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Peter Switzer
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+ About Peter Switzer

About Peter Switzer

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

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

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

Testimonials

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

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


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

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


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

Sean Ashby, Co-Founder, AussieBum


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

Peter Mace, General Manager NSW, Australian Institute of Export


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

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


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

Serife Ibrahim, Stockland Corporation Ltd


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

Catherine Batch, Head of Marketing and Communications, Indue


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

Justine Goss, Strategy Group

Chris Joye sees a 30-40% fall in house prices but…

Tuesday, August 20, 2019

What’s the greatest lesson you can teach yourself or the ones you seek to influence? The answer occurred to me as I listened to Chris Joye, as I interviewed him for our latest episode of the Switzer TV programme. The theme I explore is just how scared should we be about the stock market sell off, the threat of an inverted yield curve in the bond market and a related recession?

(https://www.youtube.com/watch?v=6oOnYNmkD4Q )

I put these issues not only to Chris but my other guests — Julia Lee from Burman Invest, Charlie Aitken from Aitken Investment Management and Paul Rickard, who writes for our Switzer Report. As you know, Paul was the founding CEO of CommSec and my business partner.

These people have been around the block lots of times when it comes to stock markets and the forces that can send them up and down. I wanted to know if they’d been influenced by the messages the bond market has been transmitting.

Julia Lee might have some short-term reservations of where the stock market is heading but her outlook for stocks remains positive. She was quick to point out that even if the bond market is right, it can take 18 months or more for a recession to show up. And in that time, the US stock market has had big rises.

Percy Allan, the former NSW Treasury boss, told me on my Switzer Show podcast, that the stock market rise has averaged around 16% after the bond curve inverted in the USA. He also pointed out that even if the bond curve was on the money, there was time to remain long stocks and to make money out of them.

Percy founded a service called Market Timing Australia, which we now run. Market Timing has been supporting gold investments since May because the momentum of the gold market had been building until his monitoring indicators could ignore it no longer. However, despite the potential threat that the move towards gold suggests, his other indicators still give a ‘thumbs up’ to Australian shares.

Paul Rickard, who started his money life as a bond trader, accepts that the bond market has some predictive form but says it’s not in the infallible class.

He agrees with Dr Shane Oliver of AMP Capital, who says the bond curve warnings have a history of unreliability here in Australia. “The gap between the 10-year bond yield and the cash rate, which is the part of the yield curve that has been traditionally focused on in Australia, has given numerous false readings – most noticeably in the mid-1980s, in 2000, 2005 to 2008 and around 2012, that were not associated with recession in Australia,” he said. (AFR)

Joye, the Co-Chief Investment Officer at Coolabah Capital and a 24/7 bond player, is dismissive about the inverted bond curve and says it actually “is a notoriously poor predictor of future cash rate changes.”

Charlie Aitken has just returned from a Spanish holiday and laughed how a break from the day-to-day battle with the stock market often can produce turmoil but thinks the past few weeks have “provided a buying opportunity.”

He also thinks the Hang Seng Index in Hong Kong could soon be a money-making opportunity, after falling 12% since the protests. But he’s not moving that way yet. He referred to the advice from Lord Rothschild, who gave the stock market advice to “Buy when the cannons are firing and sell when the trumpets are blowing!”

Charlie is another one who’s not going to cash because of the bond market. Instead, he thinks the better investment bet is to buy good quality US companies, such as Caterpillar and John Deere, which currently are troubled by the trade war. A trade deal would be good for these companies and they might be a safer trade than punting on emerging markets.

Back to Joye and his controversial reference to local house prices. His 30-40% call was his worst case and least likely scenario. He saw that as possible in the context of a significant global recession, which he doesn’t see in his economic crystal ball.

Instead Joye, who called the more measured fall in house prices in 2017, now thinks they’ll rise as much as 10% over the next 12 months! He’s a guy who can overwhelm you with self-confidence and his reminding of his great calls but he does have good form on the board so he can’t be easily ignored.

I asked him if he’d take on John Adams in Round 2 of his debate on house prices, where he believes he “monstered” his rival. But he says he’d rather take on the godfather of the 40% house price prediction — Professor Steve Keen.

I’ll await Steve’s reaction and be happy to host a matching of their economic brains sometime soon, if we can arrange it.

Away from that, it’s comforting that serious market players aren’t turning tail and running from the stock market, despite the negative vibes from the bond market, stock market, China’s reaction to the Trump trade war, Hong Kong, Iran and Brexit-mired Britain. The chances of a black swan hiding amongst that lot can’t be totally ruled out!

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Scott & Josh, it’s time to learn a thing or two from Mr Trump

Monday, August 19, 2019

If there’s one action I’d advise both the Treasurer and Prime Minister to ramp up, it’s their talking up the prospects for the economy. And if they need a role model to channel, I’d suggest Donald Trump!

