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Peter Switzer
Expert
+ About Peter Switzer

About Peter Switzer

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

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

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

Testimonials

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

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


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

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


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

Sean Ashby, Co-Founder, AussieBum


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

Peter Mace, General Manager NSW, Australian Institute of Export


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

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


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

Serife Ibrahim, Stockland Corporation Ltd


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

Catherine Batch, Head of Marketing and Communications, Indue


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

Justine Goss, Strategy Group

What's the matter with millennials today? Not much!

Wednesday, October 16, 2019

Don’t get me wrong — I love millennials — but I am realistic about their strengths and weaknesses, just as I’m sure they are about mine. And so I have to step into the minefield of looking at the pros and cons of this new age group of humans at a time when the American version of this group is allegedly set to turn over a new leaf, change their spots and be people we always prayed they’d turn into!

Media millennial mauling reached a high water mark — or is it a low water mark? — when a millennial boss, John Winning, based on his employer experience, gave millennials a serve.

In a nutshell, John let loose on the generation that includes Gen Y and Gen Z, which straddles the group born between 1981 and 1996. This is a sample of what he threw at them: “You train them up and by the time they've finished the two-month training, they're either looking for the next thing or asking for a promotion or more money.”

Now I know lots of millennials would hate this generalization, especially when they’re not like that but there are lots of employers who have had employees like the ones JW hooked into.

And let me throw in that the millennials in our business are not like that at all but we have had a few in our time who were the ones that have got John hopping mad.

In my speeches to small businesses, I always point out the strength of millennials is something you have to tap into to grow your business digitally and via social media.

Personally, when I speak to a group of employers, I often tell them that “if they have a millennial that they have had working with them for a long time, you know three or four weeks…(laughing ensues), then you have to train them, understand them and get the best out of them for their and your sake”.

The great business speaker Tom O’Toole, the Beechworth Baker, always says you have to train your staff but he once had an audience member say to him: “Why would you train them when they just get up and leave?” To that Tom replied: “Well, imagine the opposite that you don’t train them and they stay!”

It’s not easy leading new generations because they can be so different. Gen X has become more tractable because they have done the things that the 30s do, which makes them easier to lead.

They often get married, have kids and take on a mortgage and these three things are the greatest social control weapons of all time for an employer!

So if you’re tempted to do a John Winning and publicly bad millennials, it might be wise to hold fire because maybe some demographic help might be on the way, provided Aussie millennials are like their US counterparts. And I bet they are in an increasingly homogeneous world, thanks to the Internet, live streaming, Netflix and everything American that has increasingly invaded our lives. (I always feared this time would come when the Channel Nine commentary team started calling batsmen batters and we all wore baseball caps, though we don’t really have much time for baseball.)

Bill Smead, the CEO of Smead Capital Management in the US, recently told CNBC that a fundamental shift in the spending habits of millennials is going to have an incredible impact on the USA.

He said young adults between the age of 21 and 38 years will prioritize “necessity spending” over the next decade, after a 10-year period in which this group has “lived off discretionary spending”.

He argues that these young Americans “will soon start to move away from buying Apple devices, craft beer and burritos and instead spend their savings on big-ticket items, such as houses and cars.”

And I think he’s on the money but we do need to see some stronger economic growth and wage rises ASAP, which might need the Morrison Government to add a bit of fiscal stimulation, as rate cuts look done and dusted.

Even yesterday, the RBA minutes said that there is apossibility that policy stimulus might be less effective than past experience suggests”, which is Reserve Bank talk for “maybe rate cuts aren’t working like they used to!”

Smead’s comments come at a time when millennials are thought to be on the cusp of surpassing Baby Boomers as the largest living adult generation in the U.S.

And this population pyramid shows millennials are heading in the same direction. And if you add in Gen X, combined they’re more important than baby boomers.

This demographic change means bigger spenders will start to outnumber older more cautious people in retirement. The fatter parts of the pyramid point to the fact that the young are coming to help the economy even here.

Source: PopulationPyramid.net

“The velocity of money has declined. The reason is because the necessity spending of the largest adult population group has not happened yet — so they haven’t bought the houses and the cars yet,” Smead argues. “As soon as they buy the houses and the cars, the banks lend $10 for every $1 deposit, and that velocity of money picks up,” Smead said.

“Just do the math, there’s 89 million millennials in a 330 million population of the United States of America. And then the group behind them — this is crazy — is just as big.”

“In 20 years, there is going to be way more payers into the social security system and there is going to be way fewer taker-outers — and that problem will solve itself through demographics,” he added.

When we eventually get over this soft patch for our and the global economy, often criticized young people will eventually be our rescuers, as they throw off their currently hard-to-understand ways and become more like the rest of us!

And as they are our get-out bet from the economic malaise, which looks to be here forever, I reckon we should show a lot more tolerance of their unusual ways. And maybe the previous generations to us thought we baby boomers with our long hair, platform shoes, outrageous sexual behaviour and drug use made us difficult to deal with and even work with.

I recall one employer taking me back after a two-year holiday stint in Europe, who said to me: “I will take you back but I won’t do it again!”

One final point, John Winning is not a spoilt, rich man’s brat, as the media wanted to portray him. He has rolled up his sleeves and worked at the coalface in his dad’s business and on his father’s admission at a speech (where I was also speaking), John brought the appliances online strategy to Winnings, which has been a great money-spinner for the business.

John could just be a millennial who doesn’t understand some millennials who currently value their social life over their working life. But in all likelihood, mortgages, kids and responsibilities will change all that.

And our economy needs it!

Go millennials…and fast!

