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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

The housing boom is over but don't lose any sleep!

Wednesday, December 13, 2017

By Peter Switzer

Thank God the housing boom is over. Now alarmists can worry about something else! But for those who have been warning us for about three years that our obsession with buying houses, no matter the price, will end in tears, there doesn’t seem to be a collapse on the horizon.

We’ve had Boston-based hedge fund managers tipping economic Armageddon for our house prices for over three years. Meanwhile, a Pommie economist and a sneaky hedge fund manager, who was shorting bank stocks, pretended to be a gay couple looking for dodgy home loan offerings from mortgage brokers in Sydney’s west.

They tried to say our loan practices were like the US sub-prime ones that created the GFC and was the basis of the film The Big Short.

To date, however, the house price collapse hasn’t showed up, probably because these negative types have got their economic forecasts wrong!

And as a consequence, headlines such as “The Housing Boom is Over!” don’t mean that house price collapses are around the corner. And even if they did fall more than say I expect, that won’t mean life devastation.

In fact, the house price experience going forward could be OK and let me show you why.

First, the Bureau of Statistics yesterday reported that Australian home prices fell by 0.2% in the September quarter to stand 8.3% higher over the year. So, over three months, the fall was 0.3% and yet the gain over the year was still over 8%!

Second, The Age today quotes HSBC economist, Paul Bloxham, who says the house price boom is nearly over but get this: he thinks overall house price growth next year will still be in the low single-digits.

This is a classic soft landing but this expected sedate price rise, rather than a crash, follows five years of double-digit price gains for Sydney and Melbourne. The forever-tipped house price collapse looks underwhelming. It’s akin to how Paul Keating described being beaten up by my old mate Dr. John Hewson: “His performance is like being flogged with a warm lettuce!”

Third, our economy isn’t expected to fall into a hole. In fact, economic growth is tipped to rise from 2.8% — the latest reading — to 3% plus over 2018, which will keep unemployment falling and jobs being created. And wages rises should help sustain consumer/buyer confidence.

A house price collapse needs a serious rise in unemployment, where the over-borrowed can’t make their payments. The next recession could create a bit of that but recessions always do that.

The anti-Aussie housing boom fraternity has tried to say the five years of prices rises would bring big problems but Bloxham wisely argues that we’d have to have a major problem ‘imported’ from overseas that would really hurt the job market. It would be a classic black swan event which, by definition, would be unexpected by most experts.

Like yours truly, Bloxham maintains we’ve seen an overall boom in house prices, not a bubble of bitcoin proportions! Now bitcoin shows us what a bubble looks like but property prices have been a little more controlled.

In recent weeks, I’ve been to three auctions where the sellers didn’t get a bid. In one case, the bidding started via the auctioneer doing an owner’s bid of $3 million. Not one extra bid came from the crowd. And I later learned the owners wanted $3.6 million, even though the advertised price was between $2.7m to $2.9m. How ridiculous — and how wrong.

This wasn’t a price fall. It was the market rejecting a silly price expectation of the owner. It was probably a $3 million home. Most bidders hoped to buy it under that price but a year ago it was probably sellable at $2.7 million. Even auctions with no bids don’t define a house price collapse, unless you’re a hedge fund manager shorting banks by talking to a journalist desperate for a headline story.

This is a better explanation of why the housing market is slowing but not collapsing: “Mr Bloxham said the slowdown in Sydney and Melbourne had been driven by increased supply, higher lending rates for investors and a retreat in foreign demand, which had softened partly due to lending constraints by domestic banks and higher local taxes,” The Age reported.

Maybe it’s the economist in me but I really prefer boring economic stories rather than dramatic scary ones, primarily made up by headline seeking second-raters.

Ouch! Did I say that?

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Here's one woman a company doesn’t want to p*ss off!

Tuesday, December 12, 2017

Here’s one woman that you don’t want to get offside with and a publicly-listed company learnt this lesson when their share price fell 25% in one day! 

Her name is Adele Ferguson, the Fairfax investigative journalist, who currently has the Retail Food Group and their treatment of their franchisees in her sights.

You might not know this company but you know their brands, which Tony Alford, the old CEO, collected together over a number of years. RFG, as the stock market codes the company, owns Donut King, Brumbies Bakery, Michel’s Patisserie, Gloria Jeans, Crust Gourmet Pizza and about five other food related companies!

