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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

Morrison’s gift to Shorten

Wednesday, September 26, 2018

I know Billy Slater, Bill Cosby, the demand to sack the ABC’s Emma Alberici and a radical recycling plan are ‘important’ news stories but I would’ve thought the fact that the country’s Budget Deficit is tumbling rates a decent headline.

The SMH’s website gave the story no prominence. The AFR gave it front page coverage but this was the headline: “Tax surge paves way for pre-election spend”, which has refused to say anything great about the achievement.

Now, don’t think I’m here rattling the can for Scott Morrison (yes, my old economics student). It’s not the case. I’m more rattling my own can, as I’ve been arguing that policies to create economic growth would create jobs, which in turn will boost tax collections while reducing government outlays on the unemployed.

When that happens, I’ve argued for a few years (here on Switzer Daily, on TV, on radio and in speeches I regularly do) that the deficit will fall. And the deficit and the way it feeds our public debt really worries a lot of people.

I saw Richo and Paul Murray stressing about it on Sky News only this week. They talked about how it blew out under Scott Morrison’s stewardship but they weren’t to know that in fact the deficit story was about to turn pretty positive for the new PM.

In case your favourite media outlet didn’t rate this Budget story, let me give it to you as interestingly as possible.

The headline should have been something like the one CommSec came up with: “Federal Budget: Smallest deficit in a decade.” However, the words “Federal Budget” could turn normal people off reading it.

I like “Australia’s debt disaster derailed! Put away the razor blades!” (Yeah, you have to fight mindless clickbait with mindful clickbait.)

Back to the actual story:

• The budget deficit for 2017/18 was guessed at in the May 2017 Budget at $29.4 billion.

• Only four months ago at the May 2018 Budget, the guess number was down to $18.2 billion.

• It is now $10.1 billion.

• The rolling annual deficit was the smallest in nine years – since the year to March 2009,  at $6,563 million.

• Government debt stood at $342 billion at the end of June 2018 (or 18.6% of GDP), $13 billion lower than estimated at the time of the 2017/18 budget.

This is a huge story for those worrying about our public debt, which is fed by the Government’s deficits and is reduced by surpluses. And the quicker we get to surplus, the better it will be for our economy to ensure that if another GFC comes along, the Government of the day can do what Kevin Rudd’s Labor did in 2008 when it threw money at the problem.

The Costello/Howard (plus mining boom-created) surpluses gave Labor the ammunition to fight the forces of recession and helped us keep unemployment under 6%, when the USA saw the jobless rate hit 10%!

Just like personal finance, great budgeting gives you the firepower to borrow money, seize opportunities and weather financial storms. The fact that our budget bottom line is on the big improve is something worth celebrating and even headlining!

I have to say The Australian newspaper’s David Uren captured the right message to pass on to fellow Aussies with his “Surplus in sight ahead of election”. That’s why the PM will probably wait until May 18 so he possibly could crow that the Budget is balanced or even into a small surplus.

I used the word “possibly” because the Oz economy has to keep growing as fast or well as it has recently, which was predicted by the Reserve Bank and that, I’ve always argued, was on the money.

This means we have to watch Donald Trump and what his trade war might mean for world growth and our growth. Also, if Donald’s trade battles lead to a stock market crash, that could ruin Scott’s remote re-election plans and at the same time upset our increasingly rosy-looking apple cart!

Bill Shorten could inherit a damn good economy on the mend and if Donald doesn’t rain disaster on the world economy and global stock markets, it could be a great election to win.

Certainly, the one trump card Scott Morrison will have to play at election time will be the economic and Budget story, but given how media outlets rate these good news stories in their headlines, a lot of Aussie voters won’t either give or toss or worst still, might not even be told about it.

Of course, Government politicians will talk but who listens to pollies on the hustings?

 

Donald does China

Tuesday, September 25, 2018

Donald Trump continues to thump our stock market with another curve ball, other than his usual China tariff trade war one, thrown to spook Wall Street. The latest involves his Deputy Attorney General, Rod Rosenstein, who might soon be shown the revolving door at Donald’s White House.

CNBC ran with the headline “Dow drops more than 150 points on fears Deputy AG Rosenstein is leaving.” The guy stands accused via reports in the New York Times that after the President sacked James Comey as F.B.I. director, Rosenstein discussed the possibility of wearing a wire to secretly record Donald, to eventually invoke the 25th Amendment.

For non-US Constitution experts, the fourth section of the 25th Amendment provides a multistep process for the Vice President and cabinet officials to declare that the President is “unable to discharge the powers and duties of his office.”

This was a big call and the word on the street is that he meets with his boss on Thursday, so stock players are bracing for the fallout, as another important political player is given the heave-ho by arguably the most unusual President ever!

At the moment, Axios has reported that Rosenstein will resign but NBC says the opposite. The Deputy AG has copped a roasting from the President in the past over his Russian probe into electoral interference. It doesn’t look good for Rod and the stock market is nervous but this isn’t the only reason for markets getting jumpy.

