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Peter Switzer
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+ 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

Is this Telstra's Waterloo? Will its share price spike or tank today?

Thursday, August 17, 2017

By Peter Switzer

Get ready for a big news item, with the health and future of Telstra set to become a huge issue!

Today is the telco’s profit show-and-tell event and we get to see and hear the answer to one of the biggest business and stock market questions: what’s going to happen to Telstra’s dividend? This might seem an innocuous issue for most normal, non-financially inclined Aussies but it affects a lot of our super funds because that dividend has been a reliable contributor to our returns.

And for many retirees with their own self-managed super funds, the Telstra dividend (along with those of the banks) represents the core of their privately provided pension or income stream from their SMSF.

Source: AAP.

I know one very famous former politician whose SMSF was based on five stocks — the big four banks and Telstra. He bought them a few years back and because his entry share prices were so low compared to where they are now, his yield or return would be over 10%!

A lot of retirees can cope when their capital goes up and down with the volatility of the stock market but they love their dividends, so you can imagine that my pollie mate and a whole lot of retirees and potential retirees are mad keen to hear what Telstra’s CEO, Andy Penn, has to say today.

As someone who has created the Switzer Dividend Growth Fund, I’m personally keen to see what happens to Telstra’s dividend. Interestingly, my fund manager, George Boubouras of Contango Asset Management, thinks the dividend will be cut, though he’s not sure when. And that’s a big part of the drama today.

In fact, most fund managers and telco experts think the dividend, which is partly funded by borrowing, will be cut but, like George, they don’t know when it will happen.

Many of the above think that when the announcement is made, the share price will actually go up, which was what happened when BHP-Billiton cut its dividend last year.

What happens to the share price will be driven by what Andy tells us about his ongoing strategy.

Right now, Telstra pockets money from the NBN but it soon will hand over the running of the telecommunications infrastructure (upon which our phones work) to NBN Co.

Right now, Telstra gets about $1 billion from the NBN but, in about five years’ time, it could be all over. Over the transition period, where the old copper system of Telstra gives way to NBN’s fibre, experts say the telco could earn $15 billion.

The ABC’s Steve Letts summed it up neatly: “Telstra's traditional wholesale business continues to diminish as NBN's grows,” he wrote on abc.net.au. “As this rolls on, the share of Telstra's earnings from NBN receipts rises from around 10 per cent now to 25 per cent in 2021 — and then will abruptly disappear.”

This money helps bankroll the dividend and this was well explained by Nick Harris, the telco analyst at Morgans. "If the board is convinced Telstra can fill the earnings hole from the NBN — post the one-off gains — then they are likely to hold the dividend, but if they think this is an uphill battle, and therefore the 31 cent dividend is not maintainable longer term, they may reset expectations," he explained.

One thing we could hear about is something called “securitization” and this could be seen as a godsend. But who knows how markets react. Simply, if Telstra bundles up its future earnings from the NBN into a financial product, a financial institution that wants a reliable flow of income could buy it. They buy these future streams at a discount because they’re prepared to wait, while Telstra gives a discount to get the money now.

Some experts don’t think Andy will say goodbye to all his future NBN dough but might give up part of it. "A 'smaller scale' scenario where Telstra securitizes just over half of the NBN infrastructure receipts — $500 million a year growing at CPI," Credit Suisse’s telco team argued was a more likely option.

They think it would raise $8.2 billion and push up the share price by 10 cents.

Any new money to Telstra could support the dividend or reduce the size of any cuts to it. That’s going to be a big part of the story today.

There are a lot of moving parts trying to work out where Telstra’s profits, revenues, costs and dividends are going, but I hope Andy can also come up with a plan that shows us what the telco will do with its money to cement its future.

When it stops being the mob who owns the playing field that it and all other telcos play on, it will be basically in the selling to business and consumer game. Therefore, I want to know how it’s going to use its size and what must be the greatest database in the country (apart from the Federal Government’s and the ATO’s) to make Telstra into a better business that not only pays a good dividend but also grows profits.

Given how we value our smartphones and the Internet we live on nowadays, Telstra should be close to the greatest company in the land. I want to see Andy’s plan for greatness today. And gee, the stock market would reward him if he can deliver that.

This might be Andy’s and Telstra’s Battle of Waterloo day! I hope he ends up being the Duke of Wellington and not Napoleon! What the share price does today should tell us how Andy will be remembered.

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Is retail as we know it dying? Is Amazon to blame?

Wednesday, August 16, 2017

By Peter Switzer

One of the scariest areas to invest in right now is retail and while we all know that Amazon is seen as the retail monster that devours its rivals, the real threat to retail is you!

Yep, you and me are the reasons why you see the sad sign of closed shops and windows advertising “clearance sale” or, worse still, “closing down.”

Amazon is an accessory after the fact and the team there has simply worked out a business model to cash in on us. But they’re not the only old world business crushers coming to town.

