

By Peter Switzer
Overnight, the world’s richest woman died and it reminded me of a lesson we all should never forget if you want to be a success.

Liliane Bettencourt was a French businesswoman and heiress of cosmetics giant L'Oreal and she died age 94. Bettencourt and her offsprings owned 33% of the company, meaning her net worth was around $39.5 billion and I’m talking US dollars!

L’Oreal is one of the world’s most successful and enduring brands and cosmetic companies have been some of the greatest role models of how you build a business, attract customers and, more importantly, keep them.

However, these great business brands don’t just teach would-be great entrepreneurs to build exceptional businesses — they teach us about the art of winning over people. This is a skill useful for anyone in the selling of goods, services, your potential as an employee, a manager, a CEO or a partner for life!

One of the most memorable pieces of sales advice I ever came across came from our business coach (a woman who’d made her name in PR) was when she told us that Charles Revson, the founder of Revlon Cosmetics, had famously said: “In the factory, we make cosmetics, in the store we sell hope.”

He also was famous for something forgettable which was: “Look, kiddie. I built this business by being a bastard. I run it by being a bastard. I’ll always be a bastard, and don’t you ever try to change me.”

OK, he wasn’t always the best business role model but his insights on what you’re really selling is critical when you market your products, your services, your business brand or your personal brand.

Simon Sinek, author of Find Your Why has argued in one of his famous Ted Talks that most people don’t buy on facts and figures, which is the domain of the neo-cortex part of the brain. Instead, we’re more driven to like and buy a product, a service or a person based on their why.

So it's less what and more why.

He says people are often heard saying that: “I know the facts and figures say this but it just doesn’t feel right,” or they might say: “I’m going with my gut-feeling.”

The emotional bit in the selling and buying process dominates, with Sinek insisting most of us buy not what you do but why you do it.

When we started a financial planning business, we rebated commissions and charged flat dollar fees. Our ‘why’ is our prominent desire to make our clients wealthier rather than pocket easy profits at their expense.

Revson lived in a politically incorrect age when women were thought to want to look like movie stars and models so he used these people and images to connect to his audience.

It was the era of the TV program Mad Men and Revson knew that “his customers didn’t want the latest shade of red lipstick. They wanted to feel sexy, desired and exciting. They wanted their husbands or boyfriends to look at them like Humphrey Bogart looked at Lauren Bacall.”

The experts in sales say that despite his questionable personality, Revson got sales. He knew that knowing what you sell changes how you sell.

The smart Brenda Do from BL Copywriting in the USA has this great message for all sellers and marketers. “When we forget what we truly provide, it flattens our marketing messages and stalls our creativity. Before long, we start looking and acting like our competitors.”

At Switzer, our motto is always “Guidance you can trust”. I always wanted it to be “The most honest financial planning business in the country” but the law wouldn’t let us say that! But that’s the message I always wanted to sell.

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Economists on rate rise – early next year or in two years time!

Thursday, September 21, 2017

By Peter Switzer

I’ve never seem economists so split on where the Oz economy is heading and some of my mates will have egg on their face, with one really smart guy tipping the first rate rise will be early in 2018, while another smartie thinks it will happen at the end of, wait for it, 2019!

Paul Bloxham, the chief economist at HSBC here in Australia, thinks growth will get up to around 3.3% by year’s end and the first rate rise will be in the first quarter. Paul Dales, the chief economist at Capital Economics has growth more in the 2.5% region and the first rate rise at the end of 2019!

Paul Bloxham is saying our economic story will be OK but so subdued that the RBA won’t touch rates for two whole years, which sounds incredible. And even though I like the idea of rates being lower for longer, the other implications of his big call worry me.

If Paul is right and we’re growing nicely, then our dollar will be lower as the USA raises interest rates fairly briskly, starting in December and pumping them up over 2018. If his growth calls are right, then jobs are being created, profits are on the rise and wages will be starting to pick up after years of too low increases that have undermined consumer confidence.

On the other hand, Paul Dales has a less heartening snapshot of 2018. And because he can’t see where the better growth comes from, he thinks progressing to what looks like a normal economy in Bloxham’s story, will take longer.