If he gets the bullet, there could be a negative implication for the Republicans in the mid-term elections in early November. The incident adds to uncertainty and financial markets hate that and it usually leads to stock sell offs.

But wait, there’s more.

The Trump-v-China trade war refuses to cool down and as it hots up, stocks will feel the heat. Right now, the optimists are hoping round two of the heavyweight economic contest between the world’s champion economy — the USA — and the contender in China will be enough to please the US President but he doesn’t seem to want a points decision, he wants a knockout!

Today’s return fire from the Chinese is about accusation that Donald is bullying them. And this follows the recent 10% tariff levied on Chinese goods worth $US200 billion going into the USA. The Chinese came back with tariffs on $US60 billion worth of American goods.

In what might be seen as a measured get even, the Chinese released a White Paper accusing the US of damaging the economic relationship between the two countries and threatening world trade.

Fairfax this morning shows the US is starting to make inroads into its trade with China. “The White Paper argued that US exports to China are growing faster than America's global exports, with US exports of goods to China worth $US129.89 billion in 2017, an increase of 577 per cent from $US19.18 billion in 2001, and higher than the US export growth of 112 per cent. Ministry of Commerce data showed that last year Chinese tourists spent a total of $US51 billion on travel, study, medical treatment in the United States.”

All the tit-for-tat tariff stuff is acceptable for the market but it’s what lies ahead that could put a dam wall against this rising tide for stocks.

The 10% tariffs on $US200 billion worth of Chinese goods starts today in the USA. If Donald doesn’t like China’s response, the tariff slug grows to 25% on January 1. This gives the Yanks time to do their mid-term voting and get a nice big Christmas shopping period out of the way before prices rise in American retail stores!

And these Trump tariff tactics have been set to possibly apply to another $US267 billion worth of goods next year, which means the grand total of tariff-slugged Chinese goods will be $US517 billion. This represents all the goods that currently go from China to the States!

If this happens, Wall Street will have a hissy fit and yep, we’ll feel it big time on our stock market. Our super returns, which have been exceptional coming in at 10.7% for the median balanced fund, will have difficulty doing that again next year, if this trade war is escalated Trump-style!

 

Since when were Aussies entitled to an inheritance?

Monday, September 24, 2018

My stories involving Bill Shorten and his retiree tax rebate ban and property policies created a bit of a Twitter storm over the week. One headline that suggested that Bill was going to shrink the inheritance of retiree’s children got big reaction, with most supporting my reflections on the subject. 

However, a thinking tweeter asked this question: “The real issue here surely is how tax benefits to provide for retirement became inheritance entitlements?” 

It was a thought-provoking reply to a story I wrote last week, which my cheeky sub-editor headlined: “Sorry kids, Bill wants to wipe out your inheritance!”

Is it fair for others to say that retirees, who don’t like losing the tax rebates from their investments, don’t deserve sympathy because Bill’s policy might deprive their dear little darlings of their inheritance?

To be honest, I don’t lose sleep over unknown sons and daughters not getting a nice monetary gift when their parents (my readers, listeners, viewers, subscribers and clients) pass away. But I do care about these retired people, who have played by the book to save up a decent super and paid off a house to be comfortable in retirement.

This is a peace of mind thing that I believe these sorts of retirees deserve, which means a number of potential disasters don’t materialise in their lives. Like what? Try these:

• Running out of money before they die and therefore having to go on the pension.

• No longer being able to afford private health insurance.

• Not being able to pay others to do work to maintain their homes or to afford personal services, such as in-house nursing care.

• Having enough to pay their way into aged care facilities.

• Not being able to help loved ones when they might be in need of monetary assistance.

• And a huge issue for one partner, the fear that the other partner in old age won’t have enough money to survive without the other one around. It’s doubling worrying when the surviving partner isn’t good with money.

To lose money/tax rebates that were a part of their financial planning and risk management is not only a monetary loss, it’s also an emotional one.

I should throw in that many retirees do like the idea that they will leave their beloved children something when they go. And who are we to judge?

What critics of those retirees who get tax refunds when they don’t pay income tax forget is that this rebate deal has been in place since 2000.

Here’s a bit of history from The Australian: “As Treasurer in the Howard government, Mr Costello in 2000 allowed taxpayers to receive a cash refund if the value of franking credits from dividends received (which reflect company tax already paid) exceeded their tax liability. This was a recommendation of the Ralph review of business tax in 1999. It was given bipartisan support. Labor voted for it. In fact, Labor claimed it would help low-income earners…”

“Former Labor Minister and then shadow treasurer Simon Crean said in parliament in 2000 that Labor had “no difficulty” supporting the change, saying it “improved the taxation situation faced by low-income investors, especially retired Australians”.

