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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

Was Labor lucky that Aussies killed Bill?

Friday, May 24, 2019

The man calling a 40% fall in house prices ahead for Australia, Professor Steve Keen, thinks it was a good election to lose and he advised such before Saturday’s poll. I think he’s wrong, though I do expect we’ll see a recession worldwide over the next three years purely created by external factors.

And if I was to finger anybody for the crime of triggering a recession, I’d be pointing the finger at one Donald J. Trump. I wrote this opening last night and woke up this morning to the news that Donald and China’s stubbornness is such that Wall Street is now contemplating that this trade war could go on longer than expected. It’s made a 10% correction for stocks (and a global economic slowdown) a real chance and explains why the Dow ended down 286 points — but it was down over 400 points earlier!

That said, recessions typically show up in the US and infect the world economy just about every six to eight years. “From 1919 to 1945, there were six cycles; [and] recessions lasted an average 18 months and expansions for 35. From 1945 to 2001, [there were] 10 cycles — recessions lasted an average 10 months and expansions an average of 57 months. This has prompted some economists to declare that the business cycle has become less severe.” (Wikipedia)

How Australia beat having a recession for 28 years says something special about our economy, and us. But I know we can’t always resist those winds of change that blow in a serious economic downturn.

Our last recession in 1990-91 was a consequence of the growth that came out of deregulation here and worldwide that meant lending got out of control and I have to admit that’s where Steve Keen has a strong argument. But where his predictions are based on anecdotal evidence and hunches is the severity of the house price fall and the depth of the recession.

I interviewed the great Canadian economist (but US-based and White House employed) John K. Galbraith during the 1987 stock market crash. I always remember how he put our work into context when I asked him: “What do you think will happen, given the severity of that crash?”

He replied from his home in Switzerland: “Peter, some economists will say they don’t know and then there are those poor souls who don’t know they don’t know.”

Back in October 1987, when my commentary exploded out of the lecture halls at the University of NSW (where our current PM was one of my students) and in my weekly columns in The Daily Telegraph, not to mention talking to the super big audiences Doug Mulray and The Degeneration attracted (when I worked on Triple M in Sydney and Melbourne), huge debt levels over the decade of deregulation sowed the seeds of “the recession we had to have.”

Those debts created the ‘here today, gone tomorrow’ business ‘billionaires’ like Alan Bond, Christopher Skase and Robert Holmes a Court and culminated in 17% home loan interest rates that led to the mother of all recessions for us, where unemployment topped 10%. 

Then, one contributing mistake was interest rate policy that remains Paul Keating’s greatest economic screw up. In those days, the Treasurer had big sway over the RBA boss and Paul had told us all that he had the Governor “in my hip pocket”. He deserves to be praised for most things he did but his rates policy stunk!

Back to today, and like the Reserve Bank Governor, Dr Phil Lowe, who gave the greatest tip about a looming rate cut I’ve ever seen from a central bank boss locally, I think our house price fall “will be manageable”. Steve doesn’t. Professor Warren Hogan of UTS and the former chief economist at ANZ, thinks it is. And so does Dr Shane Oliver of AMP Capital, who this week says he sees a bottoming of house prices in train.

While Steve reckons this was a good election for Labor to lose because it will dodge his expected recession, I’d argue that Labor was more likely to sow the seeds, throw on the manure and flood us with water to ensure a serious recession ‘crop’ would be a certainty!

Now this isn’t me being anti-Labor. This is me being an economist! We have a slowing economy created by a slowing China, a world economy shocked and trumped by Mr T, who’s running the US in an unusual way, a local economy struggling restrictive bank lending since the APRA crackdown and the Royal Commission, which made worse the natural slowing of house prices after five years of runaway real estate mania.

Throw in an election, which always hurts the economy temporarily, and then there was Bill with his ‘treat ‘em mean and they’ll be keen’ suite of tough love policies, and it’s no wonder that business and consumer confidence sunk like a stone. And it explains why economic growth fell from around 3% plus in the last financial year to 2.3% in the past 12 months. And it would have gone lower with a PM Bill Shorten at the helm, unless he welched on his pre-election promises.

Changes to negative gearing and the capital gains tax discount would have scared off investors just when we need them. Spooking small business owners with a promise of higher wages is hardly well-timed, when consumers are feeling the pinch and not showing up to shop or buy services. That policy could have KO’d the one bright spot for the economy — the job market — where there have been record jobs created and the participation rate is at an all-time high!

And it was hardly a great idea to tell self-funded retirees, who are pretty good spenders on cars, caravans, holidays and their families (as they often play the bank of mum and dad), that they’d lose their tax refunds linked to franking credits.

It’s an irony but Bill was the biggest crusader for the Royal Commission (RC) into banks and others behaving badly and while there’s a social and a personal compensation dividend from his efforts, it has hurt demand and economic growth, which creates jobs, via the kind of bank we have today because of the RC that makes borrowers jump through silly hoops to get a loan.

Bill and his Royal Commission could be a recession creator, which gives me mixed feelings towards Justice Hayne. But hell, I guess he’s only a lawyer doing his job! And anyway, the bad behaviour of banks had been ignored by too many government ministers over decades and Bill was one of them, when he was Minister for Super!

My conclusion is a reworking of Steve’s view. Rather than this was an election that it was best for Bill to lose, it was one where we’re lucky the Coalition has prevailed. Scomo will be more supportive of borrowers to help house prices stabilize. He’ll back small business employers, retirees and investors. And given the weakness, such that the RBA boss is about to cut rates, I don't think, timing-wise, we needed the tough PM that Bill promised to be.