Anyone who has ventured into Aldi (which now is the biggest seller of ski-wear in the country) knows these guys use ground zero price-cutting to drag customers into their store, which makes life harder not only for mums-and-dads stores, they’re even making the likes of Coles and Woolworths succumb to the pressure and cut prices.

Imagine trying to sell basic clothing nowadays, with Zara and H&M on the block. When I was in Modena in Italy recently, perfectly presentable (dare I say “cool”?) T-shirts were selling for 5 euros! Of course, because they were cool, I didn’t buy them but I pondered the plight on conventional businesses. Come to think about it, the number of menswear stores around nowadays is heading down the path of record shops.

Source: AAP.

In the USA overnight, they released the July retail sales numbers, which told the story of modern retail.

Building materials were up 5.7% because the US is into a housing recovery and furniture rose 5.6% because it’s hard for Amazon to sell and deliver lounges. And restaurants/bars were up 3.4% because it’s not easy to get a coffee online (yet)!

However, like here, department stores are struggling, with retail sales down 1.3%. But what happened to online sales? They rose 11.3%!

That shows that we are the biggest threat to retail and if you sell anything that can be easily bought online, you better have a plan for the future and you better be getting ready ASAP.

And investors in the USA are voting with their money, with the SPDR S&P Retail ETF (XRT) dropping 2.4% just overnight. Since December, this ‘stock’ has gone from $48 to $39, which is about a 19% fall from grace.

This week, JB Hi-Fi, the company most mentioned when the Amazon threat is talked about here, saw its underlying profit rise 36.5% but its share price fell 4% on the day it told us this good news! Part of the problem was the market expected an even better result, but that Amazon worry is making a lot of investors reduce their exposure to retail.

Interestingly, one expert said JB’s results could have been better but it has spent money to get ready for Amazon!

The AFR reported that “Martin Currie/Legg Mason Asset Management analyst Jim Power said JB Hi-Fi could have delivered an even stronger result but opted instead to reinvest profits to strengthen its business before Amazon rolled out its suite of retail products and services in 2018 and 2019.”

JB Hi-Fi CEO Richard Murray. Source: AAP.

When I interviewed Gerry Harvey six months ago during the last reporting season, analysts were predicting his company would cop it. Gerry warned that he saw four threats from Amazon and he reckoned he had four defence/attack strategies to beat them off.

That could be the case but it will cost money and has to affect costs, profits, jobs and wages paid. Yep, anyone who likes buying online will be an accessory before the fact of real change to retail, which won’t be a crime but for the businesses and employees involved, it will be a crying shame.

Retail always changes and, believe it or not, the Yanks think the Athleisure trend is ending! This is where you see women (especially) walking around in normal life with their gym tights with fashionable but sporty tops. You see a lot of women (post-gym and post-everything nowadays) looking like they’re ready for a run anytime, anywhere.

I don’t believe it but they might not be buying from conventional sources. A friend of mine recently boasted how she bought fashionable tights from Target for some ridiculous price compared to what she’d pay for a branded substitute.

For rational hip-pocket reasons, too many of us are looking for cheaper alternatives and the online world and the likes of China and other Asian nations are making it happen.

So will shopping centres die? And will retail as we know it change?

Last week, a well-known US investor, Bill Miller went around picking up shopping centre stocks that have been trashed because of the Amazon threat. He says he has bought two shopping mall real estate investment trusts as he believes fears of the Amazon threat are overdone.

He argues shopping malls that offer a life or community experience will continue to do well. This shows all retailers what they have to do.

Those retailers who wow us, who really make it great to do business with, and who really care about us, will survive and even thrive.

A few years back, customer service expert, Martin Grunstein, told me about a Kiwi frock shop that had a lounge with a TV in their store, which showed rugby videos for potential sales-killing, male companions of female shoppers! Now that’s a retailer that will even beat Amazon or any other online threat.

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Why I want you to care about important stuff like MONEY!

Tuesday, August 15, 2017

By Peter Switzer

As someone who writes about important stuff that could have a significant impact on your life, your wealth and/or your business, I really wanted to look at the surprise that Barnaby Joyce has an Aussie problem and what it means for political instability and then economic instability. But there are more important fish to fry.

Like what?

Well, try the hosing down of the Trump-generated heat from the ‘fire and fury’ talk over North Korea’s Kim Jong-un, which has been greeted positively by Wall Street. This should provide some positivity today for the local stock market, as reporting season continues today.

These daily drips of profit and sales info about some of Australia’s greatest companies isn’t quite as newsworthy as discovering why Barnaby Joyce is one of the country’s most unusual guys — he’s not an Aussie but a Kiwi! However, collectively, they will send stocks and our super balances either up or down. And as I often advise — if there’s anything worth doing, it’s worth doing for money!

Deputy Prime Minister Barnaby Joyce during Question Time. Source: AAP.