The Switzer Income Conference and Masterclass is on next month, and we have an exclusive offer available for Switzer Daily readers. For more information and to get your tickets, please click below:

 

Is this trade deal fake news?

Tuesday, October 15, 2019

The markets are putting pressure on Donald Trump to prove that Friday’s trade deal wasn’t fake news. If there was a complete belief in the merit of the trade deal phase one, then the Dow Jones Index would’ve finished up over 500 points, rather than the 323 points it eventually registered at the closing bell last week.

Overnight, with a weekend of deal digestion by analysts under their belt, market influencers took the Index down 29 points, which doesn’t represent a total rejection of what’s on the table but it’s not a glowing acceptance either.

Concern over the deal itself was raised when reports emerged that China wanted to talk more before signing off the phase one trade deal. A news story out of Beijing’s state news sources virtually warned the markets not to pop champagne on the deal, despite the US President’s branding the alleged agreement as being “very substantial”.

On my Switzer TV Investing program last night, fund manager Charlie Aitken of Aitken Investment Management, saw the deal as little more than a “soya beans deal”, which he thinks falls way short of what the market wants to see. Charlie’s guarded cynicism is something that President Trump has to deal with in selling this deal and it should pressure him to come up with a phase 2 version before Christmas to make sure the market salutes his achievements over the best time for stocks.

The period of November to April has a history of being great for stocks, while May to October can be disappointing. The politics of a November 2020 election says Trump has to be able to point to the scoreboard to show wins with a trade deal that is good for US businesses and farmers, as well as the stock market with all of its investors/speculators.

And be clear on this, if the trade negotiations fail to raise business confidence and business investment, then people like me will start talking about a looming recession, if not in late 2020, it would be 2021. A comprehensive trade deal can KO recession fears but it has to be more believable than the one knocked up in Washington on Friday.

In case you missed it, the phase one deal means China will buy $40-$50 billion worth of agricultural products and address intellectual property concerns. And on the other side, the US held off further tariff rises, which were scheduled to kick-in this week.

“Investors are having second thoughts about the trade deal,” said Peter Cardillo, chief market economist at Spartan Capital Securities to CNBC. “Even though there was a breakthrough in the talks, nothing was signed.”

The President said he expected the deal to be “papered” within three weeks and a signed deal should be greeted positively by the market. But there’s bound to be an increasing demand from Wall Street for more substantial trade deal agreements before stocks go to the next level.

Be clear on this: this trade deal has to end up being step one in a staircase to economic heaven for a world economy facing the prospect of a global recession. It can’t be lost on the Trump economics team that the US and the world economy are precariously poised. If there’s one false step, stocks will fall and most economies will be forced to entertain zero or negative interest rates, as well as quantitative easing, which is simply central banks throwing money at the economy and keeping their fingers crossed.

The need for a trade deal is underlined by the expectations for US company earnings, which start this week. Experts think the September quarter earnings will be negative 4.6% — and remember it’s earning that underpins share prices.

The Trump trade war is the prime reason for a slowing US economy and you don’t make peanut butter without cracking a few peanuts. But it’s time for the Trump team to start stimulating business investment and economic growth.

If he fails over the next six months with a trade deal, the US economy will fail, stocks will fall and all the President will have to take to the US people is a blame game excuse, where the words “fake news” will be his only defence.

I really hope, for the sake of the global and our economy that this scenario doesn’t play out in the 2020 election campaign!

The Switzer Income Conference and Masterclass is on next month, and we have an exclusive offer available for Switzer Daily readers. For more information and to get your tickets, please click below:

 

Are banks all that bad or is someone else to blame?

Monday, October 14, 2019

Are banks really ripping you off with a so-called “loyalty tax”? That’s what the likes of the AFR want to call it but what they’re saying is that because you stick with one bank, you get slugged with higher interest rates.

They call it a tax on your loyalty but in reality it’s a self-imposed monetary punishment. And in typical nanny-state excuse-making, the media wants to blame a business for doing what a business does.

When I was a young bloke studying economics at UNSW and working each morning at the City Markets in my Dad’s providore business, around this time each year there was a big deal made of the first box of cherries that got to the fruit and veg markets and it would be auctioned off for thousands of dollars for charity.

The first box went for a lot and early arrivals of cherries also brought above average prices but eventually supply met demand and a more sensible price showed up. All businesses always want to get an above average price, even if they like their customers. Businesses in a capitalist system don’t have to equalize the price to all customers. If that was the rule, then plumbers would charge the rich guy in Toorak the same price as a little old lady in Bendigo for unblocking a toilet.

A more objective person than those who hate banks would call the loyalty tax the lazy person’s tax or the “I’m too busy tax” or maybe the “I don’t care about great deals tax” or “I’m money uneducated tax”.

It’s like the people who were surprised when Donald Trump started using his “fake news” slags to undermine news stories that he didn’t like or that we based on conjecture but were being passed off as nothing but the truth, so help me God!

Whatever the excuse, the pitiful level of understanding of money stuff that could make you richer and less poor is astounding. Most people who could tell you who Steve Smith (the cricketer) is and who Barnaby Joyce is but their value to anyone’s financial bottom line is of no monetary value whatsoever, unless you’re a sports commentator or a farmer.

I was interviewed recently for my book Join the Rich Club by a well-known, very intelligent radio personality who thought that mortgage brokers charge you for finding a lower interest rate and/or a better loan than what your bank will give you.

And while some have tried to do this, I’d say 95% of brokers simply have one task and that is to find you a better loan that you’d find yourself or than what you have now.

If you’re really internet-savvy, you can go to the online lenders, where the best rate I saw was 2.8% and that was a comparison rate!

