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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

Will Trump's tax tease pressure our Treasurer to cut too?

Thursday, April 27, 2017

By Peter Switzer

Donald Trump’s tax tease will put pressure on all governments to think about their relative tax torture and that goes double for Treasurer Scott Morrison, who faces, I would argue, one of the most economically-literate countries in the world.

Why do I say this? Just look at news services around the world — newspapers, websites and electronic media — and it’s my observation that we are far more well-served by the media in its business and economics coverage.

Even in the 1980s we were talking about the J-curve before most economists even knew what it was! How do I know? Well, I was teaching at the University of New South Wales then and Paul Keating caused a lot of head scratching and dashes to the library to find a textbook that covered the subject!

(Pre-internet, that’s what we had to do when you got stumped on anything high brow!)

Our economic literacy aside, this is what Donald Trump has put on the table for Congress to pass:

  • The top tax rate goes from 39.6% to 35%
  • Seven tax brackets would become only three — 10%, 25% and 35%
  • The company tax rate would drop from 35% to 15%
  • The standard tax deduction for a couple is doubled to $US24,000
  • Other ‘nuisance’ taxes will be changed or killed, such as the 3.8% slug on investment income that came in Obamacare.

The Treasury Secretary, Steve Mnuchin, would not say if the plan would be revenue neutral, meaning it would not increase the budget deficit but it’s damn likely that President Trump is gambling that the economic growth his tax cuts will make will help bring the deficit down as his tax cuts push it up.

And this is another pressure point for Treasurer Scott Morrison as the Budget looms on May 9.

It means he too will have to come up with tax cuts, while at the same time do something credible to show he’s getting on top of the budget deficit.

And this is where our economic literacy comes in — many of think our deficit has to be beaten and we won’t buy a tax plan like Donald’s so easily.

That’s why I really keen to see the magic Scott comes up with.

In the coming days, I will look at how he might impress or shock us with his tax conjuring.

Somehow, he has to solve our house price problem in Sydney and Melbourne without hurting other house prices. He needs to cut spending but bolster infrastructure, and cut taxes to help our competitiveness for foreign capital that will chase lower tax rates.

On top of that, he has to boost consumer and business confidence and stimulate economic growth as well as prove that he will lower the deficit and the Government's debt.

He then has to get his bill passed by the crazy Senate and somehow avoid media bombs already loaded by Abbott-lovers!

Did I suggest that Scott needs to be a magician?

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Can stocks ignore war threats?

Wednesday, April 26, 2017

By Peter Switzer

News services say the North Korean war threat is escalating. Stock markets continue to ignore it but can it last? And are geopolitical issues less important to stocks nowadays, if you take a line through Brexit?

I suggest you ignore geopolitical concerns at your peril but I’m betting against them hurting my stocks and super fund.

The Dow Jones Index has now climbed up over 200 points two days in a row and it tells us to underestimate geopolitical issues at our peril because what goes up can go down!

Let’s look at the last two days of action from US stock markets. In fact, in part it proves my point that you can’t dismiss geopolitical matters.

The Dow’s 200-plus climb on Monday was mainly driven by the relief that Emmanuel Macron had taken out the French election. In Europe, equity markets and banks, in particular, benefited from the young politician’s win, as it hit the idea of a Frexit from the EU to the boundary for a six, or as the French would say, “les six”!

But stop and imagine the opposite. If the right- and left-wing candidates had nudged Macron out and the May run-off for the French leadership was set to be two Frexit advocates, our stock portfolios could be down 7% by now and going lower!

Brexit initially brought a big sell off. That was the old “sell first, ask questions later” effect but the Poms weren’t as embedded into the EU as the French, as the former wasn’t on the euro.

Its exit was less likely to make Italy, Spain and Portugal ponder the loyalty to the EU but a Frexit would’ve been a different kettle of fish.

Our stock market is tipped to be up over 30 points today. While other issues, such as good US company reporting and a lower US dollar, have helped the Dow over the past couple of days, so has the foundation news that the EU and all the economic connections it has globally are not under threat.

A threat might not be measurable because you can work out who would be buying rather than selling because of a threat. However, when the threat disappears and buying surges, you can get a pretty good idea about the importance of political developments.

Want proof? Try 8 November 2016, when Donald Trump won the US election and the 12% spike for stocks. Sure, economics and expected earnings were in there as well but anyone who ignores the Trump effect isn’t worth arguing with.