The big companies reporting today are Domino’s Pizza and Challenger. Both of these companies will either add to positivity or negativity about where the stock market is going. However, all eyes will be heading to later in the week, when Telstra, Westfield, Origin, ASX, Seek and Wesfarmers (which owns Coles, Bunnings, Target, K-Mart and Officeworks) report on how they’re going.

Put these businesses together and we’re looking at a slice of Australia. If their company stories look healthier, it has to be a sign worth noting.

Yesterday, Bendigo and Adelaide Bank reported well and better than analysts thought and its share price spiked by 7%. When you put the CBA and Bendigo profit stories together and we see the banking sector is performing better than expected, that could be a positive clue about how this important fund-providing, taxpaying and job-creating sector is doing.

See, banks aren’t all bad — they do other things than just charge fees, though I will concede they do make some mistakes.

Clearly, if our collective picture on companies improves, then our view on the economy will be more positive and will add to overall optimism. Right now, we need every piece in the puzzle that sketches the picture of the economy to create a better story of what's going on, so eventually consumer confidence will catch up to business confidence, which is at elevated levels.

This news about diplomacy coming to the fore with the Donny and Kimmy show has been greeted positively by US market players, with the big three stock market indices up strongly overnight, such that shares generally might have had the best day since June. This sets us up for another good day for stocks, with our market up 37 points (or 0.66%) yesterday.

Don’t let me mislead you into thinking that everyone expects reporting season to be so positive that stocks will head higher for the rest of the year.

Some fund managers are holding a lot of cash on the expectation that Wall Street could be given a good reason to sell off soon after its key indices have been around record-high territory. And when you add Donald, Kim, Chinese debt, the Fed with interest rate rises or some other curve ball, then there are reasons to be what I am: cautiously positive.

Markets often get negative around now but the overall economic and market stories are looking more positive for year’s end. However, the pieces, such as the company reports this week and next week, have to play ball and be more good than bad.

Go Australia — our jobs, our incomes, our businesses and our aspirations all depend on you!

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Donald, Kim, earnings and economics will make you richer or poorer this week

Monday, August 14, 2017

By Peter Switzer

This week in high-flying finance is set to be a big one for smarties who play the market but also all of us who like to think our super is getting bigger. And between Donald Trump, Kim Jong-un, economic data and a huge week of company show-and-tell earnings reports, we all could become richer or poorer this week.

There’s a minority of shrewd and risk-taking Aussies who play the market short term, placing bets on companies they like or investing against ones they don’t like.

They can buy or sell them in advance of the reports that come out this week, or they can even short them or take options so they can profit if their favourite companies surprise the market with a great profit story.

But it’s not just smarties/risk takers because the fund managers who run our super funds also have a big interest in how our best companies report. Some of the huge names of Australian business not only make massive retail and commercial sales, they also provide jobs and incomes for millions of Australians.

Over 36,000 people work directly for Telstra but think of the thousands who work for companies that work with Telstra! This company reports on Wednesday and will be the biggest finance story of the week, just as the CBA’s record profit was last week (if you can rule out the CBA’s AUSTRAC blow up).

Source: AAP

Fund managers have invested in Telstra for its dividend and rumours are strongly tipping that the company’s CEO, Andy Penn, will soon bite the bullet and reduce it but we don’t know when.

This is a big issue for super because Telstra’s greatest investment appeal is its dividend. It actually borrows money to pay it. This has been OK because the company’s cash flow has made it easy to do but it’s expected to soon part ways with the NBN for about $12 billion, depending on who you believe. Telstra will become a telco seller of services rather than a supplier of the system it and other telcos use to sell stuff, such as all the digital services we consume.

Also in recent times, older/wealthier Australians have gone into self-managed super funds and these wealth builders hold a lot of Telstra’s stocks (along with the big four banks) especially for their dividends.

So what happens to the dividends is a big, big issue!

At the end of last year, we had $2,199 billion ($2.2 trillion rounded) in superannuation assets, making Australia the 4th largest holder of pension fund assets in the world. Around one-third of that was in SMSFs, so what happens to Telstra’s dividend is going to be big news and really important to dividend-dependent investors.

And there are about 600,000 of us who are members of these SMSFs.

I’m particularly interested, as we floated the Switzer Dividend Growth Fund this year so I was happy that the CBA raised its dividend last week. If and when Telstra cuts its dividend is materially important to our fund.

This week, our stock market’s ups and downs will be affected by the Donny and Kimmy ‘fire and fury’ show — and if gets even more silly, we could see a 5% to 7% slide in stocks.

Source: AAP

If better sense and diplomacy prevail, the stock market will be driven by the two E’s — earnings and economics.

Here are some of the really important companies that could help or hurt our stock market and, in turn, our super: JB Hi-Fi, CSL, Westfield, Origin Energy, Stocklands, QBE, Wesfarmers, Cochlear and, of course, Telstra.

These are the ‘who’s who’ of many of our top businesses and their economic health goes on show, with the likes of JB Hi-Fi coping with the potential Amazon threat, Stocklands dealing with an alleged housing slowdown and the likes of Westfield and Cochlear trying to battle a rising Aussie dollar.

