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The Experts

Peter Switzer
+ 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.


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

Are our super funds a train wreck waiting to happen?

Friday, September 21, 2018

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

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

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

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

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

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

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

This chart tells the story.

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

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

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

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

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

Source: SuperRatings.

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

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

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

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

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

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

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

Go Super!

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Slam dunk, cop this China!

Thursday, September 20, 2018

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

Let me try to explain.

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

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

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

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

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

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

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

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

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

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

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

Go China!

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Sorry kids, Bill wants to wipe out your inheritance

Thursday, September 20, 2018

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Fasten your seatbelts. Trump is driving the Big Dipper!

Tuesday, September 18, 2018

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Will Bill Shorten tax our family homes?

Monday, September 17, 2018

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

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

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

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

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

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

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

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

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

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

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

• The high tax regimes before the 1990s.

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

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

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

• The second jobs.

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

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

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

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

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

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

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

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

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

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

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

Friday, September 14, 2018

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

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

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

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

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

Let me list them:

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

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

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

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

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

• And the above will feed into better super returns.

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

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

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

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

Go known knowns!

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

Thursday, September 13, 2018

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Is our economy facing good growth or recession?

Wednesday, September 12, 2018

This is a tale of two economies — one that looks pretty damn good and one that looks a little worrying — but that’s not unusual because an economy seldom is great all over. Remember in 2011 when Treasurer Wayne Swan talked about a “patchwork quilt” economy? That’s because WA was living on the hog with the mining boom while New South Wales was close to being in a recession!

People in Perth saw house prices rising over 20% for a couple of years in a row and the citizens of WA’s capital were so happy they had to eat a lemon each morning to wipe the smile off their faces! And things were so pumped that even the State Treasurer was someone called Eric RIPPER!

A few years on, NSW becomes the fast-growth state and a five-year housing boom wacks 85% on to house prices and unemployment is 4.7% against a national number of 5.3%. Right now, the ‘golden west’ is making a comeback after three years of mining boom collapse fallout and I bet this time next year the state’s economic indicators and house prices will all be screaming that the West is the place to be. Same goes for the North, where a low dollar, tourism and education businesses and an improving mining sector will collectively paint a pretty economic picture.

All the above seemed relevant to me as I looked at the latest NAB Business Survey numbers out on Tuesday. What we saw again was a tale of two economies. On one hand, business confidence has fallen, undoubtedly not helped by the demise of Malcolm Turnbull as PM and the likelihood that the Government’s continuance of the revolving Prime Minister syndrome, which has persisted since John Howard lost the 2007 election, means Bill Shorten is the most likely leader of the country some time in 2019.

Whether you like Bill or not, he hasn’t portrayed himself as a friend of business, give his anti-tax cut stance for the corporate sector and he’s no buddy of the investor and self-funded retiree, who invests and uses tax refund credits to stay off the pension.

The NAB business confidence index fell from 7 points in July to a 25-month low of  4.4 points in August, while the long-term average is 6 points and I reckon the knifing of Malcolm and the threat of a Trump-inspired trade war has unsettled the future confidence views of business. However, the ‘here and now’ story is very different.

The NAB also looks at business conditions, which tell us a tale of what businesses are experiencing right now. And here the reading was unbelievably positive! The NAB business conditions index rose from +12.6 points in July to a 4-month high of +15.2 points in August, while the long-term average is +5.7 points!

And CommSec’s Craig James says the positivity of business doesn’t end there. “The rolling annual average business conditions index was broadly unchanged at +17.1 points, down from the record high of +17.3 points in June,” he revealed. Even better still the survey’s look at employment expectations was hugely positive and would make it hard for someone to be negative on the outlook for the overall economy.

The numbers say the current 5.3% unemployment rate is set to fall further, which means the labour market is tightening and the next big news story will be that wages are starting to creep up. When that happens, all the doubting Thomas’s and Thomasina’s will stop being unnecessarily negative on the Oz economy. If this happens, Scotty and his new team in Canberra might start winning some fans in The Australian’s Newspoll.

The bad confidence reading is understandable but the positive readings for conditions and potential job creation tell me our economy is becoming more normal and stronger.

The job ahead for Scott Morrison is to do what his old boss could not do — turn his personal popularity, which Newspoll says is higher than Bill Shorten’s — into popularity for the Government as a whole. This will rely on his efforts, which look promising now but he needs his team to start following and supporting rather than grandstanding for their own private ambitions.

I believe we’re on the cusp of a pretty impressive economic expansion, despite housing going off the boil. A lower dollar plus a infrastructure boom helping job creation with low interest rates is a good mix for an economy needing to grow at 3% or more.

In the March quarter we grew at 3% and then in the three months to June we expanded at a 3.4% rate, which shocked the expert economists who were doubting the strength of the economy. If we can put out another 3% growth story in this quarter, it will be a big effort. It might be hard to grow as fast, given some of the negative readings lately on the housing and lending sectors, but you underestimate the Oz economy at your forecasting peril, as a few of my buddy economists have found out recently.

