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Peter Switzer
Expert
+ About Peter Switzer

About Peter Switzer

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

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

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

Testimonials

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

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


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

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


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

Sean Ashby, Co-Founder, AussieBum


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

Peter Mace, General Manager NSW, Australian Institute of Export


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

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


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

Serife Ibrahim, Stockland Corporation Ltd


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

Catherine Batch, Head of Marketing and Communications, Indue


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

Justine Goss, Strategy Group

How do you become Richie Rich?

Thursday, September 19, 2019

Last Friday I participated in a podcast debate for The Australian newspaper about Baby Boomers living the life of Riley because of their ‘lucky’ ownership of property compared to the much younger demographic called Millennials. It came at the right time for me as I’m talking a lot nowadays about how people make themselves rich.

Well how do you become richer? This is a question I posed to a group of business owners I was asked to talk to because of my new book Join the Rich Club.

There are many roads to riches, so let me list a few that a normal person should consider and I think the key word is “normal”.

You see, normal or average Aussies will probably end up with an OK level of wealth when they retire. They’ll probably get to own a home, though that’s becoming harder for younger generations, especially if they want to live close to a capital city CBD or near a beach.

Their super will be a nice nest egg — for anyone who stays in a pretty good job for 40 years or so, there should be over a million dollars waiting for them.

However, if normal people end up with a normal super payout, its actual purchasing power will, in all likelihood, only give you a nice, normal retirement lifestyle.

I often sit with our financial advisers at client meetings in order to get to know our clients better. And I always like to see if our advisers are meeting our clients’ expectations.

One part of the presentation to our clients is to show them what their super and other wealth will look like when they’re 90 years of age! Interestingly, one guy said: “I won’t make 90 but Jenny will, however what will she do with all that money?”

Thinking about how we’re all getting older and how I see really active 80-year old nowadays, I said to this client: “If Jenny makes 90, and she is mentally active, having money means she can call for a limo to pick her up and take her to the movies and see her home. She could pay for a chaperone to travel overseas with her and so on, if she has money.”

My client said: “You’re right. I’ve never thought about it that way.”

Getting richer gives you more choices so what I said to my business audience was: “If you want better than normal businesses, profits and riches, you better work on becoming abnormal!”

To do that, you should do ‘stuff’, such as reading about great business builders like Sir Richard Branson, get a business coach and/or a mentor, find a great accountant who ensures you legally cut your tax bill as well as seeing how tax deductions can help you see opportunities.

To an employee, I’d say “look at those who build wealth through investments. What do they know that others don’t and how did they get to know it?”

They might have had a parent or a mentor who showed them ‘stuff’ that normal people don’t have access to. They might have admired the rich of the world like the Oracle of Omaha, Warren Buffett, and learnt to invest wisely and like a professional.

Like Buffett, they might have read themselves to riches because money legends do leave clues but you have to be out there looking. By reading, you get insights that might help you get moving along that road to riches.

For example, while a financial plan from an adviser isn’t tax deductible, ongoing advice is. Anyone in the top tax bracket effectively could cut an advice bill in half, thanks to the taxman.

One guy at the conference asked me how he could become great at business. I said he was on the way because he was present at the conference and was asking that question. I told him to initially become a sponge and go to everyone who could help him for nothing. But then he had to become abnormal and pay to get the competitive advantage, which will eventually make him even more abnormal and I bet, abnormally successful and rich!

If success and getting richer sounds like you, draw up a plan for You Inc., laying out what you want and then how you’ll make it happen. And if you can’t do this by yourself, then pay someone to make it happen.

If you don’t want to do that, try reading a book like Join the Rich Club. Now that sounds abnormal!

PS: I know I’ve talked about my book a lot lately but my own personal experience has been that I need to be constantly reminded about my commitment to change. Blokes can be like that!

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A super scam is rifling super accounts so you better check yours

Wednesday, September 18, 2019

Consider this as a community announcement: there have been some scam merchants at work and they’ve been hacking into super accounts and stealing millions of dollars!

These low-life individuals have affected many super trustee’s accounts in the following funds — Club Plus Superannuation, HESTA, Hostplus, Australian Super and LUCRF Superannuation. And the reach of this long-arm of lawless has gone into NSW, Victoria, Queensland and Western Australia.