Alford, an accountant, used to look after the finances of Michael Hutchence and INXS but his big starring role was building up RFG, whose share price last January was just over $10, but, after yesterday’s rout, is now at $3.30!

So at one stage, less than a year ago, the market was rating RFG an absolute winner but had any of the analysts ever gone out to talk to any of the franchisees?

Adele and her team at Fairfax reckon “hundreds of Donut King, Brumby's and Gloria Jeans stores were going to the wall” and while I can’t verify that number, this hard-nosed journalist named lots of franchisees, who said they were in trouble.

Adele says many are trying to sell their franchise on Gumtree, Seek.com.au and Chinese newspapers. To date, the company has not hit back but it has answered some of the criticisms.

“We reject this assertion and reiterate the fact that our success depends on the success of our Franchise Partners,” a press release said.

 “If they thrive, so do we, and we are committed to finding ways to better support them, their staff and customers.”

I’m not prejudging anyone without all the facts but the stock market is not cutting RFG any slack, with its 25% smashing yesterday. And the whole affair raises two important points.

First, anyone considering going into a franchise has to really do their homework on the brand, the location of the store, the calibre of the shopping centre and their own capacity to work their butts off seven days a week.

Second, be wary of franchise operations run by public companies, unless they have a fantastic reputation for looking after their franchisees.

When this story broke, the founder of Brumby’s, Michael Sherlock, was poignant is pointing out that “a good franchise is based on happy franchisees.”

In the past, I have done speeches for Brumby’s and Gloria Jeans under their founders’ ownership and it was so obvious that the franchisor realised success was based on franchisees being happy and making money.

Sure, there were always unhappy franchisees in the past with new competitors, family problems, a shopping centre losing customer pulling power or even a poor employee performance of the franchisor explaining these money-killing issues, but the numbers were generally small.

If Adele’s right, and she generally is, then this company has a costly process ahead, restoring its name and the interest in potential franchisees buying into their systems.

But the company’s problems might not end there, as shareholders who have seen their share price halve in less than a year could easily be thinking about a class action, if the share price continues to plummet.

Over two decades ago, I wrote a piece in The Australian newspaper, when I was the paper’s small business editor, where I quoted an academic who worked with franchising to make it more professional. He said: “Once there was the wild, wild West but now there’s franchising!”

Over the past years, professionalism has crept into franchising but the big guy versus the little guy imbalance has resulted in the odd drama in a franchise system but never of this magnitude.

The CBD column in Fairfax newspapers says “In response, RFG locked up its twitter account and shut down its Facebook page. Poof!”

RFG has to get on the front foot and deal with their franchisees or this could cripple the company, which would be bad news for those franchisees not in trouble, and also shareholders. How the market reacts today will be vital. And how much ammo Adele has left to fire will also be important in this sorry saga.

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Why wouldn't this economic data make you positive for 2018?

Monday, December 11, 2017

The Oz economy is set for a better year in 2018 compared to 2017, which has been a year (in case you missed it) that saw employment increase for 13 months straight, unemployment slump from 5.9% to 5.4%, business confidence surge over its long-term average and economic growth go from 1.9% to 2.8%!

What has captured my attention is the fact that so many of our economic readings are at significant highs and what follows is why the Reserve Bank has been tipping that we’ll grow over 3%. This is the historical number where employment grows and unemployment shrinks, so I hope they’re right. And if you look at the data below, you can see why an usually conservative forecaster, such as the RBA, is bullish:

• Our 2.8% economic growth was the best in 15 months and it’s tipped to go higher.

• Unemployment is now at a 9-year low of 5.4%.

• Employment growth is the best in 12 years.

• Business conditions are at a decade-high. 

• Business profits are at a record high and are up 26.9% over the year – the strongest gain in 15½ years.

• Profits are up 26.9% over the year – the strongest gain in 15½ years. 

• In trend terms, dwelling approvals rose for the 9th month straight. 

• Townhouse approvals are at a 20-year high. 

• Building inflation rose by 1.4% in the September quarter. The annual rate of construction inflation rose from 2.4% to 3.8% – an 8 ½-year high.

• The fourth estimate of investment in 2017/18 is $108.9 billion and is 1.6% higher than the fourth estimate for 2016/17 – the best result for a fourth estimate reading in five years. The upgrade in investment between the first and fourth estimates is 34.1% – the biggest upgrade in 12 years. 

• On debt servicing — the ratio of net income on foreign debt to exports of goods and services stood at 6% in the September quarter, holding near the best levels in 36 years. 