This wild and wacky conclusion came to me as I perused the latest Sensis Small Business Confidence survey, which said the drivers in the engine of the country’s growth — small business owners — weren’t too positive on the prospects for the economy over the next year!

The AFR reports that: “While 22 per cent of the 1000 businesses in the survey expect an improvement in the coming 12 months, 30 per cent believe the situation will get worse. The results are consistent across all states.”

Yep, I know Donald has his shortcomings, and aren’t we glad that both Scott Morrison and Josh Frydenberg aren’t tweeters of a Trump-kind! But when it comes to talking up the US economy, he is without peer.

This chart shows US small business confidence, which has a long-term average of 98.3 since 1975.

See how it fell as the trade war and the expectation of rising interest rates spooked Wall Street. That clearly worried US small businesses. And in the most recent survey, the expectations for better business conditions increased five points, while those reporting the current period as a good time to expand advanced two points.

These guys are actually having to deal with Donald and his trade war. And while some would be beneficiaries at the expense of Chinese rivals, others would be facing higher costs if they’re using imports from China.

Many are a little nervous, with the Uncertainty Index surging in June to its highest level since March 2017, but in July the Index fell 10 points. You can only put this down to the rhetoric from the fearless leader.

Our economic growth has been slower at 1.8% against the Yanks, who have averaged 2.3%. But we’ve had a host of recent developments that should be boosting small business confidence. Like what?

In case you’ve forgotten the mounting positives (and this is my point that not enough of the heavies in Canberra are trumpeting the good stuff like Donald would), let me list them:

• Two interest rate cuts and maybe two more are possible.

• Tax cuts are now being embedded into many Aussies tax refunds. About 70% of taxpayers will get up to $1,080.

• The dollar is falling. A year ago, it was 73 US cents. It’s now 67.93 US cents. And someone (other than me) should be telling Aussies that a low dollar is good for economic growth and jobs.

• Last week, we saw employment rise for the 33rd time in 34 months, up by 41,100 jobs in July. Full-time jobs rose by 34,500, with part-time jobs up by 6,700. Economists had tipped an increase in total jobs of around 14,000!

• On Friday we learnt that the annual number of permanent and long-term overseas arrivals rose to a fresh record-high of 850,770, up by 5.2% over the year to June. That was a record migration number! These have to be new customers for small business.

• Banks are now lending more freely and this should continue following the court decision to stop ASIC's fine for Westpac over a failure to lend responsibly.

• House prices have stopped falling and auction clearance rates are on the way up.

• And there’s better news on wages. 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.

I could go on (and you know I could!) but as you can see, there’s a better economic story happening but someone has to take up the Trump trumpet and start belting out the fact that things are on the improve.

Despite the trade war, we have recorded 18 trade surpluses in a row and are set to register the first current account surplus in 44 years! That’s huge! And it says our exports are so good that they’re bigger than out repayment of interest, dividends, etc to overseas!

I know the media wants to distract the likes of Morrison and Frydenberg with what it cares about, but, for the sake of the economy, small business owners, the people they pay wages to and the future of the place, I think it’s time the Government started ‘controlling’ the political conversation.

And I reckon a lot of Australians would like to know that our economy is poised to improve rather than going backwards, as too many small business owners have been guessing.

It’s time to do a lot more Trump-talk to us about the good stuff that means jobs and growth.

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Stock markets scaring you? Read this and sleep easier

Friday, August 16, 2019

Among the madness and mayhem around concerns of the little understood inverted yield curve, which triggered the “wiping off of $60 billion of the local stock market” (news outlets just love to report such events), some good economic news went unheralded.

(I’ll return to the inverted yield curve hype later – I bet you can’t wait!)

Here’s the good news you might’ve missed:

• Employment rose for the 33rd out of 34 months in July.

• Jobs increased by 44,000 but economists expected 14,000.

• Full-time jobs rose by 34,500.

• The participation rate rose to a record high of 66.1.

The Westpac/Melbourne Institute survey of consumer sentiment index rose by 3.6% (the biggest lift in six months) to 100 points in August. The sentiment index is near its long-term average of 101.5 points. The reading says optimists equal pessimists.

• The ‘time to buy a dwelling’ index rose by 3% to 126.9 points in August – the highest level in 5½ years.

The NAB business confidence index rose from +2.3 points in June to +3.9 points in July.

And that’s about it. It’s fair to say that this week both consumer and business confidence had good rises and the job market is as strong as a mallee bull, so these are decent stepping stones to encourage business investment.

This is a critical part of the economic puzzle that has gone missing, with many economists arguing that the pre-election period that brought controversial Bill Shorten policies worried the business sector. Throw in the Royal Commission on the finance sector and the externally imposed restrictive lending from banks, which happened in concert with falling house prices, and it all explains why business leaders weren’t keen to take a punt and invest.

Those things have changed so it’s reasonable to believe what we’ve seen in recent weeks could be the start of something better for the economy.

But what about the 2.85% (or 187 point) fall of the S&P/ASX 200 Index yesterday? That’s hard to ignore. But we were poised to go down.