I hope Dales is wrong, as it doesn’t augur well for profits and share prices and implies we will be stuck with this underwhelming stock market, which is more than 1000 points from its all-time high, which happened just before the GFC stock market crash in late 2007.

Meanwhile, the Yanks are again in record territory for the Dow Jones Index and the S&P 500. If Dales ends up being right, then we might never get above 6828.70, which was our all-time high on the S&P/ASX 200 Index.

History says we always beat the previous high on this index and then go higher before another crash happens. However, if Dales is right, then it will take about three years before we get into record territory or we might defy history and not get there before the next crash!

I don’t want to believe that, so I’m in the Paul Bloxham fan club for now.

Helping us is the world view and the US central bank — the Fed — which overnight was a little more hawkish than many expected (in market parlance that means it’s more likely that the Yanks will see another rate rise in December) and then more of them across 2018, as the Fed begins rolling off its $4.5 trillion balance sheet in October, most of which consists of Treasury bonds and mortgage-backed securities. For normal people that means the US central bank will be selling these securities back to big bond players. It therefore means less money in the economy there, and rates will rise.

More importantly, it’s a sign of confidence in the USA and talks more to Bloxham’s optimism. And it comes as the Fairfax press today tells us that “The global economy has reached a turning point,” according to the Reserve Bank, and it came “on the same day as the OECD lifted its forecast for global growth thanks to a coordinated economic recovery.”

This is good news for us as a country that sells exports to an improving world economy, but typical of most economic bodies, the OECD is warning that our first rate rise could create a “sharp correction”!

But this comes as the pointy heads at the OECD in Paris say global GDP growth is projected to increase to around 3.5% in 2017 and 3.7% in 2018.

Last year’s number was 3%, so this is a good story for Bloxham and the optimists.

And over the course of this week, both the ANZ and NAB economics teams got closer to Bloxham, with new forecasts pointing to a mid-2018 rate rise, which implies they see an improving outlook for the Oz economy.

If the US and world economic outlooks were on the slide, I’d be a Dales supporter but I think Paul Bloxham has a good chance to be on the money and especially so if Donald Trump can get his tax plan through Congress by year’s end.

A CNBC survey of market smart experts found that a tax plan will be up by the first quarter of 2018. Only 2% think it will never happen. That’s in contrast to healthcare reform, where 39% think it will never happen!

Right now, just about every fund manager I’ve talked to thinks we’ll beat 6000 on the ASX 200 Index by mid-2018 and then tackle 6800 by the end of next year.

If these guys are right, interest rates will be on the rise. I never thought I’d write this but I’m praying for a rate rise next year and I think my prayers will be answered, even with the OECD’s alarmist prediction, which should be proved wrong, like many of their predictions about us!

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Older people deserve negative gearing for now, so stop complaining!

Wednesday, September 20, 2017

By Peter Switzer
As a young man aspiring to be an academic in the economics arena, the SMH’s economics editor was always a hero. He strived to make economics understandable and was one of the best and most entertaining educators on the often-seen, very dry subject of economics.

But one thing Ross Gittins taught me is that you have to even doubt your heroes if they get it wrong or overlook something.

I reckon my hero has forgotten something that justifies negative gearing and the capital gains tax discount, which cuts your tax slug in half if you hold the asset for over a year.

By the way, this one day will change if we ever decide to give Bill Shorten the keys to the Lodge. Labor wants to restrict negative gearing for property to new builds and the capital gains discount will be peeled back to a quarter, so you’ll pay the tax on three-quarters of your gain.

It will be a big election issue.

But I digress. Let me get back to what I think Ross should take into account when he suggests that old people are benefiting at the expense of young people.

This is what he said in today’s SMH: “You can understand why young people resent being lumbered with education debt when governments have gone for years tolerating distortions in the tax system – negative gearing and the capital gains tax discount – that favour older people buying investment properties over first-home buyers, and push the price of homes and the size of home loans even higher.”

I reckon it’s always a risky exercise to compare what older Aussies get, compared to younger people, because no one ever does an extensive examination of what young people get compared to their parents.

For example, young kids get a much better education, filled with so many opportunities to get smarter via better qualified teachers, an extraordinary online opportunity to learn and the prevailing parental belief that just about everything a young person wants to do or dream about is OK.