• Engineering construction activity increased by 3.2 points to 11-year highs of 64.1, supported by strong infrastructure-related spending. Any reading above 50 signifies expansion or growth.

• Exports to China hit a record $102.29 billion in the year to October. 

• Job ads rose for the fifth time in six months in November to 172,395 ads – a 6-year high. Job ads are up 12.1% on a year ago.

• The Internet Vacancy Index rose by 0.5% to 82.7 in October 2017 in trend terms, after increasing by an upwardly revised 0.6% in September. The index has now risen for 12 consecutive months - the first time since March 2011. The index has increased by 8.4% over the year.   

• According to the Federal Chamber of Automotive Industries (FCAI), new motor vehicle sales totaled 101,365 in November, up 2.5% on a year ago – the highest for a November month on record. 

• On our trade surplus — the rolling 12-month surplus rose from $18.9 billion to a record $20.1 billion. Exports to China hit a record $102.29 billion in the year to October. 

• In the year to October, 56.9% of those aged 60-64 years and 12.7% of those aged 65 years and over were in the job market — both record highs. 

• Over the year to September, the proportion of occupied seats on domestic flights hit a 5½-year high of 78.4%. 

• Over the past year, a record 1,347,400 tourists came to Australia from China, up 12.6% over the year.

• The Commonwealth Bank Business Sales Indicator (BSI), a measure of economy-wide spending, rose by 0.6% in trend terms in October, after a 0.5% increase in September. Spending growth was the strongest in five months and above the long-term trend pace of 0.4%.

 I could go on but I reckon I’ve made the point that the economy has a really good chance of proving the RBA right. The fact that we’re looking at so many record highs, decade highs and so on tells us that we’re heading in the right direction and even economist are expecting wage rises to get more convincing in 2018. 

Meanwhile, based on the confidence readings, consumers are starting to react to a better job market. The weekly ANZ/Roy Morgan consumer confidence rating rose by 0.7% to 115.8 last week. Confidence remains above the average of 113.2 since 2014 and its long-run monthly average of 112.9 since 1990.

 Adding to the positivity is the global economy growing in synchronization for first time since 2007. And now that the Trump tax cuts have been passed, you’d expect the US economy to live up to the forecasts of 4% growth next year. 

Sure, things can go wrong — Kim Jong-un could have brain explosion and mis-aim with one of his missiles but I suspect China has had a quiet word to him about how a war with the USA, Japan and South Korea and the rest of the allies, won’t be great especially when China is the Yanks’ biggest lender! Even the latest Brexit news was good for the stock market. That reaction was based on the positive economic expectations that come when the UK and Europe can avoid any silly economic problems because of a messy divorce. 

Things could be more robust — I’d love consumer confidence and wages growth stronger — but I suspect we’ll see that over 2018 and 2019.

 Go Australia!

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Can Australia cut the FANG companies down to size?

Friday, December 08, 2017

Australia’s top consumer cop is gunning for Google and Facebook and experts believe the world will be looking on to see if the Australian Consumer and Competition Commission’s, Rod Sims, can cut these digital dragons down to size.

The implications of what Rod actually achieves could impact on other digital giants such Amazon, Uber and Airbnb, who flagrantly break laws, have tax-paying question marks over them and seemingly are lucky enough to see governments of the world turn a blind eye to it.

The standout feature of these great digital businesses is that they have broken with conventional business protocols and compared to their more bricks and mortar business rivals they break laws as well! 

And while, why governments lack the guts to bring these law-breaking businesses to book, is primarily because most governments fail when they try it. The biggest challenge for public policy is that consumers love the lower prices these huge, multinational companies deliver.

A story in Fairfax press today says Google and Facebook is “expected to capture 84% of global advertising spending this year.” If you can believe the research work from media buying agency GroupM!

On this criteria these two outfits will pretty well absorb the growth of the entire industry! And because of this, the ACCC has started an investigation into the impact of these giants on competitiveness in the ad industry. This testing of the waters by the competition watchdog - just what the likes of Google and Facebook are up to, was backed by the Turnbull Government and the Parliament when media reforms were passed earlier this year.

Let’s face it, free-to-air TV in particular, has lost a fortune in advertising and the likes of Google and Facebook have been the big winners in capturing the eyes and ears of consumers. Eyes and ears — I understand eyes but why ears, you might be asking?