This chart was shown on my TV show on Monday by Michael Gable, who pointed out how the red funny-looking line had gone below the blue line, which is the 50-day moving average of the stock market.

To put it simply, when it’s above that line, it’s good news for stocks. But when it goes below, it’s a warning that sellers are starting to outnumber buyers. Why? Well, look at the chart since January. We’d gone positively mad on stocks and were overdue for a pullback, as smarties take profit.

Add this scary stuff about inverted yield curves and we had to see stocks slump. 

But what is an inverted yield curve and why did it invert this week?

This is a normal, non-worrying yield curve:

Yield or interest rates are on the vertical axis and bonds (lined up from short-term to long-term) are on the horizontal axis. If you have a good economy, short-term yields are lower than long-term ones, indicating that you have a growing economy that will create jobs, income, rising inflation and higher interest rates.

However, the people in the bond market think what they’re seeing — a contracting Germany, a slowing China, the trade war effects, Brexit and the big troubles in little China i.e. Hong Kong — all add up to the big chance of a global recession, which the US won’t be able to ignore. 

These are all legitimate reasons to be very wary about risking your money and that’s why stock markets fall. But go back to my first chart and you can see the market also slumped from August to December last year and then turned around and rebounded over 22%!

And I’m not alone not being over-spooked. The AFR’s Matt Cranston pointed to the Royal Bank of Canada’s chief economist, Tom Porcelli, who argues the crazy world of negative and zero interest rates has changed the relevance of an inverted yield curve.

“In our view, the signal from the yield curve inversion this cycle is irrelevant,” Mr Porcelli said.

“Historically it works as a good recession signal…” but he says the  actual growth in the US is at odds with what the interest rate markets are telling us.

And he says the low rates around provided by very different central banks of the past, will make the funding of growth much easier than ever before. Usually an economy couldn’t get cheap money easily as the bond curve inverted. But (and I say this with trepidation) things are different this time.

By the way, an inverted yield curve usually tips a recession two years ahead, which would predict a US recession in 2021, which is the year I always thought was the riskiest, being the year after the November 2020 US election.

If Donald wins or loses, there could be threats to economic growth. But because he’s so rare, it’s hard to be confident either way!

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Are we heading for a global recession?

Thursday, August 15, 2019

Another bad day at the office for Wall Street with the Dow Jones Index down over 800 points triggered by a world of economic and geopolitical problems that have forced the bond market to give out signals that a recession could be coming! 

In trying to work out why there’s an accumulation of negative forces challenging economies worldwide, you have to ask why, especially with interest rates so low?

My answer goes like this: When there’s something strange in the economic neighbourhood, who ya gonna blame? The Trump-buster!

Sorry, I couldn’t resist that but Donald and his trade war (though understandable, given how unfair China has played trade for a long time), the timing of his tariffs and his worldwide bouncing of not only China but also Canada, Mexico, Germany, the EU generally and even the UK, has effectively busted global growth.

It’s even arguable that it hasn’t helped US growth. The US President would never blame himself for this economic slowdown that could roll into a recession. He’d rather blame the Federal Reserve boss, Jerome Powell. But given the economic growth that was prevailing in 2016 and 2017, those interest rate rises were seen by the market as justifiable.

And when Powell inferred that three more were coming in 2019, the market kind of said: “OK, we get that”, until the economic data started to slow down in the second half of last year.

So where did that slowdown come from? I’d say a lot of economists would put the trade war at the top of the list. Not far behind would be Brexit and so two political decisions to change the rules of engagement with the world have run before a worrying economic slowdown.

Economists have always taught and told us that free trade increases access to higher quality, lower-priced goods. It reduces imported input costs, thus reducing business production costs and promoting economic growth. Free trade improves efficiency and innovation.

This chart below shows US economic growth. Note how it spurted on Donald Trump’s tax cuts. Also note how it has tailed off since the tariff (tax) hikes.  

Even though there was a kick earlier this year, the trend is down since the 3.5% growth in the middle of 2018. And why wouldn’t it be, with the constant threat of tariffs bound to be spooking business leaders who have to make decisions to invest or not to invest?

The same challenging question would be faced by EU businesses that sell a lot of stuff to the UK and the USA. Chinese, Canadian and Mexican business investment decision-makers would be similarly challenged.

And at home, our business leaders have not only had Donald and his trade war but we had the Royal Commission, the impact on bank lending, the threat of Bill Shorten’s radical policies and the election itself to knock around business investment confidence.

A stock market is a window on the economy and the business sector and the Trump trade war, on top of the unexpected Brexit, has come back to bite the global economy. The question is: can we dodge this recession bullet?

This stock market window yesterday led to the following headlines:

• China’s economy continues to be weighed down by the tariff war with the United States.

German economy contracted 0.1% in the June quarter.

The US yield curve had become inverse - yields of 2-year bonds rose above US 10-year yields for the first time since 2007.