In 1969, Thomas Anthony Harris wrote the self-help book I’m OK, You’re OK, which captured a lot of the baby boomer generation that has impacted on their parenting and the kids that showed up as a consequence.

But I digress again — back to justifying negative gearing and capital gains tax discounts.

I think it’s also dangerous to look around at various groups of Aussies and start finger pointing about who gets what but because scarce Budget dollars ultimately have to be allocated, we have to do it.

That said, I can see why responsible, hard working, now retired scrimpers and savers could be a little cheesed off that they’re now seen as over-rewarded by the tax and social security system. This is especially so when they see the welfare bill for a group, who might have a lot of people on it who were trouble at school, in the workplace and in the neighbourhood for most of their life.  They were often lazy, big drinkers, big smokers, gamblers, as well as poor savers and now are on the pension.

Of course, there are a lot of deserving, unlucky people on the pension but there’s still a lot who fit the description above, which might explain annoyance when Labor politicians describe them as over-rewarded.

As an economist, I understand the need to not over-reward those who are well-off. However I can still understand why those who have worked hard to be comfortable in retirement can be pissed off when they’re portrayed as doing something wrong when they access benefits that governments have made available to them.

But I digress yet again! Back to why I think negative gearing and capital gains tax discounts are OK for now.

Last year, APRA said the average super balance was around $42,000 but this number would be dragged down by older Australians, many of whom have precious little in super. Paul Keating’s great idea of compulsory super will be great for younger generations as they’ll have nice super balances when they retire after 30-40 years of super saving. But a lot of baby boomers, who are now seen as pariahs lurking around auctions trying to outbid young people for scarce homes, needed an avenue to build their wealth.

These people grew up thinking a pension after paying tax was a right but, under the economic rationalism of Mr Keating, we learnt that wasn’t going to be the case.

And negative gearing and capital gains tax discounts became popular when tax rates were even higher than today so chasing an investment property made sense.

Arguably it might be time to make negative gearing less available on property because a lot of baby boomers have done their catching up but I don’t think it’s only oldies doing the landlord thing — smart youngsters are learning from their ‘betters’!

One last thing. This great super system, which will leave a lot of young people pretty well-off, is also driven by the fact that there are heaps of tax incentives that drive people into building up great balances for retirement and a lot of older, baby boomers have contributed a fair bit because they earn good incomes and pay a lot of taxes.

As I suggested early, it’s always tricky comparing who gets what!

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Will fintech solutions keep Aussies from the poor house?

Tuesday, September 19, 2017

By Peter Switzer
Right now about 20% of the potential Australians who could see a financial planner actually do so. And those building fintech online products know there are 80% of this potential audience — at least 12 million, which is the country’s labour force — who need or could benefit from advice.

Given the fact that I talk to Australians four days a week on my radio program — On the Money on the Talking Lifestyle radio network, I’d argue, that a lot of people will end up in the proverbial ‘poor house’ unless they get serious about their wealth building.

Now this could involve them not wasting their time reading click-bait stories on news websites to spending that time teaching themselves to be DIY financial planners and fund managers.

Yep, that’s what I reckon a lot of retirees are teaching themselves to be. Some have had bad experiences with product-flogging, over-charging financial advisers, while others are simply tight and don’t like paying for services they think they can do themselves.

And certainly lots can do it but lots also can’t.

The ATO has shown an enormous number of Aussies who have started self-managed super funds have ended up in cash, getting safe but low returns. Meanwhile, others have invested themselves and made a meal out of it. Some of these would-be amateur fund managers should never have left externally managed super funds and some of my callers have told me they’re going back!

Can we look forward to a fintech solution to the problem that most people need financial advice? Trust me, I’ve personally surveyed a lot of people on my radio show and yes, they do need advice but they simply don’t get it.

This results in either bad and costly money mistakes for too many Australians so a ‘one size fits all’ solution would be ideal but we’re all different so that won’t work.

I know I could give a ‘one size fits all’ solution to everyone’s basic financial problem but as a financial adviser I couldn’t call it financial advice. Under the law, I need to know the personal details — goals, risk appetite, etc. — before I plot a plan to build wealth.

That’s where fintech solutions will have trouble — they can be good guides for someone who can be profiled in an average way but they could miss some important details.