Or else go to a mortgage broker and get someone else to save you some money.

Treasurer Josh Frydenberg is hopping mad that the banks didn’t pass on the latest 0.75% worth of RBA cash rate cuts so he’s got the ACCC to investigate the so-called loyalty tax, the impediments stopping people from switching and how banks make their pricing decision.

The best bit about this inquiry is that it will make people think to themselves: “If it’s to be, it’s up to me” and maybe a lot more people will start caring about their money actions today that will determine how rich or poor they are in the future.

That said, a smarter group of money-interested Aussies or a bigger stick of Government to make banks play fairer to all customers will result in lower bank profits, lower share prices and super funds will suffer. The financial sector makes up about a third of the market cap of the Australian stock market and super funds are heavily-exposed to banks. So there could be a sting in the super tail if banks are crippled by government regulations or say a bank tax.

I think the following from the Federal Treasury needs to be remembered when you let your hate run wild for banks: “Australia’s financial services sector is the largest contributor to the national economy, contributing around $140 billion to GDP over the last year. It has been a major driver of economic growth and, with 450,000 people employed here, will continue to be a core sector of Australia’s economy into the future.”

Maybe Josh should be doing more to make Aussies as savvy as they have become about buying online in an age of digital disruption.

When I was a youngster, my economics teacher introduced us to “caveat emptor” or let the buyer beware, and I reckon an education program on TV, radio and all popular media would do a lot to make banks be kinder to their consumers.

It’s why I wrote my book Join the Rich Club. Ben Franklin got it right when he advised us that “an investment in knowledge pays the best interest!”

And how about this from Nelson Mandella: “Education is the most powerful weapon which you can use to change the world.”

So what’s the lesson? Change money-you and get richer!

The Switzer Income Conference and Masterclass is on next month, and we have an exclusive offer available for Switzer Daily readers. For more information and to get your tickets, please click below:

 

Excuse the French but is our economy crap?

Friday, October 11, 2019

Two worrying readings this week on the Aussie economy has to make me ask the question: Is our economy crap? Excuse the French but highly emotive language might be needed to get our fearless leaders in Canberra focused on some of the big headwinds that could end up pushing us into recession for the first time in 29 years.

Right now, business and consumer confidence is too low for even an optimist like me to say with my hand on my heart: “Don’t worry, she’ll be apples.”

We are at crossroads with the economy, which reminds me of an amusing observation by Woody Allen on the threat of a nuclear bomb during the Cold War era.

It went like this: “More than any other time in history, mankind faces a crossroads. One path leads to despair and utter hopelessness. The other, to total extinction. Let us pray we have the wisdom to choose correctly.”

Right now, the trade war has been likened to an economic cold war and we wait with bated breath as Washington hosts the trade war talks over the next few days. And already the news reports are conflicting, uplifting and worrying at virtually the same time!

Yesterday afternoon the stock market didn’t know how to play the ping pong politics of the trade war negotiations. One news outlet talked about a possible currency agreement, which could be a prelude to a trade agreement. But then another news outlet told us that the Chinese minister negotiating with the Trump team was going home early.

It’s as though all the negotiators have read Donald’s book The Art of the Deal so we’re made privy to all their ducks and drakes, cloak and dagger press releases, tweets and leaks, which makes it nearly impossible to make predictions about whether a trade deal will result.

And be clear on this: a trade deal will spark confidence, send stocks soaring and reduce the chances of a recession in the USA, worldwide and here in Australia. It’s a big deal and the stock market is elevated because they believe even Donald Trump knows a deal would be good for Wall Street, the US economy and his re-election plans. But this guy seldom chants from an easy-to-read hymn book.

Interestingly, the trade war has probably helped us to record 20 successive monthly trade surpluses. “The rolling annual surplus was a record $58.59 billion in the year to August…and exports to China have hit new highs,” CommSec’s James Craig pointed out last week.

But we need consumers and businesses to spend and with confidence levels down because of the trade war, Brexit, the drought, the related slow economy and the recently ended house price slump, the question is about just how crappy our economy is.

Let me show you the latest run of data… 

The good stuff

• The business conditions index rose from +0.6 points in August to +1.6 points in September but the long-term average is +5.8 points.

• ANZ job ads rose by 0.3% in September after falling by 2.6% in August. Ads were down by 10.4% over the year to 157,638.

• Employment rose for the 35th consecutive month, up by 34,700 jobs in August when 15,000 was tipped.

• The Australian Industry Group (AiG) Performance of Services Index rose from 51.4 points to 51.5 points in September.

• Lending to households rose by 3.2% in August after a 4.3% lift in July. It was the biggest back-to-back increase in household lending in a decade.

• Excluding refinancing, the value of owner-occupier home loans rose by 1.9% in August, with investment loans up 5.7%.

•  The share of first-home buyers in the home lending market hit fresh 7½-year highs of 30.1%.

• The number of dwelling starts rose by 1.1% in the June quarter – the first increase since December 2017. (Currently, 207,269 homes are being built – the lowest level in 3½ years. House starts fell by 10.5% in the June quarter – the biggest decline in 10½-years.) 

• International visitors to Australia rose by 3% to a record high 8.6 million over the year to June. Spending by international tourists increased by 5% to $44.6 billion – a record high.

•  Retail trade rose by 0.4% in August, which was the strongest lift in spending in six months.

• Commercial building approvals lifted by 54% – the most in three years.

• The CoreLogic Home Value Index of national home prices rose by 0.9% in September, the biggest increase since March 2017. And capital city home prices rose by 1.1% – also the biggest lift in 2½ years. 

