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Peter Switzer
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+ About Peter Switzer

About Peter Switzer

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

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

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

Testimonials

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

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


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

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


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

Sean Ashby, Co-Founder, AussieBum


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

Peter Mace, General Manager NSW, Australian Institute of Export


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

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


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

Serife Ibrahim, Stockland Corporation Ltd


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

Catherine Batch, Head of Marketing and Communications, Indue


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

Justine Goss, Strategy Group

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!

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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.

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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.”

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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.

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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.

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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!

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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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House prices to fall 40%. Prof Keen says RBA is 'brain dead'

Friday, May 10, 2019

“Heee’s back!” Yep, the Freddy Krueger of economics — Professor Steve Keen — is back telling us that Australian house prices will fall by 40%! Despite our history of public disagreement on house prices falls and when recessions will show up, Steve is a mate of mine. After the GFC, he was tipping a similar housing disaster story.

He even made a bet on a house price plunge with then-Macquarie economist, Rory Robertson. He lost that bet and ended up walking from Canberra to Mt. Kosciuszko with a T-shirt that read: “I was hopelessly wrong on house prices, ask me why.”

After that, on my TV programme, he argued he didn’t allow enough time and what governments did to prop up house prices got in the way of his predictions. He warned the growth of credit would one day prove him right. He says that day nears, as house prices in Sydney are down 14.5% from their July 2017 high, which is their worst fall since the early 1980s recession. Meanwhile, Melbourne prices are down 10.9% from their November 2017 highs, which also is their worst fall in the period since 1980.

Earlier this week I interviewed Steve by Skype. He now resides in Amsterdam, after teaching at the University of Kingston in London until recently. He maintains that house prices are bound to fall 40% and it’s becoming harder for a local government to do much about it. And he blames the Reserve Bank, claiming it’s the most “brain dead central bank on the planet!”

I came to our joust as a non-believer but I do think Steve raises some issues that can’t be ignored easily. He underlines how APRA and the consequences of the Royal Commission, with the impact on restrictive bank lending, is sowing the seeds for another big leg down for house prices.

And it’s not just a 40% fall fate for Sydney and Melbourne. He says it will be nightmare for house prices on nationally!

That’s a huge call and this chart based on the Bank of International Settlements shows why Steve is doing a Freddy Krueger.

His central argument is that credit is out of control. This means our household debt compared to our total production of goods and services (or Gross Domestic Product - GDP) is the second highest in the world, only behind Switzerland. This makes me feel personally vulnerable given my surname!

Household debt compared to GDP at 200% is the highest ever for Australia. And Steve says it’s the second highest ever. Making all this scarier is his contention that: “The RBA and mainstream economists don’t understand the role of credit.”

He compares us to the USA which, as a consequence of the GFC of 2008, which created what the Yanks called The Great Recession, where credit growth got out of control and resulted in a 39.8% fall in house prices

This chart from Steve shows that the USA, Spain and Ireland suffered a similar fate but our red line continues to defy gravity! But can it last? That’s a question someone like me, who tries to assist investors to navigate, can’t ignore because I don’t want it to happen.

That’s why I will be interviewing and filming a well-known economist this week after he or she reviews Steve’s argument. He maintains that establishment economists are over-influenced by the faulty thinking of what is called Neo-Classical Economics. He says our Reserve Bank is a classic captive and therefore is not taking the looming threat seriously.

Asked how long before this nightmare on Australian streets happens, with house prices falling 40%, Steve says, wait for it, five years.

In conclusion, Steve did warn about the debt threat before the GFC. I wrote about in my old column that I had for years in The Australian.  As a consequence, he won a US award —  the Revere Award — for accurate forecasting. But he did get local house prices wrong after the GFC, which I predicted. He has also bet me a recession was due in 2018 and he still owes me a dinner in that great Chinese restaurant in London called Hakkasan!

That said, his analysis deserves to be treated seriously. That’s what I intend to do in coming weeks. Why? Well, I advise clients and do education for thousands of investors, who read Switzer Daily and subscribe to our investment newsletter The Switzer Report.

And I have always lived by the motto that if anything is worth doing, it’s worth doing for money!

The full interview can be found below:

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Accountants are saying: “Not happy, Bill, not happy.”