 

Do you have money problems? Blame yourself!

Thursday, May 23, 2019

With interest rates set to be cut as early as Tuesday week, here’s a question I reckon that most homeowners can’t answer. If you can’t and you don’t do anything about it, then never complain about having money problems! At the heart of most Aussies hip pocket issues is not being underpaid. The heart of the problem is that a lot of Aussies have a cavalier approach to money or they suffer from DCA — a don’t care attitude.

But how can that be rational? It’s not. But it’s understandable because we have a lot of stuff stuffed into our lives — getting fit, bringing up kids, going to work, cleaning and maintaining the home, finding time for coffee and friends and watching Game of Thrones or Billions!

It doesn’t leave much time for making sure you don’t waste precious, relatively scarce money. And I nearly added to the problem by wasting your precious time by debating who should lead the Labor Party — the old-stager Anthony Albanese or the new boy, Jim Chalmers, who I think will be the future of the Party and who’s described as a “bogan with a PhD!”

However, given who I am, I couldn’t make you misuse your time. And even though it doesn’t take much time to put your money life in order, it’s a matter of priorities. And this is an important issue for me to spend time on.

The best and most successful businesses in the world (maybe ignore the product itself!) is McDonald’s. This is one of the most successful operations ever and it’s run by teenagers! Why? Because the systems to make a burger, satisfy a customer and so on, are so foolproof that they work in the USA, Thailand, Russia and even Afghanistan!

You need money systems to make your money life seamless, efficient and rewarding. A simple one many of us have used, especially as kids, was throwing coins in a jar to eventually cash it all in at the bank close to Christmas, or when you wanted to go to on a holiday or to a major event.

As we get older we need more high-level information to know what we should do and then we need to set some near-automatic process to get richer. Some might have a saving plan that sends part of their pay to a bank account used for buying shares. Others get their pay banked into the account linked to their mortgage to crush interest repayments over time but also to have access to redraw money if needed.

If that’s not you, well, then you’re a trouble to yourself and probably a burden to others.

So here’s a test you should challenge yourself with if you have a home loan: what is the interest rate on your home loan and, more importantly, what is the comparison rate of interest?

This comparison rate is the real rate you pay as it’s the advertised or headline rate, which is used to get you in, but then lenders wack on fees and charges to take the real cost of a loan higher. That’s why I asked you what your comparison rate is.

Let’s try to give you a hip pocket reason to know your comparison rate.

The lowest variable rate home loan on the ratecity.com.au website was loans.com.au’s online product at 3.48% but even here the comparison rate was 3.5%.

If you went to the ANZ website for a standard variable home loan, the rate is 5.36% with a comparison rate of 5.46%. I think if you compare this sentence with the one above it, it shows why you should go to comparison websites such as ratecity.com.au and finder.com.au to make sure you’re not overpaying and killing your chances of ever getting rich!

Even ME Bank, which hailed out of the union movement, has some tricky interest rate products. Its 3-year fixed rate home loan (called a Flexible Loan) has a headline rate of a great 3.58% but the comparison rate is, wait for it, 4.26%! A RAMS 2-year fixed rate loan goes from 3.59% to a huge 5.17%. So it pays to be organized, researched and systems-oriented when it comes to loans and your money.

Just take this in. A $500,000 loan over 25 years at 4% will mean monthly repayments of $2,649 and a total payment of $794,755. But if you were really paying 5% because you did not check your comparison rate, you’d pay $2,933 a month and you’d pay out $879,885 over the life of the loan.

That would mean you’d pay out $85,130 extra over the life of the loan. And if you’d gone for an even cheaper loan, you could have saved over $100,000!

I reckon millions of Aussies are paying too much on their home loans, credit cards and other loans. They’re in the wrong super fund that underperforms and overcharges. They shop in places that are too expensive. Through poor money management they could be kissing goodbye half a million dollars over their working life because they’re money disorganised and living their lives in money chaos, bereft of systems.

I reckon if we treated our money lives like a business, we’d be on top of our expenses and we’d think about how we maximized our revenue daily. Money in your bank account, purse or wallet not only makes your life richer, you can make the lives of the people you love richer.

Apart from being able to help the ones you care for, when you don’t have money worries, you’re generally in a better headspace so you can be a really positive force not just in your own life but in the lives of others.

This is the question you have to ask: “Should I really be kissing goodbye half a million dollars because I have DCA about money and the good it might bring to me and the others I care about?”

I hope I make you feel guilty.

 

Rate cuts are coming. Read all about it!

Wednesday, May 22, 2019

One thing that was proven yesterday was that our RBA Governor, Dr Phil Lowe, didn’t want to get political during the election campaign. That’s fine but he might have taken a risk on not being economic and delaying a rate cut by a month!

Yep, after sifting through his lunchtime speech, I’m now in the “yes he will cut” camp. And CommSec’s chief economist, Craig James, is now expecting cuts in, wait for it, June and August!

Dr Phil’s speech was called “The Economic Outlook and Monetary Policy”, which was a pretty boring title but what can you expect from steady types like central bankers?

That said, he didn’t mince his words. He wants to get confidence up as quickly as he can because he’s more concerned about the economy than he was when I lunched with him at the National Press Club get together in early February.

