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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

There are none so blind as those who will not see!

Thursday, March 21, 2019

There are none so blind as those who will not see. That old biblical observation of humanity often comes back to me as I’m belted by the property doomsday merchants out there who love to rip into anyone who doubts that a house price Armageddon is coming.

I have two functions in the house price debate. First is that I have to tell you what the competing interests are saying. That’s why I interviewed Martin North of Digital Analytics on my Money Talks programme. And it’s why I keep people informed that someone like Shane Oliver, chief economist at AMP Capital, has gone from being a 15% house price fall guy for Sydney and Melbourne to a 25% price drop guesser.

On the flipside, most economists are in the sub-20% price fall group, which as the RBA’s boss, Dr. Phil Lowe, says, is a manageable price fall. In fact, they would’ve wanted a 20% fall to offset the near 80% rise in a place like Sydney over a five-year period.

I was surprised when I interviewed David Morgan, the ex-CEO of Westpac and a guy who was Deputy Secretary at the Federal Treasury and who’s been rescuing troubled banks in the UK and Europe with J.C. Flowers & Co., did not list a house price slump as a big worry for our economy.

He thinks Australia’s biggest threat comes from a global recession. He ripped into Donald Trump, calling him an “ignoramus” whose policies have undermined the economic outlook of the world economy.

Quizzing him on our high household debt, he recognised it as a potential problem but argued that the debt is in the hands of borrowers who have a good capability to repay that debt. He also says the fact that we have a greater obligation to repay debt here in Australia makes him comfortable with our debt challenges.

In case you think David is out of touch with the realities of our debt and its impact on bank balance sheets, he actually was on the David Murray Inquiry into the Financial System, which made banks raise their capital holdings.

Morgan is relaxed about our banks’ balance sheets and I hope he’s right. The big issue might be if we roll into recession any time soon and with the latest economic growth numbers not hot, this could help the doomsday merchants be right.

Also, if a global recession results, this could help the doomsdayers be on the money as well.

On our slower growth numbers, economists are wondering if we can trust these GDP growth results. A few years back, some economists said we had an income recession, despite the fact that GDP growth was strong.

They pointed to nominal income growth being negative but now the opposite is the case, with official GDP growth at 2.3% but if you use the income method to calculate GDP growth, it’s over 5%!

Funny that those who criticized me, when I was hailing good growth numbers then pointing to an income recession, have not been going public saying that there is now an income boom!

As you can see, I’m running both sides of the argument and then giving my best guess on what might happen. That has to be my function. It’s why I have switched from being a ‘rates on hold’ guy to a ‘let’s cut rates now’ advocate before growth slows even more.

However, if the income boom story is right, maybe the RBA will gamble that a rate cut is not needed. The central bank may also want to see what the Government and Labor will throw at us ahead of polling in May. If the tax cuts and spending are big, maybe the RBA will hold back its potential rate cuts for when a major recession drama looms.

This is the debate that the RBA would be having, as it doesn’t want an excessive house price drop to rattle consumers and then the economy. I hope the majority of economists are right but if the info presented changes, they and yours truly will have to change our views.

And as I’m out there writing under my own name, I will have to cop it if I’m wrong. But all the twitter experts who gutlessly pass nasty comments under a pathetic code name, will get off scott-free!

But I guess that’s the nature of all keyboard warriors. I want the doomsday merchants to be wrong so we don’t see a recession, long queues of unemployed Australians and bankrupt businesses. I don’t want average Aussies to feel that their ‘castle’ has been excessively devalued. That’s why I think it’s worthwhile telling as many people as possible that the majority of smart people roll their eyes when they see a scary newspaper headline on collapsing house prices.

Like me, I know it could happen, but right now the majority don’t expect it will. And believe it or not, that actually is a news story because very few people in the media are telling it!

This should bring out all the nasty tweeters who somehow think they’re 100% right and everybody else has some vested interest to peddle a false “we might not be ruined” story.

 

Will there be an interest rate cut soon?

Thursday, March 21, 2019

This morning’s jobs report for February should prove to be a maker or breaker for the Oz economy that has shown too many signs of a significant slowdown for my liking, increasing the prospect of an interest rate cut sooner rather than later. And the US central bank overnight has made it easier for our central bank to do exactly that!

I know Labor during the election will try to say that the Government is responsible for this slowdown and that’s right but not right. The Coalition has let us down in terms of being unified and the leadership hasn’t been helpful but we are living in a crazy economic world where readings on economic growth seem to be at odds with the creation of jobs in the labour market.

Historically, we found in Australia that if our economy grew at 3% or more, unemployment went down and vice versa. But over the six months to December, the half-year growth was 0.5% (which annualized is 1%) so unemployment should be rising. But look at the chart and you will see that after falling from 6.4% (when the Coalition took office), it has headed down to 5%. One thing that has become noticeable (if you look at the chart below again) is that the jobless rate has gone sideways at 5% for most of the second-half of 2018. This could be telling us something about the effects of the slowdown.