OK, that was then and this is now. Putting on my financial adviser’s hat, let’s imagine someone retired in 2000 and has seen so many rule changes that have affected their plans to be comfortable in retirement. Even recently, the Government put limits on how much they can have in super so on 1 January 2017, more than 330,000 Age Pensioners had their Age Pension entitlements cut, with at least 100,000 of those affected Australians losing all Age Pension entitlements. The taper rate for the assets test was made less charitable, meaning a whole lot of retirees, who once got a part-pension, were waved sayonara by the Government.

Where Bill has got it wrong is that he’s treated all self-funded retirees as rich. If he simply put a cap on how much a retiree can receive as a tax rebate, then he could argue that he’s stopping the rich from getting too much from the Government.

If you make it hard for self-funded retirees to do without a pension, their financial advisors or their powers of logic will tell them to take a lump sum withdrawal from their super to have a long holiday or to improve their capital gains tax free homes to eventually go back on the pension! 

You know a lot of my critics have asked why taxpayers are expected to make a retiree’s life more comfortable. But the same question, which I’ve never asked until now, could be: why do taxpayers give their money to young couples to soften the cost of childcare so that they can have double incomes, new homes, new cars and overseas holidays? (Note, I’m not saying that but others, such as retirees might be, after being portrayed as greedy tax-takers.)

The self-funded retirees who now are being pilloried by many young people as taxpayer milkers never got childcare support, the women retirees didn’t have equal pay or have the Labor party championing the closing of the gender pay gap, which Bill Shorten is now proposing. Again, these are all important things to have, but why pick on those who didn’t have them?

You really have to be careful when you start picking on groups in society for getting government support because it leads to a whole lot of “what about you?” stuff.

Here’s some more history. We were one of the first countries to introduce a proper pension in 1905. Our pensions were modelled in part on the New Zealand scheme, which means the Kiwis showed us up, and the pension system was also similar to a NSW scheme, which was one of the first ever in the world. The pensions were non-contributory, non-discretionary and means tested. They were available from the age of 65 years for men and 60 years for women. A lot of people got them because a lot of people weren’t relatively wealthy.

Generally, we haven’t been big finger pointers about people on welfare or in receipt of soft tax treatments, though surfing dole bludgers in the 1970s copped it and those who load up on kids to get better public accommodation sometimes get singled out in the media on slow news days.

I reckon we have to be careful about politicians demonizing groups in the community for vote collection purposes. I bet you Bill eventually puts a cap on what lower income self-funded retirees can receive as a tax rebate from their investment in shares. And if he doesn’t, the self-funded retirees of the world would be within their rights to say to their kissing kin that Bill’s policy could wipe-out our their super balances and eventually force them to sell their homes.

I’m not sure that these once hardworking people who saved rather than spent, who worked rather than bludged, who are pretty good role models for their kids, be described as enemies of the state! And remember, John Howard and Peter Costello, supported by Labor, decided that it was good policy to let them have tax rebates off their shares’ dividends. 

Label me old-fashioned and not a hardnosed economist (as I’ve been called) but this calling out of retirees seems really unfair.

 

Are our super funds a train wreck waiting to happen?

Friday, September 21, 2018

The Dow Jones overnight hit its first record high since January this year, showing how challenging these trade war concerns have been for some of America’s biggest companies. Following this week’s less than serious round of tariffs USA-v-China, which have been described as more of a skirmish rather than a war, stocks have resumed their march higher in the States.

While the rise in the US stock market puts us closer to the day when the inevitable crash will occur (which, along with Citi and Goldman Sachs, I think is still a way off), it got me thinking about the GFC crash and how good our super funds have performed. And it made me ask the question: Are our super funds stock market crash proof?

The starting point to test out this question has to be this: how did we do post-GFC, when stocks fell around 50%, which was the biggest fall since the Great Depression?

The team at superannuation monitors, SuperRatings, has looked at the washup and performance of funds since the crash that started in November 2007 and stretched out to March 2009. I remember it well, as I was writing like I am now and was constantly being asked by the likes of Sky News, the commercial TV stations, the ABC and various radio stations to comment on the very worrying slide in stocks, which looked set to lead to a Great Depression Mk II.

“Ten years since the collapse of US investment bank Lehman Brothers, Australia’s superannuation funds have accumulated over $1 trillion in retirement savings, providing a windfall for members prepared to take a long-term view,” SuperRatings has revealed.

According to their data “members with a balance of $100,000 at the end of August 2008, just days before the Global Financial Crisis (GFC) hit, would today have a nest egg worth $193,887 if they remained in a balanced option. In contrast, members who panicked and shifted their savings to a capital stable option would have a far smaller balance of $164,277!”

I talked to many retirees on my old 2GB Super Show, who actually drew their money out of super to play it safe in term deposits. These people ended up losing twice because they allowed fear to drive their investment decisions. Obviously, over that time, I had to calm the nerves of my financial planning clients. Because of my intimate connection, it was easier to make the case to stay solid with super but it was no cakewalk. These were scary times!