These important details can make all the difference to a great financial plan that an honest and smart planner might come up with. I doubt whether artificial  intelligence will ever get that good.

Let me give you a classic case. Yesterday a young lady (Sarah, around 30-something) called my radio program and sketched out her money world.

Sarah and her husband had two young kids. They lived in a “lovely unit” with ocean views, worth about $1.1 million, with $300,000 owing. They have a home in Queensland rented out “which pays for itself”. They have about $110,000 in shares and they’re on a combined wage of about $200,000!

They seem like the couple from a Hollywood film based on the smartest young money-managers on the planet. And they’re doing it on a good but not excessive amount of money.

She wanted me to answer her question: “Should we sell everything to get a beautiful bigger house or should we keep collecting investment properties?”

This was too complicated for a five-minute answer on radio so I said she should find an honest financial planner who could sort out their many issues and, potentially, multiple goals.

However, Sarah said she and her husband had been to a planner (why was I surprised that this smart young woman had already done that?) but she said the guy just wanted to tip them into financial products.

I could see this smart, young, admirable Aussie needed someone like a dad or mum money mentor to help her and her husband come up with the specific plan that suited them.

So I did what I seldom do and recommended that she comes to our financial advice business and I’ll sit in on the meeting. I said to her she might only need a financial plan, which the couple could work to over a number of years, until they have changed circumstances and more advice was required.

I can give wealth-building plans that would help everyone get richer but there are always slightly better ones that come out of knowing intimately the clients, their goals, their total income situation — now and into the future — and their tax situation.

When I do my business speeches, I often talk about potential money-making opportunities but I always throw in that “this is not advice because I don’t know your personal circumstances”. And I also throw in that: “If you hear anything that you think you can make money out of, take it as brilliant financial education.”

I think fintech will be a great financial educator but after years of helping people build wealth, I know a fintech solution will be based on a lot of assumptions, which could result in good, but not great, advice.
 Of course, that’s happening now with human beings giving second-rate advice but if that happens, these people can be sued. What will fintech businesses do to prevent them being sued?

Probably give OK and safe advice but it won’t really be bespoke, carefully crafted advice that a great adviser should give to a great young couple. Sarah was a person who really had her act together in so many ways and was smart enough to call in and admit that she really needed extra help.

I don’t think AI will ever be better than a trustworthy, smart adviser but maybe I’m a biased human being! And long may I stay that way!

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Why are we complaining about electricity prices? Well it depends who you are?

Monday, September 18, 2017

By Peter Switzer
Why are we whingeing about electricity prices? And why do political pundits say that unless electricity prices are contained, the PM will lose out to Bill Shorten at the next election?

Economics editor at The Age, Peter Martin (and my old mate) has done the numbers work and has found that for most of us, the rise in electricity costs has been exaggerated!

But could it be that your right to whinge depends on who you are? I suspect the average Aussie has done OK with their electricity bill and Pete pretty well shows that. For non-average locals, however, the story could be very different.

Here’s the good news on power prices:

  • In 1984, we spent 2.9% of our budget on electricity and gas. Now we spend 2.9%!
  • It got as low as 2.6% between 1998 and 2010. These figures, which have been pretty big, have been left out of the 2017 increases but I’d be surprised if they’re much above 3% for the average Aussie.
  • In contrast, our communication bill has doubled from 1.8% of our budget in 1984 to 3.3% now.
  • What we fork out on rent, rates and mortgages used to be 12.8% but it’s now a whopping 19.6%.
  • Our education bills have gone from 0.9% to 3.1%, which is more than triple!

This was great work from Pete and the ABS, which breaks down these numbers. But to find out whether you have a right to whinge about power prices, you have to work out if you’re an average Aussie.

And this little line by Pete gives us a clue. “Electricity and gas amount to just $41 of our total weekly spending of $1,425,” he wrote.  I’d suggest we should all focus on the $1,425 a week spending number. I instantly think about pensioners on $444.15 a week. They’d be understandably worried about power bills because they don’t have much wiggle room.

Also, if you run a small-to-medium size business, where you don’t have much pricing power because you might be competing against Woolies and Coles who are price-cutting, your power bills have spiked in 2017.