But the encroachment into too many Aussies most important asset (their super) hasn’t stopped there. The hacker/thieves achieved unauthorised access to the money data held by a range of brokers, including CMC Markets Stockbroking and IG Markets and CommSec, the SMH reported this week.

The money was transferred to local banks and then to Hong Kong, where the SMH says the proceeds were ploughed into jewellery and the currency of choice for smarty hoodlums — cryptocurrency!

We’re told a Ms Vella-Arpaci and her associates with the likely names of “Moneymonkey”, “H”, “Elvy X” and “Steven Rocks” have hoovered up their proceeds for some time before detection. And it sounds an unignorable warning bell for all of us with super and who show little regard for this million-dollar asset!

The younger average Australian will retire as millionaires because of super but I’m staggered how many people don’t know what their fund returned, what fees they’re being charged, what their balance is and some aren’t even sure what fund they’re in!

The selection of your fund, the selection of the option (be it conservative, balanced or growth) can mean more than a hundred thousand dollars of difference in retirement. And if that doesn’t motivate you to get off your butt and become super-interested in your super, then do it to make sure no-one’s stealing your super!

In my new book Join the Rich Club, I show how $10,000 invested in the stock market between 1970 and 2009 (one year after the 2008 GFC stock market crash) snowballed into $471,593!

That purely came from investing in the S&P/ASX 200 Index and simply re-investing the dividends. Historically on average a stock market returns around 10%, with 5% coming from dividends but this number is worked out for a decade.

If you invested your money like this, you’d have to endure the ups and downs of the stock market. And we can cop negative years, say three times over a 10-year decade, so you’d have to learn to live with volatility.

Super funds don’t put all your money into the stock market. They look for diversity and add a bit of safety by putting some of your money into bonds, property, cash and so on.

However, these assets, being less risky or volatile, net lower returns. And it’s why most super funds try for a return around 7% for a balanced investor.

The safer assets bring down the returns and deliver more income to the super fund and you.

I recently participated in a podcast debate for The Australian newspaper with a smart young bloke from the Grattan Institute, who was arguing the case to help younger Aussies into property. This is a noble goal but I did point out that the often ‘despised’ baby boomers may have done well out of property but they didn’t have 9.5% of their income going into super.

These figures are seven years old but they tell the story of how un-supered the boomers are. “The latest ASFA data, based on 2012 figures, show the average super balance for Australians aged 50-54 is about $104,000, and the gap between men ($137,000) and women ($72,000) is wide. However, the median super balance for the age group is just $47,000, meaning half the population has less than that.”

For most boomers, their property is their ‘super’ balance and many are (or will) downsizing their home to get money for retirement.

Young people today find it harder to buy homes because they lose 9.5% of their income to super but they will be richer in retirement.

An old rugby league Yorkshireman once said: “You win a bit, you lose a bit and you don’t grumble.”

But because super is such a damn good asset for your future, check your balance, check your fees and check your investment option.

Young people have been blessed having super but if they don’t respect it, they’ll end up with a second-rate asset.

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Should we tell the Chinese to WAAAX off?

Tuesday, September 17, 2019

Yesterday we learnt that the Chinese want to buy Bellamy’s for $1.5 billion and the company’s board likes the fact that shareholders would be paid $13.25 per share under the deal, representing a 59% premium to last week's closing price of $8.32.

Our lower dollar is making some of our best companies like the group called the WAAAX stocks, which are our local version of the FAANG stocks in the USA, vulnerable to a takeover.

For the less market-oriented, FAANG stands for Facebook, Amazon, Apple, Netflix and Google. These are hi-tech stocks and our equivalents, while more in a baby-stage of development are the WAAAX stocks. WAAAX stands for Wisetech Global, Appen, Afterpay, Altium and Xero.

But like all significant foreign takeovers, Bellamy’s offer has to be approved by the Foreign Investment Review Board, so it’s not a done deal.

And while the shareholders are bound to say “you little beauty”, federal independent MP, Andrew Wilke isn’t doing handstands about his beloved Tassie possibly losing control of Bellamy’s.

He says FIRB would need to undertake “a very stringent assessment of whether or not the public interest is served by the sale going through”.

Bellamy’s 5-year share price

It also should not be lost on FIRB that the Chinese have made the share price life of this infant formula business pretty tough, with unreasonable rule and regulation changes that made the companies’ profits and share price go up and down like a yoyo.