This chart tells the story.

Those who opted for safety after the end of Lehman Brothers saw their $100,000 grow to $131,000 by 31 August 2018, while those growth-oriented super savers watched their nest egg blow out to $201,209 over that time.

This table spells out the returns over time and are a great honour board for super funds generally.

The 10-year returns at 6.6% for most of us in accumulation super funds (that’s what pre-retirees are in) show what the GFC did but the 15-year and 20-year returns shows that these funds, imposed on us by an insightful Paul Keating in 1992, have become great wealth-builders. Returns of 8% and 7.5% over the 15 and 20 year periods is up there with the best funds in the investment world, given the lower risks they take and the lack of leverage or borrowing that other high-performing funds engage in.

SuperRatings has also reminded us about which balanced funds were the best performers or deliverers for Aussie wealth-builders over the past 10 years since Lehman Brothers failed. Here it is:

And if you want to know the latest hotshot performer, here’s another tell-it-all table:

Source: SuperRatings.

You know, you can never give savers and wealth-builders 100% guarantees about anything in the finance world but we experts do believe in triple-A products, such as Australian Government Bonds. And that’s why their returns are so low compared to more risky investment products. That said, our super industry and our best funds in particular, have shown themselves to be very reliable commodities over a long time. Their performance post-GFC is a credit to themselves as responsible bodies and the regulators who have kept a watchful eye over them.

In the future, there will be other GFC-style challenges, but the best takeout message for all of us who want to build up a retirement nest egg, is to choose the right investment option with your super fund, which for most of us should be balanced or growth when you’re under the age of 50. This should ensure you give your fund both time and momentum to really build up.

In your 50s and as you get closer to retirement, you might be in a mix of balanced and conservative options but as we are living into our 80s, people like me stay balanced into their 60s.

Super funds are not totally crash-proof but they are designed to bounce back after a crash. And as long as you select a good one, with a not-too-expensive fee, you will survive and eventually thrive after a stock market crash.

The people who didn’t listen to people like me and who didn’t read me or watch me on TV when I talked to Phil Ruthven from IBISworld in early 2009, when I asked him what history says about stock market rebounds after a crash, really missed out on an important lesson.

Phil said our markets bounce back by 30% to 80% after a serious crash, and if they knew this, they might never have run to the safety of term deposits and, as a consequence, lost twice out of the GFC. 

This underlines the price people pay when they choose to be their own advisers but don’t do the homework needed to actually be an adviser.

Go Super!

 

Slam dunk, cop this China!

Thursday, September 20, 2018

Yep, President Donald Trump slammed China with 10% tariffs on $US200 billion worth of goods and the most quoted market index in the world — the Dow Jones — went up over 200 points! How does that happen?

Let me try to explain.

Firstly, the Chinese have shown a fair bit of restraint in their return fire. Where the Yanks hit 6,000 products with their tariffs across $US200 billion worth of goods, their trade rivals put a 10% tariff on 5,000 products. And goods that were expected to cop a 20% slug, only copped a 10% hit.

Second, months ago, the market experts would have looked at what products were in the firing line then calculated how the profits of these companies would be affected. Those who were to win from Trumps tariffs would have seen their share prices go up, while those like Harley Davidson, which was going to be targeted by Chinese tariffs, would have seen their share price slide. 

Like Rocky once said to Clubber Lang in the movie Rocky III, stock players would have seen the Chinese trade punches as “not so bad!” And that’s why the Dow shot up. 

Third, the Chinese have shown that they will return fire but are smart enough not to keep poking a bear like Donald Trump, who is clearly using this to build up his credentials as a fighter for team U-S-A. He’s even got his iPhone out and tweeted already, showing how these tariffs play into his political plans: 

And Donald is milking this for all it’s worth, with this follow up tweet that went:

There is method in his madness but we are also lucky that the Chinese are not acting ‘like a bull in a China shop’ with their reaction. A Trump bull versus a China bull would not be pretty and it would show up in the stock market first.

Fourth, even Donald is showing some restraint with the tariffs only set at 10% rather than 25% he first talked about. And he gave exemptions to Apple Watch, AirPods and a host of other products, that happen to be made in China. 

This is classic Trump from his book The Art of the Deal and that’s where he effectively lectures readers that if you want a million dollars for something, say you want $5 million!

Apple’s CEO, Tim Cook, who has openly challenged the silliness of Trump’s tariffs, believes this tit-for-tat trade teasing won’t get out of hand. “I'm optimistic because trade is one of those things where it's not a zero sum game. You know you and I can trade something and we can both win. And so I'm optimistic that the two countries will sort this out and life will go on,” he said in an interview on “Good Morning America.”