North Korea is dismissed as a low risk but lots of people saw a President Trump as unlikely, so the experts aren’t always right. I’m believing the experts, as I haven’t adjusted my investing, but I’m aware that there is a clear, but not present, danger to my stocks value. More cautious types might be cashing up and may even be “sell in May” types, who just can’t take the pressure of European elections, Syria, Putin, North Korea, Trump and every other geopolitical curve ball that could be thrown at them from left-field over the next few months.

I know Macquarie Banks’ smarties are cautious about the months ahead, so I thought I’d better warn you.

Overnight, the Nasdaq made an all-time high over 6000 to finish at 6025.49, up 41.6 points or 0.7%.

"Earnings and tax reform are the main story" in the market, said Bruce Bittles, chief investment strategist at Baird. "For two months, we were in a consolidation phase and now we have the Nasdaq at an all-time high." (CNBC)

I’d add economics as well but tax reform is more political and more Donald Trump, though it will have economic implications in the long run.

I’m punting on good sense prevailing and China being able to stand over the unusual person who leads North Korea. If it doesn’t work out, stock markets will show it, big time! 

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Like it or not, Malcolm Turnbull is winning over Australia

Monday, April 24, 2017

By Peter Switzer

The Gold Logie winner, Samuel Johnson, and the Logies generally tell us so much about the average Australian that our politicians try to win over and how you have to do it. This message has been made clearer to me after helping a friend, who has recently discovered eBay and Gumtree.

These online buying opportunities mean that someone say from Albert Park in Melbourne might have to drive to Bundoora, or someone from Woollahra in Sydney might have to go to Doonside to pick up that advanced lemon tree!

The experience for me was that I went to suburbs I’d only ever heard about. It was a trip down memory lane because I did come from pretty humble beginnings.

The people we met were all very nice and I bet most of them would’ve watched the Logies — unlike me. And one intriguing observation was that none of them knew who I was!

These were working to middle class Aussies, who make up the bulk of the voting public. It contrasts to when I walk in the Sydney CBD, Collins Street in Melbourne or the retirement capital of Australia — the Gold Coast. In these environs, I often get: “Love your show” or “Keep up the good work” and stuff of that ilk.

I know the interest in money and finance is low, compared to popular mainstream programs on free-to-air TV, such as The Voice, the Today program or MasterChef.

I often start my speeches asking: who watches the ABC news each night? A good number put up their hand and to them I speculate that they’re into being depressed! The Project? You’re into funny news not real news. MasterChef? You’re into fatty foods and a potential stroke!

Then I ask who prefers to be rich over poor. Apart from a few Greens, non-listeners and people who’ll never participate in hands up exercises in public, everyone put their hands up.

That question sets up my reply: “If you want to be rich, why don’t you watch Switzer?” 

I didn’t try this with anyone on my trips to the 'burbs but maybe I should have. Why? Well, it could help ratings. And if they don’t have Foxtel, they might go to this website for the interviews. Ultimately, however, I feel I’m in a leadership role when it comes to money and business education.

It was why I chose to work at Triple M in the late 1980s over more ‘serious’ news stations. Triple M in Sydney with Doug Mulray, (and the Degeneration in Melbourne) was rating over 20%! They had everyone listening, from high court judges to CEOs to truck drivers and hairdressers.

When I first worked with Clive Robertson on Seven’s Newsworld, he pointed out the average reading age of mainstream TV. It was under 12, way under!

Today’s Australian newspaper tells us that Australia is starting to change its view on the PM. 

“The Coalition has regained ground in the wake of Malcolm Turnbull’s controversial move to toughen Australian citizenship rules, narrowing Labor’s lead to 52 to 48 per cent in two-party terms but failing to generate a more powerful shift in voter support,” David Crowe explained.

Malcolm still leads Bill as the better PM (42% plays 33%), as we edge closer to the Budget that may well be a ‘make it or break’ event for the Prime Minister, with Tony Abbott trying to make a run, pallying up with the likes of Alan Jones and Ray Hadley in recent media forays. He recently replaced Scott Morrison on Hadley’s show after the Treasurer didn’t show up for an interview, instead doing one on ABC radio in Melbourne.

That wasn’t clever politics losing access to Hadley’s audience from the 'burbs.

That said, Malcolm might not appeal to thoughtful intellectuals with his “Australian values” immigration tests but it looks like smart politics. And like it or not, he’s capturing what a lot of Aussies think.

Ideally, you’d want your leader to change a country’s values to make it a better place. However, you can't do that if you look like and think like a banker/lawyer from the big end of town.

Report card on the PM? Improvement shown but not Gold Logie class yet!

*Samuel Johnson recognised the support he received from Facebook via Love Your Sister - the cancer fundraising charity which has 387,000 Facebook likes, which he has strong links to. "Facebook has been swinging elections lately and we're no exception", he said. 