None of these wipe revelations hose down fears about recession. And it doesn’t help that reports say Chinese troops are assembling on the Hong Kong border. Meanwhile, Argentina is in an economic mess, with the US Franklin Templeton fund losing $US1.8 billion in one day on its investments in the country.

I can politically argue that the Trump-buster had a reason to take on China but I’m sure the ramifications economically have turned out to be more serious than he would have wanted. And that’s where the Chinese have a role to play.

There was supposed to be a trade deal in late March but the Chinese allegedly pushed back on Donald’s demands. If that deal had gone through, I’m sure I wouldn’t be talking about recession today!

I’ve learnt over the years that when you screw around with economies for social or political reasons, there are often unwanted economic consequences.

There’s a reason that this maxim has persisted: Good politics is bad economics and bad politics is good economics!

And that’s no myth that deserves to be busted. This chart of UK growth since Brexit reinforces my argument.

 

That bone-coloured box on the chart above is negative growth. I rest my case.

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Donald’s rockin’ Twitter and its share price is going up!

Wednesday, August 14, 2019

Easy question — who is the most influential tweeter in the world? Yep, you guessed it — Donald J. Trump.

How do I know? Well, the Dow was up over 400 points in 15 minutes overnight and it came with just one tweet from the US President!

And for those who don’t think the trade war is all that influential and therefore are at odds with my view, I reckon Donald’s tweet telling us that the September 1 tariffs will be split and a big part will be delayed until December, was the trigger for the Dow’s 376-point gain.

OK, you probably get all of this as we’ve been living with Donald’s presidentially weird tweeting since November 2016, but have a look at the share price move since that election. It’s gone from around $18 to today’s price of $US 41.38, which is a 129% gain. And as this five-year chart shows, Twitter (TWTR) was a struggler pre-Trump bordering on a corporate loser.

Source: finance.yahoo.com

Sure other things have helped Twitter, such as a better ad revenue strategy but hell they have got a free kick with Donald’s daily tweets, which have become a must read for market, economic and political watchers and they have become a source of both humour and horror for those committed to comedy and those powered by their hate for the strangest US President in living memory.

He is the world’s greatest influencer and imagine what he will be paid by huge companies after he finishes his ‘contract’ playing the US President? And what’s so unique about Donald is that he will use this period as the number one honcho in the world to make money out this role like no other US President has ever done.

Tom Murse of ThoughtCo in May this year reported that Bill Clinton gets about $US 750,000 a year on the speaking circuit and so imagine what Donald could rake in from his committed supporters.

With that likely runway for Donald, provided his diet and unhealthy-looking weight don’t get in the way, this guy will be good for Twitter, it’s popularity and share price as long as those fingers defy arthritis! Anyway, he could always dictate his tweets to one of his staff, so we will have Trump-tweets until he turns up his toes!

The power of his tweets were put on show overnight and I’m sure the management of Twitter will be voting for the big guy come November 2020. Forbes.com says work done by Jeffery Born at Northern University showed Trump tweets moved stocks on the day of the tweet but the impact fizzled out over the next three to five days. Other academic work confirms this short-term impact but I’d argue Twitter is unique because it gets presidential endorsement daily and it has become the world’s most looked to carrier pigeon of bite-size info at a time when the world seemingly hasn’t got time for or simply doesn’t want to read long and learned think pieces from really smart people.

Oh those were the days when we had time and intellectual inclination to read the thoughts of really intelligent thinkers. In case you are wondering, singer Katy Perry has most number of followers with 107.6 million followers with Barack Obama second with 106.7 million but I bet Donald at 12th, with 62.8 million followers, has the biggest influence as his tweets end up on the front pages of the Wall Street Journal, the Washington Post, The Times, The Financial Times and in every major news outlet in the world. That said, I’m not sure his tweets appear in Beijing News in their complete entirety!

Twitter as a company is becoming better at converting their large ‘customer’ base into potential income earners with innovative strategies to boost engagement.

The company’s latest innovation, announced via a tweet recently, will allow users to subscribe to replies to a particularly interesting tweet they want to follow, too, in order to see how the conversation progresses. The feature is designed to complement the existing notifications feature tweeters may have turned on for “must-follow” accounts.

And it’s improving its money collection too, with its most recent company report showing a 21% rise in revenue to $727 million for the second quarter.

The intriguing role that Twitter is playing nowadays is shown in this tweet from short-seller Jimmy Chanos, founder and managing Partner of Kynikos Associates, who also uses Twitter to influence markets: “So then tell me why Xi should not continue to wait out The World’s Greatest Negotiator, who keeps ‘dealing’ with himself?”

Undoubtedly, Donald will reply but the power of Twitter as a source of market influence looks likely to be a permanent growing thing. I can only hope a lot more intelligent and balanced tweeters come along in the future.

By the way, my views on Twitter can’t be seen as financial advice as I don’t know your personal circumstances. Take it as a tip that might or might not win, like a racehorse!