And that’s why today’s job numbers will be very important for the RBA in making its decision on 

interest rates. In fact, this decision will be made on April 2, when the Government delivers its election Budget, which has been brought forward by one month so it wouldn’t clash with the campaigning.

If unemployment rises and employment growth is less than expected today, a rate cut will be on the cards. However, in this screwy post-GFC and new age Internet-affected world, where wages don’t seem to rise very much and inflation is hard to find, in other countries employment is doing really well while economic growth is crap!

We saw that yesterday in the UK where economic growth is tumbling because of this silly Brexit problem but jobs keep falling from the sky!

UK growth slowed to 0.2% in the last quarter of 2019 easing from a 0.6% expansion in the previous period. This was expected and the anxiety around the Poms leaving the EU without a clear deal is clearly spooking business and consumers.

And despite this, unemployment fell. As Trading Economics put it: “The unemployment rate in the UK edged down to 3.9 percent in the three months to January 2019, its lowest level since the November 1974-January 1975 period and slightly below market expectations of 4 percent. The number of unemployed fell by 35,000 on the quarter while employment increased by 222,000, the biggest rise since the three months to November 2015.”

So despite the annual economic growth rate only being 1.3%, where ours is 2.3%, the Poms have created 35,000 jobs in January and have seen their unemployment rate drop to 3.9%, which is the lowest level since 1974!

Did I say we’re living in a screwy economic world?

Economists use reliable guides to make predictions to make forecasts, which hopefully will alert policy makers of imminent problems like rising unemployment, recession, inflation and so on. But as economies change, some guides or indicators become unreliable so mistakes are made by central banks and treasurers.

That’s why today’s job numbers will be sliced and diced to see if the labour market is a more reliable guide to the economy than GDP growth. 

Gross Domestic Product (GDP) can be measured three ways. The first is adding up the value of what’s produced. The second is looking at what we spend on (this is called the expenditure method). And the third is the income method that measures what we were paid in producing GDP. 

The first two methods say the economy is slowing but the income method says we’re doing really well on a comparison basis. But we know wages aren’t rising quickly enough so how could the income method be right?

Well, profits are up 10% (as Bill Shorten keeps telling us) and heaps of once unemployed people now have jobs because employment growth has been huge.

Chief economists like HSBC’s Paul Bloxham and Morgan’s Michael Knox think the labour market and the income method might be giving us a more accurate picture into what’s going on in the economy, so that makes today’s job report really important.

If it’s weak, then I expect a rate cut soon, though the RBA could wait until the first Tuesday in June, after the election. Making a cut easier to give was the Federal Reserve, which overnight didn’t raise interest rates. In its projected path of possible future rate changes, there was a clear sign that there would no interest rate rises in the USA this year!

A Fed ‘on hold’ makes it easier for the RBA to cut. And if house prices look like falling as badly as newspaper headlines like to tell us, then a rate cut or two would be essential if we want to avoid recession and 8% unemployment!

Yep, today is an important day for all Aussies who like to work to buy stuff and enjoy life. By the way, economists think 15,000 jobs were created in February.

Go jobs!

 

Shorten super kicks trade union butts

Wednesday, March 20, 2019

Bill Shorten stepped up and did his best impersonation of a Prime Minister on P-plates with a move to slap down the trade union bosses who think they can use our super money to pressure big companies to pay higher wages and offer better working conditions!

As I’ve been happy to bag Bill when he’s looked like a desperate Opposition leader saying and promising anything to win votes, I have to give him the thumbs-up when he sticks it to misguided union leaders, who think they can blackmail companies to get better pay and conditions for their workers.

Don’t get me wrong, I have no problem with trade unions doing what they’ve been formed to do, which is to pursue a fair day’s pay for a fair day’s work because historically not all employers have played fair. But when a union plays bully boy with our super, you have to have a leader who tells them what’s what.

In case you missed yesterday’s column I pointed out that a director on Australian Super (the biggest industry super fund in the country — and one that we’ve recommended to clients when we’ve thought an industry super fund was appropriate for our financial planning clients) was being bullied to blackmail some of our biggest companies.

This director (a trade union leader) contacted other union bosses who sit on boards and suggested that they get the boards to tell companies such as BHP to pay higher wages, implying that the stock could be dumped by the super fund and the company’s share price would fall as a result.

It’s interesting as this kind of thing has been tried before for environmental support reasons but here a super board could argue that coal is a bad, dying industry and its share price could soon fall and that would be bad for the future nest eggs of super members.

On the other hand, simply singling out companies and strong-arming them for higher wages will raise costs, cut profits and hurt share prices. And share prices and dividends paid out of profits are what’s used by industry super funds to build retirement balances of money for members in the future.

So the plan was to rob super members of future money to pay trade union employees now. This might have helped trade union members now but there are only 1.5 million signed up trade unionists but super members could number 10 million or more!

But the potential ‘crime’ could be more serious, as super fund directors have to make decisions that pass the sole purpose test, which means money has to be invested to maximize the nest egg in retirement of his or her members.

This blackmail stunt is at odds with the “sole purpose” test and that’s why Bill, if he wants to be Prime Minister, had to stand up to the unions.