• The Australian Industry Group Performance of Manufacturing Index rose from 53.1 points to 54.7 points in September.

• Total household wealth (net worth) rose by 1.6% to a record high $10,455.3 billion in the June quarter, after rising by 0.2% to $10,289.6 billion in the March quarter. Over the year to June, net worth rose by 0.5%.

• NAB’s business conditions index rose from +0.6 points in August to +1.6 points in September but the long-term average is +5.8 points.

The bad & the ugly

• The unemployment rate rose from 5.2% in July to 5.3% in August in seasonally adjusted and trend terms – the highest level in 12 months.

• In September, 88,181 new vehicles were sold, down by 6.9% over the year. In the 12 months to September, sales totalled 1,083,570 units, down 8.2% on a year ago and the biggest annual decline in almost a decade (November 2009).

• The Westpac/Melbourne Institute survey of consumer sentiment index fell by 5.5% to 92.8 points in October – the lowest level since July 2015. Consumer sentiment is below the longer term average of 101.5 points.  A reading below 100 points denotes pessimism.

• The NAB business confidence index fell from +1.1 points in August to a 6-year low of -0.3 points in September. The long-term average is +5.9 points.

• Council approvals to build new homes fell 1.1% to a 6½-year low.

• Job vacancies fell 1.9% in the three months to August. Vacancies are also down by 1.9% on a year ago – the biggest annual decline in 5½ years.

• Our annual economic growth fell from 1.7% to 1.4% (consensus: +1.4%) – the weakest rate since September 2009.

This last number shows how hard it is to be certain about our economy’s ‘crappiness’. That 1.4% number was dragged down by two bad quarters in 2018, while the March and June quarters have come in at 0.5%, which implies we’re at a growth rate of about 2%. That’s found by multiplying the latest quarter by four or the past six months of growth by two.

Of course, 2% is better than 1.4% and UBS thinks by year’s end we’ll be growing by 2.4% but we need to see a bit more oomph in the data.

This week the Reserve Bank told us: “Overall, households remain well placed to service their debt”… and …“The financial health of the business sector remains sound overall.”

Well, let’s hope the RBA and UBS are right. The good readings above do outnumber the bad and the ugly and some of those are off-looking on an annual basis but on the most recent readings, better news has come through.

My fingers are crossed because we are at a crossroad and I pray Donald Trump and the boys from Beijing choose correctly!

The Switzer Income Conference and Masterclass is just one month away, and Switzer Daily readers can purchase tickets for just $20. For more information and to get your tickets, please click below:

 

Keen -v- Joye: who won the Property Punch Up of the Century Mk II?

Thursday, October 10, 2019

Love or loathe its members, the commentariat does play an important role in the economy. If every commentator told every consumer of media that house prices were going to fall by 40%, I’d place a bet that exactly that would happen!

Similarly, if every influential and ignorable commentator told everyone that a recession was near, that would be a powerful force for actually creating one. Fortunately, when it comes to economics, the consensus view of commentators tends to hose down the controversial view and most of the time mainstream economists and the media people who believe them get it right.

Since March 2009, I’ve been fighting those who tipped a “double dip” into a global recession and another GFC-style stock market collapse. I do it respectfully but those who don’t like being questioned always return fire with emotion-laden gusto. To date, I’ve been right and those who copped my tip and just invested in the S&P/ASX 200 Index, say via an exchange traded fund, are up about 150%, if you add in dividends.

I’m tested by the results of my predictions, which often come with cautions and warnings.

My role in arguing against the claims around a 40% fall in house prices has come because of my role in the media as an educator/commentator. Professor Steve Keen, a colleague from the University of NSW in the old days, argued on my Sky Business TV show from 2008 to 2018 about a 40% fall in house prices. And, to date, I’ve been on the right side of that argument. That said, I don’t discount the possibility of a fall happening but the consensus view of respectable economists says it’s not likely.

My view has always been (and I’ve said and written this) that if a serious global recession comes here and unemployment heads towards 10%, well I’d be in the 40% fall camp.

It’s a serious issue that can’t be ignored and as my media performances mean I communicate with investors, self-funded retirees, wealth builders, small business owners and individuals trying to buy a home and live the Aussie dream, I can’t let my heart lead my head. Many of my property critics are over-influenced by what they want to be true rather than what is true and what’s likely to end up being true.

Given this, I can’t rest on my laurels and say I’ve been right and I always will be. And that’s why I asked Steve Keen and the AFR’s Chris Joye to debate  the prospects of a 40% fall in house prices. If you missed it, you can see it here:

I’ve asked the viewers to vote on who won the debate so it’s time I passed my judgment on who won. Remember, both combatants are mates. I go back a long way with Steve and he’s more likeable because he’s less bombastic than Chris, who, despite his hurricane personality that can be a tad egocentric, still belongs in a group that I call “my mates.”

That aside, being an adjudicator of a debate means you have to be objective in deciding who wins.

Clearly, Steve builds a solid case that we should be concerned about the household debt-to-GDP, which is the second biggest in the world behind Switzerland.

Chris predicts that there’s not a “snowball’s chance in hell of house prices falling significantly in the short to medium term.” He thinks debt serviceability is the critical factor that counters Steve’s concern about credit growth and house prices but says a range of factors are important to house prices.

On debt servicing, before the last two RBA rate cuts, households were only paying 7.6% of their income in interest repayments, which was similar to what they were paying in 2004 and 2006.

Steve referred to convincing charts that show a strong correlation between household debt and house prices and the related charts are a strong reason why he tips a 40% fall in house prices.