I don’t know what you’re like at copping hints or tips but you’d have to be thick not to cop this one from Dr Phil after he said this: “A lower cash rate would support employment growth and bring forward the time when inflation is consistent with the target. Given this assessment, at our meeting in two weeks’ time, we will consider the case for lower interest rates.”

It’s over red rover: it’s cutting time! And all the economists (such as Westpac’s Bill Evans, AMP Capital’s Shane Oliver and recently NAB’s Alan Oster), who have been calling for this for over six months, have been ahead of the curve.

It could be because they’ve seen first-hand how the Royal Commission and APRA have stifled bank lending. I’ve said here before that Mortgage Choice’s CEO Susan Mitchell told me that 20% of borrowers, who used to get loans, are now copping a “No” or a reduced loan offering.

And when one in five people can’t get the money to buy homes, expand their business or renovate, it’s a pretty big economic problem. This has shown up in the economic growth numbers that we saw for the September and December quarters. They added up to a measly 0.5% but when you take this six-month figure and double it to get an annualized feel for growth, it’s only 1%! That’s hopeless for job creation. I suspect the RBA is not over-impressed with the indicators for the March quarter growth, which hasn’t been released yet. And that’s why Dr Phil is giving us the heads up that a cut is coming.

I also suspect that the RBA wants to cash in on the usual confidence boost that comes when an election is over. This is especially so when the new Government is not coming with some kick-arse scary policies for business, homeowners, retirees and investors.

Interestingly, as Dr Phil was doing his speech, the weekly ANZ-Roy Morgan consumer confidence rating was released, which showed a rise of 2.1% to 117.2 points. This beats its short-term average of 114.4 points held since 2014 and the long-term average of 113.1 points held since 1990.

Phil’s change of heart is linked to the Government’s best story — its job creation record — which is starting to lose some of its oomph. This is what he said on the subject: “Recently, some labour market indicators have softened a little: the unemployment rate ticked up to 5.2 per cent in April; the underemployment rate has also moved a little higher as there are more part-time workers who are seeking additional hours; job advertisements have declined; and hiring intentions have come off their earlier highs.” 

Dr Lowe is right. It looks like he’s set to take out some insurance by cutting now to try and arrest any excessive negative developments in the job market.

Phil accepts a rate cut might have less effect than it has in the past, given how low rates are, but he thinks “a lower level of interest rates could still be expected to support the economy through a depreciation of the exchange rate and by reducing required interest payments on borrowing, freeing up cash for other expenditure.” 

This is a careful guy trying to put a circuit-breaker on a bout of negativity and given there are ‘experts’ telling us that there is mortgage stress out there, though how they measure that accurately baffles me, lower repayments should be a help.

But Dr. Phil knows the economy needs more than rate cuts so he’s put the acid test on Scomo for some friendly fiscal measures to get Aussies spending. He called for the tax cuts ASAP and wants the Government to spend on infrastructure projects.

If you had to sum up the speech, you’d have to think about the Little River Band number that goes: “Hang on, help is on its way. I’ll be there as fast as I can...”

On Friday, financial markets were ‘betting’ that a June rate cut was an 80% chance but now, after what I’d say is the biggest central bank inside info tip of all time, it would be getting close to 100%! But after last Saturday’s sure thing with Shorten, I’d only put a smaller wager on it. There are now three things that are certain: death, taxes and the unreliability of polls!

 

Bill messed with too many great Aussie dreams and lost!

Tuesday, May 21, 2019

Overnight US stocks were down, with another Trump trade bomb being thrown at China, with further crackdown on Chinese telecom giant Huawei. Australians who prefer to get richer rather than poorer have had to deal with five significant threats to our stock prices, our super, our jobs, our profits and the value of our homes. And deep down, apart from specific issues that might have riled those who didn’t vote for Bill Shorten, I do believe the economic threat he posed worked against him.

Before looking at the economic reasons Labor lost on the weekend, remember our wealth over the past year has been threatened by:

• The Fed wanting to raise interest rates in the US, which might have caused a recession. (That’s not going to happen now.)

• The Trump-China trade war threat that still hangs over us and is linked to the Huawei controversy.

• The impact of the Royal Commission and the APRA assault on banks and lending, which is still a problem but with a Coalition win should become less of a threat. Yesterday Westpac’s share price rose 9%, which says the stock market thinks there’ll be less persecution of banks under Scomo.

See our Switzer TV stock market wrap:

• The above has worsened the house price falls and worked to slow down the economy. The election result and probable improvement in confidence and investment by business will help lift growth. The 104-point gain in the All Ords yesterday reflects a belief that stock market players agree with me.

• The threat of the election was the final challenge to building wealth.

Four out of five of these headwinds to wealth improvement have turned from negative to positive, which explains why the stock market is now at an all-time high. CMC’s Michael McCarthy told my Switzer Show podcast yesterday that he thinks we’re seeing a possible stock market breakout that could catapult us through our all-time high on the S&P/ASX 200 Index of  6828.70, which in November 2007 ahead of the GFC!

Back to Bill and why he lost.

Let’s face it, if you were someone who feared your house’s future price would be lower because of Labor’s negative gearing changes, you might have voted for Scomo. And if you were a property investor as well, you would have been doubly scared of Bill.

If you were a self-funded retiree who was going to lose your franking credits and was going to see your income drop by say $10,000, when you’re on limited income, you would’ve wanted Bill’s guts for garters.

And maybe these people’s families were worried about their loved one’s position after the election and some might have thought “Bill’s shrinking my inheritance!”