“Let me be very clear here,” he said from WA yesterday. “The superannuation legislation is black and white. Trustees have to act in the best interest of their members. They've got to hang up the hat of whatever organisation they might work for or sponsor them at the door of the meeting.”

Put on the spot when asked if he agreed with what one union boss said to justify the arm-twisting of employers by super funds, this is what Bill came up with: “He's entitled to his opinion but I've given you mine. He's not running for Prime Minister – I am.” (AFR)

This is a positive sign that Bill won’t be at the beck and call of his union masters and mates if he ultimately becomes Prime Minister.

Of course, he has some policies that he needs to tweak, such as the timing of his negative gearing changes and the severity of his franking credits/tax refund ban for self-funded retirees.

Of course, if he becomes PM, he’ll have to deal with a Senate who might help him come up with more sensible decisions, but don’t underestimate the change that can come over an Opposition leader when he or she becomes the nation’s leader.

Last week I interviewed David Morgan, the ex-CEO of Westpac and the Deputy Secretary of Treasury under Bob Hawke and Paul Keating. And he made the point that the great reform policies of those Labor Governments bore no resemblance to the policies they took to the election win in 1983!

And one has to hope that Bill has learnt from Julia Gillard who went to a poll telling us that “there will be no carbon tax under a government I lead”. But under pressure from the Greens, she changed her mind in power and ultimately lost her gig in the revolving door of Prime Ministers called Canberra!

 

Will Shorten allow the ACTU to misuse our super funds?

Monday, March 18, 2019

Bill Shorten’s potential as Prime Minister for all Australians and Treasurer-to-be, Chris Bowen, as the country’s chief fiscal fiend and friend, has to be tested with this controversy that looks like an ACTU threat to the country’s most supported industry super fund — Australian Super.

Late last week it was revealed that a trade union leader, who has held a director’s position with Australian Super, is calling on industry super funds and heavyweight trade union officials on super fund boards to use their power to force companies to offer higher pay and better work conditions.

Anyone pushing a view like this could find the Australian Prudential Regulation Authority (APRA) bumping them off an industry super fund board for being inappropriate on character, competence or experience grounds.

I have a vested interest in this because I have advised clients, families and friends that Australian Super is a very good super fund. Its results show this to be the case but in the past it hasn’t had directors trying to encourage the fund’s investment committee to pressure public companies to pay wage increases!

Now this might sound like a good idea for anyone who wants a pay increase. Here you have a very powerful organization i.e. Australian Super potentially telling BHP, the banks, Telstra, Coles, Woolies, Harvey Norman and so on to pay their staff higher wages or their stock will be dumped.

It looks like a super blackmail play, which looks logical given the unions ‘ownership’ of industry super funds and unions represent workers and their need for higher wages. But there are two things wrong with this.

First, it’s not conventional for shareholders of public companies, which a super fund is, to ask the business to reduce its profit by raising costs. Shareholders can fight to sacrifice revenue if it helps the company but a director taking a directive from the ACTU, an employer group or a government to undermine profits, dividends and share prices could end up in big trouble with the Australian Securities and Investments Commission (ASIC).

If the Royal Commission was still in operation, this would’ve been a scandal that Justice Hayne and his team of terriers could have really got their teeth into!

Second, any super fund director’s decision has to pass a crucial test and that’s the sole purpose test. It’s a test that self-managed super fund trustees always have drilled into them. It says you can’t make an investment decision that’s in conflict with the best interests of trustees/members with respect to how much money ends up in the super fund when the trustees retire.

As the ATO’s website puts it: “Your SMSF needs to meet the sole purpose test to be eligible for the tax concessions normally available to super funds. This means your fund needs to be maintained for the sole purpose of providing retirement benefits to your members, or to their dependants if a member dies before retirement.”

It means you can’t lend money to a family member in a tight jam in their business. You can’t buy a holiday home so you can send your family there on nice holidays. You can’t use super money to meet personal debts. And big super funds can’t instruct their investment committees to avoid really profitable companies because they don’t pay sufficiently high wage rises.

An investment committee who makes decisions that undermine the future nest eggs of their members, who have $145 billion in Australian Super, to try on an industrial relation squeeze play like this, could even jeopardise the concessional tax status of the fund.

Of course, that’s an exaggeration because it would never get to that, but if a trustee running his/her own SMSF did something that ignored the “sole purpose” test, their fund could lose the great tax treatment that super funds enjoy.

Clearly, Bill Shorten and especially Chris Bowen has to show he has the guts to stand up to their union buddies when they’re in the wrong. Paul Keating could do it as a Labor Treasurer and this will be a crucial test of just how gutsy Chris and Bill might be when they hold the top two government positions in the country.

 

Is Billy gilding the lily on wages?

Friday, March 15, 2019

Call me old fashioned but when it comes to politicians’ messages, I’d love it if we could rely on them to tell us the truth. This backdated view of the world came back to me this week at least twice and I guess the reason why our political masters think they can gild the lily is because most of us don’t have the facts in front of us.