He conceded the relatively low level of debt servicing on an historical basis but showed it is the “the highest on the planet.” He says history doesn’t show that any economy with such a high debt servicing situation got away without seeing a big house price collapse.

On his chart showing Household Credit and House Price changes, Chris said his own chart didn’t show any basis for tipping a 40% decline in prices. He said he could only see a 10% drop in 2008 and challenged the basis upon which Steve predicts a 40% fall.

And this opened up a surprise. Chris said there was no analytical basis for a 40% call and to that Steve interrupted to say that “it was not analytical but gut feeling.”

Evidence for a 40% drop call looks like Steve’s greatest problem. Chris says despite our very high mortgage rates in the past, we have and continue to have very low loan default rates.

Countries that have seen big house price drops like Spain and the USA also had huge loan default rates, as the chart below shows.

In addition, he says overseas investors have bought Aussie mortgage parcels because they are perceived to be of a high quality, which is at odds with the views of many naysayers who describe our housing sector as a Ponzi scheme!

Chris thinks house prices will rise by 10% over the next 12 months but a big recession could bring about a 20-40% drop, though he doesn’t expect a slump of those proportions until a serious recession comes along.

Many who support Steve’s view agree with him when he says feeding house prices by too easy credit policies is a “lousy way to run an economy” and without doubt, we need to get our household debt down but lower interest rates and eventually a faster growing economy could do exactly that.

Steve’s “gut feeling” admission was an ‘own goal’ against a goal-hungry Chris Joye. And it means I have to give the Property Punch Up of the Century Mk II to Chris.

A reasonable person has to question the 40% number and the belief that all economies that experience a huge housing boom or bubble have to wind up with exactly the same house price outcome. There’s no law or theory to show that it’s just “gut feeling.”

 

10 stocks that could do well if a trade deal happens

Wednesday, October 09, 2019

If you believe a trade deal has to come because (for all of his unusual ways) Donald Trump wouldn’t want a Wall Street sell-off triggering a recession before the November 2020 election. Let’s face it, the unemployed have more time to vote in the voluntary election system of the USA.

If so, what top 10 stocks would do well if a trade deal came along?

Let’s start with big index plays first. I want to be long the US S&P 500 Index, with the likes of Professor Jeremy Siegel of the Wharton Business School at the University of Pennsylvania tipping a deal could shoot stocks up 10-20%. I’m happy to buy the likes of IVV from iShares that give me the top 500 stocks in one trade.

And if the Wall Street is to spike on a trade deal, history says we play follow the leader so I want to be long IOZ or STM or HBRD. These all pile in the top 200 stocks in Australia on the stock market into one trade, so that looks like a sensible play.

But wait there’s one more index play I’d suggest. If there is a trade deal then China must get a great dividend too. Here the IZZ exchange traded fund gives you large cap Chinese companies in one trade. These include TENCENT, PING AN INSURANCE, CHINA MOBILE, etc.

The chart below of IZZ shows how the price rises on good news and dips on bad.

Up until April, there was a lot of positivity around a trader deal happening and see how IZZ climbed.

Caterpillar’s Share Price

OK it’s time to find individual stocks that will do well out of a trade deal. The founder of Aitken Investment Management, fund manager Charlie Aitken, instantly fired back with Caterpillar, when I asked him for his best trade deal stock. He pointed out this company has big Chinese economy exposure — and the chart above justifies his argument.

Julia Lee of Burman Invest thinks a trade deal would mean the markets would “embrace growth stocks” and Julia likes stocks like Afterpay Touch and Lendlease.

Afterpay is very pricey but the same was said about Amazon and CSL in their time — and look at their respective share prices this week – $US1732 and $239.

Amazon was once a $1.50 stock, while CSL was 83 US cents!

Michael McCarthy thinks a lot of the growth stocks are very high-priced so he’s looking for stocks that could be the secondary effects of a trade deal leading to no recession and instead a period of growth. He likes the miner South 32 as a potential recipient of higher demand for its resource commodities if the world is set for growth. Its share price shows how good news about a trade deal around March and April was good for the company and vice versa.

South 32

In a similar vein, when the news was positive when the European Central Bank in mid-September put out a stimulus bazooka and the US President talked positively about a trade deal, our market spiked and the financial sector was the big winner. And as the CBA is still regarded as the best bank in the country on a number of measurements, it’s the one I’d expect to do well out of a trade deal.

The chart below was the AFR’s snapshot of the sectors that did well over the week described above.

Note how “materials” did well, which is a nice piece of support for McCarthy’s call on South32.

If you believe the mining sector can do well out a trade deal, then a mining services company, which has a great reputation (namely Monadelphous Group Ltd or MND) is the one to think about. FNArena, which surveys the expert analysts, says the smarties think this stock has a 16% upside!

My final stock to buy as a beneficiary of the trade deal is the one I put on the stock market — the Switzer Dividend Growth Fund. This fund shouldn’t be so sensitive to growth but it is, and maybe the big name companies it invests in gives this ETF more volatility than I expected.

This is designed to harvest good dividend-paying stocks, which should deliver say a 5-6% income yield plus franking credits. Last year the net yield was 7.9% and the gross was 11.2%, but that was a huge year for dividends, with many companies getting rid of franking credits before the May 18 election, where Bill Shorten was promising to crack down on these tax gifts, especially to retirees.

This would be a safer kind of play for the more nervous investor, who wants to get income in case the stock market tanks. Remember, dividends don’t collapse like share prices.