Small business owners had to be worried about Bill’s plan for a living wage, specifically, and his plans for higher wages generally. This is how the ABC website reported Bill’s wage plans: “Bill Shorten pledges to lift minimum wage, but businesses are warning job cuts could follow. Labor leader Bill Shorten has pledged to lift the minimum wage, claiming that the statutory $18.93 per hour is “too low” for the average adult to look after their family.”

The problem with this caring idea is that since the GFC and the growth of the Internet, e-commerce, globalisation of our markets (where we buy stuff) and digital disruption, lots of businesses can’t easily raise prices. And that in part explains why wage rises are harder to come by nowadays.

Small business owners and even some of their staff might have got it that a secure job is better than one threatened by general pay rises. There’s over 2 million small and medium-size businesses in Australia. And then you have to throw in the ‘cranky franky’ self-funded retirees. And homeowners, who number about 30% of the 8.4 million households, means that over 2.5 million Aussies watched TV on Saturday night in suburbs where they’ve just seen some of the biggest falls in house prices ever!

If you throw in the rural community, which is historically anti-Labor, the sales of baseball bats in recent weeks had to be the best indicator of what was going to happen to Labor and Bill on Saturday!

No one should doubt Bill’s good intent but it was a plan for an imagined or minority Aussie, where he unwisely thought he could easily tell some that they would have to pay for his dreams for others.

The great entrepreneurs like Richard Branson and Jeff Bezos of Amazon understood what their constituency wanted because they understood the individuals who make up the numbers. The next Labor leader has to stop being driven by the party powerbrokers and more by what those people they hope to lead want.

Sure, they have to do it differently from the Coalition but it has to be what can be sold to the voters of Australia. And the way to do that is to know what these people dream about.

Bill messed with too many Aussies’ great Australian dreams — the value of their house, the success of their business, their ‘worked for and built’ retirement nest eggs and their plans to progressively get wealthier to make sure they can look after their loved ones.

Why Scott Morrison won was captured in his ‘thank you’ speech on Saturday night that showed he was more in touch with Aussie voters. Like a lot of entrepreneurs, his secret of success was that he listened hard to the silent majority.

Hell, there’s a lesson in that for everyone. In politics, as in business, you have to be a dream-giver not a dream-taker!

 

Aussies understand: it’s the economy, stupid!

Monday, May 20, 2019

Over the past year, with the election a looming issue for business people and investors I talk to at conferences, I made the point that it looked likely that Bill Shorten would win the election and that his controversial policies (higher wages, negative gearing changes, the halving of the capital gains tax discount, changes to franking credits etc.) would challenge the economy and the stock market.

That said, you might recall I speculated that a short-term boom was on the cards as investors chased property and stocks ahead of the proposed negative gearing and capital gains tax discount changes starting on 1 January 2020. However, I warned another Bill shock promise — that nominated start date of 1 January — would not only create a short-term rush to buy stocks and investment properties, it would also create an investment cliff for assets prices to fall over!

Against this more likely scenario, I looked at Scott Morrison’s chances and the effects of his more limited and less controversial policies in concert with a picture of that great and lucky Olympic gold medal winning skater, Steven Bradbury. The audiences liked the idea of the hope of team Scomo defying the odds and being the last man standing when the election counting finishing line loomed.

Purely as an economist, I’d argue that this was the best and less controversial outcome for the economy, jobs, stocks prices and the value of our property. And this latter issue that Labor’s property prices would ultimately take property investors out of the market and lower the prices of everyone’s real estate had to be a factor that worked to bring Bill down on Saturday night.

Three weeks ago, I interviewed Richo (Graham Richardson) for our Investor Strategy Day and asked him whether Scomo had a chance, given that Labor was threatening small businesses with wage rises, homeowners with lower house prices, self-funded retirees with bans on tax refunds and his perceived unsupportive stance to rural communities, who tend to be anti-Labor?

Richo agreed but said that the Coalition hadn’t effectively reached out to these groups. Well, over three weeks of him being on the campaign trail, the PM made a monkey out of Newspoll, Ipsos, Galaxy, the bookies and all the political analysts, including yours truly, who argued the best conservative voters could hope for was a hung Parliament, with Clive Palmer holding the ‘Trump’ card!

We did better than that!

I don’t want to look at the moral of this great win for Scomo — others will do that all day. I want to look at the likely economic impact of how we voted on Saturday. Here’s the summary, with likely effects:

• Campaign spending/promises by the Coalition, who promised to spend $13.869 billion over four years, which would add to growth and jobs.

• The less controversial Coalition promises are likely to lead to a rebound in business confidence.

• Stability of financial markets, post-election and the notion of stable leadership in Canberra should help consumer confidence.

• The negative spending effect by business and consumers that we talk about before an election should be reversed now the election is over.

• Signs that house price falls might be bottoming — better auction clearance rates, slower monthly price falls — will be given more encouragement.

• The First Home Loan Deposit Scheme, which will allow eligible first home buyers with an income of up to $125,000 (or $200,000 for a couple) to purchase a home with a deposit as low as 5%, will also help slow down house price falls.

• The stock market should take another leg up and if a Trump trade war truce happens soon, we could go even higher.

• Foreign investors could easily have exited after a Labor win and they might have already, so this election result will be good for those stock prices influenced by foreign investment.

• This would be good news for our super funds’ growth and balances.