Yep, most of us are so busy doing stuff to make life work for us that we just hear what these guys and gals in Canberra say and then think: “Really?” Or sometimes it might be: “Yeah, you’re right.”

Of course, to the committed Labor or Coalition haters, many of these politicians’ revelations are greeted with: “Bullshit!”

My first encounter with untrue political messaging this week was when I was asked to talk about the wage story I wrote on whether we can weather Bill Shorten’s wage rises on ABC radio in Adelaide with Dave Bevan.

Unknown to me, the ACTU boss, Sally McManus, was already talking to Dave when I was put to air. Now, don’t get me wrong, I just about disagree with nearly everything Sally ever says but I think she is a fantastic performer. She’s like a Kiwi All Black when they play the Wallabies — they’re great players but I just can’t love them!

And because she’s so good at her job, I have tagged her the scariest person in Australia!

Asked why she could justify Bill’s “living wage” idea that could see the minimum wage bumped up by 10% or so, she quickly told Dave and the ABC audience that productivity had been rising but wages hadn’t been. And like Bill, she talked about profits going up by 10% last year so she put together a very reasonable case, provided you didn’t have all the facts.

Fortunately for me, I had time on my side before Dave brought me into the conversation so I quickly googled “Australia, chart, productivity” because I was sure I’d written (and others had too) that our productivity story hadn’t been great.

In fact, wage experts always say the problem and the solution is greater productivity. This is what I found since 2016:

Sally was not completely truthful because productivity has been on the slide and because the economy is sliding down too, maybe this isn’t the greatest time to push for wage rises. By the way, the fantastic growth of jobs can also push productivity down and that actually has been happening over the past few years, as Malcolm promised!

But Sally isn’t totally wrong, as the long run chart shows:

The productivity story was sensational from the late 1970s to 2014 and bold economic reforms, some periods of high unemployment and new technologies (like the computer, smart phones and the Internet) have helped raise our per unit of input, which is the definition of productivity.

Another political piece of gilding the lily came to me last night via Twitter and Bill Shorten, who is so far in front with the upcoming election, he really doesn’t have to play fast and loose with the truth.

His tweet last night (and let me say I get more tweets from Bill than I do from Donald!) was “Everything is going up in Australia except wage….” He led us to a video that showed us how Labor will get wages rising.

However, his throwaway line in a tweet isn’t right.

This is Average Weekly Wages and they’re going up! And because wages are rising faster than that stubborn statistic, inflation, real wages (or what we can buy) are also going up! Let me say that real wage growth isn’t great but they have been going up, not down.

On home loan interest rates, they’ve been going sideways to down and if any borrower wants to get lower rates, a mortgage broker could help!

And by the way, hopefully before Bill becomes PM, the RBA will actually cut interest rates to ensure economic growth goes up under Labor in the second-half of 2019.

Unemployment is also not going up, as the next chart shows:

I rest my case, apart from one wonderful piece of history that was delivered by the former CEO of Westpac and ex-Deputy Secretary of the Treasury, David Morgan.

This guy has to be the most interesting banker in Australian history. He was a child TV and movie actor co-starring with the likes of Olivia Newton John. He played first grade for the Richmond Tigers, worked for the IMF and was accused of being a CIA spy by a dodgy African President and was flown out of the country! And he was part of the rescue that saved Westpac from a financial fate nearly worse than death — a forced sale!

Morgan’s recently published book by Oliver Brown titled David Morgan: An Extraordinary Life, which included marrying the former Hawke-Keating Minister, Ros Kelly and advising Labor’s greatest economic reformer, Paul Keating, was the reason why I was interviewing him.

And he gave me a nice history lesson, which I’d forgotten. He said: “The political agenda Labor went with before the 1983 election was very different to what actually was implemented.”

Ahead of the election, Bob Hawke wasn’t promising a floating dollar, deregulating banks, cutting tariffs, making unions deliver productivity  for wage rises and selling off the likes of CBA, Qantas, etc.

History suggests that with a bit of luck, Bill’s promises before the election could be changed when he has the responsibility of being the country’s leader.

So, with a bit of luck, he might prove to be a fibber for entirely responsible reasons or maybe the Senate might make him go back on some of his more wacky ideas!

Let’s hope so.

P.S. Another thing that’s not going up is house prices!

 

How to make money from stocks

Thursday, March 14, 2019

One of the smartest stock players I know recently tipped that Boeing was a great buy. However, its share price nosedived like its recent plane in Ethiopia and apart from feeling for the poor families who lost loved ones, being who I am I couldn’t help seeing that there was a lesson in this story that newbies to stock investing need to learn.

In fact, the whole event has made me realise that people like me and CNBC’s Jim Cramer have in-built mental filters so when we hear that there’s a bombing in Saudi Arabia, we ponder what will happen to the oil price, the Oz dollar, the S&P 500 index in the US and then the local stock market.

It’s not just a habitual inclination to analyse everything down to the money effects, it’s all about being prepared when a media outlet rings and asks for a comment.