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Big black swan trouble in little China

Tuesday, August 13, 2019

Stocks will have a bad day today but this time Donald Trump isn’t to blame. No, this time it’s his buddy/rival Xi Jinping and a potential black swan called Hong Kong!

China’s confrontation with the real world of capitalism has had a reality bite moment with global stock markets diving overnight. Beijing is happy to have a part-time association with Western commerce purely for money purposes, but Hong Kong and its street protestors are rattling China’s leadership and it’s not looking great.

Helping spook stock markets with the Dow Jones Index down 391 points (or 1.49%) is the bond market, where yields fell again. This can be a precursor to the arrival of a recession. A geopolitical crisis such as Beijing bringing Hong Kong to book with a strongarm military solution would be a global gamechanger!

Undoubtedly, there’s a Trump-China trade war influence over this outbreak of hostility with Hong Kong’s citizens, even though the trigger was a potential law change that could see the island’s accused lawbreakers facing courts in China. Currently, what happens in Hong Kong is legally judged in Hong Kong.

The China-Hong Kong deal gives the latter a lot of self-determination compared to the population on the mainland and there’s a huge fear that this law change was going to be the thin end of the wedge.

But why would bond and stock markets react so negatively to a Hong Kong battle with Beijing?

This is how CNBC’s TV host, Jim Cramer, viewed the politics of this China challenge: “This is more serious than the trade talks,” he added. “If you want to know what could tip you into a worldwide recession, it is just a shutdown of Hong Kong.”

Hong Kong is a major financial hub in Asia so any real military operation would hurt commerce on the island but even more critically to the growth of the global economy, it would rattle businesses that are critically important to making investment happen.

If you’re a normal person reading this, consider an abnormal person and how he or she could be looking at this big trouble in little China i.e. Hong Kong.

The abnormal CEO who’s planning to buy a business for $100 million in Hong Kong would be slamming the brakes on that deal. And the bank planning to lend $80 million of the $100 million for that deal would be rethinking the loan offer.

Anyone planning on getting supply out of China could be nervous and fund managers who are long China stocks would be uncomfortable this morning. The possible chain of events that could KO commerce globally is hard to work out but it won’t be positive for a world economy that’s stumbling, such that most central banks are cutting interest rates.

Hong Kong could be the black swan that no one saw as the tripwire for the global economy that could then rock stock markets. I know there’ll be smart Alec critics who one day will ask why ‘experts’ like me didn’t see this coming but Hong Kong and the likelihood of their citizens trying to bully China wasn’t on my list of logical issues that could kill financial markets’ confidence. Similarly, working out the wild and weird machinations of Donald Trump’s mind and what he might think and tweet are new unplayable curve balls for someone like me who’s been trained in economics and spent 30-something years trying to second guess more conventional politicians who could have some sway over the economies that are critical to stocks and making money.

Yesterday, Hong Kong’s airport was closed and for one of the busiest airports in the world, that underlines the economic threat that these protests pose.

All this with the bond market predicting a recession, though it can get it wrong. And the likes of Steve Eisman, the guy who triggered the GFC with his ‘Big Short’ of the likes of Lehman Brothers last week saying Hong Kong is a potential black swan, will make a lot of stock players jumpy.

In case you’re not aware of what a black swan event might be, it’s something that’s not expected but has the potential to smash stock markets and tip economies into recession.

Donald Trump has no direct connection to this Hong Kong demand for a more democratic future free of China’s iron-fisted rule but he certainly could help by not prolonging this trade war longer than it needs to be.

The bad stuff for economies and stock markets are piling up and if you’re a nervous investor who can’t take capital losses you might have to consider your position.

For me, I’m gambling on an upside for stocks but I expect downside in the near term.

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When will the ding dongs stop playing ping pong?

Monday, August 12, 2019

Here’s a question I keep getting: With all the bad news around, how come the stock market keeps rising or isn’t nosediving? Last week was a classic example when China threatened to start a currency war and the Dow Jones dropped over 700 points in one session. The negativity it bred on global stock markets and locally meant our S&P/ASX 200 Index lost 184.2 points (or 2.7%) for the week to end at 6584.4.

But that’s not a big give up, given the bond market is warning a global recession is possible, the Eurozone as well as Sweden, Denmark and Switzerland have negative interest rates and our Reserve Bank boss, Phil Lowe says we could see a zero cash rate if the world economy goes pear shape (my words not his).

And the prime cause is? Yep, the trade war between Donald Trump and China. But given the potential economic disaster that’s breeding ridiculously low interest rates, why is there relative market optimism?

What are the key drivers of stock markets smoking?

I’m not sure but they do believe a trade deal will happen, which will be the game-changer that justifies the current guarded optimism.

But is hasn’t always been guarded, as it has since the US President started debating the final agreement of a deal in April. Until then, it was expected that an agreement would have happened in late March but there has been a stalemate.