Yesterday the share spiked 54% to $12.89, just short of the $13.25 offer price. How this plays out will be a curious business drama but what we have to work out, as a country, is how much do we want to lose our best assets to any foreign country?

The predator in this story is the China Mengniu Dairy Company and ironically Bellamy’s share price has gone up and down like a yoyo because of the Chinese regularly changing the rules and regulations about doing trade with them.

It’s the issue that Donald Trump has been hopping mad over and now they want to buy a company that they have been screwing with, to put it bluntly.

If the Chinese get away with this, other attractive companies could become takeover targets, like our so-called WAAAX companies mentioned above.

Our low dollar is good for economic growth but it leaves us vulnerable to foreign predators. I’m more concerned about those who play trade unfair and then come in and cash in on their unfair practices.

A Chinese friend says a company like Blackmores has copped bad posts on China’s rival to Facebook — WeChat — and she says it’s easy to make or break a company by tapping into the momentum of this gossip social media hangout.

This is a big issue for Treasurer Josh Frydenberg to consider. And what the FIRB decides on Bellamy’s could result in a green or red light on a takeover frenzy for some of our most promising companies.

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Will our stock market go up for the 5th week in row?

Monday, September 16, 2019

Every week is critical as we loom in on the early October meeting of key US and China trade negotiators. And while the stock market is giving off positive signs that a deal could be close, the share price waters have been muddied by a drone attack on a crucial Saudi oil facility.

Iran-backed Houthi rebels in Yemen have claimed responsibility for a drone attack on Saudi Arabia's Abqaiq plant. About half of the country's oil output has been affected and oil price and stock prices are bound to shoot higher today.

Energy stock prices will go higher today and businesses that are big oil buyers should lose a few friends. The level of internationally confusing forces is making investing harder and harder and it comes as we try to work out if our economy and our stock market are poised to go higher.

Over the month, our S&P/ASX 200 Index is up around 3% and for the year-to-date the rise is, wait for it, 20%. And if we throw dividends in, it’s about 22%.

But it’s not only the possibility that a trade deal will happen, which could unleash a global surge of business investment, upgrades to the growth outlooks of economies worldwide and a further leg-up for stocks.

The other big hope out there is that the Oz economy will soon show that it is economically rebounding from within. To date, the results are mixed. Personally, I was hoping that the Westpac consumer sentiment and the NAB business confidence readings last week would add to optimism seen elsewhere in the economy.

Like what? Here are the biggies to note:

• The auction clearance rates and house price rises in Sydney and Melbourne, which show that the huge housing negativity is bottoming out and starting to be replaced by at least guarded optimism.

 Excluding refinancing, the value of owner-occupier home loans rose by 5.3% in July, with investment loans up 4.7%. The number of owner-occupier loans lifted by 4.2%. 

• In trend terms, the share of first-home buyers in the home lending market hit a 7½-year high of 29.1%.

 Around $23 billion will be paid out by listed companies to their shareholders in the next four weeks.

 The Australian Industry Group (AiG) Performance of Services Index (PSI) rose by 7.5 points to 51.4 points in August.

 In trend terms, the Internet Vacancy Index rose by 0.4% in July – the first rise in seven months. Record vacancies exist for health and education workers.

• In seasonally-adjusted terms, average weekly ordinary time earnings (AWOTE) rose by 3.1% in the year to May – the fastest growth in six years. The average annual wage is $85,010.

 Employment rose for the 33rd out of 34 months in July, where jobs increased by 44,000. However, economists expected 14,000.

So far the impact of two interest rate cuts have helped the housing sector but not consumer and business confidence. Meanwhile, the tax cuts seem to be a slow burn but we need to see the economy heating up on the back of them soon. And that puts the spotlight on this week’s economic data.

On Tuesday, we see the latest RBA Board minutes, so we will see what the central bank is thinking about the economy and what they could do with interest rates.

Thursday brings the latest population stats and CommSec thinks we’re up 1.6% on a year ago and, on that day, we see how the job market was going in August. The news here has been better than expected but we don’t need to get any negative vibes from the all-important part of the economy.

The tip from economists is a 20,000 rise in employment, which would be a nice rise. Anything bigger could fire up optimists and make the RBA resists another rate cut in October.