That has been me for near on 30-odd years and now I do the thinking/analysing for our financial planning clients, the subscribers to our Switzer Report and our two funds — the Switzer Dividend Growth Fund and the Switzer Higher Yield fund.

The best portrayal of what I see and how I react is captured in that great ad for Jim Cramer that says “see the world through the eyes of Jim Cramer”. And when he sees cars, he thinks auto sales, GN share prices, etc.

It’s analysis born out of study and experience so I thought I’d use the Boeing incident to give newcomers to investing in stocks some unforgettable rules of thumb.

Before that, look at Boeing’s share price both reacting to the tragedy in Ethopia, the second crash in two years of its 737 Max jet!

Boeing short-term post-crash:

You can see the price slump, which would have worried a recent investor to the stock but now look at the long-term story.

Boeing share price over 5 years:

This is a great company benefiting from the middle classing of the Chinese population, who are travelling like never before, just when all westerners are doing exactly the same.

So what are the investing lessons? Here goes:

1. Invest in great companies exposed to modern market trends. It’s why old media has become a risky bet nowadays, while Netflix has been a winner. Need proof, well, look below at a chart of the TV company over five years:

2. Try to build up to 10-20 companies on your portfolio.

With 10 companies invested equally, you’d only have a 10% exposure to one bad CEO or a dumb government decision. With 20, you only have a 5% exposure. And if one company does an AMP and dives, the other 19 could be having a ripper of a year.

3. Get into different sectors. Those SMSF investors who held only the four banks and Telstra and have been clobbered over the past couple of years, did not have a diversified portfolio. Think about what you use in life and what’s really popular and try to have exposure to the best of breed in each sector. For example, the best bank, the best tech company, the best retailer and so on, which could make up your core holdings. That might involve 80% of your investible money.

4. Keep 10-20% available for up and coming stocks that have a possible big future but don’t be too exposed to these more risky stocks. If it’s 20% of your fund, then maybe have five stocks with 4% of your money.

5. Look into exchange traded funds (ETF) as this can give you wide exposure to stocks at a pretty low cost. Some people buy an ETF for the top 200 stocks in Australia and then buy one that gives them the top 500 stocks in the USA. And they can even invest in tech, financial, health sector ETFs.

6. Learn from Warren Buffett that you should be “fearful when others are greedy and greedy when others are fearful.” That is, it might pay to wait for a big stock market crash before you start investing for the long term.

7. Once you’re in the market, history says that time in the market pays off more than trying to time the market. Trying to guess the market can mean you miss big up days, while copping some of the worst days because “no one rings the bell when the bull market is over”, as the old saying goes.

8. “No one ever went broke taking profit” is another great market rule of thumb.

9. Read everything you can as you need to pretend that you’re becoming your own fund manager. You don’t learn how to be good at investing and money making in a day but daily!

10. Ask lots of questions and find someone like me who thinks about this investing stuff daily and soak up as much knowledge as you can. Jim Collins, who wrote one of the best business books of all time — Good to Great — told me that he selected some of the great business brains of all time and put them on his virtual board of advisers. He read all their stuff, watched videos and listened to CDs and that made all the difference.

The bottom line is that you have to become professional. And if you do, you will make money — lots of money — out of stocks.

With Shorten and Morrison racing to the top, Brexit, trade deals and franking credit debates, 2019 has been one crazy political rollercoaster ride! Join me at our Switzer Investor Strategy day in Sydney, Melbourne and Brisbane and learn how to maximise your current and future investments in a politically challenging 2019! Tickets are only $39.00 (valued at $149.00) and are available now. Click here and enter the code “SD2019” to get 25% off.

 

You’re dumb if you’re not thinking about buying property now

Thursday, March 14, 2019

As a group, Aussie consumers might be really dumb, if you accept information from the latest consumer sentiment survey. However, because you’re reading this story right now, I bet you’re not in the grey matter challenged category.

How do I know they’re dumb? Well, the stats tell me this!

Yesterday the Westpac/Melbourne Institute survey of consumer sentiment index fell by 4.8% to 98.8 in March, after rising by 4.3% to 103.8 points in February. The sentiment index is back below its long-term average of 101.3.

Consumers going negative I can cope with, even if the jobs market is unbelievably strong. Elections always spook consumers and businesses who aren’t sure how a new government might affect their bottom lines. Right now we have falling house prices and the media can’t get enough of scary headlines, so consumers being careful with their money makes perfect sense.

Now buried in the survey are a whole pile of questions and answers, and it shows up one of the dumbest numbers I’ve ever seen!

It seems 8.8% of respondents thought the ‘wisest’ place to put new savings was in ‘real estate’ – a record 46-year low! While the ‘wisest’ place for savings remains bank deposits, which 28.8% of respondents went for, while 26.3% preferred paying down debt.

The dumb money view above is that bank deposits are seen as the wise option, when it’s really only the safest option. However, if selecting the safest option is your wealth-building plan, you won’t end up with much wealth.

To prove my point, let’s imagine you were left $50,000 at age 21 by a loving great grandma and you opted for bank deposits that gave you an average return of 4%. By the time you’re 39, the money has doubled. When you’re 57 it’s $200,000. And if you retired at age 75 you’d have $400,000.