The local stock market should have a good day at the office, following Wall Street’s positive reaction to this second round of tariffs. And while Donald is looking like the master dealmaker, who still has another $US267 billion worth of tariffs loaded in his double barrel trade shotgun, the big winner out of all this might be China. Its measured reaction and less aggressive return of fire has saved global stock markets and has effectively lowered the threat of an all-out trade war that could’ve undermined the growth of the world economy!

As Aussies, we do well when global trade is strong because we’re a big exporter of raw materials to the manufacturers of the world. And while Donald Trump’s trade rollercoaster can be scary at times, you have to say he’s made politics unbelievably interesting, even if, as many might argue, for all the wrong reasons.

Go China!

 

Sorry kids, Bill wants to wipe out your inheritance

Thursday, September 20, 2018

The new ScoMo-led Libs team want a pre-election inquiry into Bill Shorten’s plan to deny self-funded retirees the tax rebates many have built their retirement plans on. Now If you’re a young person, you might be thinking that’s an issue for oldies but for many of you, I suggest you think again!

In a recent Switzer investment conference in Brisbane, in a Q&A segment, I was asked by a woman in her 70s what they (self-funded retirees in the no tax zone, who receive tax refunds from their investments) could do about Labor’s plan to deny these people their tax paybacks each year?

I replied that she should talk to her member of parliament but, as I thought about something outside the square, I came up with a better idea.

“You know, I’d call your sons, daughters, nieces, nephews and grandchildren together,” I said. “And tell them all, if Bill gets his way on this policy, your future inheritance will shrink or even disappear as you run out of money and sell-off your assets!”

That brought a big laugh from the audience but a lot of people saw the simplistic brilliance of the strategy. But it also underlined how ineffective the Turnbull Government was at talking to the people. In contrast, Scott Morrison has hit the ground talking to average voters with his Aged Care Royal Commission being a case in point.

As I say: “Make an honest mistake once, that’s understandable. Make it twice, get a new you!”

At this point, I better give you a few facts about the subject because Labor has a point about these tax rebates to retirees not paying tax but getting a tax rebate. Sensible people might think it crazy but there’s a lot of politics and social welfare that has always had trouble passing the “you’ve gotta be kidding” test.

Here’s a simple explanation of what’s going on with these tax rebates. Under current rules, which a hell of a lot of Australians have designed their retirement income on, if someone buys a dividend paying stock, these companies pay a 30% tax. If I’m working but in the 19% tax bracket, I’d get an 11% tax refund, which is 30% minus 19% because my income says I should pay 19% tax.

If I’m in the 45% tax bracket, I’d pay an extra 15% on my dividends from the company (45% minus the 30% company tax rate). But if the company had hypothetically paid no tax, then the taxpayer would pay 45% tax on the dividend cheque!

Retirees are in the zero tax zone so they get a 30% tax rebate on their dividend cheques because the company has paid 30% tax on the profit of the company that then funds the dividend cheques.

One guy at that same conference came up to me and said he’d worked his life as a teacher and now was living on $60,000 a year, after saving hard to be comfortable but not rich in retirement, of which $10,000 was from his tax refund from dividends off his shares.

He said if he loses $10,000 out of $60,000, he’d feel the pinch, wouldn’t change cars very often and would have to re-evaluate the odd overseas holiday. And helping his kids when things were tight for them, would be much harder than ever before.

This guy was a classic Bill Shorten supporter and his son was an executive at the CFMEU but he was perplexed how Labor would go after a guy like him.

When the policy was first announced, Bill was going after the people with big tax refunds. And there’s a case for capping how big the tax rebates can be. But if he did that, his number-crunchers would’ve said the money he’d collect would be small. By hitting all relevant retirees, the tax windfall was $3.75 billion over 10 years, or around $300 million a year.

However, he soon found out that there were pensioners with a small number of stocks that received dividends and tax rebates, so he had to change who would and wouldn’t lose their tax refunds. That was embarrassing.

But he needs more embarrassment to make this policy fair and that’s where oldies need to talk to youngies.

And remember this, if Bill gets his negative gains policy passed as future PM, anyone holding an existing investment property will have less buyers at a future sale because investors won’t be able to use negative gearing on an existing property. They will be able to use negative gearing on a new property but when they come to sell it, say to live on the money in retirement, there will be less buyers because it will then be an existing property, which means a lower price will probably be paid.

And for an investment property or any shares in the future, bought and sold under Bill’s reign, they will pay more capital gains tax because the capital gains tax discount of 50%, which you get when you hold an investment for a year or more, will be cut to 25%.

Let me be clear on this — Bill has shown guts running with these policies upfront but voters need to understand the implications of these policies. They will have big impacts on retirees now and into the future and will have big effects on the size of the inheritances left behind by oldies to youngies.

The AFR says the House of Representatives' Standing Committee on Economics will look into the proposed policy but it’s the Libs who are pushing for this inquiry.