And many of these businesses have to make profits, with pessimistic consumers, who are hanging out for more pay rises, not helping.

That’s where the economy kicks in this week, with data releases on car sales, wages and the biggie — the latest employment and unemployment report.

Over May and June, we saw 115,400 positions created, which was the strongest back-to-back job gain in 29 years. Meanwhile, job ads are up five months in a row and 12.8% higher over the past year, with the June rise taking ads to a 6½-high!

Our economic story is on the improve and if companies can tell a profit story that excites the stock market, then our super funds will make us richer!

I really don’t want to contemplate the opposite scenario but, by week’s end, I might have to. I damn well hope not and my best hope is the fact that business surveys by the NAB say life is getting more hunky dory.

The NAB business conditions index rose from +14.0 points to a 9½-year high of +15.0 points in July. The long-term average for this reading of current business health is 5.2. The business confidence index rose from +8.4 points to +11.7 points, where the long-term average is only 5.2.

I know hope isn’t a strategy but, as you can see, there are good reasons for a bit of optimism.

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Oops! Has Donald trumped the stock market into a dive?

Friday, August 11, 2017

By Peter Switzer

Stock markets are now pondering whether the experiment with an entrepreneur, outside-the-square politician/US President was the gamble we didn't have to have.

The Dow Jones Index was down 204 points — the biggest one-day drop since May, and you’d have to be a Trumpofile not to blame him for this loss of wealth for market players. As the chart below shows, this isn’t a great time of the year for stocks anyway.

On my TV show last night, I discussed with one of my guests how, from a seasonal point of view, August and September aren’t great months for US stocks but to throw two political bulls at a gate in Donald and Kim Jong-un talking “fire and fury” and bombing Guam, you have a recipe for a stocks’ sell off.

And it’s even more understandable when the US stock market indices are at record highs and most market watchers, like yours truly, have been pondering when a ‘healthy’ pullback was going to happen.

Of course, provided nothing stupid actually happens involving fire and fury, then this interlude will end up being a buying opportunity for one very good reason. And what’s that?

Well, while the US political story is looking a little worrying, the actual economic story is supportive of stocks at record-high territory and so have the current reporting season’s earnings.

By the start of this week, AMP Capital’s Shane Oliver assessed the US reporting season this way: “Of the 420 S&P 500 companies to have reported, 77% have beaten earnings expectations and 68% have beaten on revenue. Earnings look like coming in around 12% year on year, which is almost double the initial expectation.”

Case proved. Earnings are very good so this stock market sell off is down to Trump versus Kimmy boy!

For the record, the Trump trumping of the North Korean leader overnight was contained in the following on his fire and fury warning earlier in the week: "If anything, maybe that statement wasn't tough enough." 

Image: North Korean leader Kim Jong-un (left) and U.S. President Donald Trump (right). Source: AAP.

This was told to reporters at his New Jersey golf club, which says a lot about this very unique US President. It nearly looks like a comical skit of someone impersonating the most powerful leader in the world sitting at the 19th hole and pondering when he was going to club his arch rival into a bunker!

The big problem is that this is not a comedy. This is a drama and if we don’t get a happy ending, stocks will sell off a lot more and buying gold will again be the smartest investment idea in town.

Let us pray that this Donald Trump-Kim Jong-un thing doesn’t get any crazier.

Crazier than what? Try this from Mr Trump overnight: "The people of this country should be very comfortable, and I will tell you this: If North Korea does anything in terms of even thinking about attack, of anybody that we love or we represent or our allies or us, they can be very, very nervous," Trump said. "I'll tell you why, and they should be very nervous. Because things will happen to them like they never thought possible."

As I said, this isn’t a comedy and we won’t be laughing on the stock market today.

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Take risks and be optimistic - it will reward you!

Thursday, August 10, 2017

By Peter Switzer

Last night on my own TV program I was accused of being, now wait for it, an optimist! And my guest  — a respected economist — rubbed it big time by adding: “Peter, you’re always an optimist!”

The accuser was an old friend and property economist/expert, Dr. Frank Gelber, of BIS Oxford Economics but as he ribbed me, it reminded me of one of my media colleague, who off-air pilloried a well-known economist for being “an eternal optimist!”

Ironically this economist, who will remain nameless, is one of the more reliable predictors of where the economy is going, but actual economic reliability tests of economic forecasters are not something that often gets done.

Why? Well, forecasting is not easy and if you bag an expert for getting it wrong, they will wipe you and that could make life hard for media people who need ‘talent’.

I admit I tend towards those economists who get it right more often — funny that — and avoid the pessimists who are often wrong. Some economists seem to be that way, either for headline appeal reasons or they just can’t help being negatively-inclined — they’re programmed to think the worst.

In the past I have given a long list of reasons why being optimistic is rewarding and I will revisit them in my Weekend Switzer blog, on Saturday, with additional updated arguments for being optimistic, but let’s just look at Frank’s reasons for teasing my optimism on my own TV show!