That’s the key local influences for stocks and the economy going forward but overseas will have the greatest impact.

Nice-talking between Donald Trump and his Chinese trade buddies is crucial for stocks but so is what the US central bank decides on September 18. An interest rate cut is expected and should help Wall Street power higher but what the Federal Reserve boss, Jerome Powell says will have the biggest impact on stocks.

On one hand he has to say, if needed, he will cut rates more but on the other it would be great if he underlined that a trade deal is the injection the US and world economies need. However, I don’t think he’s prepared to put the pressure on his President, who is the greatest rooting, tooting, tweeting leader of the free world, ever!

It’s another big week for economies and stocks, let’s hope we get the kind of good news that will KO the negativity associated with madmen with drones bombing oil facilties!

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What a wild, weird and wacky week for optimistic economy watchers!

Friday, September 13, 2019

For someone like me who adds up the positives for the economy and markets that we invest in and then deducts the negatives, this has been a week of two halves. Firstly, the local economic data was more bad than good, which worries me that another interest rate cut might be needed locally, even before Cup Day. But secondly, the news from abroad was more good than bad, if you can see more negative interest rates in the EU as something that can be cheered.

Before explaining that last wild and wacky point, let me inform you that the ‘weirdlings’ in the stock market were positive about more negative interest rates, as the German DAX was up 0.41% and the French CAC put on 0.44%.

OK, let’s rewind on the week in bullet point form. Here’s the bad stuff that had me worried:

The value of personal fixed loans (to households) for motor vehicles fell by 3% to a 4-year low of $1.165 billion in July, to be down 9.1% over the year.

The NAB business confidence index fell from +3.8 points in July to +1.4 points in August. The long-term average is +5.9 points. And the business conditions index fell from +2.6 points in July to a near 5-year low of +0.5 points in August. The long-term average is +5.8 points.

The Westpac/Melbourne Institute survey of consumer sentiment index fell by 1.7% to 98.2 in September.

Against these negatives, excluding refinancing, the value of owner-occupier home loans rose by 5.3% in July, with investment loans up 4.7%. The number of owner-occupier loans lifted by 4.2%. In trend terms, the share of first-home buyers in the home lending market hit a 7½-year high of 29.1%

This was on top of very good auction clearance rates in Sydney and Melbourne in the highs 70% region, which suggests the property market is throwing off its recent huge negativity.

That said, the failure of both business and consumers to get more positive made me negative about our economy. My only offsetting positive thought was that the impact of the interest rate cuts and the tax cuts might need a few more months to really affect a household’s bottom line.

Also, there has been a lot of negative headlines about recession and that weak economic growth number, which said we were growing at only 1.4%. Combined they could easily explain the current pessimism.

This is how CommSec’s Craig James looked at the consumer sentiment number: “Consumers are feeling just OK at present with the latest sentiment index dropping below the 100 level that separates optimism from pessimism. Still, the latest confidence result is a victim of bad timing – the economic growth figures released last Wednesday were the weakest in a decade. The ‘news’ that most people remember hearing about over the past week was “economic conditions”. (News from ‘overseas’ was also high up the ‘recall’ list – again largely negative news.) Having said that, the economy has entered its 29th year of growth, extending the record expansion. But strangely that didn’t feature in a lot of media reports.”

There was one other standout news item from earlier in the week, which was a plus, but I’ll hold that for the moment.

The second half of the week brought the following that excited stock markets worldwide:

• First, President Trump agreed on Wednesday to delay an additional increase in tariffs on Chinese goods by two weeks, to effectively let the October 1 trade talks be conducted without the tension of raised tariffs, which were supposed to start on that day.

• This news followed other positive soundings that were coming out from officials close to the White House and Beijing.

• CNBC reported that “the US Treasury Secretary, Steve Mnuchin said the President could “strike a deal with China at any moment but wants a good deal for American workers.”

• The European Central Bank cuts its deposit rate by 10 basis points to -0.5% — yep, that’s a negative interest rate!

• And the ECB will buy 20 billion euros worth of bonds a month for as long as it takes to stimulate economic growth!

The man who once said “whatever it takes”, the ECB boss, Mario Draghi, told his last press conference: “In view of the weakening economic outlook and the continued prominence of downside risk, governments with fiscal space should act in an effective and timely manner.”