In July this year, Frank Chung, writing on the website, captured the small business take on power price rises. “This is the biggest business crisis I’ve seen in my lifetime,” said Peter Strong, chief executive of the Council of Small Business Australia. “The GFC was managed and it affected everybody, but this is only Australia and we cannot see a solution.

“What we’re hearing is terrible. We’re seeing closures have already started, I fully expect there will be more closures and staff put off. When you’re running a small supermarket, where do you find an extra $70,000?”

And Frank put the non-average Aussie small business case for whingeing pretty well with: “The price hikes hitting businesses of up to 120 per cent — dwarfing the 20 per cent increases faced by households — have been partly blamed on the closure of cheap coal-fired power stations, including Hazelwood in Victoria and Playford in South Australia.”

Also, the supply issues on the east coast of the country have added to our national energy woes. This wasn’t helped when fracking for coal seam gas was banned by state governments reacting to community and competing industry concerns. This was made worse by the fact that previous governments in Canberra did not have a future focus on power prices when they let private gas miners nail great export contracts with China.

Obviously, the GDP, export income and tax benefits of these contracts blurred the vision of what might happen to local electricity prices down the track.

I know rising power prices hit individual businesses harder than the average operation that might only have a small outlay on power because they’re white collar and service-oriented. But imagine the bills for small supermarkets, big restaurants and laundry businesses where washing machines and driers operate 24/7!

This is a case in point for a non-average Aussie business punctured by power price spikes.

The family-owned South Australian recycling business, Plastic Granulating Services, closed its doors after nearly four decades, leaving 35 employees out of work. Managing director Stephen Scherer said his monthly electricity bill had increased from about $80,000 to $180,000 over the past year-and-a-half. “It was totally unsustainable for a business our size,” he told the Adelaide Advertiser.

You’ve always got to be careful about averages and while Peter’s work says the average Aussie hasn’t got a real lot to complain about with their bills (at least to the end of the financial year in June 2016), there has been a significant rise in power bills since then, which haven’t been captured in the ABS figures.

I think Malcolm ignores the power price problem at his peril. Unless he secures price rise moderation, he will suffer Bill shock at the next election.

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250,000 jobs in six months! Get excited Big Kev-style

Friday, September 15, 2017

By Peter Switzer
Seriously, what does this economy have to do to get a positive headline? Well, try a quarter of a million jobs created in six months! But not even this was enough to get newspaper headline-makers positively excited!

Well I’m ‘big Kev’d’ and like he was with his cleaning products — see him again here — I’m excited at the progress of our economy.

Why am I excited? Well, apart from the fact that I’ve been right about our improving economy and the delight I have sticking it to doomsday merchants who refuse to see our economy in a positive light, I’m excited about what it implies.

Sure, something could go wrong — economies can do that — but this greatly improved job market should set us up for decent wage rises making a comeback, which should bolster consumer confidence and even savers should eventually get better interest rates for saving money that the rest of us will use to get richer!

Yes, it means higher interest rates in 2018 but the higher wages should make this development affordable. I feel the dark cloud that has followed us since the 2008 GFC is starting to ‘bugger off’ and sets the scene for a few years of unbridled confidence, higher company profits and better share prices. And that’s good news for our super funds.

Yep, this jobs report is an important step in making a lot of us happier, less worried about our future and richer, which should be something that excites just about all of us.

CommSec’s chief economist, Craig James, shares the excitement and this is what he said after feasting his eyes on the numbers: “Over the last six months, over a quarter of a million jobs have been created. For a six-month period, you have to go back 17 years to find a stronger result. The economy is clearly gathering momentum. More jobs means more spending. More jobs should lead to more confident consumers. More jobs suggest higher wages down the track.”

Spot on Craig! And to those who expertly talked about jobs and wages problems forever, as Bart Simpson would say: “Eat my shorts!”

I don’t like gloating over those who are wrong on the economy and while making mistakes guessing our economic future is understandable, some so-called experts seem to be willing bad news upon us for either political or self-love reasons.

The economic data has been getting better step-by-step, if you looked at all the data, and these employment stats are the icing on the cake.