Dr. Gelber, with his economist’s hat on, does not think interest rates will rise for three years! I have other economists, who come on my show, who say “no rate rise until 2019” but there aren’t many who see a rate rise that far off.

So, why is he so down on the Aussie economy? I’m expecting a rate rise in 2018 and that’s because my analysis is consistent with the Reserve Bank and Treasury economists, who can see us growing around 3% this financial year, but Frank, with his no rate rise until 2019, is clearly more pessimistic.

But that’s where interpretations can lead to predetermined errors. You see, I saw Frank’s disagreement with the RBA, Treasury and yours truly as a worrying sign, but I might have been overreacting.

You see, when pushed, Frank said he didn’t see a recession but only slower growth than what I was expecting. He doesn’t see economic Armageddon but he doesn’t see us going gangbusters either, and that’s when he made the point that I am “always optimistic”.

In fact, it’s not 100% accurate as I was pessimistic when the stock market crashed 50% across late 2007 to early 2009, but I was one of the first to warn investors that stock markets rebound big time after a crash.

The low for the crash on the S&P/ASX 200 Index was 3,145.5 on 6 March, 2009, and it ended the year at 4,870, which was a 54% repayment to anyone who jumped on board my ‘optimism train’.

I did get optimistic early. By about November 2008, after it was clear that central banks, led by our own RBA, were going to cut interest rates and throw money at the problem, and that governments were going pump up budget deficits, I started collecting “economic good vibes” data/news showing that positive changes were afoot.

So if you had made a New Year’s resolution to go positive in 2009 at my behest, the Index started the year at 3,723.9 and ended at 4,870, so that would’ve been about a 30% pay-off!

Either way, it shows that it generally pays to be optimistic, though it doesn’t always pay.

We still have not passed our all-time high of around 6,800 on the Index, which we hit just in 2007 before the GFC market crash.

However, if that crash had made you pessimistic and you went to term deposits, you’re desperately out of the money, especially if the market slide took 50% of your capital.

On the other hand, if you returned to stocks, with dividends, you have more than made up your losses, but if you took your optimism to Sydney property, which I was also optimistic about, before it took off, you would be laughing all the way to the bank.

You still have to be careful with optimism and never use it with unreliable people and assets, but it does have a regular habit of paying off when you deal with quality people and assets. I recommend you try it.

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Whingers don't know how good the economy really is

Wednesday, August 09, 2017

By Peter Switzer

When I looked at NAB’s latest survey of the business community (in case you missed it, it was ‘headlinably’ great), I thought about my favourite quote from one of the world’s most famous economists, which he gave to me directly!

Before I reveal all, let me put all this into context.

We’re living in what someone like me might unprofessionally call a “crazy economy!” Business is feeling good, consumers are too negative, wages aren’t rising by much, business investment has been low, interest rates are historically low, house prices in Middle Park Melbourne were up over 40% last year, the dollar is at 79 US cents when most economists thought it would be 69 US cents, we had one negative quarter of growth over the past 12 months but the stock market returned 14% including dividends!

This is crazy. However, it could just be a phase the economy is going through, though it’s an unusual one, which I blame on the GFC and the expansionary policies that central banks introduced worldwide to avoid a Great Depression.

When I hear people complaining about slow wage growth, I want to show them these two graphs. The first is the unemployment chart for Spain:

Note, before the GFC, the jobless rate was about 7% but peaked at about 26%! 

Now look at our unemployment story:

So our jobless rate was around 4%, didn’t go over 6% during the GFC and sneaked just over 6% in late 2015 but has fallen, as business confidence has been on the rise.

And yesterday, we saw a ripper result from business. The NAB business conditions index rose from +14.0 points to a 9½-year high of +15.0 points in July, while the business confidence index rose from +8.4 points to +11.7 points.

This follows great jobs data over the past two months, with the biggest gain in full-time jobs in 29 years!

This is what CommSec’s Craig James said: “The NAB business survey is one of the best monthly indicators produced for the simple matter that it shows how companies are actually doing. The global economy has improved, interest rates are low, wage pressures are contained and consumers are spending. So business conditions are the best in almost a decade.”

The crazy curve ball for business is the high dollar but, as I’ve said, we’re in a crazy economy right now.

I like the fact that businesses that haven’t been investing over the past few years are feeling good. So investment might soon rise and jobs will be created, which then will tighten the labour market and help wages go higher.

That famous economist I was talking about was Canadian but US-based J.K.Galbraith, who I interviewed in 1987 when the stock market crashed. I asked him if it would it cause a recession, and this is what he said: “There are those economists out there who say they don’t know and then there are those poor souls who don’t know they don’t know.”

No economist can be sure about where our economy is going because interest rates have never been so low and we’ve never just avoided a worldwide depression like this. However, we’re heading in the right direction and anyone who wants to whinge about what we’re economically enduring now, has no clue about the bullet we avoided!