Well, Google not only captures our eyes via search, it bought YouTube in 2006 for $US1.65 billion. YouTube’s success in capturing consumers’ eyes and ears is demonstrated by the fact that it is now valued over $US70 billion!

In the past, virtual monopolies have come in for plenty of government attention but the mystique and the consumer love for these companies have helped them dodge the critical eye of regulators.

London recently shocked the world by banning Uber and the tide might be turning on these tech companies and Rod Sims could end up being the trailblazer that could encourage many governments around the world to force these companies to play ball by the book. But governments didn’t always lack guts. In 1890 the Yanks passed the Sherman Antitrust Act to bust up the likes of Standard Oil. 

In 1870, John D. Rockefeller established Standard Oil which, by the early 1880s, controlled some 90% of U.S. refineries and pipelines. Critics accused Rockefeller of engaging in unethical practices, such as predatory pricing and colluding with railroads to eliminate his competitors, in order to gain a monopoly in the industry.

The behaviour of the modern day digital giants is far better than Rockefeller but Amazon for example, is killing businesses by not making profits and charging prices that smaller businesses just can’t compete with.

If China dumps cheap steel in Europe it's an international crime against local business and jobs but if Amazon dumps cheap products that consumers love then that’s OK.

One famous clothing company is said to break the law on ignoring intellectual property rights in copying the cuts of high-end brands but the law seems disinterested in pursuing this company.

It’s like governments will crack down on a small restaurant having too many chairs outside on the footpath but bringing big businesses to book, if they make consumers/voters happy is just too hard.

The world will be watching Rod’s investigation but my only problem is that he’s got 12-18 months to make his recommendations and in that time these big business killers could do a lot of damage. And then we have to hope our Government will have the rocks to do something about these suckers when the reform recommendations come in.

Go Rod!

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Negative news makers frustrated by good economic data

Thursday, December 07, 2017

What headline would you prefer to read about coming out of the same economic data? On one hand, you could read about “Consumers on spending strike…” or on the other, “Economy growing at the fastest pace in 15 months!”

If it was up to me and I wanted to tell of the picture that seems to be emerging for the Oz economy, I’d run with: “Economy stronger than bullish RBA expected!”

Why would I do that? Well, that’s simple — it’s the truth.

The bill shock story in one newspaper came with no proof. Inside the better-than-expected 0.6% economic growth number for the September quarter — that’s April, May and June — the contribution from consumers was 0.1 percentage points, which was the weakest in five years!

That then became the target of those who want to believe that their tale of many woes about the Oz economy has been too negative or maybe even too wrong. Like a child clinging on to an unbelievable argument, they’re clutching at straws, trying to deny what’s so apparent that our economy is on the comeback trail.

Ironically, just as some doomsday lovers were pushing to weak consumer numbers in the three months to June, the day before we learnt that retail figures for October were much better than expected.

They were so good that short-sellers of our big stores — JB Hi-Fi and Harvey Norman — rushed for the exits, pushing JB’s share price up 6% in one day!

This led to headlines about Amazon underwhelming, which is true, but anyone who thought this US behemoth was going to hurt retailers from day one was naïve. 

Amazon will be a slow burn for our retailers but some will be burnt more than others, though it will take time.

Of course, the big mistake the media will make, and I’m doing that right now, is to talk about the big US online retailer, as it is the master of free publicity.

Here’s an idea: all of us in the media go on strike against this US online retailer, so it has to spend money on advertising! 

No, we could never be as sneaky as a new age, smart online business that breaks all the rules of conventional business, such as ‘don’t make a profit to lower prices to consumers and kill rival businesses in the process’.

But I digress. Let’s get back to the good news story.

The September economic growth number came in at 0.6% and, if you add up the past four quarters, you get the 2.8% growth figure, which was higher than what the RBA had tipped of 2.5%. 

Now remember, the Reserve Bank has tipped that 2018 will be a 3% plus year for economic growth, and a lot of economists have respectfully scoffed at their optimism. 

However, the pointy-headed RBA bankers look like they’re on the money.

And the stock market has probably backed their positivity, with local equities up about 7% over October and November.

Back to growth and the RBA likes to take the last two quarters of growth — 0.9% plus 0.6% — and multiply them by two to get a feel for what the economy has been doing over the past six months. This is to try and guess what might happen in the months ahead.

On that figuring, we’ve been on a 3% pace and this is the magic number where unemployment tends to fall, which I believe is a great news story.