Here are the facts, in case you missed them because your media outlet doesn’t know how to deal with good news:

  • Employment rose for the 11th straight month, up by 54,200 in August, after rising by 29,200 in July (previously reported as a rise of 27,900 jobs).
  • Full-time jobs rose by 40,100, while part-time jobs rose by 14,100. (Economists had tipped a 15-20,000 increase in jobs.)
  • Hours worked rose by 0.4% in August and were up by 2.6% over the year. Trend hours worked rose 2.7% over the year, equalling the fastest growth in 6½ years.
  • The unemployment rate was steady at 5.6% but that’s due to the participation rate, which went up by 0.2 percentage points to 65.3%.

Just in case you didn’t know, a rising participation rate says those who once might have given up looking for work, because they had no faith in the job market actually delivering, have started to go looking for work, which is another positive indicator for the economy.

I’m so excited and I just can’t hide it, the economy is about to lose its loser tag and I think I like it!

(Sorry I couldn’t resist it but I’m sure Big Kev (rest his soul) would have loved my enthusiasm.)

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Australians have too much debt? So what!

Thursday, September 14, 2017

By Peter Switzer

Stand by for one of my most outrageously, ‘irresponsible’ pieces of ‘advice’ and it goes like this: “Being one of the 407,000 Sydneysiders, who are over-indebted might be one of the smartest things these people have ever done! Taking on too much debt can be the best way to build wealth!”

Fairfax’s Matt Wade has looked at the latest ABS numbers on income and spending and in the wake of the big surge in Sydney house prices, there are some 407,000 Sydney folk carrying too much debt. And I reckon a similar problem might be the case in Melbourne, where house prices have also gone bananas.

The typical over-borrowed Sydney resident has $765,400 in total property debt but in June this year the median house price in the Harbour city was, wait for it $1,000,500! This implies there are a lot of million dollar homes and given the numbers above, there’s a decent buffer for many of the indebted households in question — $234,600. So prices would have to fall by more than 20% before these people are in negative equity.

Sure, they’ll have to be careful about interest rate rises but that won’t happen before 2018. Even then, the smart money says rates won’t rise by much more than 2%. And if that happens, it’s more likely to be over three years.

And while wage rises aren’t great now, over that time it’s fairly likely that many sectors of the economy will be paying higher wages because the economy will be stronger, if you believe the Reserve Bank and Treasury.

The point should also be made that a lot of this uplift in indebtedness could be that because of people like me, Ross Greenwood, David Koch, Noel Whittaker and Paul Clitheroe, they’ve learnt about negative gearing, high tax bills and building wealth.

A lot of this debt would be what Robert Kiyosaki would call his Rich Dad Poor Dad people — men and women who have learnt from his famous book and other books (like my Beating Debt and Increasing Wealth), which said that debt can be good or bad.

‘Bad’ debt is debt that doesn’t come with a tax deduction but ‘good’ debt is what investors have learnt can reduce their tax bill and give them access to capital gains.

In 2013-14, the median house price was about $700,000, so there’s been a $300,000 gain for a typical, potentially over-indebted household. Those who had good debt have reduced their tax bill and used it to pay off their debts more easily.

Yep, these over-indebted numbers don’t tell you how many of the 407,000 Sydneysiders are Rich Dads and Rich Mums building wealth.

But it’s not just property investors who can use debt to build wealth.

My wife and I have often bought the worst house in the best street, borrowed a fair bit to renovate, then sold the property with no capital gains tax, so we could trade up. Sure, we could have been caught by rising interest rates but we always had a B-plan to cope with rising costs. Part of our main plan was to build up our business, which now employs a lot of people and has a listed fund on the stock market called the Switzer Dividend Growth Fund.

To build wealth above the normal, you sometimes have to do some things that are abnormal. If you do it with good knowledge about tax, servicing debt and with good advice/insights, you can really build wealth.

Sure, some of the 407,000 over-indebted Sydneysiders could get into trouble but it will more than likely be because they have a divorce, lose a job or have done something really silly.

Most of these 407,000 will one day have a house in a city where the median value will be $1.5 million and they’ll have little or no debt and will thank their lucky stars that they acted in accordance with the old footie war cry — “no guts, no glory!” I’d twist this to — “no insights and guts, no significant wealth.”