So here are the 10 trade deal stock plays:

1.  IVV (the US stock market)

2.  IOZ or STM or HBRD (the Aussie stock market)

3.  IZZ (The Chinese stock market)

4.  Caterpillar (CAT)

5. Afterpay (APT)

6. Lend Lease (LLC)

7. South32 (S32)

8. CBA (CBA)

9. Monadelphous (MND)

10. Switzer Dividend Growth Fund (SWTZ)

 

Why Frydenberg should learn from Shorten and Napoleon

Tuesday, October 08, 2019

Treasurer Josh Frydenberg should learn from Bill Shorten’s courageous admission that he screwed up on the franking credits issue. He said he “misread” the community anxiety about the issue and thinks he should have offered more tax cuts to Australians earning less than $125,000.

But Josh and Labor could do well by studying the battle tactics of arguably the greatest military tactician ever — Napoleon. I’ll focus on the Napoleonic lessons later. For now, let’s stick to the here and now.

Bill’s mistakes were many and those slow learners called politicians really should have a good read of this story of mine and resolve to give up their self-assured, hubris-laden ways.

The classic example of pollies who are misguided are the Greens. Let’s assume they have a noble goal to reduce man-made climate change. But who’d know that, given the fact that they jump on every alternative policy option, no matter how left-leaning and loopy the idea is.

What this does is keep their constituency happy but doesn’t grow it. The Greens should be educators and provers of their argument rather than looking like watermelon reformists — you know, green on the outside and red on the inside!

At the height of his radio ratings, John Laws used this great watermelon insult for the Greens and their current electioneering shows they’ve done nothing to change that possible unfair view. Like most politicians they have a hubris problem. As with most problems political, it’s a leadership issue.

Back to Bill and his overdue smart analysis that he “misread” the community on franking credits. When I was asked by a retiree at a Switzer Strategy Conference about what I’d do to fight Bill’s “unfair assault” on self-funded retirees, I said those affected  should get all their heirs together and simply tell them that if Bill wins, their inheritance will be shrunk!

On our website, Bill Shorten stories on how they would affect retirees, property investors, investors generally and small business resulted in a five-times greater readership per story! We saw how impactful these policies were so why didn’t Bill and Labor?

Hubris is the answer. They don’ understand the big issues affecting the majority of Australians. Every politician should know that Aussies on average love:

• Their kids.

• Their parents and grandparents.

• Their houses being more valuable.

• Their pets.

• Footy (whatever their preferred variation).

• Cricket.

• Local high-achievers who wow them on the big stage.

• Underdogs who defy the odds.

• And leaders who don’t look like they’re too rich or too trade union-led.

I could go on but that’s a pretty good list. Bill and Labor threatened self-funded retired and soon-to-be retired parents and grandparents and I guess their kids saw that. Why didn’t Labor? They were appealing to their converted followers and ignored the swinging voter, who ultimately decides elections and what we, as a country, stand for — like it or not!

My advice to Labor and anyone interested in leadership is to read John Maxwell’s book The 21 Irrefutable Laws of Leadership because there’s a lot to learn about leadership. And Maxwell argues you can learn how to lead.

Now to Napoleon, Josh and Labor.

Forbes recently looked at the business lessons that could be learnt from Napoleon as a military leader.

Napoleon won nearly 90% of his battles, a remarkable statistic for a coach, but unheard of for a military commander,” wrote Forbes contributor, David Carlin. “Napoleon’s great adversary, the Duke of Wellington, was once asked who was the greatest general of his age. Wellington replied, ‘In this age, in past ages, in any age, Napoleon’.” 

I won’t try to pass myself off as a military tactics expert but Carlin says Napoleon was great at focusing on one big goal. He wasn’t a multi-tasker, which largely explains why he did so well until Britain, Russia, Prussia (the strongman of Germany) and Austria joined together to end the Napoleonic era, during which time he virtually conquered most of Europe.

Napoleon explained his success this way: “The secret of great battles consists in knowing how to deploy and concentrate at the right time…[and] being always able, even with an inferior army, to have stronger forces than the enemy at the point of attack.”

A recent Stanford Study showed multi-tasking hurts productivity and performance and UCLA scientists have shown that pursuing multiple new habits makes us more likely to fail at all of them.

In his seminal business book Good to Great, Jim Collins showed how having a Big Hairy Audacious Goal (or a BHAG) was at the core of business success stories, not a multi-tasking goal!

It’s too late for Bill but not for Josh or Labor. If Bill had said “I’ve got a bagful of great ideas but first Labor must get the economy growing, add to jobs, get wages rising while helping businesses boost profitability to pay for fatter pay packets”, then he just might have won the unlosable election.

Josh can’t wait for the RBA’s rate cuts and his too small tax cuts to ramp up the economy. Our economy is at a crossroad — we could spurt higher or slump lower — and Donald Trump, with or without a trade deal, could be critical to our economy.

Josh needs to get on the front foot and start stimulating the economy via tax cuts and spending, which might mean no more rate cuts, which reduces the likelihood that a house price boom restarts.

Both business and consumer confidence is the weak point and this is the area Josh needs to attack with pro-economy policies. Meanwhile, Labor should spend the next three years learning how to help employers, who pay the voters of Australia and have a big role in making their personal, family and economic dreams come true.

P.S. A few years back, Labor asked me to interview Chris Bowen after a Bill Shorten Post-Budget reply. I thought it was great that Labor invited me to do the interview rather than a biased Labor lover. I played the interview objectively and a lot of people in the audience (made up of MPs and Labor heavies) didn’t like it. I think I might have talked to the waiters after the session because few others wanted to know me. It made me think: “Well, the Labor guy who booked me got it — he was in PR — but the rest of the Party has a lot to learn. I hope the May 18 election result has helped them open their eyes and ears to discover who they aspire to lead.