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What's the bigger issue - same-sex marriage or jobs?

Tuesday, August 08, 2017

By Peter Switzer

Well I guess if news agencies think most of us are sitting on the edge of our seats waiting for our postal vote plebiscite to support or reject same sex marriage, I suppose someone like me should at least try and get the news out that Australia’s great jobs story is likely to get greater.

Yep, it looks like the left-wing, anti-Turnbull press only gets worried about the ‘big’ issues of underemployment and youth unemployment when the jobs data comes out and the scribes need something to whinge/worry about, at least for a day.

I know many Australians care about same sex marriage and they’re entitled to but the devotion to the subject has become as huge as Melbourne’s newspaper’s dedication of pages to AFL stories!

I know it’s a great game but this city’s passion for footie and coverage of footie actually shows how fanatical these fans are. They genuinely put the fan into fanatical.

But they have rivals with those behind the movement to achieve marriage equality. And at the moment, there’s really only one other ‘important’ news item that rivals this issue and that, of course, is Donald Trump.

The CBA and their AUSTRAC problems is also competing with the usual click bait stories of some celebrity in trouble, or the latest food that will kill you or make you look like Arnold Schwarzenegger before he found plastic surgery!

But jobs are really important for the material comfort of a family and a person’s sense of self-worth, so we, as a nation, should be committed to seeing jobs grow. And in case you’ve missed it (thanks to your favourite news source not rating the issue high enough), our jobs story is really on the improve.

On 20 July, we saw the June employment report and the CommSec headline was gripping:

“Biggest full-time job gain in 29 years!” That was my exclamation mark but that development deserves one! And so did that.

Here were the exciting facts:

  • Full-time jobs were up 62,000 for the month and they replaced part-time work, which fell by 48,000. 
  • Early this year, we were worried that full-time jobs were being replaced by part-time work.
  • Over May and June, full-time jobs lifted by 115,400 – the strongest back-to-back job gain in 29 years.
  • Hours worked rose by 0.5% in June and were up by 3.3% over the year, which is the strongest annual growth for over six years.
  • The unemployment rate remained steady but this can happen when the participation rate increases because more positive potential workers go looking for jobs.

Savanth Sebastian, the senior economist at CommSec, saw the data this way: “Our record-breaking economic expansion is showing no signs of ending,” he wrote. “The jobless rate is near 4-year lows. Business is hiring. And the available jobs are full-time, rather than part-time. More people are looking for jobs and more are finding work. What’s not to like?”

Back in May, Fairfax Media’s Anna Patty looked at the sad side of our jobs story.

“Almost one in five young people have fewer hours of work than they want, with underemployment in the youth labour force at its highest level in 40 years,” she wrote.

“When unemployment is taken into account, the proportion of people aged 15 to 24, who are either without work or enough hours of work, is now at 31.5 per cent.”

Of course, I doubt these stats but I don’t doubt we have a youth employment problem that can only be fixed by stronger economic growth, some craziness taken out of the wage system that kills jobs and some highly enlightened education programs that really should be started in the schools before our kids become hard to employ.

Of course, that should be the job of politicians, business leaders, teachers and parents but we should find time to celebrate, and at least cover, better news stories telling us the jobs outlook is improving.

Call me an economist but I reckon this data revelation from the ANZ Job Ads number is worthy of a headline somewhere: “Job ads rose for the fifth straight month, up by 1.5% in July to 177,879 ads – a near 6½-year high. Job ads are up 12.8% on a year ago.”

For the non-economic readers out there, this is saying that all the ads in newspapers and on the Internet have grown by 12.5%!

This is a solid forward indicator and we should be at least quietly cheering this statistic. In fact, I’m cheering it as loudly as I can because we need to build up consumer confidence.

I often bring this up (maybe because I’ve been an academic economist at my old UNSW), but Bill Clinton chided his critics with: “It’s the economy, stupid.”

I know there are other important issues in life and I support the right of minorities to protest and demand change but underemployed or unemployed young and older Australians are also in a minority group that we should be championing.

And when the news gets better, we in the media should be telling everyone so we’re a part of the solution rather than something that makes a problem worse!

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How is our economy going? Stronger or weaker?

Monday, August 07, 2017

By Peter Switzer 

Just to make sure I’m not excessively and unwisely optimistic about the Oz economy, about once a month I do an eco-check to see how the run of data is going. It comes as late last week, the Reserve Bank (RBA) downgraded their economic growth forecasts, slightly.

It has been nice to have both the RBA and, for that matter, Treasury agreeing with my favourable forecasts for the economy, though I’m more comfortable when I’m slightly at odds with these two august institutions.

Regular readers might recall a few years back that I had regular battles with the central bank with its stubborn refusal not to cut interest rates when my eco-checks were screaming out, at least to me and a few others, that we needed to lower interest rates or else we’d end up in a recession.

They finally got the message and here we are at 1.5% — a historical low for the official cash rate. However, now I want to see the economy improve sufficiently to see the first rate rise but I can’t see that happening this year.