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The PM bullying a CEO – let’s rethink the bullying for OK reasons!

Wednesday, September 13, 2017

By Peter Switzer
I think bullying has been given a bad wrap. In principle bullying sounds bad, but if it’s for good or beneficial reasons, it deserves to be evaluated, objectively.

Some might think this is my crazy piece of analysis, after I heard Hunter MP Joel Fitzgibbon argue that the Prime Minister was bullying the AGL boss, Andrew Vesey.

The PM wants AGL to keep the plant open for at least another five years, or sell it to another company like Delta Energy Systems, which is open to buying it.

The whole battle between Malcolm Turnbull and the CEO of AGL has taken on some weird tones, especially by the likes of the ABC. And I guess it’s because Andrew is looking like a champion of the environment because he wants to close down his coal-using power generation unit in the Hunter in five years’ time.

Tone? Well, yes. And it shows in this sentence from the ABC website: “Malcolm Turnbull summoned Mr Vesey to Canberra for a meeting on Monday over AGL's plan to close the Liddell power plant in 2022.”

The likes of the ABC, which I incidentally love but don’t always agree with its tone, delights when bank CEOs are summoned to be bullied by the PM or Parliament but somehow some great injustice happens when the AGL boss is asked to meet this country’s leader.

It might be me but if I was a mad environmentalist, then a coal-using CEO might be more ‘criminal’ than a banking CEO but it must be our near-genetic commitment to bank bashing that has really taken bullying to a nationally significant level.

I laughed when I heard my old mate Joel accuse Malcolm of bullying Andrew Vesey and thought of the groups that Labor has bullied in the past, for what they’d argue are good reasons.

They bullied small business owners to pay big penalty rates for working on Sundays and public holidays. For a century they bullied businesses against Sunday trading.

And as a country, we have bullied people to go to war, for what looked like good reasons and we have a whole range of ‘bullying’ laws to stop free-wheeling entrepreneurs exercising their commercial rights at the expense of our collective rights.

We stop pollution of our rivers and beaches by bullying companies to be good corporate citizens.

Yep, bullying has been give a bad wrap by those who currently look at all politically sensitive issues and rule whether debate is possible.

There are actually bullies who are out there stopping bullying, which can be a good and bad thing.

This country has a power problem and that’s why a natural greenie like the PM wants to keep Liddell open until we sort out a power system that’s predicted to produce blackouts in January next year!

If Andrew Vesey wants to stick to his newfound marketing plan for AGL to become a clean provider of energy, then he should be allowed to, but his board has an imperative to sell it because they legally owe it to their owners — the shareholders.

Andrew can be a good environmental citizen, which will be good for his business’s brand, in some quarters, but he also knows he can raise prices to pay for his goodness.

The price of power isn’t the number one huge political issue, it’s an economic and social problem.

Families have shivered through winter with one of the worst flu seasons on record, so some people have died because power prices have made them make bad life choices. Many small businesses have seen their profits ripped off them via ridiculous spikes in their power bills. And this is happening

in a country where we actually have an energy competitive advantage!

In July, the ABC itself reported: “Victorian businesses are struggling to cope with their power bills, with new analysis showing wholesale prices in the state have more than tripled since 2015.”

Prices are at a 19-year high and that’s the time the National Electricity Market has been in place and the impost on business cannot be ignored by anyone let alone the Prime Minister.

The ABC in the same story: “The Wilson Transformer Company, which manufactures electricity distribution and power transformers for coal, gas, solar and wind projects at two factories at Glen Waverley and Wodonga, said its electricity costs rose by 83 per cent this month to $1.5 million for the financial year. The company's executive chairman, Robert Wilson, said the increase would shave about $700,000 off the company's bottom line.”

This is crazy when we are an energy exporter. In Abu Dhabi, the price of petrol is about 55 cents a litre because that’s what they have in their ground, while we’re paying around $1.30!

In the past, governments have ignored the potential for these high costs of power to come home to haunt business, and someone like the PM needs to right those wrongs.

I like the idea of a parent bullying their kids to make them close down their computers and smart phones to make them read books. I like police bullying drunks to go home instead of getting into fights and killing people with coward punches. My pacifist wife even bullies my elderly mother to make her eat so she won’t starve to death.