 

What would Dirty Harry do with the Mad King in the US?

Friday, October 04, 2019

Standby for a better day at the office for the local stock market, thanks to a Wall Street rebound overnight. This should help offset some of the $40 billion that was wiped off the value of Aussie shares over the past two days. Of course, this wipe-off number, while sounding scary, is pretty small, considering around $200 billion was wiped on to the stock market since the start of the year!

How the media portrays stocks is part of the reason why so many people don’t want to have a go at being an investor in the share market. At times like these, headlines get it wrong, telling us that “Investors have dumped stocks”, when it’s really professional traders and speculators.

Investors tend to be longer-term players of stocks and many know that when the market panics it becomes a buying-opportunity, except for that one year in 10 when a crash often comes along.

So the question you have to ask (and my followers want me to ask and answer) is what I call the Dirty Harry question: “Do you feel lucky punk? Well do ya?”

Peppering my boldness in not being too stressed about this stocks’ sell off is that advice from the world’s greatest investor, Warren Buffett, who once counselled us that we should “be greedy when others are fearful” and vice versa. However, that’s great advice when the sell off is a correction that then rolls into another leg up for a bull market for stocks. But what if this sell off is telling you that a crash is coming?

If you’d blame me for not telling you to go to cash now, then do it, but I’m not. I’d only do a cash runaway play if I thought things were getting really bad.

Things are ‘just’ bad and I believe a lot of this negative sentiment that’s hurting economic numbers this week is trade war related. So if we get the makings of a trade truce or deal after next Thursday’s meeting in Washington for the trade negotiators representing team Trump and Beijing, then we’ll see stocks soar. And I mean soar!

This week’s market jitters came when the ISM manufacturing gauge fell from 49.1 to a decade low of 47.8 in September. The forecast was 50.1. Any number under 50 says the sector is contracting. However, the Markit gauge of the same sector actually rose from 50.3 to 51.1 in September. And it was the best number for five months.

Also, US construction spending rose by 0.1% in August, which is OK but the forecast was 0.4%.

Then overnight, the ISM services index fell from 56.4 to a 3-year low of 52.6 in September, where the forecast was 55.

Now the reason why the Dow went up 122 points was because the softer data has smarties tipping the Fed will again cut interest rates later this month. But rate cuts can’t do the trick for stocks positivity for much longer. The US economy needs a real economic shot in the arm and it has to be a trade deal.

By tomorrow morning we’ll know the September jobs report for the US. If it comes in around 160,000 new jobs, then Wall Street will be happy. But if it’s a shocker on the low side, then what we saw this week on our stock market will play out again on Monday.

A Trump trade tweet raising hopes of a deal will be needed and then some real progress at next Thursday’s trade meeting will be crucial.

I know some people think Donald is a real life version of the ‘Mad King’ from Game of Thrones but others see him a negotiating genius. Well it’s time he proved his supporters right.

Recession threats need to be given the Dirty Harry treatment and fast or I’ll be going to cash!

 

Are we heading for a recession we didn’t have to have?

Thursday, October 03, 2019

The Dow Jones has had another bad night, with the Index down 494 points (or 1.86%). You can expect our market to go close to losing 100 points as we play follow-the-leader. A potential US recession explains all this but the good news might be that this timely market slump could lead to an 11th hour rescue by a certain political ‘cowboy’ out of Washington.

Of course, if you don’t care about stock market gyrations, then you need to understand that all this news could easily affect your job, your business, your super and your house price. These implications will be argued about in our Switzer TV property show tonight by two of the country’s feistiest economists.

Ironically, this bad stock market news couldn’t have come at a better time but now we have to hope that the ornery nature of Donald Trump and the cold-calculating history of the leadership team living in Beijing don’t get in the way of October 10 bringing a trade deal.

In the best of worlds, a trade deal would happen next week but that’s expecting too much of the real world dominated by politicians. One thing I know is that business leaders want it and if something isn’t done soon,  then consumers/employees could be facing the realities of what a recession is like.

All those who have been praying for a recession to exterminate the excessive optimism of would-be homeowners, might get to see the heartbreaking social consequences of their desire for something they think represents economic purity. Anyone in a vulnerable business or job should see these people as the supporters for the other side in the great game of life.

(Some might see them as raiders trying to bring down those who are too cocky but maybe I’m being too influenced by my looking forward to the NRL grand final on Sunday!)

Away from my finger-pointing, it gets down to Donald. Make no mistakes, this guy has been poking the Chinese bear and though he had reason to make China play fairer on trade, he has pushed the envelope, as his tactics have been killing off business investment and confidence, not only in America but worldwide.

Don’t get me wrong, Trump has to pressure China as it has allowed the theft of Western intellectual property and the impositions on companies wanting to work with and trade in China. It has been akin to what the Mafia might expect for doing you a favour!

That said, Donald thought a deal would be done by March 27 and then there was hope that it would happen in May. But negotiations soured and more tariffs were introduced, as the trade negotiations became acrimonious. 

Note above how the US stock market has virtually gone sideways since May, which shows the market was giving Donald the benefit of the doubt but key market players are running out of patience, as the economic numbers start to look worrying.

This stock market slide over the past two days has been triggered by factory numbers — worldwide! Yesterday we saw the ISM manufacturing gauge in the US fall from 49.1 to a decade low of 47.8 in September (forecast 50.1). Any number under 50 means the sector is contracting, which is a possible, early sign that an economic slowdown is in train, and possibly a recession. Reducing fears was the Markit gauge on manufacturing, which actually rose from 50.3 to 51.1 in September, beating the forecast of 51. But stock markets focused on the bad news. And you might blame the fact that data out yesterday showed euro zone manufacturing activity had contracted at its steepest rate in seven years in September!