My bet is it will be in 2018 and will be determined by how quickly the economy can get towards 3% growth, inflation beats 2% convincingly and wage rises start to happen.

Some credible economists think it will be in 2019 but I hope and suspect they’re being too negative. My money is on a mid-2018 rate rise.

On Friday, CommSec’s Craig James told us: “The Reserve Bank has tinkered with near term headline inflation and economic growth forecasts. Economic growth is now seen at 2.50-3.50% in June 2018, around a quarter of one percentage point lower than previous forecasts.”

This isn’t a dramatic back down and at the worst says the country’s official economic watchdog sees growth at 2.5% but at best 3.5%. If the latter happens, unemployment will be tumbling, consumer confidence will be building and we will be on the road to recovery and a more normal economy, not seen since before the GFC.

So how likely is an optimistic outcome?

Here’s my latest eco-check of the facts that many experts choose to ignore:

• Unemployment is down to 5.6% and full-time jobs have lifted by 115,400 positions in the past two months – the strongest back-to-back job gain in 29 years! In 2015, the jobless rate was 6.3%. Many experts said it was going higher and they were wrong.

• The CoreLogic Home Value Index of capital city home prices rose by 1.5% in July and was up 10.5% over the year. This is a hassle for regulators but it says homebuyer confidence isn’t waning.

• The Commonwealth Bank Manufacturing Purchasing Managers’ Index fell by 1.8 points to 54.4 in July but a reading above 50 indicates that the sector is expanding. The expansion rate has slowed but the sector is still growing.

• The weekly ANZ/Roy Morgan consumer confidence rating rose by 3.3 points (2.9%) to a 5-month high of 118.4 in the week to July 30. Respondents’ views to economic conditions over the next 12 months rose to a near 4-year high! Consumers have been an important negative for the economic outlook and this rebound in confidence is good but is not yet a trend.

• Private sector credit rose by 0.6% in June after a 0.4% rise in May. Annual credit growth rose further from recent 3-year lows, up from 5% to 5.4%. Recall that regulators are trying to slow down lending to investors and those buying expensive properties using interest only loans.

• In trend terms, loans for alterations and additions of homes (renovations) hit 7-year highs but personal loans hit a 14½-year low in May, while annual lending to buy land hit record highs.

• Business credit rose by 0.9% in June to be 4.4% higher than a year ago, which is a good sign for business investment, which has been lagging of late.

• Approvals by local councils to build new homes rose by 10.9% in June, after falling by 5.4% in May. House approvals rose 4% to 13-month highs and the doomsday merchants want us to believe that housing construction is set to nosedive! I expect it to slow down but not collapse, as pessimists want to believe.

• The above good news slightly counters this bad news that dwelling starts (commencements) fell by 11.4% in the March quarter. House starts fell by 7.7% and apartments fell by 15.1%. (You have to be careful of monthly figures.)

• In May, there were 706 million purchases made with credit and debit cards, up 16.3% on the year and a result just exceeded by the Christmas-time sales in December last year. The purchases amounted to almost $51 billion, up 11% over the year.

• Retail sales rose by 0.3% in June to be up 3.8% over the year. Non-food retailing rose by 0.5% in June. Non-food retailing has risen by 2.4% in the past three months and is up 3.8% on a year ago.

• New motor vehicle sales totalled 92,754 in July, up 1.6% on a year ago and a record for the July month. Did you see the word “record”, well this sector of retail has been in record high territory for a couple of years, on or off.

• The rolling 12-month trade surplus rose from $8.9 billion to $12.7 billion, which is the biggest surplus in five years, so the export sector looks to be contributing to economic growth, though that damn rising Aussie dollar is taking away some gloss from our better trade surpluses and better terms of trade.

• Export prices for meat and meat products rose 7.2% in the quarter to record highs.

• A record 8.94 million people travelled on the Sydney-Melbourne air route over the year to May. The load factor hit a record high of 83.8%.

• For those worried about China as our most important trading partner, well, look at this: “The Chinese economy grew at a 6.9% annual pace in the June quarter, above forecasts (+6.8%). The economy grew by 1.7% in the June quarter, up from 1.3% in the March quarter and in line with the forecast estimate of 1.7%. Pessimists had their growth number as a 5% something by now!

• A record 1,519,100 tourists came to Australia from Greater China (China and Hong Kong), up 11.3% over the year and US tourist numbers continue to soar, up 15.7% over the past year to 750,200 visitors.

• And this is my favourite set of numbers and really gives me hope that we’re getting close to a turning point for the economy, with the NAB business conditions index rising from +10.9 points to a 9½-year high of +15.1 points in June. The business confidence index rose from +7.5 points to +9.3 points.