On the other hand, if you had a mixture of stocks and property averaging a return of 8% by the time you’re 57, your $50,000 would become $800,000, which compares to only $200,000 if you’d gone for the safe but not wise bank deposit option.

By age 72, you’re looking at living on $3.6 million compared to $400,000 and you retire three years earlier!

Ignoring tax, you, the one who went for property and stocks, could earn $180,000 a year off your $3.6 million, opting for a 5% safe return maybe in bank deposits!

The person who went for the safe but not wise bank deposit option gets $20,000 a year plus a pension but it demonstrates that the average Aussie is making a big mistake thinking the safe option is the wise option.

Recently I saw a story in the AFR that asked: what should you invest in with property prices falling? The irony is the headline should have been: “With property prices falling you should be investing in, wait for it, property!

The best time to buy CBA was in 2008 when we were all panicking about the GFC. That’s when it was $27 and you’d now be on a dividend-yield of 16%, and more if you add in franking!

One of the richest guys I know used to go to auctions in times like these and simply hang out to see if a real bargain showed up because times like these create crazy sellers.

All this shows the wisest place for most Aussies to put their money is into investing in getting money smart! The price of money ignorance is a very high price to pay. It comes back to haunt you when you’re retired, when it’s too late to do anything about it, except working well into your seventies.

I know financial planners have copped it in recent years and many have deserved a bollicking. But if you’re too busy to teach yourself about wise money plays, the wisest thing you might do is to find a trustworthy person to make sure you get the right wealth-building in place.

That sounds like smart, wise advice and it’s bound to make you feel safe and secure not only in retirement but in the years before you retire.

Imagine how much you could enjoy the here and now if you knew $3.6 million awaits you in retirement!

 

Dr Phil, don’t pussyfoot around. Cut interest rates now!

Wednesday, March 13, 2019

The latest NAB business survey has made me jump ship from being a “rates are on hold” guy to “let’s cut”. And don’t pussyfoot around with it, Dr. Phil.

Six months ago, apart from falling house prices, the economic data was overwhelmingly positive. But the case for cutting has got so strong in a space of a couple of weeks that I think it would be madness to wait for the March readings on an economy that is slowing down.

A few weeks ago, before the latest economic growth number, I thought it was worth waiting. September’s growth number was a weak 0.3% but September can be a dodgy quarter. December is usually a better one and that 0.2% growth number bothered me.

We saw that the January business survey by NAB showed a bounce back for business conditions and confidence. If that trend had continued, I would’ve stayed as an “on hold” guy. But I got no cigar with this one.

The NAB business conditions index eased from +6.6 points in January to +4.4 points in February. Worse still, that result is below the long-term average of +5.8 points. Meanwhile, the business confidence index fell to a 3-year low of +2.0 points in February, down from +3.6 points in January and below the long-term average of +6.0 points!

That’s not great and can’t be ignored.

Recently I interviewed Glen Sealey, the MD of Maserati, who says the sale of luxury cars closely follows house prices and business confidence. He pointed out that sales were down about 20% from their pre-house price fall levels but after St. Valentine’s Day, there had been a pick up. This coincided with a better business confidence reading in January, reported in mid-February and a recent rise in auction clearance rates.

Obviously, it was early days wishful thinking. But if business confidence kept tracking up in February, I wouldn’t be canvassing a rate cut ASAP.

Today we get the latest Westpac consumer sentiment number. If it’s a shocker, I’ll ramp up my calls for a cut in rates. Two weeks ago, the bank’s chief economist Bill Evans said two cuts should happen this year and last week NAB’s head honcho of economics, Alan Oster, joined the ‘cut crowd’.

Adding to my newfound concerns is the weekly consumer confidence reading from the ANZ-Roy Morgan mob, who tell us that the weekly consumer confidence rating fell by 4.6% – the second biggest fall in three years to 109.5 points. 

Worst still, consumer sentiment is below both the average of 114.3 points held since 2014 and the longer-term average of 113.1 points since 1990. Consumers’ views on current economic conditions fell by 7.9% to 94.6 points – the lowest level in 74 weeks.

But wait there’s more!

The value of lending to households fell by 2.4% in January after a 3.6% decline in December. Lending for housing fell by 2.1% Investor lending was down 4.1% and lending for owner-occupier dwellings fell by 1.3%. 

Anyone reading this might be thinking he’s changed his tune and they’d be right. But I’ve always argued that I’m not a perma-bull and if the facts changed, I could change. The great economist John Maynard Keynes reportedly replied to a critic who gave him stick for changing his view on an economic call, with this pearler: “When the facts change, I change my mind - what do you do, sir?”

(Some pedants question whether he did say this and if he didn’t say it, well he should have!)

My changed view on rates is to make sure that this soft patch doesn’t get out of hand and I reckon a stitch in time will save nine. That’s good because we don’t have nine rate cuts available at 1.5% for the cash rate. Presuming they are 0.25% cuts, we only have six!