Go the Aussie economy!

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Are we drowning in household debt?

Tuesday, September 11, 2018

One thing I’ve learnt after 30 years of public commentary on the Aussie economy in newspapers from the Daily Telegraph to the Sun-Herald to The Australian and then to Switzer Daily in recent years is that there are excessively negative predictions of a looming economic Armageddon for our economy but we generally muddle through.

Sure, we haven’t had a recession for 28 years, so you might think I’ve been influenced by a rare period of economic success but before my roles in newspapers, TV, radio and now websites, I taught Applied Macroeconomics at the University of New South Wales, where I learnt a thing or two about past recessions. And yep, the past 28 years is unusual with no recessions but even when we’ve had them, with the exception of the Great Depression, we have muddled through, with people coping.

All this came back to me as I’ve watched some quarters of the press put their spin on what the RBA’s assistant governor, Michelle Bullock, said about our very high household debt. Reports I received in the afternoon about what Michelle said made me think that some media outlets might have to lead with the headline: “I guess we were wrong about a pending household debt disaster”. However, the selected spin from someone who is a respected economist and public official was: “What the RBA didn't tell us about household debt: how we reduce it” and another ran with:

“A problem for one is likely a problem for all': RBA sounds Australian debt warning!”

To understand how worried we should be, let’s get some facts from Michelle’s speech yesterday. I’ll bullet point them:

• Australia's debt-to-income ratio more than doubled to 160% from the 1990s to the mid-2000s. 

• Since 2013, that went to 190%.

• Our debt-to-income ratio is in the top quarter of world economies.

Now all this was acknowledged by Ms Bullock but she also pointed out something important when comparing us to the rest of the world.

“Australians borrow not only to finance their own homes but also to invest in housing as an asset, this is different to many other countries where a significant proportion of the rental stock is owned by corporations or cooperatives,” she said.

I’d throw in the fact that we’d sell our grandmother into captivity before we walked away from our house and related debt, unlike the USA, where borrowers can hand their keys into the bank and drive away in a Maserati!

She also said that strong employment prospects and a relatively steady ratio of repayments to income have meant arrears rates on housing loans remain very low. But like all central bankers, she had to look at what could go wrong and of course she warned that an economic shock could leave households struggling to meet repayments.

A shock that forces interest rates to rise would probably cause a recession as unemployment would rise and some people wouldn’t be able to make their repayments, which would hurt our banks’ bottom lines and the stock market would crash.

Yep, that’s what happens with a serious economic or financial shock.

We dodged the GFC recession because our federal budget was in surplus and the Government stood behind our banks, whose balance sheets were better than most of their rivals around the world.

Negative economists are right when they argue that we are more exposed to a negative shock because of our borrowing for housing. But provided we can get two years of economic growth over 3%, as the RBA and Treasury expect, then we might be in a better situation to withstand an overseas financial shock.

And if growth continues for even longer, then we could even be in a better situation, as the Budget would be in a strong surplus, provided future governments stick to the script for budget repair.

The media and the negative economists who they rely on always talk about “when our luck runs out” but it depends how much of our luck runs out. And when that happens, it will determine future economic pain.

We are living through crazy times with an unusual U.S. President who is outside the square. And while his spending and tariffs worry me, I accept we could see three years of strong growth before the ‘you know what’ hits the fan.

By then, we could be in a stronger budget position and three years of growth and jobs could improve a lot of people’s balance sheets, as well as their debt-to-income ratios.

The negative economists didn’t believe the RBA when they predicted 3% economic growth but they have been proved right. They now say “it won’t last” but I’m backing the central bank and relying on our history of muddling through to ensure I don’t lose any sleep over these perpetual warnings from the media about a housing crisis and an eventual recession.

Sure, a recession will show up one day (they always do) but from what I’m seeing, it won’t be any time soon. I’ve disagreed with the RBA in the past on the timing of interest rate cuts or rate rises and I’ve often argued that the Bank is too conservative. That said, I’m not going to change my view of the RBA’s team and call them reckless because they aren’t pedalling tales of impending doom, like economists with no reputation for accurate forecasting, and the media who love a good, scary story.

Go the RBA!

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If Tony Robbins annoys you then maybe you need to be annoyed!

Tuesday, September 11, 2018

Tony Robbins unleashes his power within next week in Australia and I wonder if anyone has thought about calculating the impact this guy has had on business builders and careerists, who have gone long the US inspiration machine for at least two decades. A couple of years back I got to hang out with this guy, described as the world’s greatest coach of highly successful people. Robbins has been a cutting edge, outside the square thinker, and even the way he came to Sydney for me to learn from him then underlined how unique this man mountain is, as he came via a hologram!