That said, there is evidence that Donald will eventually make a deal but he’s not ready yet. So am I saying he will be the first to blink? No, but I think he is holding the hand with the key ‘trump’ cards. And all he has to do is make it easier for the Chinese to play ball.

Right now, like all good negotiators, he’s asking for more than he really wants and China needs to save face. But at the end of the day, they don’t want a global recession as they’re a huge exporter to the world.

For my Saturday edition of the Switzer Report (for investors who subscribe to my special investment newsletter), I described the trade deal as a game of ping pong. “When I try to understand the collective thought of market players, who determine where stock indexes head each day, I can’t help thinking about a game very popular in China — ping pong!” I wrote.

Donald slammed on a 10% tariff and the Chinese returned with a top spin currency depreciation. And then Donald’s National Economic Council Director, Larry Kudlow, in a timely return shot, informed the media/market that the President was still planning to host a Chinese trade delegation in September, as the Chinese ceased currency cutting.

But then Donald couldn’t resist a sneaky drop shot, so on Friday he told reporters that “China wants to do something, but I’m not doing anything yet …Twenty-five years of abuse. I’m not ready so fast.”

But note he said, “I’m not doing anything yet.” The “yet” says he not only wants a few more concessions, he wants to time he’s final winning shot.

Pinging and ponging will continue but he has to know that he can’t afford to push the US and global economies to the brink.

When good trade news happens, stocks rise and so do bond yields. And when the trade news worsens, stocks and yields drop. Right now, bond market players see the story as more serious and deathly compared to share traders and investors but the ice they’re skating on is getting thinner!

The question is: how long can the stock market cope with no news on the trade deal front? And could the related economic slowdown create a backfire situation for Donald Trump?

History shows that April to October is bad for stocks as this CNBC chart shows:

Undoubtedly, Donald would like to crack a deal to line up with the November-April strong period for stocks, which would leave him in a strong position for his campaigning for the election in the second half of 2020.

That’s a really nice script but it can’t be forgotten that September-October have been the troublesome months that have housed the 1929, 1987 and 2007 crashes. (The latter one actually dived on November 1 but what’s a day between friends?)

Clearly, with central banks cutting interest rates out of fear of what might be coming down the economic road, it’s in our interest (and probably Donald’s) to get that dam deal done.

On a good note, two local economists saw something positive about our economy last week.

First, Westpac’s chief economist Bill Evans said “Australia’s economy could be at a potential inflection point, with additional stimulus from tax cuts and monetary policy,” although he acknowledged there would still be weakness. Bill was the first to call for rate cuts and was on the money, so let’s hope his economic crystal ball is still working!

Second, CommSec’s Craig James noted what the RBA Governor said last week: “There are signs the economy may have reached a gentle turning point.”

Let’s hope Donald doesn’t smash hopes that an economic comeback is on the cards.

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Stocks up! Who said the market couldn’t get it up again?

Friday, August 09, 2019

Wall Street, which is driving this current market action with a lot of help from China, was up again big time overnight. The red colour of this yahoo.com chart of the S&P 500 Index in the US shows the market is still down from Friday’s close but there’s only 11 points in it!

So what gives? What’s changed? Has Donald said nice things about China? Is a trade deal close? Has China backed off its currency depreciation as retaliation to Donald’s 10% tariff on the $US300 worth of goods not earmarked for tariffing until last week?

That’s a negative to both questions. So why the newfound positivity?

This market jump, where the Dow was up 371 points overnight, is in contrast with a Capital Economics analyst who thinks US stocks are set to fall 15% by year’s end. And Carl Icahn, a HUGE market player, expressed concerns about the US economy’s challenges and how you can’t rule out a recession. That said, Carl is the kind of guy who can (and does) influence the market and you have to wonder if he does so to help his investments. George Soros has been accused of the same kind of thing and maybe Warren Buffett does so as well to help the market out of a downturn jam.

But back to why the US stock market has turned around.

“This is pretty normal after-market shocks,” said Keith Lerner, chief market strategist at SunTrust Private Wealth, to CNBC. “Normally, you have a sharp move down, catching people offsides. Then you get stretched to one side and there is this battle between fear and greed. You get some people thinking this is ‘the big one’ and they start selling. But then you get people coming in wanting to buy.”

Rocking markets was the fall in bond yields this week as a reaction to the trade war escalation from both sides. And while they have snuck up since lows this week, the drop in yields can be a warning sign that a recession is not too far around the corner.

Not helping positivity were the likes of New Zealand, India and Thailand, which all cut interest rates because of looming economic slowdowns. And remember, we cut the cash rate in June and July and so did the Yanks recently. Simply put, this trade war is hurting the global economy. If markets crash, Donald’s fingerprints will be all over the crime.

Helping turnaround sentiment was very good export data out of China, where an expected fall in exports was trumped by a strong 3.3% increase! How did that happen with a trade war?