At the risk of sounding like Animal Farm — falling unemployment, good, rising unemployment, bad! 

This is so basic and I don’t know why newsmakers can’t embrace the so obvious good news wrapped up in these September quarter numbers, which I bet will be trumped by the figures we see in the current quarter.

Lately, we’ve seen the business investment numbers come in better than expected and there are positive predictions from respected economists that 2018 will bring better wage rises. 

Add these to the surprise retail story recently and the December quarter look promising.

This is why I prefer CommSec’s heading: 

“Economy growing at the fastest pace in 15 months”. 

Oh yeah, I forgot, this heading was made by an economist rather than a journalist!

That might explain it.

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Stop hating property-owning baby boomers! Homes for all are coming!

Wednesday, December 06, 2017

By Peter Switzer

It looks like it’s capitalism to the rescue and its ability to induce ‘outside the square’ thinking just might reduce the hate session young people have for baby boomers over their dominance of real estate assets.

Over the weekend, smart economics writer, Jessica Irvine, who graces the Fairfax Sunday papers, reminded us how annoying it is that baby boomers hold so much of the property that Gen X’ers and Gen Y’ers covet. Some critics even resent that baby boomers live so long and have the temerity to live in their homes — big homes — too long as well!

It’s an intergenerational hate session over the thing that used to force tribes to war over past centuries — land! And the arguments against baby boomers (and even older Australians) have been powered along by the Grattan Institute, which seems to spend a lot of its life telling baby boomers that they’ve had it too good and have been ripping off younger Australians.

How did they do that? Firstly, living too long — damn modern medicine!

Secondly, after being told by Paul Keating in the 1980s that they wouldn’t get the pension, they’d always been promised, if they had too much money and bugger all super, they looked to investment properties to build our wealth quickly.

Thirdly, much higher tax rates encouraged people to use the taxman and tax refunds to bankroll their life as a landlord. This was encouraged by the rise of the media money-men and women, who started to get air time and column inches in media outlets, like yours truly.

These money mentors started explaining the mumbo jumbo of wealth-building that once was only known by a group who used to be called “the wealthy”!

So that’s why baby boomers went into property but two big things have made it such that reasonable people like Jessica admit that the current housing situation makes her blood boil, a bit.

Firstly, governments have slugged huge charges on developers and have put ridiculous restrictions on them, as state governments effectively got out of public housing. Dumb governments have created a housing supply problem, which has pushed prices up for the existing stock. And it has happened while Australia has one of the fastest population growth rates of the Western world. Governments screwing up? No!

Secondly, cool younger people like Jessica don’t want to live in the boondocks too far away from great cafes, entertainment and cool lifestyles, especially when many dumb governments have done precious little to create great, affordable public transport systems.

So that’s the problem and here’s the ‘outside the square’ part-solution and I call it the Manhattanization of our cities.

New York’s Manhattan is a huge paddock of apartment blocks with most New Yorkers being renters. Anyone who watched Seinfeld would know that and there’s enormous competition for apartments when older people die, as a Seinfeld episode showed us.

The Age newspaper today tells us about groups such as Mirvac that are planning to build apartment blocks purely to rent out.

“They’ll be nothing like we’ve seen before, either, with building managers looking after apartments, staff to look after leases and run ‘community’ events, and onsite cafes, shops and work spaces,” Sue Williams tells us.

“There will also be long-term rolling leases with the potential for tenants to transfer to other allied blocks in different areas if their jobs or circumstances change.”

Adam Hirst the GM of Capital Allocation at Mirvac explained why this new style of building is coming.

“It’s a lifestyle choice of millennials, young families and downsizers, and the choice of a growing number of people,” he said.

 “There are currently 2.5 million rental homes in Australia and we see that growing in the next few years with purpose-built apartment buildings for the rental market”.

 “It’s well-established overseas but, in Australia, it’s a new form of housing and there’s a lot of excitement around it.”

This will become a new asset class that the retirees — those damn baby boomers again! Could invest in but, better still, it should entice our super funds to use their money to bankroll affordable housing, which will return a reliable flow of income.

Ironically, this move could slow down house prices rises in hot inner city locations but could raise prices in sea-change and tree-change areas as weekly, inner-city renters escape to the country on their weekends, like lots of New Yorkers and Europeans do, who have grown used to believing that owning a property in their home cities might be just too hard.