• The end of anxiety for self-funded retirees that they could lose a fair chunk of the money they live on will be good for consumption and investing.

• The potential political harassment for banks by Labor should help bank share prices and these have a big influence over the stock market.

• And, of course, there are Budget-promised tax cuts coming, which should also add stimulus to an economy that has been faltering.

Both Labor and the Coalition’s policies would have added oomph to an economy growing at 2.3%. On that subject I think the growth number is lower. The six months to December produced only 0.5% growth and if you multiply that by two, that’s annualised growth of 1%!

I think things have improved but not by much, as the election threat, trade war concerns, slumping house prices and the fallout from the APRA bank crackdown, along with the Royal Commission, have crushed bank lending to borrowers.

And this is a huge issue for Scomo and his team to address ASAP. Bad borrowers shouldn’t get money but good ones should. At the moment, good risk borrowers are being treated very badly because banks have had the frighteners put on them.

A Labor supporter has to be crestfallen today but from an economist’s point of view, the economy got the best result on Saturday. If my analysis works out, job growth will continue and this will lead to better wages growth. And that could be the dividend for a lot of disappointed Labor voters.

 

With the economy slowing, let’s hope Shorten channels Hawke, not Whitlam

Friday, May 17, 2019

It was interesting that Bill Shorten was channelling Gough Whitlam this week in his speech at Bowman Hall, Blacktown, where the ALP joined celebrities before the 1972 election win to sing the now famous “It’s Time” song. Gough was an inspirational leader but an economic light weight. Ironically, the leader I’ve been hoping Bill Shorten could become — Bob Hawke — passed away last night.

This wasn’t a great week for the economy and history shows Labor governments often cop a crappy economy. And because it’s led by “bleeding hearts for battlers”, if you sum up the messages the Party puts out before elections, they’re OK performers in a weakening economy.

Whitlam walked into the oil crisis of the early 1970s but his policies didn’t help. As Graham Richardson told me in an interview last week, Gough’s appointment of the very left-wing Jim Cairns as Treasurer, “showed us what Gough thought about economics!”

Hawke and Paul Keating won the 1983 election on the back of a recession, where the Budget was deep in deficit and both unemployment and inflation were sky high. The jobless rate was around 10%, with inflation around the same mark!

 

Hawke and Keating not only became different leaders in themselves, deregulating the financial system, floating the dollar, winning the unions over to the Accord to link wage rises to productivity and tax reform, they even dismantled trade protection, which helped explain why our economy has grown for 28 years without a recession!

That story was helped by John Howard and Peter Costello but since the GFC, the reforms haven’t been memorable, though a lot of that was because of the GFC, which was largely created by crazy lending in the US and the failure of debt rating agencies to properly rate collateral debt obligations (or CDOs), which were thought to contain basically AAA home loans. However, they were stacked with sub-prime or NINJA loans, where the borrowers had no income, no jobs and no assets!

This was a Great Depression in the making. The fact that we didn’t see unemployment go over 6% shows Kevin Rudd and Wayne Swan did the Labor thing and threw money at the problem, and it worked.

Unfortunately, Labor’s infighting and leadership changes meant that politics dominated over sound economics and the results weren’t great. Under Tony Abbott and Malcolm Turnbull, the Coalition suffered the same leadership weaknesses. At least under Turnbull and Morrison, their “jobs and growth” platform at the last election has worked out and the Budget’s last reading was a surplus!

So do we need a Gough-Shorten or a Hawke-Shorten, given where our economy is heading?

This is an easy question to answer: it’s a Hawke-like leader we need with the economy challenged by a slowdown, falling house prices, both business and consumer confidence weakness, a banking system not lending enough following the Royal Commission castigation process and a global economy challenging us with digital disruption, as well as someone called Donald Trump, who’s trying to mess with our most important export customer — China!

Happily, the Treasurer-in-waiting, Chris Bowen, is said to have studied Paul Keating, though I don’t think he has shown the ability to disagree with his leader like Keating did. The strength of the Hawke-Keating partnership was the differences they brought to the table. Hawke was the most economically-trained PM ever, though Keating, who learnt on the job, picked up the knowledge faster than anyone I’ve seen. He made mistakes on interest rates in the late 1980s but so did the rest of the world’s central bankers, as deregulation brought with it monetary policy challenges never seen before.

But on the big issues, except on the tax package of 1985 (which was to bring a retail sales tax or RST which was like a GST in principle), Hawke and Keating had guts. They took on their own Party, the unions and business. With business, they understood that their Government had to work hand-in-glove with the job-makers and investors, who would not only help raise the lifestyles of Australians but ensure they remain in power.

I always remember Hawke explaining his un-Labor policies to a probing and biting journalist like Richard Carleton, where he said something like “I can’t do anything for my constituency if I’m in Opposition.”

That was reality and good sense that I hope Bill Shorten can embrace, if he wins tomorrow. I hope he and Bowen will look to Hawke and Keating rather than Whitlam and Cairns.

When Whitlam lost the 1975 election, Tanberg penned an apt cartoon that showed Gough sitting in a classroom with Malcolm Fraser sitting behind him like a pair of school mates.

On the blackboard was the word: “ECONOMICS” and Gough was talking to Malcolm saying: “This is a great subject. I failed it last year!”

If Bill wins, I hope he understands what Hawke understood. I said it in yesterday’s column but here it is again: “It’s the economy stupid.”

 

Can we trust the ‘new look’ business Bill?