Anyone walking in late to the conference could have easily thought Tony was there live on stage — that’s how good the technology is — but the best bit of the whole show was that after a short time, you forgot where he was and concentrated on the messages that were designed to give the audience the blueprint for, what he calls, business mastery.

After years of interviewing and analysing some of the most successful business builders on the planet, from Richard Branson to GE’s famous CEO Jack Welch, I’ve come to learn that the most inspiring life-change forces are those who have unbelievable confidence in what works for people to get the best out of themselves.

Like most Aussies, when I first encountered the concept of Tony Robbins in the 1990s I thought “not another fast-talking Yank flogging inspiration!”. I was stupid then. I’m smarter now.

Robbins is a Yank and is fast-talking — I once spoke to him on the phone for two hours and probably got about 100 words in! But he not only flogs inspiration, which is really important in the tough world of in business, he also gets people to extend themselves and take on their biggest threat to success and happiness — their fears! He’s also selling a lot more than inspiration, such as inner strength, unleashing the power within, unlimited power and awakening the giant within, which are pretty well the titles of four of his best-selling books.

To the unmotivated, Robbins could be annoying — his positivity could be seen as excessive — but for the aspirational looking for the motivation to try and get to higher levels of success, he is a gift.

He argued from the outset that success is 80% psychology and 20% mechanics and the way we think is usually the chokehold that stops success.

Once you get your head right, your focus has to be on being innovative and then marketing your point of difference product. Like me, he accepts the Peter Drucker line that business is innovation plus marketing but it’s one thing to know this, it’s another to create something worth marketing.

Robbins says your starting point is to create raving fans out of your customers, just as Steve Jobs did at Apple. If you are an employee, you want the customers you serve and your boss to be raving fans and if you want success you have to keep asking: “Am I doing enough to create raving fans?”

Robbins poses the following question: “Who is your ideal client?” He argues that, invariably you will make 80% of your money from 20% of your customers.

These are the people who must become raving fans and Robbins says creating an irresistible offer is a good way of doing this. Here are some suggestions:

  • Create social acceptance by getting an expert to love your product and advertise it.
  • Let your customer experience your product before they purchase — car dealerships do this sort of thing.
  • Remove the risk. In the USA, Hyundai promised to take a car back if a customer lost their job after the GFC when sales were slow!
  • Add value to someone else, which could be a donation to a great cause or some other socially responsible action that goes with a sale.

There are many things an aspirational winner, determined to succeed, can do to stand out in a crowded marketplace and Robbins pointed to Tony Hsieh who founded Zappos. This is an online shoe business that decided its point of difference would be to take back rejected shoes, free of charge! This made a customer’s purchase a no-risk, no-cost experience and it created raving fans.

As a consequence, Amazon bought the company for $847 million in 2009 and I reckon that’s a measure of success.

That idea of Hsieh’s was really outside the square and it came from some of the things that Robbins argues you need to embrace:

  • Don’t fear change and change, change, change!
  • Be hungry for success and let it drive you!
  • Don’t run away from the truth!
  • Ask yourself everyday: what are you doing in your business to succeed?
  • Change your emotional attitude from passive to active and you should cultivate a winning, take no prisoners attitude!
  • Be committed to adding value to clients all of the time!
  • Practice repeating the skills that give you a winning edge every day.

I think someone who is trying to build a great personal brand as an employee should think about their impact and image they put out in the workplace. By being objective like a business owner, who has to do to this to stay profitable and to grow their business, an employee can become an exceptional worker and therefore more likely to gain promotion and fatter paypackets!

As the great boxing champ Joe Frazier, who even beat Muhammad Ali, said: “Champions aren’t made in the ring, they are merely recognised there. What you cheat on in the early light of morning will show up in the ring under the bright lights.”

A few years ago I interviewed our greatest male track and field athlete, Herb Elliott. He won the gold medal for the 1500 metres in Rome in 1960, was world record holder and from 1957-61 he was unbeaten over 1500 metres to a mile and broke the four-minute mile on 17 occasions.

He told me he learnt to beat the “little voice” that makes you lazy or second-rate and that was a huge competitive advantage. But he also had a great coach.

''I had a wonderful coach in Percy Cerutty, and his philosophy was the backbone of my performance,'' Elliott told the SMH in 2014. ''It may sound strange, but there's a pyramid of motivation, and the purest motivation is: 'I'm going to do this as hard as I possibly can because it's going to make me a better person'.

''That's a purer motivation than 'I'm going to do this as hard as I can because I'm going to make lots of money' or because 'I love killing the opposition'. The purer form was with Percy's encouragement. We read, for instance, when I was 18, the Hatha Yoga — one of the books behind Hinduism — and it covers self-mastery and conquering the ego … self-improvement.''

Percy was an outside the square thinker, well before someone like Edward DeBono started teaching us about lateral thinking.

Tony Robbins is a Percy Cerutty coach — even as a hologram! — and those who commit to his suggestions will be on the road to business mastery and general success.

But first, you have to change a really important person — you!

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