These are economic revelations that the negotiators in Washington next Thursday have to keep uppermost in their minds when they meet. Let’s hope they come minus the usual testosterone levels that have created this economic and stock market problem in the first place.

Yousef Abbasi, director of U.S. institutional equities at INTL FCStone in the US summed it up nicely for CNBC. “It now seems the amount of time we’ve been biding and our inability to actually get a trade deal is now actually affecting growth,” he said. “The mentality is shifting from ‘do we get a trade deal and how does that affect growth?’ to ‘how much longer do we have to wait?’”

In tonight’s episode of Switzer TV Property, we have the Property Punch Up of the Century Mk II starring Professor Doom on house prices, Steve Keen, versus the AFR’s Chris Joye, who go hammer and tong on whether house prices are on the way up or heading south again.

And what a recession could do to house prices was a highlight of this very ballsy battle between two very self-assured predictors of our economic and house price destiny.

Let me say, my cautiously optimistic view on house prices won’t be helped by a bad trade deal outcome next week.

Go Donald and China!

Check out the property show at 5:30pm tonight on our YouTube channel.

 

Do you and your kids want to be financially independent?

Wednesday, October 02, 2019

This week I was asked to talk about my book Join the Rich Club on the Today Show on Nine and the producer shot me a few questions that clearly were the money issues that were grabbing her.

I think a lot of people are provoked by my book’s cover tagline that says “I’ve been rich. I’ve been poor. Rich is better!”

I’d love to say I made that up but Billy Connolly used it in an ING commercial many years ago and he got that great line from the US comedian, Sophie Tucker. Being entertainers, I’m sure Billy and Sophie have been both rich and poor and I certainly didn’t start my life in a rich family.

Given the producer was younger than me, I thought I’d answer her questions on the basis that she might represent a lot of other Aussies out there who have decided that rich is better than poor!

Q. Who did you write the book for?

Undoubtedly, it was for anyone who knows they don’t know enough about building wealth. Many years ago before I lectured economics at the University of NSW, I taught maths at Waverley College in Sydney (along with economics). I quickly learnt if students didn’t get a step in maths, they switched off and fell further and further behind.

Money information can stump people so they turn off. In doing so they increase the chance of being poorer and decrease the chances of being richer via investing. They can work hard and smart to get rich but unless they change, they’ll need to get others to help them build their wealth.

I also wrote the book so young people can become money independent. In doing so, the book might help parents close down their personal branch of the bank of mum and dad! Some reports say it’s the 5th biggest bank in Australia, while others say it’s the 9th. We do know that in June 2018, Digital Analytics found that 60% of new buyers were borrowing money from their parents! I’d love my book to change that.

Q. What are the top tips someone can learn from this book? This is TV and they love these ‘get rich in a minute’ questions so I will try:

a. Change you and commit to getting richer.

b. Do a budget to see where you earn income and spend it.

c. GST your life by hitting your spending by 10%. If you spend $50,000 a year and you can hit that with a 10% self-imposed tax, you’ll find $5,000.

d. Put an extra $5,000 into super for 20 or 30 years and you’ll net hundreds of thousands of dollars!

My best example in the book is someone who between age 21 and 30 saves $2,000 a year and invests at 8-9% in super. If they stop saving at age 30, they end up with over $500,000 at age 65. If someone whooped it up between 21 and 30 but got responsible and saved $2,000 a year in super, they’d end up with less than $500,000, despite saving/investing for 35 years compared to the first person who did it for only 9 years.

And if this person kept saving the $2,000 up to 65, he/she ends up with a million. Gotta learn to get rich while you’re sleeping!

Q. On what can we learn about stock market strategies?

Here you have to learn stuff, read books, go to websites like my Switzer Report and ones like it. Read books on Warren Buffett and other great investors.

If you’re not in the market now, this could be a tricky phase for a novice so I’d save, wait and invest when the stock market crashes, so you can buy great companies at bargain basement prices when everyone else is panicking.

Q. Is it possible for someone who knows nothing about the stock market to get involved successfully?

A. Yes, you simply sign up for an online stockbroker like Nabtrade or CommSec. My book shows it takes less than 10 minutes. I got a young guy in my office to be a guinea pig to prove it. If I was a novice, I’d buy an exchange traded fund (or ETF). Stocks and things like ETFs have a ticker code and there are ETFs that give you all 200 stocks in the index for the stock market called the S&P/ASX 200.

The funds in question have the codes IOZ, STM, A200 and there’s VAS, which has the top 300 companies on the stock market in it.

Basically, if the stock market goes up over 20% (as it has this year), you’d be 20% richer minus a small fee!

Q. How will changes in compulsory super impact Australians?

The increase of compulsory super from 9.5% to 12%, if it happens, will make Australians richer when they retire but it will make it harder for people out of the property market to get into it. Older generations are often said to have had an easier time acquiring valuable properties but most of these people missed out on 35 years of compulsory super, so they retired asset rich but cash poor.

Younger generations will be cash rich via super but they might find it a lot harder to own properties if they lose another 2.5% of their pay to super.

The bottom line from my book is this: if you want to get richer, you have to commit to changing yourself and your attitude to money. If you don’t have the lowest interest rate home loan and credit card, and you’re not in the cheapest and best returning super fund, then you really aren’t committed to getting richer.

This is how Rod McGeogh put it when he was trying to get the 2000 Olympics for Sydney. I asked him how he was going to make it happen? He said you have to be like a pig! “With bacon and eggs, the chook is involved but the pig is committed!”

 

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