Thursday, May 16, 2019

The election question posed today is: “Can the new and improved ‘business-friendly’ Bill Shorten be trusted?” It’s the key question you have think about, if you believe businesses are important for job creation, wage increases and growing the economy to boost tax collections, which then can be used for needed social welfare and assistance to business to keep the growth story happening.

When I’ve heard some of Bill’s policy pitches in recent weeks, I’ve wondered if he understood the importance of business in the economic cycle. But in today’s AFR, Jennifer Hewitt tells us that Bill is giving himself a pro-business makeover!

Jennifer writes that “he won’t be controlled by unions, he insists, but will work with business as well as with unions.”

Given Labor’s dominance in the popularity polls during the Abbott, Turnbull and Morrison years, and given Bill’s tough anti-business rhetoric, especially to the “big end of town”, I recently wrote a piece that was headlined “You’ve got to hope Bill isn’t a liar!”

This is when he said he wouldn’t be pushed around by the union movement. But as his list of policies, which seemed so anti-business and anti-investor mounted up, I started to hope that Bill would prove to be a liar. And there’s a bit of history around good leaders being creative, talented, re-arrangers of the truth.

Remember John Howard said he’d never introduce a GST, though he did have the guts to propose one ahead of an election when he decided to change his promise. Of course, the famous Julia Gillard ‘porkie’ on a carbon tax was an unforgettable pre-election lie. I don’t think Gillard recovered from that big U-turn on truth.

Bob Hawke and Paul Keating of the pre-election campaign in 1983 were very different beasts to the ones who, when in power, deregulated the banks and the dollar, reduced trade protection and got the unions to play ball with business to boost productivity and create jobs. As a young economist, I was staggered when I saw that the share of income going to profits compared to wages under Hawke and Keating actually increased but workers saw the benefit as jobs increased as the national economic cake grew.

Many of those aggressive changes depowered the union movement and encouraged business and explain a lot of the economic growth over the past 28 years that has beaten off the threat of a recession, which is a world record!

So lying PMs or leaders, who don’t give us the full picture on what they’ll really do, can actually end up being OK for the economy and the country. However, is Bill a liar you can trust?

Jennifer’s not convinced. “The catch for the Coalition is its own record does little to inspire the confidence of the business community either. From energy policy to industrial relations to economic innovation, the government is considered to be either missing in action or punitive in its approach,” she reminded us.

If I throw in more anti-business stuff from Bill, such as penalty rates and promised wage rises for low to middle-income workers, then employers who own businesses or represent the shareholders who do, have to be a little worried about the Bill Shorten we’ve seen until today.

At Labor’s launch, business was pushed into the background as there are more workers who are voters than there are business owners, so Bill has gone long on promising higher wages. On wages, Shorten said Labor would restore penalty rates, legislate a living wage, intervene to pay childcare workers more and put in place incentives for businesses to invest and employ more.  “If we win this election, our priority is not making the rich very richer. It is getting wages moving again for working people, starting with laws to reinstate our penalty rates in the first 100 days,” Shorten said. (The Guardian)

All this makes Bill look like a lackey of the union movement but his promised $10 billion boost to investment shows that he might prove to be pro-business, if he can be trusted.

Under Labor's Australian Investment Guarantee, all Australian businesses would be able to immediately deduct 20% of an investment in eligible depreciable assets over $20,000, with the balance depreciated in line with normal depreciation schedules from the first year.

This could be good for big and small business and it comes as business investment has been having a shocker and is at a 25-year low, as the chart below shows.

This new and improved business-Bill looks a little phony and timed to win swinging voters in the last few days of the election campaign.

That said, when I dealt with Bill as a Labor Minister under PMs Rudd-Gillard-Rudd, my memory of him was one that was more right than left. When I interviewed Graham Richardson two weeks ago, he told my Switzer Investment Strategy Day audience that “Bill has always been of the Right.” My reply, which the audience agreed with, was: “Well, he looks left to me!”

Admittedly that audience was largely older self-funded retirees, who are being robbed of the tax refunds successive government finance ministers, including Bill himself when he was head honcho of Superannuation in the Gillard Government, had thought OK.

Elections encourage rearrangement of reality by would-be PMs. Richo implied Bill is saying everything to get himself across the line on Saturday because if he loses, his career is finished.

I reckon Bill will be more pro-business than many of us think because he’s a pragmatist. If he wins, he’ll inherit an economy that could easily slow down markedly. Therefore his policies of smashing investors, banks and wage-paying employers might have to be delayed or even dropped to ensure his Government doesn’t see the recession that has eluded us for over 28 years.

As a politician of Bill’s persuasion, Bill Clinton told his Democrat colleagues: “It’s the economy, stupid.”

That’s why I hope Bill is a liar when it comes to his anti-business and anti-investor rhetoric. Fortunately, if he’s not, the Senate could easily get in the way of his more counterproductive policies, such as making self-funded retirees relatively poorer by denying them tax refunds.

 

Property investors are not parasites

Thursday, May 16, 2019

Some of my tormenting Twitter trolls seem to think that debating isn’t about getting to the truth or to get the best overall economic outcome for the biggest number of people. They seem to think it’s about insulting, not analysing. I don’t know how these committed critics of capitalism will take to the research that says property investors are not parasites!

One of my critics often reminds me that homes are for living in, not for speculation, that is, making money out of them! That piece of thinking tells you what this guy’s view on modern capitalism! As I’m someone who tries to think about my intellectual opponent’s views, this belief troubles me.