“The Coalition-dominated committee, led by Victorian Liberal Tim Wilson, will inquire into all aspects of what the government has labelled Labor's retiree tax including who and how many would be affected, whether it would lead to increased dependence on the aged pension and how investment behaviour and patterns would change,” Phil Coorey wrote.

This could be a big political issue for the next election, so watch this space.

(By the way, any asset held before the election will keep the 50% capital gains discount and any property now will keep its negative gearing entitlement. But if Bill becomes PM, any new investment asset will cop a rougher treatment for the investor.)

 

Fasten your seatbelts. Trump is driving the Big Dipper!

Tuesday, September 18, 2018

As Donald Trump looks poised to slug China with tariffs on $US200 billion worth of goods, the question is: which Goldman Sachs report do you believe? Is it the one that says a bear stock market is coming, which means at least a 20% plus crash? Or is it the one that says it can’t see a US recession for at least three years?

It was only a few days ago that Goldman’s bear market indicator was at a four-decade high, as the chart below shows.

However, in what looks like a great disconnect between what’s headlined and what’s actually concluded, the head honcho of the report, Peter Oppenheimer, chief global equities strategist, told MarketWatch.com that “We’re not flying the flag here and saying that there is going to be a deep bear market.”

As Manuel from Fawlty Towers might say: “Que?” A bear market means at least a 20% slump, so why use the words “bear market?”

I have to say, until I read today’s headlined story that Goldman was tipping that a recession was three years off, I was a bit concerned that its bear market indicator story was at odds with the Citi view that only 3.5 of their 18 indicators that forecast a bear market were detected at this time.

In 2000, ahead of the dotcom stock market crash, there were 17.5 out of 18 red flags waving with this market test. Before the GFC, Citi’s equities team identified 13 warning signs out of 18. But like everyone else, they were thrown a dummy via the debt ratings agencies, which made mistakes, rating assets that were actively traded by financial institutions as based on AAA loans, when in fact there was a pile of sub-prime loans in these parcels of loans.

This created a financial crunch, which meant no financial institution knew who to trust. As a result, the Global Financial Crisis was born in the USA, which took stocks down 50% and then created America’s Great Recession. Incidentally, we were just about the only Western economy not to go into recession!

So I’m running with the Citi view on bear markets liking the small 3.5 out of 18 worrying signs and ignoring Goldman’s call on stocks. That said, I’m happy to buy Goldman’s economics story that the risk of recession is low over the next three years.

“Our model paints a more benign picture in which robust growth—coupled with receding concerns that financial conditions were unsustainably easy—have so far put a lid on US recession risk,” Goldman economists wrote. (CNBC)

And the past suggests that if the US goes into recession, a whole lot of other developed economies play follow the leader, so I like this Goldman three-year view on no recession.

“Historical experience suggests that recessions in the U.S. have gone hand in hand with recessions elsewhere. Looking at the past four decades, the average chance of a recessionary quarter in the next year in another DM (Developed Market) economy is just over 20% if the US is not currently in recession but nearly 70% if it is,” noted the Goldman economists.

It’s intriguing to see this pretty positive view on the strength of the US economy, as Donald Trump ups the ante with the Chinese. The current White House message is the President wants to slam China with tariffs on $US200 billion worth of Chinese exports to the States and so two important reactions have to be watched.

The first is how Wall Street responds. Some experts say these tariffs are priced into the stock prices of the most logically affected companies (both negatively- and positively affected) but that’s guesswork. If something that many might have gambled wouldn’t eventuate happens, there could be an overreaction.

Second, we don’t know how China will respond. That is, as Donald Rumsfeld might have said, it’s an unknown unknown, which some smarty says is an “unfathomable uncertainty!”

Yep, an unfathomable uncertainty has to be the best definition of Donald Trump.

Put on your seat belts, we’re in for another interesting ride on the stock market rollercoaster this week with the US President. I hope it’s a really dull, un-scary experience but that sounds so typically, optimistic me!

 

Will Bill Shorten tax our family homes?

Monday, September 17, 2018

With the odds of Bill becoming Prime Minister shortening, even though his policies are quite threatening to stock investors, property players and self-funded retirees (who benefit from surplus franking credits that come as a tax rebate), voters have to be mindful that there are calls for a wealth tax to apply to a family home.

In a recent book by former ABC broadcaster, Peter Mares, entitled No Place Like Home: Repairing Australia’s Housing Crisis, he argues the case for a broad-based property tax to raise money to help fund low-cost housing for low-income Australians. This is certainly a noble goal and accepting such a tax would come with an abolition of stamp duty, which historically has been a killer tax for young people, who have really struggled to raise the money to get into the property market.

That said, killing stamp duty would also be a ripper for those buying multi-million dollar real estate and I’d be surprised if this pay off would apply to these buyers, if this property tax idea ever happened.