Thursday, May 09, 2019

Last week I told you former Labor Senator and powerbroker, Graham Richardson, admitted that he thought Bill Shorten’s franking credits policy pertaining to self-funded retirees was “dumb”. He also thinks the negative gearing changes aren’t all that clever. Today I want to highlight another policy that I reckon slots into the “what was he smoking?” category when he thought this was a good idea.

And before I let an old mate of mine Ron Lesh of BGL loose in my column to talk about how Bill is taking on the entire accounting fraternity, let me give Bill a tick for handing out $30,000 tax deductions for employing younger and older workers. The idea is laudable and I’m not sure how it will work exactly in practice but the intent is good.

That said, the best way to create jobs is to get the economy growing. Before the election, I’ll assess both parties pro-growth strategies but for now let’s have a look at this strange decision to get the country’s accountants offside.

As a supplier of online tools to the accountants of Australia, this is what Ron sent out to his huge network of number crunchers, who in turn have a huge customer base.

What you are about to read might surprise even the staunchest Labor voters. Take it away Ron… 

“So with just two and a half weeks to go, NOW is the time to act. NOW is the time for YOU to make a difference. NOW is the time for you to talk to your clients about the tax policies proposed by Bill Shorten’s Labor.

1.    The “Retiree’s Tax”. You need to explain to your clients why this tax is discriminatory. It discriminates against SMSFs and self-funded retirees. You need to explain to your clients that franking credit refunds are a refund to shareholders of tax paid by a company. This is NOT a rort. This is a legitimate amount you as a shareholder are entitled to receive. Abolishing franking credit refunds is effectively double taxation. Why is receiving a refund of franking credits any different from receiving a refund where you employer has paid too much tax PAYG on your behalf ? This proposal is simply unfair.

2.    You need to explain to your clients the proposed negative gearing changes. You might want to remind your clients what happened last time Labor decided to stop negative gearing – how rents went up as did property prices. And remember, these proposals affect not only negatively geared properties but shares, businesses, what else ? So you won’t be able to deduct excess interest on the purchase of a business. What an incentive NOT to invest in Australia.

3.    You need to explain to your clients why placing a limit of $3,000 on personal accounting is also discriminatory. So people going through a divorce will now not only be screwed over by the Family Court and lawyers, now they will also be screwed over by the government. What about people wanting to invest, to set up  business ? Again this proposal is just unfair.

4.    You need to explain to your clients how the proposed 30% tax on trust distributions will affect them. Another simply unfair proposal for farmers and other small business owners.

But it is the changes to superannuation that concern me the most. Labor will reduce the amount of non-concessional contributions from $100,000 per annum to $75,000 per annum. Older Australians have been using these contributions to top up their super to keep them off the aged pension. Under Labor, this will become even more difficult. Labor has also said it will tax pensions over $75,000. So first your concessional contributions are taxed on the way into the fund, second the income of the fund is taxed and now Labor wants to tax your pension on the way out. No other country in the world imposes this level of taxation on pension funds and pensions. So first the current Liberal government introduces an arbitrary balance cap, and now Labor want you to have even less income in retirement. You and your clients have saved all their life for retirement. You have paid taxes. You have followed to rules. And now Labor wants to put its hands even deeper into your pockets to steal more of your super. Again, this is simply unfair. And what will increasing compulsory contributions 26% from 9.5% to 12% do to your small business clients?

Australia simply cannot afford Labor’s ill-conceived discriminatory tax policies.

So the time for you to act in NOW. I know most accountants are not proactive when it comes to talking about these issues with your clients. But for maybe the first time in your life you need to be. Do you want to live in socialist Australia ? (See Venezuela for an example of how well socialism works) Do you want a Death Tax or Death Duties?  Think about this very carefully – many people in the Labor party, the socialist Greens and the unions (Labor’s sponsors) support a Death Tax. This is not a hypothetical.

Also, remind your clients of last time we had a Labor government ? What has changed ? Same people except no Rudd and no Gillard. Remember how Labor told us “There will be no Carbon Tax under a government I lead” and what happened less than six months later?

So Accountants: NOW the time to act is NOW. NOW is your time to affect an election result. NOW is your time to explain to your clients why: Australia simply cannot afford Labor’s ill-conceived discriminatory tax policies.”

OK, OK, Ron did get very political and very anti-socialist but he did make a lot of points that the average voter should be made aware of.