Over the weekend, I was walking past a Greens sign ahead of the election that read: COMMUNITY NEEDS, NOT DEVELOPER GREED. VOTE 1 THE GREENS.

As a despised baby boomer, those words got me thinking and my first thought was: “Yep, I don’t want towering apartment blocks next to me. Go the Greens!”

But then the objective me, who writes this stuff daily, came back with: “Hang on. What about younger people who don’t want to move out to the boondocks to buy a house?”

On one hand, the Greens harness the passion and the commitment of the young, who enthusiastically relate to their view on climate change. But these greenie earth-loving Aussies don’t want to give up their uninvaded lives to let young people move into the suburbs close to the CBD, their workplaces, beaches, better transport hubs, cafes and other facilities loved by younger people.

The Greens would care about youth unemployment but even since the 1980s, when I taught economics at the University of New South Wales, we taught that Australia’s hopeless and expensive transport systems disadvantaged younger and less wealthy people, as most of the working opportunities were closer to the CBD or newer rival business districts. These too were often a long way from the boondocks, where the Greens would banish these less wealthy younger people.

And on the subject of “greedy developers”, if money-making private funders and builders of apartments for younger Aussies are barred from producing what young people want (i.e. apartments in cool areas), will we rely on governments to build these? Anyone who has seen the social abominations in public housing buildings in Sydney and Melbourne wouldn’t hold out much hope for public sector developers.

It’s a conundrum but I suspect we need developers. And guess what? In all the trendy homes that well-off Greens supporters live in, most of them were built by “greedy developers” of the late 1890s, 1900s, 1920s, 1950s and so on.

The RBA has shown that restrictive zoning rules put on developers add $489,000 to the cost of an average Sydney home and $324,000 in Melbourne. And the whole pile-on effect of taxes from all levels of government on greedy developers can add one-third to the price of a new home, which ends up being paid by consumers. These “greedy developers” want to make a profit to avoid losses that could end their businesses and their ability to create jobs in the sector, which is the biggest employer in Australia.

Ah yes, those greedy developers providing jobs so people can buy homes, look after their loved ones and have a life with a bit of fun — will the Greens ever stop this threat to happiness?

Now to the revelation that says property investors are OK Aussies, who actually pay a lot of tax!

Property investors who use negative gearing and capital gains tax deductions end up paying almost three times more tax than the subsidies they receive from government, new modelling shows,” writes the respected Matthew Cranston in today’s AFR.

Those suspicious of this news won’t like the fact that this analysis came from the ‘union’ of greedy developers — the Property Investors Council of Australia!

Using an acceptable price for a property of $600,000, average income of the buyer, a 6% appreciation p.a., and including the current capital gains tax discount, the figuring showed that the tax deductions were, in this case, $29,410 over 11 years. However when you calculate the capital gain that property investors pay to the tax office via the capital gains tax (which is then passed on to welfare recipients, young people who get childcare rebates and others helped by the public purse, including business), the tax paid to the government is $86,000 or 2.9 times the amount claimed in deductions! Effectively others share in the ‘spoils’ of the property investor.

These numbers show that if you look at one side of someone’s activities with one eye, you can get a distorted view of reality.

Lots of greedy developers go broke, while many succeed providing jobs and income for others and homes people love to live in over a largely happy lifetime.

Property investors do the work that governments used to do and these people choose to use their money to provide rental homes for those who can’t or won’t buy bricks and mortar abodes for themselves. These investors could avoid this activity and invest in stocks, go overseas, buy new cars, more TVs or new clothes but they prefer to sacrifice now to be self-funded in retirement.

And ironically, these people could be heading for extinction if Labor wins on Saturday and the Senate doesn’t put restrictions on some of their anti-investor policies.

 

Trump gambles our super and our jobs

Tuesday, May 14, 2019

“Oh Donald you’ve done it again!” Yep, if you come across the news today that our stock market has nosedived again, you can primarily blame the US President, Donald Trump, who again has poked the bull in the ‘China’ shop and stocks have slumped on Wall Street.

In most things in life I try to be tolerant and accepting, as we live in a plural society. However it doesn’t mean I have to agree with some of the crazy points of view that come with our diverse views, though I’m prepared to accept that even ‘crazies’ can bring positives to the table.

Donald fits this bill perfectly. Since his arrival in the White House, global stock markets have benefitted from his impact on Wall Street. The chart below shows how stocks have gone higher since his election-winning acceptance speech in November 2016.

Source: finance.yahoo.com

Since his arrival, the US stock market was up about 35% before the Chinese retaliated overnight to his escalation of the trade war, with $US200 billion worth of Chinese goods copping a 25% tariff. That has led to a 2.4% slump in the S&P 500 Index, while the Dow Jones Index gave up 617 points (or 2.38%) to finish at 25,324.99.

Donald has generally been good for business and stocks but his trade war preoccupation could prove to be his Waterloo. Since early January, stocks have sneaked up, based on two 2019 expectations.

First, the Fed had virtually signalled that it wouldn’t continue with its plan to raise interest rates in 2019. Donald pressured The Fed not to go too hard on rates and history has shown that he was more perceptive about the US economy than the country’s central bank. When the Fed’s boss, Jerome Powell, informed the market that he would be patient on rates, the US stock market took off around December 23.