Driving this suggestion from Mares is a sense of care and fairness, for which he deserves praise, but his solution and assumptions could really irk many Australians. And remember, while social commentators can have nice ideas, politicians have to sell them and we Aussies are pretty protective of our wealth connected to our ‘castle’.

Mares wants to make it easier for young people and low income Australians to get into the property market. Increasing the supply of dwellings is vital but how do you pay for it?

In the ACT, the ruling Labor Government is phasing out stamp duty over 20 years and raising council rates to offset it. In a recent election, the Libs fought to can the idea but the incumbent party won convincingly, though many of us might argue that Canberrans, with their strong public servant representation, might collectively think differently from mainstream Australia.

Mares tells us that “600,000 households [are] spending at least 30 per cent of their disposable income, and often much more, on rent” and that’s why “affordable rental accommodation for people on low incomes” is required. And the latest census had 116,000 Aussies as homeless!

Here’s Mares again: “At the last election, the Treasury estimated that Labor’s promised reforms to negative gearing and capital gains tax would boost government revenue by about $5.5 billion. That is enough to build 20,000 one-bedroom apartments every year. A great start but nowhere near enough. Where does the rest of the money come from? It comes from a tax on home owners.

The SMH and undoubtedly The Age have run with the headline “Housing: It's time for the lucky to share some of their good fortune” but there seems to be an assumption that the so-called “lucky”, simply had good secure incomes, bought cheap, watched property prices surge and hey presto, we long-term property owners became millionaires the easy way!

Peter, being ex-ABC, might have been lucky but I bet lots of older Australians see the property price rise over the past 40 years as a pay off for:

• Living through 17% home loan interest rates in the 1980s.

• The high tax regimes before the 1990s.

• The huge inflation periods of the ‘70s and the ‘80s.

• The recession “we had to have”, with Paul Keating in 1990-91.

• The living through renovations of dilapidated houses that now are worth over a million dollars.

• The second jobs.

• The businesses that were started that didn’t always bring success and riches.

• The driving of battered old bombs because that’s all you can afford when paying off your home.

• And the fact that mums often used to stay at home with kids, so this ‘luck’ was built on one income!

Yep, many older Australians have been ‘lucky’ with properties but as Gary Player, the great golfer put it: “The harder you work, the luckier you get.”

Land taxes on the so-called ‘lucky’ could mean that many older people, who aren’t cash-rich but have valuable properties that have grown that way over time, would face higher rates that might be unpayable.

The desire to find money to help the homeless or the young on low incomes into affordable dwellings could come from a GST going to 15%, which economists say is needed. I’m writing this in Queenstown, New Zealand and I guess I paid 15% GST on my cab ride to the hotel and Kiwis are coping with this impost without complaint.

And when you think about it, we Aussies have never complained about the GST since it was introduced in July 2000, probably because it came with tax cuts, though there was a lot of belly aching before it was voted for at John Howard’s 1998 election. 

Something needs to be done about housing and low-income households but slugging property owners shouldn’t be seen as the only solution. A wiser path to go down could be a higher GST, or governments not treating developers as pariahs and slugging them nearly a third of the building costs with public sector charges and taxes.

I’ve been belting on about this for years but not one politician ever wants to champion the cause. Mares’ solution might trouble lots of ‘lucky’ Australians but his intent to find one deserves praise, while the politicians, who haven’t got the guts to fix this growing sore, deserve to be criticised for poor, gutless leadership.

Unfortunately, we’ve grown used to “no guts no glory” leaders. You can only hope that change is afoot.

 

Cock-a-doodle-do. Excuse me for crowing

Friday, September 14, 2018

Last week we learnt that our economy was growing at 3.4% for the year up to the end of the June quarter. It was a great result. And whether you like Malcolm Turnbull or Scott Morrison, the simple facts are that they promised jobs and growth at the previous election and budgets and that’s what’s shown up.

I have to say the latest employment numbers make me a proud, ‘old’ optimist and I look forward to seeing two of my economist buddies, who came on my TV show and politely scoffed at my suggestion, that after creating over 200,000 jobs over 2017, I speculated that “it looks like we’re a chance to do it again in 2018.”

I have to admit I wasn’t being a cock-eyed optimist as it was driven by a report from the Australian Industry Group survey. But given my ever-watchful perusal of economic indicators, I thought it wasn’t such an outrageous call. But the two economist guests on my show wouldn‘t have it.

They also wouldn’t have the RBA’s and Treasury’s economic growth forecasts of 3% plus so that suggests that my number cruncher mates might need new computers or calculators!

The count so far this year on the creation of jobs is around 176,000, with August pumping out 44,000 of the lovely ‘suckers’. Better still, 33,700 were full-time ones! I reckon my 200,000 call is looking like a really good chance. However, I’m not going to bathe in my own ‘accidental’, statistical brilliance because the really good implication of these growth and jobs numbers that are worth celebrating is that a few really good things that should flow from them. Like what?