• The ECB also made it easier for banks to source money to lend to business.

These positive moves are desperate stuff and gives reason for a doubting Thomas and Nervous Nellie to fear that this good news is only positive if you can ignore the problems it’s trying to eradicate.

That said, you have to hope that Donald Trump and his team understand that his trade war needs to end or de-escalate to help the global economy rediscover its economic growth mojo.

And on that subject, earlier in the week, UBS’s economics team tipped the September economic growth number would come in at 0.8% and the end of year growth figure would be 2.4%, which is way up on the 1.4% result we saw for the year to June.

They think tax cuts will be a game changer for our economy. And if we can get the positivity from a trade deal on top of an improving attitude in the housing sector, then we could be off to the races around Cup Day! That should return great dividends from the stock market. And in 2020 we could see more jobs as well as wage rises.

I don’t want to ponder the opposite but when I do I can understand this fact from earlier in the week. The total alcohol consumed in Australia lifted slightly from 55-year lows of 9.48 litres per capita in 2016/17 to 9.51 litres per capita in 2017/18.

Yep, a slowing economy, falling house prices, a trade war and a scary election can lead to greater reliance on the bottle. This economy of ours needs to improve to reduce the chances of us all becoming drunks!

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Stock market smarties aren't recession believers!

Thursday, September 12, 2019

Belief that a trade deal will happen is not necessarily shared by a number of the experts who I regularly interview for my Switzer TV stocks program on Monday, but Wall Street has a different view. 

Developments for the stock market, gold and the bond market are suggesting those who were making recession calls might have jumped the gun.

And it comes as President Donald Trump is keeping the pressure on the US central bank or the Fed by telling the “the Fed boneheads” to cut interest rates to zero “or less”! But don’t think he’s saying this because he thinks the US is heading towards recession and it needs zero rates, no, it’s because he says the US should refinance its debt!

That said I suspect their more method in his madness than meets the eye.

This guy, unlike any conventional politician, is always up for making a deal that suits his bottom line. More on that later. 

Overnight the Dow Jones Index was up 227 points or 0.85% and helping this trend that has persisted this week is a more positive view on a possible trade deal. As an example, CNBC says that Wall Street remains focused on U.S.-China trade relations. “Beijing released a tariff exemptions list for products from the U.S. on Wednesday morning,” Fred Imbert reported. This is all ahead of the October 1 trade talks that could be critical to what ultimately happens to stocks.

One stock that has symbolized the problems of the trade war has been the big earthmoving machine operator Caterpillar. Over the past five days, since the news has been more supportive of a trade deal happening, its share price has gone up 10% (see chart below).

Caterpillar Inc. (CAT)

That’s a big jump but certainly gives us a sneak preview of what might happen to stocks generally if a deal can be scratched out between the US and China. 

By the way, a deal doesn’t mean both parties back down, but an agreement is reached so investors can work out what companies will be positively and negatively affected. Right now the uncertainty is holding back both professional and amateur investors from going long stocks.

And with interest rates so low, savers are being forced to risk going into the stock market to avoid having to accept 2% with their term deposits, if they’re lucky!

This week the AFR reported that Rob Kapito, the co-founder of Blackrock — the biggest fund manager in the world with $10 trillion under management — says there is $25 trillion of cash sitting on the sidelines. A lot of this money would be sucked into the stock market if the trade war threat disappeared.

“We're in a world that is flush with cash and is underinvested. And therefore my global outlook would be for stock markets across the globe to continue to grind higher, and for rates stay low for longer,” he said.

However, the stock market looks too risky for nervous investors and that’s the challenge all wealth-builders have to comprehend.

Yesterday, the Westpac consumer sentiment number disappointed falling 1.7% to 98.2. Any number under 100 means pessimist consumers outnumber optimists and when those surveyed were asked about the wisest place for their savings, the proportion of people that answered ‘don’t know’ lifted from 6.4% to a record (24-year) high of 8.7%.

A bank term deposit has historically been the wisest place for your money because it is government guaranteed up to $250,000 but with interest rates so low and likely to go lower, especially as Donald Trump weighs in, it forces people up the yield curve to more risky investments.