Second, from early January, Donald was tweeting about how well the trade talks with China were going so it was expected that a deal would be struck by March 27. However, the President and China’s leadership has been playing ducks and drakes on an agreement, which has culminated in this sell off.

Donald keeps saying that the Chinese will pay for their failure to play ball with what he thinks is a fairer trade relationship but recent Goldman Sachs research contradicts his tweets!

The Goldman study has shown the cost of the tariffs has fallen “entirely” on US businesses and households!

The analysis concluded that: “One might have expected that Chinese exporters of tariff-affected goods would have to lower their prices somewhat to compete in the US market, sharing in the cost of the tariffs. However, analysis at the extremely detailed item level in the two new studies shows no decline in the prices (exclusive of tariffs) of imported goods from China that faced tariffs.”

The Chinese have simply maintained their prices, despite the fact that the tariffs have made them more expensive in the US.

Goldman says ramping up the tariffs could rip 0.4% off US economic growth, which would have to be felt on Wall Street sooner rather than later.

What we’re seeing is Donald taking on a more formidable opponent than North Korea’s ‘Rocket Boy’, the EU, Mexico, Canada and the Democrats.

A Communist economy can ride out losses or reduced margins longer than a US Presidency and the last thing Donald needs, the US economy needs and the world economy needs is a US recession and a Wall Street stock market crash.

I gambled that Donald wasn’t silly enough to turn his trade talks into a full-blown trade war but China’s retaliation over night, after slamming tariffs on $US60 billion worth of US goods, suggests the worst-case scenario with this Trump trade drama could be playing out.

Of course, if Donald can do a Houdini and escape a big, recession-creating trade war, he will be hailed by many as a political genius. If he fails, he’ll be remembered as a dope who was out of his depth playing bluff poker with Xi Jinping!

I hope, for the sake of our super, investments, wealth, jobs and businesses he’s remembered as a genius!

 

Will our next PM stop the house price slide?

Monday, May 13, 2019

Last week I locked horns with the doctor of disaster, Professor Steve Keen, who again warns that house prices are set to tumble 40% nationwide! (Watch the video below).

Keen’s words come as the latest Newspoll in The Australian newspaper tells us what we all suspect that Labor’s Bill Shorten will be soon be calling The Lodge in Canberra home. So what is the central task that Shorten (or if Scomo does a Stephen Bradbury and surprisingly skates home with the election gold medal) has to address ASAP?

Obviously, the winner will have to get cracking on his central policy promises and while the campaign has shown both leaders have issues they’ve pushed to entice voters to trust them with their ‘number ones’ on the ballot paper next Saturday, there’s one big issue our next PM must address.

So what’s that?

This issue has to be the biggest threat to what Aussies care about materially i.e. their jobs and owning and covering their debts on their house. So this means economic growth is critical. And if my fellow countrymen and women were economically-inclined, they’d vote for the leader who’ll best deliver growth and jobs.

That would be the Coalition, which is more pro-employers who create the jobs, take the risks to invest and, ultimately, power the growth. At this stage, the Labor Party is not encouraging small business with its wage promises, and big business knows it has been named as public enemy number one, with banks the star ‘criminal’ in Bill Shorten’s eyes.

Recall he was the biggest advocate for the Royal Commission, which, along with APRA, has influenced the supply of credit or loans. Two weeks ago, the CEO of Mortgage Choice, Susan Mitchell told me on my Switzer Show podcast (out on Mondays) that 20% or one in five borrowers are copping a big fat “no” or are being cut back in the size of a loan.

Now this looks like good risk management by the banks but given their externally imposed restrictive lending, they are the biggest threat to growth, jobs and borrowers paying off their loans.

Keen puts forward this chart to show that excess credit has created the second highest household debt compared to GDP in the world. Lots of Keen acolytes think the 40% house price collapse is the only way out as the housing balloon gets pricked. In other parts of the world where this has happened — the USA, Ireland, Spain, etc — this credit crunch and price collapse caused a recession, rather than a recession created the problems. And that’s why our next PM needs to beat the threat of a 40% slide in house prices.

It might not be easy but a number of factors say it’s possible to take air out of the housing balloon rather than waiting for it to burst. And given Keen says the price fall could take five years, it’s worth having a crack.

The chart above shows the problem has two parts — debt and growth of GDP. If the rate of economic growth is stepped up, then the ratio of debt to GDP falls. If the rate of economic growth is faste than the economic debt, then air would come out of the balloon, without it bursting.

In the US and Irish cases during the GFC, there was an international credit crisis where banks worldwide didn’t trust each other. In both cases, the level of very bad lending was worse than the lending that has prevailed here. We haven’t had NINJA loans like in the US, where borrowers got loans without income, jobs or assets.

Sure, too many households got interest only loans but with interest rates so low, many lenders would actually be rolling off a loan at say 4.5% and then getting into a new loan at 3.89%. So long as these people retain their jobs, they might have to do it tough for a while, like most people over the age of 50, but they can keep their homes.

And that’s why the next national leader has to concentrate on promoting jobs and growth.

This chart of Irish unemployment shows why growth and jobs are critical, with the jobless rate going from 4% to 16% in three years! 

Ireland Unemployment 

This chart shows a dramatic rise in unemployment but it shows that Ireland was a basket case before the 2000’s. And given its spectacular growth based on tax haven incentives, it was always a candidate for an economic wipe-out when a global credit crunch came.

Personally I think a global recession is likely in 2021 and that’s why I think our next PM better deal with this lending/growth problem ASAP.

 

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