Given the incurable stupidity of the politicians who populate governments, who never seem to come up with solutions to our social problems, thank God capitalism throws up lateral thinkers, who love profit and who can do the fixing our so-called leaders always fail at.

Go capitalism!

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US land of the brave; Oz land of wimps!

Tuesday, December 05, 2017

Local investors and institutions possibly showed themselves to be wimps compared to the brave, brash and ballsy Yanks, who looked at the Trump tax cuts that were passed over the weekend and went out and bought stocks. Regrettably, our most important stock market index — the S&P/ASX 200 — was up 3.9 points on Monday, while on the New York Stock Exchange, the Dow Jones soared over 200 points to record highs. Ditto for the more important index — the S&P 500 — which was up over 0.5%, meaning both indexes went further into record territory.

And so the test of our wimpy-ness will be based on what we do on our stock market today. If we play follow the leader, which I suspect will happen, then we have to cop the tag of ‘market wimps.’ It will go double if our banks do well today because this was the sector that starred on Wall Street overnight, with the banks’ ETF — KBE — up over 2.4% on the back of these tax cuts.

Sure, you can argue that these tax cuts don’t directly help our local companies but indirectly they will. How? Let me list the pluses, so here goes:

• It puts pressure on Canberra to push harder for lower taxes, especially on our companies that compete on the global front daily, for example Harvey Norman versus Amazon!

• It should help our dollar drop with the tax cuts likely to bring faster US growth, which, in turn, will deliver more US interest rate rises, pushing the greenback up relative to the Oz dollar. This helps our exporters and some of our best companies that operate overseas, such as CSL, BHP and Macquarie Bank.

• The US is crucial to world economic growth and when it is set to grow at 4% or more because of tax cuts, it potentially helps drive demand for commodities, such as iron ore and other minerals, which we sell in spades.

• Company profits undoubtedly will benefit from these developments.

• And all of the above have to be good for stock prices and our super funds. 

All this could’ve been worked out yesterday by big investors, who influence our stock market on a daily basis, but I reckon they just wanted to see if the old market cliché applied, namely, “buy the rumour, sell the fact”.

I alluded to this as a possibility in yesterday’s column but hoped it wouldn’t be the case. This is how I concluded my piece: “I hope these tax cuts end up being the circuit-breaker that finally breaks up the remnants of the black cloud that has hung over the global economy since the GFC. 

My fingers are crossed that a huge number of market influencers agree with me today.”

Our stock market gets a second chance to react properly to these lower tax ‘blue skies and white clouds’ blowing in from the States. I really hope we can react with the positivity that these tax cuts deserve.

My crystal ball says these tax cuts will push out the next US recession to at least 2020 or maybe later, so we have two good years up our sleeve to make hay while the sun shines.

I know Donald Trump looks like the President from amateur hour but tax cuts at this time in the economic cycle have to be seen as professional politics that should deliver more economic growth, higher profits, more jobs, higher real wages and better stock prices.

And importantly, the cuts should be a global plus, which will even come to our shores. If you doubt my optimism, then explain why the big German and French stock markets were up 1.53% and 1.36% respectively!

This is a great day for non-wimpy optimists, who regularly fight the doomsday merchants, who, in turn, wish Armageddon on us all, too often and all too soon.

These tax cuts make 2018 look good for the economy and stocks. It means I will be a little cautious in 2019 but I suspect I’ll still be positive. 2020 could be the year of living dangerously for stock players.

However, as I said earlier, let’s make hay while the sun shines and I hope the local market wimps help out!

 

P.S. The 'brave Yanks' did wimp out at the end with the Dow only up only 58 points but you can’t stop profit-takers giving into their wimp inclinations — even the good old USA!

That said it still was a more positive effort than what we pulled off yesterday. Let’s hope we redeem ourselves today.

 

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Trump’s tax cuts passed! Could stocks fall?

Monday, December 04, 2017

By Peter Switzer

‘Tis the season to be jolly and the passing of much talked about Trump tax cuts should prove hard to be ignored by the stock market today. I’m expecting a positive shot in the arm for our market today but I’ve been around long enough to know there are few Winx-like certainties on stock markets!

In case you missed it, on Friday, US-time, stocks oscillated in a 400-point range in the Wall Street trading day, with bombshell Trump news hurting stocks.