We created the Switzer Dividend Growth Fund (SWTZ) to be a ‘safe-ish’ alternative to a term deposit but it is clearly more risky because there are no government guarantees and your capital can go down with a stock market slide. On the other hand, the fund that captures primarily 30-40 dividend payers, based on history, did shock me yielding 7.9% in net terms last and 11.2% gross for the year to August.

The fund was helped by Bill Shorten’s threat to take away franking credits for retirees which made a number of companies give out special dividends. This fund targets a 5-6% return plus franking credits but when someone goes for this or a fund like it, they are going up the risk curve to get higher yield.

Interest rates will not rise quickly for a long time so investors or wealth-builders will have to cop lower safe returns or sneak up the risk curve, but as I’ve pointed out, it comes with a gamble.

The signs of a possible progress on a trade deal are promising for now with the gold price falling over the past week, as the chart below shows.

Meanwhile the out-of-favour small cap companies in the US shown in the Russell 2000 index have made a nice comeback over the week, which says smart market players are feeling more confident to invest in companies that could be KO’d by a trade war-created recession. This small cap Index is up 5% over the past five days and again is a nice sign, which I hope is a prelude to something great on trade. 

Russell 200 Index

Source: finance.yahoo.com

On the “boneheads at Fed” slur from Donald, as always there’s method in his apparent madness. He doesn’t want interest rates at zero or less but he wants another rate cut from the looming Fed meeting on interest rates.

He says with rates at zero he could refinance US debt at unbelievably low levels but deep down his main game is that a good trade deal with low interest rates would lead to both the US economy and the stock market flying high, which would KO any talk about recession in an election year.

Let’s hope China plays ball with Donald or else it could be a recession and a crashing stock market.

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ASIC wants us to stop enjoying steak, red wine and owning a home. That’s un-Australian!

Wednesday, September 11, 2019

ASIC could make getting a loan hard again! The chances of a borrower getting a loan are set to rise or fall on a decision by the Federal Court after the Australian Securities and Investments Commission was told its anti-bank stance on how they lend was excessive and unrealistic. Not happy with that, the regulator is appealing the decision that saw a judge say just because someone eats wagyu steak and washes it down with Grange (or words to that effect) doesn’t mean they can’t meet their loan commitments.

And while there are many positions a reasonable person could take on how thorough a bank should be when granting someone a loan, the critical factor for the economy, and effectively your job and your business’s profits, is that restricted lending was a prime cause for our economy seeing economic growth fall from around 3% to 1.4% in the year to June 30.

The coincidence of tougher lending standards from APRA and ASIC contributed to the fact that about 20% of borrowers, who used to get loans before banks were told to be tough on borrowers, were knocked out of the loan and therefore the property market.

This explains a lot about why house prices dropped in Sydney and Melbourne and why our economy slowed down over the past couple of years.

The history of these court battles started when ASIC slammed Westpac with a $35 million fine for lax lending standards when approving loans. The bank copped it rather than fighting the case, given the bad PR banks got out of the Royal Commission.

However, the fine effectively had to be ratified by a Federal Court judge and Justice Nye Perram basically said someone’s past spending shouldn’t lead to a presumption that they can’t change their ways to pay off a loan.

In the past, banks used something called the Household Expenditure Measure (HEM) to assess a borrower’s ability to pay interest on their loan but critics, such as ASIC, said this measure left a lot of stuff out, such as does the family have a big private school fee bill to contend with?

The impact of the Royal Commission and APRA’s insistence that someone should be able to pay a loan back if interest rates go over 7% (even if they’re borrowing at 3.5%) meant a lot of borrowers copped a “Computer says no” when they asked for a loan.

Don’t get me wrong, banks should be more forensic when they give out loans but the history of defaults and loans in arrears isn’t anything to be really worried about. A study by Moody's found that the proportion of Australian mortgages that were more than 30 days in arrears has increased to 1.58% for the year to November 2018.

Now this was a year when the news about house price falls and a slowing economy should have created a much more worrying story about mortgagees in trouble but that 1.58% number isn’t spooking me.

The SMH’s Elizabeth Knight summed up the core issue in writing that “the findings of the primary case in the Federal Court boiled down to a recognition that lenders have a legal obligation to assess whether borrowers can service their interest costs without hardship.”

And that’s fair enough. But why not simply subject all bad loans to the wrong people to the Australian Financial Complaints Authority or AFCA? If the banks have lent irresponsibly, then make them subsidise the borrower to keep them in their property!