This led China to set a currency value for the yuan against the greenback at a higher level than was feared and the stock market liked that. As I said earlier, bond yield have since gone up but are below the levels of last week.

Few normal people understand bond market prices and yields but just lock this in for the moment — if yields on bonds for countries such as the US and Australia fall, it’s bad news for those types of economies and vice versa.

So if falling yields might be saying our economy is slowing, let’s see the run of data this week.

Here’s the good stuff:

• Business loans hit an 11-year high.

• Home loans to owner occupiers rose 2.4%.

• First homebuyers’ share of the loan market is at a seven and half-year high.

• We cracked a record high trade surplus and we’ve put together 18 in a row.

• And we look on track for the first current account surplus in 44 years!

The bad news looked like this:

• Weekly consumer confidence dropped but it could have been spooked by the scary stock market news earlier this week.

• New vehicle sales dropped 2.8% in July but the industry thinks we could be at the bottom.

The Australian Industry Group (AiGroup) Performance of Services Index (PSI) fell by 8.3 points to 43.9 points in July – the lowest level since November 2014. Readings below 50 indicate a contraction of services sector activity.

This last reading is the most worrying because most people are employed in the services sector. An alternative measure, however, wasn’t as negative. The ‘final’ CBA/IHS Markit Services Purchasing Managers’ Index (PMI) fell by 0.3 points to 52.3 points in July.

So on the AIG number, the sector is contracting. But on the CBA one, it looks like it’s expanding!

As you can see, the good news suggests we could be turning the corner but that services number can’t be ignored.

The RBA will be watching the data flow and if there’s not a convincing pick up, it will cut rates on Cup Day. But I reckon they’d love to keep 1% up their sleeve in case the trade war/currency war problem gets so serious that it threatens a global and US recession, which would knock us for a six!

We’re in the hands of the dealmaker Donald and it’s just one more curve ball stock market players and business investors have to cope with.

I remain long stocks but I do it with a lot less confidence, compared to earlier this year when Donald was hinting that a trade deal would be done by late March. Some experts are selling stocks into this rally. And if you’re the kind of person who’ll slam me if a big slump happens soon, then maybe you should join them.

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Trade war threatens your job! Can economists rescue us?

Thursday, August 08, 2019

This is the greatest test for the people who we largely ignore but whose judgment calls keep us in jobs, help our businesses grow, contribute to the growth of our super funds and sustain our material as well as social hopes and dreams.

Who are they?

Economists, of course!

These often nerdy, bookish number crunchers have the duty to guess what’s going on, and will go on, in the economy. It’s alright, I can be unsympathetic to economists because I’m one. Like my Jewish mates and African American comedians, who poke fun at their fraternities, I feel I also can do so without retribution.

And it should be quickly added that I respect what these professionals try to do because their best guesses (or let’s call them forecasts) are sought by important decision-makers on a daily basis.

Scott Morrison has Josh Frydenberg, who has an army of economists in Treasury. The Reserve Bank Governor, Dr Phil Lowe is an economist and he too has a platoon of economists all trying to work out what we need to do to avoid 10% unemployment, another big drop in house prices and, of course, that dreaded R-word for recession.

And of course, Donald Trump has an economist by his side in Larry Kudlow, who was a former anchor on CNBC — the US business channel owned by NBC and GE at one time! Larry was the chief economist at Bear Sterns, whose collapse was the trigger for the GFC stock market crash. But he had long left the building before that calamity occurred.

Another economist working overtime to cope with Donald’s trade curve balls is Jerome Powell, the Chairman of the Federal Reserve — America’s central bank. And this guy has virtually been put into a Trump headlock over interest rates.

This time last year, Jerome was telling us he was preparing to raise US interest rates possibly three times in 2019 but this led to a tsunami of Trump tweets, where the President virtually said: “Cut or it’s your job Powell!”

This is unusual public discourse between a US President and his chief money manager but Donald has rewritten the rules of engagement for just about everything a commander and chief in the White House does.

And his biggest rewrite is all about trade and tariffs. Politicians since the 1980s have got on board with economists who supported free trade, globalisation, deregulation and so on. However, Donald believes this has been used by the likes of China, Mexico, Canada and Europe to exploit the USA. And that’s at the core of his trade war.

Even a decade ago, there were stories that Calvin Klein would release a new clothing line on Wednesday in New York and it would copied, flogged and worn on the streets of Beijing and Shanghai a few days later.

Calculations say that this intellectual property thieving is costing the US up to $600 billion a year. This kind of theft might have been tolerated when China was a smaller economic power but it’s now number 2 in the world. So there is a justifiable method in Donald’s madness.

So the global economy and its economists have been sucked into the deal making world of Donald Trump. And economists have to deal with the economic consequences. Early this week, the economists at the Kiwi central bank shocked markets with a half a percent interest rate cut. Locally we’ve cut in June and July and the tip is we could have two more cuts ahead, which would take our cash rate down to 0.5%! This is a “stacks on the mill”, things are getting desperate situation for the world’s economists, who, with these interest rate cuts, are leading the fight against the economic fallout from the Trump trade war. But they might need their economist buddies controlling the budgets of every government in the world to start cutting taxes. 