A few months ago, when the stock market was rebounding, good news outweighed bad news. I think Donald Trump signing a trade deal on March 27, the Fed on hold with rates, the EU stimulating Europe’s economy and China doing the same, sets us up for an OK year for stocks. However, locally, I reckon the Canberra PM crisis, the threat of Bill Shorten’s policies, the problem that elections cause for spending (and we have one in our biggest state NSW and Australia in May), on top of a sizeable house price fall that can’t help confidence, all mean negativity is starting to trump positivity.

My interview with Gerry Harvey last week, whose Harvey Norman is surveyed by the RBA and Treasury to gauge how the economy is going, made the emphatic point that he believes Dr. Phil will have to make two cuts this year and the recent flow of economic data supports the prodigious retailer’s argument.

The NAB team thinks the first cut will be in July and another in November. I say, why wait? While a lot of indicators are still looking good (e.g. employment, unemployment, job ads, plans for business investment, tourism numbers and trade figures), a cut or two means we could easily see a rebound in growth in the second-half of 2019.

And if Bill Shorten delays his changes to negative gearing or the Senate makes him do this until the property market is healthier, then our economy could be looking good for the start of 2020.

If Dr Phil waits until the patient (the economy) is really sick, then it might be too late to save the poor blighter!

 

Can we weather wage rises in Bill’s world?

Monday, March 11, 2019

Prime Minister in waiting Bill Shorten took out some insurance last week promising wage rises, which is bound to ring positive for many Aussie workers who haven’t seen a decent pay rise for donkey’s days. But the question is: how is Bill going to achieve this and could he be setting out to ruin the one really good economic story we have right now — the unbelievably strong jobs market?

Last week as economic growth faltered, economists like HSBC’s local chief economist, Paul Bloxham, told us that maybe the messages from the labour market might be more an accurate reflection of the real health of the economy than the growth of real GDP, or economic growth.

I’m not saying he’s right but a lot of other economists think he’s on the money, so it’s a fair question to ask: If we push wages up across the board, will it kill off jobs?

Interestingly, one academic economist has argued that raising the minimum wage might actually hurt job creation and therefore might be a problem for those on struggle street.

In his pre-politician days, Dr Andrew Leigh, a former Professor of Economics, looked at the impact of raising the minimum wage by 3% and concluded that youth employment could by 1.2%!

It comes as Andrew’s boss wants to introduce a “living wage” to replace the existing minimum wage.

The idea has been tried by the Poms and by the Conservative Party no less, but it was used to try and kickstart the economy after the GFC recession.

It started with a bang, a 10.7% increase for the living wage. The goal is that it becomes 60% of the median wage by 2020.

A study into the effects hasn’t yet shown up in unemployment but prices have been increased by those employers with businesses that can get away with it. Others have copped lower profits leading to other structures, such as using contractors.

Non-compliance is also on the rise but this would be a direct response to the fact that lots of business owners would be doing their best to cope with the hike in costs.

David Marin-Guzman writing in the Weekend AFR said if Bill opts for a living wage, it will “come after two years of record increases in the minimum wage at 3.3 per cent and 3.5 per cent.”

And even though wage rises have been weak, inflation has been on the soft side.

I’ve often argued that good economics is bad politics and bad economics is good politics. Significantly, Bill’s Finance Shadow Minister, Jim Chalmers went to the media after his boss had outlined his wage rise plans and told us: “It’s obvious to any objective observer of the workforce right now that ordinary working people aren’t getting a fair go.”

Well, I think I’m objective. I know we pay all our employees over the award but pay rises for all should not be a right for everyone. If the business has lost a major customer and profits turn to losses, how can you expect a business to increase wages because a politician, who wanted to be PM, says so?

Sure, they can do as they’re told by the government of the day, but a wage increase that increases losses or reduce profits and possibly increases the payroll tax paid will make a lot of employers think: “I will lose some workers and pay the existing staff a little more and I will avoid further losses or avert a reduced profit outcome.”

Bill Shorten says there has been a 10% increase in profits, while wages are up 2% but not all businesses earn profit at the same rate. And not all workers got a 2% rise — some got zero, while others might have seen a 5% increase.

If you have an economy going gangbusters, it’s more acceptable to have an over-generous government with pay rises but with growth dropping, house prices on the slide and the international economic outlook becoming  more of a worry, it seems crazy to raise wages across the board and ruin the one great story we have for the economy now — our job creation!

Labor wants the Fair Work Commission “to do the right thing” and lift wages for millions of workers. That’s why Jim Chalmers said, and I repeat: “It’s obvious to any objective observer of the workforce right now that ordinary working people aren’t getting a fair go.”

But this isn’t a just an Aussie thing — low wages growth has been a characteristic in many Western economies since the GFC. And anyway, we haven’t been tightwads with wage increases. As David Marin-Guzman pointed out: “The minimum wage has risen to 55% of median earnings, well above the average of comparable OECD countries.”

The one thing all economists from both left and right backgrounds agree on is that we need to raise Australia’s productivity. This can give us greater production and therefore income at lower cost, which can mean higher profits. Then these can pay for those beloved pay rises all workers like.