Banks should not become a part of the nanny state with this idea of “responsible lending” but they should be involved in sensible lending. If they lend stupidly for greedy profit reasons, then let them be heavily punished by having to even forgive a lender his or her loan!

That will make for sensible lending.

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A negative economist jumps on board the positive train!

Tuesday, September 10, 2019

Doomsday merchants who hate my tendency to underline the often ignored economic positives (especially by the media), won’t be happy to hear that UBS economist, George Tharenou, thinks the tax cuts will pump up the September economic growth number to, wait for it, 0.8%.

That’s huge! And if he and his economist-buddy Carlos Cacho are right, it adds credibility to a lot of my “don’t worry be happy” recommendations. And if this economic revelation (which we won’t find out about until December because calculating stats is a slow business) happens to bump into a stock market surge because President Trump cracks a trade deal, then we could be off to the races!

But what do I mean when I say “races”?

Faster growth from the $7.8 billion worth of tax gifts on top of two (maybe more) interest rate cuts should lead to a treasure trove of goodies. I really hope George is on the money. And let me say, Mr Tharenou is not generally a “glass half full” kind of guy so for me to be rooting one of his big calls is a big call in itself.

Let me list what a better growth number in September could lead to:

1. It should lead to more jobs and lower unemployment.

2. Higher consumption, which George says goes from up a low 1.4% in June to a good 2%, which is good news for retailers and sellers of services.

3. A growth snowball would start rolling, taking our economic expansion from a worrying 1.4% to 2.2% this financial year and then 2.6% in the following year.

4.  The better growth will put less pressure on the Treasurer to cut into the budget bottom line because there’ll be more jobs and tax collections.

5.  Stronger economic growth has to help a lot of companies, whose profits have been hurt by a slowing economy, which has to help stock prices.

6.  Higher growth improves the ratio between Household Debt and GDP, which has been something that has been used by doomsday merchants to predict Armageddon on so many fronts.

7.  A stronger economy puts more of a floor under house prices, with a recession capable of reigniting the house price drops that started in mid-2017, while a pick-up in growth should do the opposite.

8.   A period of convincing growth could even see the RBA surprise many economists and not cut interest rates again. That’s a longer shot prediction but it’s exactly what the RBA would love to see happen.

9.  The better economic environment should lead to improved business and consumer confidence and business investment would in all likelihood start to rise noticeably. It would especially spike if all this goes in concert with a Trump trade deal.

10. All the above should create the conditions to help wage rises go to a higher level from the current low, albeit slightly improving level we’ve seen recently.

The overall effects of all the above would help to fight the funk that has hung over our economy since a litany of events have held back growth. The challenges have included the trade war, huge bank lending restrictions, the related house price slump, the election anxiety syndrome, the Shorten policies that still dog Labor today, a revolving door of Prime Ministers and concerns about bond markets predicting recession.

Clearly, I have looked for the best case scenario but I like it when someone like George Tharenou, who doesn’t easily go long on positivity, starts talking up the economy.

By George, I hope he’s right!

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Is our economic rescue plan made in China?

Monday, September 09, 2019

China saved the world economy in the GFC by a huge injection of stimulus but now it has to save itself, with the Trump trade war starting to bite. Confronting an economic slowdown with exports to the US down 18%, Beijing has signalled it will inject $185 billion into its ‘Trumped’ economy.

And while this is a sorry implication of the fallout of the trade war with the USA, any stimulus for the Chinese economy will have knock on positive effects for our economy.

We need to see signs this week that the post-election ScoMo effect, on top of the two interest rate cuts along with the tax cuts, are starting to boost business confidence and consumer sentiment.

Fighting these pluses are the negatives of the trade war and persistent omens out of the bond market that a recession is in train.

The confidence figures out this week will be important for Treasurer Josh Frydenberg, who’s stoically resisting calls to ‘up the ante’ on fiscal stimulation. To date, he has leant against undermining his trek towards a budget surplus, despite the Reserve Bank Governor pleading with him to take the pressure off him and his cash rate of interest, which now is at 1% and could go as low 0.5%, if most banking chief economists can be believed.

Early calls aren’t out on business confidence but it has shown an improving trend, although it still languishes below the long-term average.