So, the measure of what business is saying now — business conditions — is at a nine and a half year high and business confidence is up on a rising trend. At +9.3, it is way above its long-term average of +5.8! Check this out:

The negatives now are the slow pace of wage rises and that damn Aussie dollar, which we need to see fall to the lower 70 US cents region. If the US economy keeps producing solid numbers, such as its weekend jobs report where 209,000 jobs showed up in July against a forecast of 183,000 and the unemployment rate fell from 4.4% to 4.3%, then the greenback will go up and our dollar will fall.

God bless America, even with Donald as President!

In fact, if he can become the President he promised to be in his acceptance speech, then my positive picture of the Oz economy might turn up sooner than I think.

God bless America!

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What's wrong with our stock market? Why aren't we at record highs?

Friday, August 04, 2017

By Peter Switzer

No one should be surprised that I’m hoping that our stock market, sometime this year, will get a wriggle on and start playing catch up with the likes of Wall Street, where the share market indexes are in record territory.

And while I want to look at whether we are a chance to see it happen sooner rather than later, it might be worthwhile to see where we are in relation to our old record high, which we have to beat to create a new record high. Well, der!

The S&P/ASX 200 index finished on Thursday at 5735.10, while our record high achieved before the GFC in November 2007, is 6828.70. As you can see, we’re 1093 points away from that benchmark.

We nearly cracked the first milestone towards our record high — the 6000 level — in March 2015 but like that old Max Merritt & the Meteors’ song, we had to endure the Index high “slipping away”.

Then on May 2 this year, we threatened the seemingly unreachable 6000, only to see the market sell off. We’ve been stuck in a trading range of 5800 down to 5670 and you feel something has to give, though I’ve liked the big influencers of the market not being mad keen to sell off excessively.

It’s like they’re saying: “We can’t be exuberant but we also can’t get too pessimistic.”

So what needs to happen to give us a chance of seeing the 6000 level first and, eventually, the 6828 plus day when we can scream that: “It’s a record high for Aussie stocks!”

In a nutshell, we need the two E’s to excite those who give up cash for stocks — earnings and economic data.

We’re in earnings season right now, and the first week has been underwhelming, but I have to say the market has behaved like a spoilt brat who expects too much.

Both Rio Tinto and Suncorp came out with OK results but the market took their share prices down because they slightly missed on the market’s own too high guesses on what the results would be.

Now I know it’s what it is and there’s no use arguing with the consensus of those who buy and sell shares daily, but I’ve seen many stocks on reporting day get slammed only to be rebought on the next day, which kind of said: “Oh, maybe we overreacted yesterday and on second thoughts, it wasn’t all that bad when you think about it.”

That looks likely, with Rio Tinto’s share price in London up 2.45% overnight and this should relay through to our Rio’s stock price here today. 

Rio office tower in Perth. Source: AAP.

So what do we need to see happen to see our market beat the 6000 level and then march past 6828?

Try these ‘little’ milestones. I’ll try and get them in order:

  • The US economy grows better than expected and tonight we will see its latest jobs report.
  • Donald Trump gets his act together and his tax plan good enough to be accepted by Congress.
  • The Fed raises interest rates.
  • The above would then take our dollar down, as 79.48 US cents doesn’t help our economic growth and some of our best companies that earn export income overseas, of course.
  • Our economic growth rate starts to head towards 3% plus, while at the moment we’re more around 2.5% or so.
  • China remains strong and demanding our resources to help both growth and the miners’ share prices.
  • The Coalition actually works together as a team to help raise confidence levels in Canberra and, in turn, the economy. 

If most of this happens, along with the continuance of the improvement of economic growth in both Europe and Japan, then taking out the 6000 level will be a doddle.

We then need to see the global economy power up to higher growth rates, which would push interest rates and wages higher and our economy would start looking like a pre-GFC normal economy.

That bit is going to be harder and we might have to wait two years or so for it to happen. Right now, most economists think interest rates won’t rise here until mid-to-late 2018. If we see it sooner, we might also see those stock market benchmarks sooner rather than later.

Today, we see the latest retail report card, after a week when building approvals spiked 10.9% in June, capital city house prices defied doomsday merchants to rise 1.5% in July to be up 10.5% over the year, the latest manufacturing reading showed the sector continues to expand and the weekly consumer confidence number hit a five-month high!

Our economy looks like it’s trying to do its bit but Donald looks like he’s still dragging the chain.

US President Donald Trump. Source: AAP.

This is today’s unhelpful Trump headlines from CNBC:

  • Special Counsel Robert Mueller impanelled a grand jury in his investigation into Russia's involvement in the U.S. election!
  • Trump is signaling he’s about to lash out at China!
  • Trump may be about to wallop global trade as we know it, but markets don’t seem to understand!
  • Trump berates Congress again — this time over Russia relations!

The exclamation marks are mine and demonstrate my frustration with Donald because we need him to play a different and more politically successful game to get his economic reform packages across the line.

Undoubtedly, some of the 14% improvement in overall stock market returns last year in Australia was linked to the arrival of President Trump but that was the sizzle. At the risk of being misinterpreted, we soon need to see the ‘sausage’!

No pun intended. I say no more.

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