But then the odds of the tax cuts being passed shortened, and stock prices rebounded. Did anyone doubt Donald Trump’s importance to the market? The Dow Jones Index was down over 350 points but ended only down 40 points. When the closing bell rang, the tax bill had not been passed but only looked likely to be given the thumbs up by the Senate.

After the market closed, the tax cut legislation was passed so it should be an interesting day for local stocks.

Initially, the Trump concerns heightened when ABC News reported that Mike Flynn would testify that he was directed to make contact with the Russians. Flynn was the former national security adviser to the President and has pleaded guilty to lying to the FBI about his post-election contacts with Russia’s ambassador to the US.

That news smashed stocks but then the Senate leader, Mitch McConnell, went public to say the Republicans have the votes to pass the tax legislation, and the rebound started. So it had been a tug-o-war on Wall Street, with Donald Trump anchoring both ends of the rope.

Luckily for the President, the tax bill was passed and he now only has to deal with his ongoing “From Russia With Love” intelligence drama. And due to a weekend tweet, his political and media enemies are circling with reinvigorated gusto.

But we’ve seen that before and I can’t be distracted by this “can we impeach Trump?” sideshow, with the tax cuts set to be reacted to by the stock market today.

Of course, there should be a big leg up but there could be some caution here today, ahead of seeing how Wall Street reacts. The normal person would think that this great news for US business, in particular, should send stocks higher but experience watching financial markets for over 30 years has taught me that some times good news gets baked into a market.

So many times I’ve seen good economic or political news treated as if it’s a negative outcome, with the stock market selling off. These oddities are explained by the argument that a market can “buy the rumour, sell the fact” and that’s what Wall Street will show us on Monday night and Tuesday morning our time.

If the US stock market doesn’t over-celebrate in the short-term, it eventually will, so I’ll treat any post-tax cut news negativity as a buying opportunity.

Be clear on this: these tax cuts will have significant economic implications for the US economy and, therefore, the global economy. They will force lots of governments, including our own, to look at their tax rates to see if they need to trimmed. If this results in tax cuts, it will stimulate economic growth, profits, higher stock prices and better wage outcomes, which will lead to more growth and so on.

I hope these tax cuts end up being the circuit-breaker that finally breaks up the remnants of the black cloud that has hung over the global economy since the GFC.

My fingers are crossed that a huge number of market influencers agree with me today.

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We get richer on Trump tax cuts

Friday, December 01, 2017

By Peter Switzer
 
Today we get richer and it’s because of what I’ve been saying. What did I say? What have I been pinning for, purely for money reasons? Yep, I’ve been stuck on Trump tax cuts for most of this year and when I crawled out of bed this morning and saw the Dow Jones Index up 350 points, there was only one thing that could have done that — good news on the US Senate and their possible passing of those much awaited for tax cuts!

And that’s the story but wait, there’s more. Those fun and crazy guys at OPEC have struck another deal that could go to December 2018 that should help oil prices avoid any collapses. And better still, Saudi Arabia and Russia seem to be on ‘we love each other’ terms.

Don’t mistake this, this is a double barrel windfall for those bullish on stocks for 2018 and it should help our stock market today and along with that, our super funds. These double dividend-delivering developments are significant as they will have significant economic and stock market developments.

On top of that, bond yields increased today, which is another positive sign for 2018 and that recession-callers will have to eat someone’s shorts!

So what was the tax cuts news that got the Dow excited?

The biggie was Republican Senator John McCain, who once went for President against Barrack Obama, said he would support the Trump tax cuts. This is an important influencer and increases the chances of the tax cuts legislation getting up ASAP.

Of course, you can see how important the tax cuts are perceived to be because if these stumble and fail, the stock market will put on the correction — a 20% fall! — that many have argued is way overdue.

This would make us poorer via lower stock prices and vastly reduced super returns, so if you like being richer, rooting for the Trump tax cuts makes a lot of sense.

And this could be the gift that keeps on giving as tax cuts in the USA will put pressure on our Prime Minister (whoever that would be?) to try and get a win on taxes for competitive advantage reasons.

Experts on US taxes say the big companies have been able to use tax tricks to bring their tax rates down to about 26% on average from 35%. So a Trump 20% tax rate delivers them only a small gift. However, smaller companies are paying closer to 32% so the tax cuts will be a boon to this big sector that’s more likely to be pro-Trump.

The Russell 2000 Index that tracks these smaller companies has hit record highs, as the chances of tax cuts look more real.

Sure, the tax cuts are mainly an economic plus but there is a political dividend in them as well.