On the $3,000 cap to accounting bills, it’s not clear if it covers the work done for Business Activity Statements and in fact, we don’t know the full ins and outs of the changes but we’re told it will apply to “trustees of self-managed superannuation funds and also to trusts and partnerships.” (SMH)

It’s tipped only 90,000 taxpayers will be affected, so most won’t be affected but I reckon a lot of those 90,000 are small business growers, employers, demanders of other businesses’ products and therefore the customers who business creates other jobs, income and tax collections.

I really wish Labor understood that their ‘enemies’ should be their greatest allies in helping the average Aussie have a better life. It doesn’t come from welfare but from job creation and the sense of self-worth that success breeds.

Am I smoking something thinking that’s possible?

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Will Trump cause a recession this week?

Thursday, May 09, 2019

The US President tweeted again but this time his message was more positive about the signing of a trade deal with China. However stocks didn’t spike like they have before. So has the stock market got tired of Donald Trump’s “Art of the Deal” stunts?

I’m certainly tired of it and so were the 500 people who turned up to our Switzer Investor Strategy Day in Brisbane yesterday. The irony is that a large group of the older investors who attended and who might be philosophically and politically supportive of Donald, still don’t like to see their invested capital go down on the grandstanding, negotiating ploys of a very unusual leader of the most important economy and stock market in the world!

To normal people who don’t wake up and instantly look to what Wall Street is doing ahead of the closing bell on the New York Stock Exchange — which is what I do — they won’t be affected or even know about Donald’s antics until the fallout or the success of his unique, Twitter-based politicking turns into a headline for the daily news on TV, radio and in newspapers.

So in case you’ve been distracted by other politicians’ politicking for the May 18 Scomo-Shorten showdown, the leader of the free world is expected to sign a trade deal with China this week. If the deal gets inked, the headline will be tame and might get a mention on TV and radio news and stocks will head up.

And as it’s going to be good news for the stock market, your wealth via your super fund, your job security or your business’s success, newsrooms won’t give much attention to it. However, if Donald opts for the less expected strategy of rejecting the Chinese delegation’s offering of trade concessions and chooses to introduce those promised 10% tariffs on $US200 billion worth of goods from China, then negatively-programmed news editors will rummage through their mental headline ‘drawer’ and come up with something like “It’s War!”

Of course, it’s a trade war but using the word “trade” might make a lot of people instantly bored, so “It’s War!” would more likely be used, despite its ‘slight’ inaccuracy.

The modern media idea of news has changed substantially but I can’t emphasize the importance of these trade negotiations and you’d better hope  a deal gets signed or stock prices will fall. And they could fall pretty heftily, as financial market players have built into their positivity for stocks and their enthusiasm to buy stocks, the belief that a trade war would be averted.

Why have they believed this? Well, it’s simple. Trump tweets have been telling us so until this week and stock markets haven’t liked what they’ve been asked to digest. The chart below of the S&P 500 index, which captures the stock price moves of the USA’s biggest listed companies, including the likes of Apple, Microsoft, Facebook, Google, Amazon along with the big names like GM, IBM, GE and so on. The red colour tells you that the stock market is down on Donald’s trade tweets.

Source: finance.yahoo.com

But this isn’t just a big end of town problem for US and China companies trading in imports and exports, because a trade war could cause a global recession!

World economic growth has been falling such that China and Europe have introduced economic stimulus programmes and the US Fed boss, Jerome Powell, has U-turned on interest rates, going from wanting to raise rates to becoming an “on hold” kind of guy.

If Donald screws up on this trade deal, US rates would be cut to try to avert a recession, which would in all likelihood go global!

That would threaten your job, your business, your super balance and your house price would take another leg or two down!

My best guess is that Donald will crack a deal this week and the stock market will go up. He can’t afford a recession and a stock market crash ahead of his November 2020 poll, when he hopes to be re-elected.

That said, this guy is a very unusual guy and what he’s prepared to gamble and how he’s prepared to gamble defies the logic of someone like me or just about anyone else on the planet!

I hope that China’s leader, Xi Jinping, ends up being the saviour of the global economy, our stock market rally, our businesses, our jobs, our super and our house prices.

I know it sounds dramatic but this Donald drama could have an unhappy ending.

Go Xi Jinping!

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