NAB Business Confidence

The jump in confidence was the ‘election is over’ effect and ScoMo would’ve loved that jump from zero to 7. But reality started to bite in June when the number dropped to 2, but July brought back a rising trend. This needs to be added to in August or else the negative effects of a negative number could turnaround what looks like a potentially positive trend.

The NAB number is not predicted, so it’s fingers crossed. But early consumer confidence forecasts suggest we could see a 3.5% spike, which would be a real shot in the arm for the economy.

And given the two interest rate cuts, the tax cuts and wages are just starting to sneak up, the Treasurer would really like to be able to point to the economic scoreboard and say, I don’t need to hurt the developing budget surplus.

At first blush, bad news for the Chinese economy could raise red flags for our economy but over the course of the trade war, which has been going on for around 18 months, our trade surplus has been a standout plus.

“The trade surplus fell to $7.27 billion in July from a record $7.98 billion in June,” reported senior CBA economist Ryan Felsman last week. Australia has recorded 19 successive monthly trade surpluses. The rolling annual surplus was a record $52.27 billion in the year to July.

A big-spending China, to offset the negatives of the Trump trade war, could mean more stimulus for our economy, which could mean even more trade surpluses. And all this builds a case for China to be more responsive to the idea of a trade truce, which might mean that it is more amenable to concessions.

I’ve always contended that the months leading into November will determine whether the RBA will be forced to cut on Cup Day. The run of economic data and the trade negotiations will be critical because if this trade ‘pow wow’ makes no progress (and even an escalation of tariff impositions happen) then not only will stock markets drop but a recession worldwide is a real possibility.

Go the economy and the trade negotiations!

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Can you feel it coming in the air tonight, oh Donald?

Friday, September 06, 2019

Anyone who doubted the role of the trade war in the struggles of the stock market saw over the past 24 hours just how wrong they are. And the reaction to the news that negotiations between Donald Trump’s ‘tradies’ and China’s trade negotiators or ‘tradies’ are getting close to where an agreement is more a chance has excited markets.

How do we know?

Well, the opposite of what has been happening has been unfolding since yesterday, with the gold price falling and other safe haven assets copping it, while bond prices fell as their yields started to rise. If this doesn’t make sense, just think that the things that had caused the inversion of the bond market’s yield curve (which most normal people don’t understand) has become less of a problem.

And with the Dow Jones Index up over 400 points before the close, as I write, you don’t have to be Terry McCrann or Ross Gittins to see the link — trade deal and stock markets up and less need for interest rate cuts.

But can we trust the latest signs that maybe a deal is in the air and is there something attractive in the timing of this? And could Donald be even thinking that “not even I can keep stretching out my famous Art of the Deal?”

I hope so. And so does CNBC, which ran with this headline: “Reliable China insiders hint that this round of talks could lead to a breakthrough.” Of course, words such as “hint” and “could”  are still used but imagine if they get swapped for “declares” and “will”. That would have a huge market response, where I could be talking about a 1000-point move overnight!

I said last week that Wharton School business professor, Jeremy Siegel (one of the best US academic market commentators) believes a deal could send stocks up 10-20% but a “no deal” could have the reverse impact!

The planned October trade negotiations meeting will be the 13th since all this began and the editor-in-chief of the Global Times out of Beijing, Hu Xiji, thinks a deal is in the offing. “There’s more possibility of a breakthrough between the two sides,” he said in a tweet Thursday.

Hu is seen by trade spotters as being the “deep throat”, who seems to have the right connections and cred when it comes to calling this high-level game of political ping pong between Trump and Xi Jinping.

Of course, it’s crazy to get too excited about Donald and a trade deal but this market reaction shows what might happen if the US and China crack an agreement.

And the timing is becoming crucial.

Stock market history shows the November-April trading period is great for shares and if President Trump makes a deal over October, it would set Wall Street up for a huge Santa Claud rally and provide insurance against a recession showing up in 2020 ahead of the US election.

But the wins aren’t just for America, as a trade deal would ignite business confidence worldwide and here in Australia, which would boost investment, economic growth, job creation and stock prices.

This would be the gift that keeps on giving, until stock markets go too high and interest rates start to rise! Now that would be a ‘tradies’ job well done, if they can make it happen in October. On the flipside, October is famous for big crashes but I don’t even want to contemplate such a possibility!

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