But maybe it’s time we stopped saying “ordinary workers” deserve pay rises and start saying extraordinary workers get good pay rises and others can, say, get inflation adjusted wage hikes.

Of course, for this to happen, we’d need enlightened leadership at both the political as well as the business level. We can only hope because the worst thing we could aspire to is all of the unproductive pay systems that have brought us to where we are today!

With Shorten and Morrison racing to the top, Brexit, trade deals and franking credit debates, 2019 has been one crazy political rollercoaster ride! Join me at our Switzer Investor Strategy day in Sydney, Melbourne and Brisbane and learn how to maximise your current and future investments in a politically challenging 2019! Tickets are only $39.00 (valued at $149.00) and are available now. Click here and enter the code “SD2019” to get 25% off.

 

Beware of fake economics fabricated for political purposes!

Friday, March 08, 2019

Listening to PM Scott Morrison accuse Labor of using phony economic terms such a “per capita recession”, I felt a tad guilty because I never taught him anything that covered a look at GDP per capita, implying a new definition of what a recession is.

To be balanced, I didn’t teach Labor MP Matt Thistlewaite anything on this subject either, because arguably the best economic faculties in the Southern Hemisphere simply never taught this stuff in the 1980s and 1990s.

That’s not to say that well-meaning economists with a more social inclination haven’t been coming up with better definitions of recession, and better measurements of economic improvement than real gross domestic product or GDP.

After some 12 years of teaching at UNSW and writing on economics in metropolitan newspapers such as The Sun-Herald and The Australian, I’ve read a lot of economics. And along with my TV programme, I’ve interviewed a lot of credible economists. And to person, they use the definition of a technical recession for working out if an economy is in a recession.

Changing the way you assess an economy and the success of a government in managing it along the way, looks awfully like changing the rules to suit yourself. As a kid, I had a mate who did that — came up with new and surprising rules and we copped it because he owned the football! We only got sick of him when he clobbered his younger brother, who quite accurately called him a rule-changing cheat!

Paul Keating never looked for a new definition of recession when we had the “recession we had to have”. But a few years ago, some economists wanted to discredit the Coalition by coming up with another new age personally preferred term, which some parts of the media seized, called an “income recession”.

These economists were arguing that while the real GDP measure looks good, the growth of nominal GDP or income was actually falling, so Australia was in recession!

On my TV show, I recall asking AMP Capital’s chief economist Dr. Shane Oliver what he thought of this DIY definition of recession. He said the idea has merit to look at but the definition of a technical recession (that is, two successive quarters of negative growth) remains the one used by economists and governments worldwide, so it’s the useful one for comparing performances of economies and governments.

This “income recession” definition is interesting because in the December quarter, while real GDP only increased by 0.2%, real gross national income rose by a big 1.1%, to be up 3.5% on the year. Meanwhile in nominal terms, GDP increased by 1.2% in the quarter and rose by 5.5% over the year, so using these as measuring sticks we’re in an “income boom”!

I’m yet to see any of the economists who both lamented and championed the greater truth of “income recessions” now hailing our “income boom”!

As someone who rejected the former, I can’t pick and choose and say “well done Scotty!”.

My truth, based on a real GDP assessment of the economy emanates out of what the RBA does with these numbers. The ABS adds the past four quarters of growth together, which says we’ve grown by 2.3% after being at 2.7% in the 12 months to September. I add the past two quarters together and then multiply that number by two.

I think it gives a better feel for how the economy is going more recently. So that’s 0.3% + 0.2% = 0.5% times 2 = 1%!

We’ve gone from an economy that was rocking along at a near 4% pace in the first half of the year but we slowed down as if we’d been kneed below the belt!

What happened in the second half? As I pointed out yesterday, it was the Royal Commission’s revelations plus a new PM plus APRA’s loan restrictions started to bite plus house prices started to tumble plus Donald Trump heated up his trade war plus the Fed talked a tough game on interest rates for 2019 plus Germany nearly went into recession, as the EU slowed dramatically plus China’s growth faltered and the stock market in the US nearly lost 20%!

All this hurt local business and consumer confidence and the rest was slow growth history here and worldwide. So economists who thought rates were on hold until they rose in 2019 are now saying the RBA could cut this year!

Westpac’s Bill Evans thinks we’ll see two this year but the March real GDP numbers could decide the matter. The ABS releases those on May 1, before the Federal election. If the number is weak again and the RBA drops rates, the Government’s chances of winning on the strength of their economic record would sink like a stone.

By the way, the real GDP story seems at odds with the great labour market story.

Jobs growth has been remarkably strong, with unemployment at a seven and half-year low of 5%, where NSW has a 3.9% jobless rate. HSBC economist Paul Bloxham thinks the strength of the jobs market is telling the more truthful story about the Oz economy, compared to the real GDP growth or economic growth revelation. Of course, I can’t go there because that would make me as bad as those “recession per capita” types.

By the way, using a more conventional measure of Household Gross Disposable Income growth (which I used to teach), the number is 3%. Nine months ago, it was 1.6%!

 

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