Let me list them:

• The job market is tightening so that means wage rises should start to emerge over the next 12 months.

• Inflation is bound to start sneaking up, which means unconvincing talk about rate cuts will be ruled out, which will make savers coping with low interest rates on term deposits start to smile.

• More jobs and higher wages will improve tax collections and drive the budget deficit down.

• Consumer confidence is bound to trend higher and then business confidence will take heart, knowing more customers have jobs. Businesses prefer their potential customers to be in work and on higher pay, even if it hits their payrolls.

• As sales increase, company profits will spike, taking share prices higher

• And the above will feed into better super returns.

I’m talking a virtuous cycle that only has one downside and that’s higher interest rates but that’s what normal, successful economies have going on. We are taking steps in the right direction, away from the abnormalities that have come out of a post-GFC world that also coincided with the end of a spectacular mining boom.

To me all this, on top of the strong 3.4% economic growth number seen last week, is adding up to the likelihood that, as I’ve been predicting, home loan interest rates should start moving up in 2019, not 2020, as some more negative economists have been predicting.

Sure, there is a worrying negative out there around house prices in Sydney and Melbourne, however, this excessive concern seems more to be driven by the media using speculating and often too negative and too inaccurate economists. The experienced team at BIS Oxford Economics recognise Sydney and Melbourne house prices are falling but their more reliable crystal balls aren’t sounding the alarm that Armageddon is around the corner!

If the good vibes coming out of our economy are going to be rattled, it will be from some ‘outside the square’ or ‘black swan’ event, such as a real, China-USA trade war or some other Donald Trump or unexpected geopolitical moment.

Go known knowns!

 

Will Trump’s trade war give us a happy ending?

Thursday, September 13, 2018

Anyone trying to work out why our stock market is having difficulty going higher should think of three Ts — Trump, tariffs and trade war! The US President is trying to bring off his trifecta of trade deals after nailing the Europeans and the Mexicans with trade concessions, in the wake of his threats to nuke their products with tariffs.

But the Chinese are proving harder to nail. Right now, Donald has slammed $US50 billion worth of Chinese exports to the US with tariffs and the Chinese have returned fire. Donald has upped the ante, warning another $US200 billion worth of Chinese goods will cop a tariff but this play hasn’t been executed yet.

China only buys $129 billion worth of goods from the USA so they can’t do a tit-for-tat tariff slug on $US200 million worth of goods, so how they retaliate remains an uncertainty for stock players. And not knowing ‘stuff’ is bad for stock markets.

Making the whole possible trade war escalate is a recent threat from the President that he has another $US267 billion worth of Chinese goods that are earmarked for tariffs, if trade talks don’t progress as he would prefer.

In a twist on what you’d expect, the Chinese have called in the trade referee — the World Trade Organisation — to support their claim against the US for hitting their products with anti-dumping duties. The Chinese are asking for support to get $US7 billion worth of compensation for penalties that have been imposed on Chinese exporters since 2013!

This is a sideshow to draw attention to the fact that the USA is a trade bully and China is looking for world economy support because they know most countries don’t like the game Trump is playing.

As this all unfolds, news comes that the US has asked to restart trade talks with China. According to Dow Jones wires, Treasury Secretary Steve Mnuchin sent an invitation to Chinese officials, proposing a meeting in the next few weeks to discuss trade issues.

Those who have done the numbers argue that a trade war would hurt China more than the USA. The Shanghai stock market is down 20% since this trade war trash talk started in May but it’s the uncertainty of how China might retaliate that worries stock players.

And from our stock market’s point of view, we don’t really need our number one export customer — China — to be in a losing battle with the USA, as we supply a lot of the raw materials inside the ‘stuff’ they sell to the States. Interestingly, at a Switzer Listed Investment Company Conference that I’ve been hosting this week, all the experts on commodities who run related funds believe the outlook for commodity prices is positive.

This can only be right if there is no real trade war with China and I can’t believe that President Trump can afford to create a real trade war because it would lead to a huge sell off on Wall Street. And we all know when the New York Stock Exchange sneezes, world markets catch a cold.

A huge market slump before the mid-term elections could not be great for the Republicans and a bad result could leave Donald as a lame duck President, though he still would be able to keep hitting China and others with trade sanctions, as this power actually rests with the President!

Interestingly, Art Cashin, the director of floor operations at the NYSE for UBS, thinks the stock market is due for a pullback, citing Goldman Sach’s bear market risk indicator, which is at the highest level in a couple of decades. A trade war with China would be like throwing a match into a barrel of petrol for the stock market right now.

Against this concern, CNBC’s Jim Cramer noted that stocks with heavy exposure to China have been on a recent rise, which he thinks suggests a real trade war might become a lower risk. A stock like Honeywell, which sells a big proportion of its products into China, is up 7% over the past month.

Let’s hope this tells us a Trump trade happy ending is possible.

 

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