If the economists can’t convince the politicians to reduce taxes and increase infrastructure spending, Donald’s trade war could render a recession on the world, the US and the Australian economies. If this happens, jobs will go, house prices will drop and there’ll be a minority of smart alec economic doomsday merchants delighting in the failure of mainstream economists.

Go economists!

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How to build wealth when markets crash

Wednesday, August 07, 2019

It’s times like these (when stock markets are hogging the headlines, scarily talking about billions of dollars being wiped off the share market) that money-maker haters come out of the woodwork to slam anyone who is a supporter of stocks to make money. But history has taught me that these people are dopes. And they can be the worst kind of dopes — well-educated ones.

I must confess I was once like that. When I taught economics to some of the smartest young people at Sydney Grammar School and later at the University of New South Wales, I specialised in the economy and how it worked. They call it economics and it’s a wonderful way to understand the world but it can be a little too theoretical.

I was dragged out of my lovely world of a university job teaching micro- and macroeconomics by the October 1987 stock market crash.

I’d been writing a economics column for the Daily Telegraph for two years and helping Triple M’s Walkley Award-winning, national news director, David White, put together a documentary called “Are we living on Borrowed Time?”

Realising my need to understand the business world that had a very big impact on the economy, I’d started reading the Australian Financial Review each day. Luckily I did, as the October 19 crash of the stock market catapulted me into Australia’s media as a market expert and I’ve been there ever since.

Thank you, Whitey!

But along the way I realised that I not only had to talk about and explain business and the stock market, I actually had to walk the talk, which led to my exploits with stocks. And that led to me establishing my own financial planning business to service those who liked what I said and did.

And while nothing is certain in life, there are historical lessons that can help you build wealth better than those who refuse to learn from the revelations have gone before us when it comes to wealth-building.

This chart (and ones like it) taught me about the power of the stock market.

This is the S&P/ASX 200 since 1 November 1992. It was at 1456 and is now at 6768. That would have given you a 364% total gain or around 13.5% per annum but that’s the simple capital gain. A portfolio that matches the S&P/ASX 200 has returned on average over 4% in dividends. So let’s say the gain is 17%, which would be more if you add in franking credits.

But that’s simple mathematics. History says our Index returns 10% per annum on average over a 10-year period. Of course, sometimes the decade will do better or worse but it looks like half the gain turns out to be dividends. These little bleeders are unbelievably reliable — even in recessions and market crashes. Sure, dividends fall but nothing like stock prices.

If you need more proof over a longer time period, have a look at this one since 1880!

The trend line shows you what stocks offer. It also shows there can be bad times for stock prices. But if you invest for income (dividends), you can live with the volatility that will eventually head up over time by making sure you have stocks that pay great dividends.

People lose from stocks because:

• They ‘punt’ rather than invest.

• They shoot for big returns fast so they take big risks.

• They don’t have 15-20 stocks to reduce the chances to be KO’d by a dumb government decision or silly CEO.

• While it’s great to get into the market at the low and ride it higher, history shows time in the market is more rewarding than trying to time the market.

• They don’t look for quality businesses run by quality management, which are not vulnerable to crazy curve balls.

What I like about stocks and the ASX 200 is that it gives me a chance to invest in the top 200 companies in Australia. I like to proudly put my money where my heart and my head say represents a good way to build wealth.

But if this Trump-China trade war turns out to be worse than I expect, what will I do?

First, I won’t panic. I know my stocks will pay me nice dividends. Second, I know my capital will come back over time, as the charts above show. Third, I will have a chance to buy great companies at silly prices because big stock sell offs do that.

During the GFC, CBA got down to $27 and if you’d bought those stocks then, you would’ve seen a capital gain of about 200% in 11 years and your dividend-yield would be 16% before franking credits. A retiree paying no tax could have an 18% yield, thanks to franking credits!

I don’t think you’d find too many properties that would be delivering that over the past 11 years and it comes without a tenant!

But what about that old financial warning that history is not necessarily a guide to future performance? That’s true but that’s a good warning when looking at financial products that have looked good over a few years. I reckon the stock chart since 1880 above with its trend line tells you that if you give the right stocks portfolio enough time, it will deliver. Sometimes it can be smart to trust history.

Could anything go wrong to undermine the calibre of my money-making lesson? Yep, a real Great Depression. But if that happened, it wouldn’t only be stock players who’d be taken to the cleaners. Anyone with a home loan and no job would be on the dole queue!

Only a Great Depression would make stock market dopes look very smart. Let’s not go there.

(If you’re interested in the money secrets the wealthy have learnt to help them get richer, have a look at my new book called Join the Rich Club. Getting richer not only should help you, it will give you a chance to help the people you care about.)

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