"This tax-reform bill is not just about potentially lowering taxes,” said JJ Kinahan, chief market strategist at TD Ameritrade said in a CNBC report. "It's also a psychological factor that Congress can get something done. That would be a positive."

On the subject of keeping it positive, this big finish to November means the US stock market has been up for eight months in a row. And that hasn’t happened since 1995!

Throw in the good news from OPEC, meaning oil prices shouldn’t plummet, which generally take stock prices with them, and it looks like the optimists for stock markets in 2018 have a good reason to buy French champagne for this year’s Christmas celebrations because, given the outlook for stocks next year, they should be able to afford it.

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I could punt on bitcoin but I couldn’t invest in it!

Thursday, November 30, 2017

By Peter Switzer
 
Once upon a time, the most asked questions I would get were, firstly, when will interest rates rise and should I fix now? Secondly, do I think there will be a house price collapse? But now all I get is bitcoin questions and it reminds me of that old line: “When the shoeshine boys talk stocks, it’s time to get out of the market.”

Legend has it that JFK’s dad, Joseph Kennedy, exited the stock market in 1929 because he didn’t want to invest with shoeshine boys and bellhops!

When it came to bitcoin and whether I wanted to punt on it, I went to the TAB website and checked out the Futures section to see what Winx’s price was for next year’s Cox Plate. For those who like long-run punts, it’s 3/1 and Rekindling is 21/1 for the Cup!

The current bitcoin price is over $US11,000, and was $US10,000 yesterday, and while I suspect cryptocurrencies are like most things modern and seemingly illegal, think Uber, Airbnb, etc. (which seemingly break laws that incumbent rivals have to adhere to) they will be here to stay. But the bigger question is: at what price?

To buy bitcoin now is a punt and you could do OK but I’m more an expert on investment and that’s why I won’t invest in bitcoin at these prices.

Arguably, the greatest investor of all time is Warren Buffett of Berkshire Hathaway and one of his foundation rules of investing is “Never invest in a business you cannot understand." He has not watered down his stock and it’s now worth $285,080 this morning. Buffett made his fortune backing businesses he suspected would resonate with Americans, such as McDonald’s, American Express and Gillette.

He also told us "Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can't buy what is popular and do well."

Right now, governments and central banks are at sixes and sevens about how to handle bitcoin. The CEO of JPMorgan, Jamie Dimon, says people who buy bitcoin are “stupid” and was criticised by experts on the cryptocurrency for not understanding it. However, to date, a lot of ‘stupid’ people have made money out of their punt. Be clear on this: at $11,000 bitcoin looks like a punt and not an investment.

Someone who is not stupid is Nobel Prize-winning economist, Joseph Stiglitz, who says it should be “outlawed” as it “doesn’t serve any socially useful function.”

I was asked to explain bitcoin on my 6:45 am spot on the Talking Lifestyle radio programme today and I understand the basics of bitcoin but there are grey areas that worry me.

A Bloomberg piece out today tells us: “Bitcoin has risen by about 75 per cent since October alone, after developers agreed to cancel a technology update that threatened to split the digital currency.”

What? Those ‘investing’ in bitcoin are in the hands of “developers”! Who in the hell are they? I can handle having my investments in the hands of central banks but I worry about investing in oil because of that rag tag mob called OPEC and the non-OPEC countries spearheaded by the likes of Russia, Sudan, Oman and Azerbaijan.

Sure, I’ll invest in oil when the price gets silly and low but as it climbs, I worry about those who control the price.

I know madness could push the price of bitcoin higher and that could make me look like a luddite, scaredy cat, who has no idea but that’s the problem, I don’t have an idea about “developers”, who apparently can split the currency!

I say good on those who have taken a punt on bitcoin and own it big time but, in good faith, I can’t say this is a buy here at $11,000 but here’s another point made in the Bloomberg story: “There's no agreed authority for the price of bitcoin and quotes can vary significantly across exchanges.”

It’s the bubble price that sounds off alarms for me and that’s my job to look for flashing sirens and red flags.

"This is going to be the biggest bubble of our lifetimes," hedge fund manager Mike Novogratz said at a cryptocurrency conference Tuesday in New York.

Novogratz, who says he began investing in bitcoin when it was at $US90, told Bloomberg he is starting a $US500 million fund because of the potential for the technology to eventually transform financial markets.

Bitcoin looks like it’s here to stay but I don’t think its current price is.

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