It makes perfect sense to exploit all sources of renewable energy but not to the extent that we do it when we aren’t equipped to do it economically and sensibly.

Previous governments have approached the transition from dirty to cleaner energy supply in a half-arsed, appealing to vested politically-influential groups way, but the economics and efficiency issues were ignored and poorer Australians are paying the price.

Malcolm has been accused of being a bully in his younger days when he found it hard to suffer fools, so given the importance of this power problem, I think he should be able to revisit some of his old ways.

And I reckon some new age parents with new age problems - called their children, could learn a thing or two about what might be labeled “benevolent bullying.”

By the way, I think the country has been waiting for a leader who can occasionally throw the switch to bully for perfectly positive reasons. John Howard did it with the guns buyback move and the GST and he won more friends than he lost. And Paul Keating did it with tax reform, which took away tax-deductible lunches and it didn’t stop him from being voted in as PM.

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It’s time Trump stopped eating our lunch. Let our dollar drop Donald!

Tuesday, September 12, 2017

By Peter Switzer
The next time Malcolm Turnbull telephones the US President it might be an idea for our PM to plea: “Hey, Donald could you stop eating our lunch and do something to make the greenback go higher?” That said, there is an upside from the USA’s depreciating currency, it’s giving the Yanks economic growth and driving up US stocks and given the 259-point gain on the Dow overnight, I reckon we’ll enjoy another good day for stocks today, like yesterday.

Why the optimism?

Well, aside from the Dow’s dramatic push up, markets right around the world breathed a sigh of relief and shot up with the German market up 1.39% and the French CAC rising 1.24%. And here’s why:

  • Insurers stocks rose on reports that damage caused by Hurricane Irma is likely to be less than earlier thought.
  • North Korea did not do another missile test
  • The combined effect of less fear about hurricanes and Kim Jong-un led to a dumping of safe haven assets for something more risky, like stocks.
  • The S&P 500 rose by 1.1% to a record high, showing US investors are not tired of the stocks story in the USA yet.
  • GDP forecast downgrades linked to the impact of hurricane Irma will be pushed up, and
  • Expert stock analysts such as Art Cashin from UBS on the floor of the New York Stock Exchange is telling those who listen to him, and there are plenty, that the Fed won’t raise interest rates this year.

And it’s this last issue that is a problem for Australia and explains why I think the US and Donald Trump is eating our lunch.

What’s the best guide? That’s easy — the Oz dollar at 80.3 US cents this morning and with predictions that it could go as high as 85 US cents!

You see if our dollar is going up in terms of US cents then the US dollar is depreciating as ours is appreciating. And that means the Yanks get the economic growth that we need and that’s eating our lunch in terms of what we produce, the income that results, the jobs that follow and the higher stock prices that don’t result because our growth is lower than expected.

But why blame the US President for eating into our growth and stock market rising potential?

It’s simple — he has overpromised and under-delivered.

His presidency promised so much — less regulation, tax cuts and infrastructure spending — but instead of getting on with the job he has kept playing petty politics with the media, his own staff and nutcases like Kim Jong-un.

And worse than that, he’s playing unproductive politics with his own Republican Party and the Congress they control.

Experts looked at his healthcare reform failure and made ominous predictions of what this might mean going forward but I hoped the man who wrote the book, The Art of the Deal, was playing a wise game to eventually pull off a great coup. However, at this stage it looks more like a whole lot of hot air.

Fortunately, Wall Street retains faith in their President and I hope I’m wrong but because he’s played a delayed and very slow game our dollar is too high, our growth is slower than expected and our stock market is locked in a trading range refusing to beat the higher 6000-level on the S&P/ASX 200 Index.

Sure, Kim Jong-un has not helped, but Donald Trump’s failings have not helped US economic growth and the strength of the greenback, which has backwashed onto our economy.

If he was on song, the US would be growing faster, US interest rates would be higher, the greenback would be stronger and our little Aussie bleeder would be more like 70 US cents rather than 80 US cents.

When Donald’s act is together and he starts sinking his teeth into the big promises he got elected on, then our dollar will drop and our economy, which is doing OK, will step up a gear and our stock market will too.

The market rise we might see today is OK but it would be bigger if our dollar was weaker.

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