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Beware the Amazon dumper! You might be drowned!

Friday, April 21, 2017

By Peter Switzer

What are we, a bunch of shrinking hicks, petrified at the looming business-crusher called Amazon? Or are we just fascinated at Amazon’s growth as a huge, international former bookseller turned “sell everything” merchant, who’ll cut prices for consumers?

This week has been all about Amazon, as the media gives the company the greatest free kick, exposure-wise. It’s advertising they should be paying for but, once again, this ‘great’ business plays and wins!

Don’t get me wrong. Amazon is no threat to me and my business. Undoubtedly, it will deliver products from the usual books and CDs to their new age offerings of fridges, fresh food, baby products, jewellery, watches, garden products and more! 

With their pending arrival, which could be a long way off before they actually have any real impact on rival retailers, the share market is seeing Amazon as Armageddon for great businesses such as JB Hi-Fi and Harvey Norman. 

Back in February, around reporting time, JB Hi-Fi was around $29, after a good profit story. Now its share price is $24.46!

When I interviewed Gerry Harvey a few weeks after JB Hi-Fi, the legendary retailer said that he saw four ways Amazon could hurt his business but he has four counter-plans of attack/defence that would see him win.

And while I don’t easily doubt Gerry, a win could still mean less revenue, less workers employed, a lower wage bill, store closures and a new world for Gerry, his franchisees and his employees.

I admire Amazon’s founder, Jeff Bezos, as a business builder and disruptor. One texter to a Sydney radio station loved how his company would get even with the retailers who have been “gouging him and other poor consumers for years.”

I’ve often argued that the age of disruptors is a two-sided coin. One is lower prices, because this is how these businesses grow. Their price cuts give them free publicity as they threaten existing businesses. Eventually, however, it puts pressure on wages here.

But what gets me is that most of us are aghast when we hear of a country like China, with its cheap labour, dumping steel here at prices that would send our steel producers broke. There are actually laws stopping such dumping. But when the likes of Uber and Airbnb come to town, with lower prices (for now) and not following the costly official regulations imposed on businesses here, the only complaints are from the local rivals who get screwed.

We consumers think it’s great but these changes embed the seeds of change that a lot of us love as consumers but might regret as an employee, who eventually is forced to accept lower pay, less hours or no job!

The following charts tell the Amazon story of greatness and concern. Have a look:

This is how the stock market has loved Amazon.

But the chart above shows you how they do it! It’s all about the revenue — artificially low prices and huge volumes — which is a definition of dumping.

One of the givens of capitalism is that entrepreneurs pay rent, wages and interest for resources, labour and capital. Their return is profit. Amazon has ruled out profit for crushing businesses and eating their lunch.

How are they able to do this? Because they can. Imagine the world if all businesses did the same?

Maybe this list of wages Amazon pays its staff might give us a glimpse of what could lie ahead:

  • Fulfillment associate $12.33 an hour.
  • Warehouse associate $12.52 an hour.
  • Warehouse worker $12.37 an hour.
  • Process assistant $15.39 an hour.

Even adjusted for exchange rate differences, these are not Aussie pay rates. And I bet they don’t have the workplace conditions, holiday, maternal and paternal leave, etc. that we expect here in this country.

And let’s not even think about the taxes these big international companies don’t pay. This has a role in explaining a part of the budget deficit problems we face. In the past, Canberra was always able to pass laws to collect tax from businesses operating here. However, new age disruptors, who are domiciled in low tax countries and via tricky pricing practices, have avoided paying the taxes that patsies operating in home markets are forced to pay.

If Amazon made acceptable profits, I’d say “good on them for not being profiteers”. But their strategy is to kill businesses like Borders and, one day, end up as a virtual monopolist. And that’s when their pricing and profit policies will change.

According to the dictionary, an Amazon is “a member of a legendary race of female warriors believed by the ancient Greeks to exist in Scythia or elsewhere on the edge of the known world.” Certainly Amazon, the company, takes after its namesake.

This company has to play fairer before I become an uncritical fan.

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Why I hate whinging and whingers

Thursday, April 20, 2017

By Peter Switzer

For crying out loud — what do people want? I’m still getting tweets and emails (though I have to confess not all that many) lamenting my positivity. 

And so again I cry: “What do people want?”

Unfortunately, it looks like the answer could be: “The right to whinge without someone like you to keep telling me things ain’t so bad!”

Now let me admit that individuals with specific challenges have the right to say “woe is me” — victims of criminality, industry closures, bullying, excessive discrimination, etc. However, it seems that there are too many of us who think it’s a national right to whinge.

Many of these people aren’t low-income Aussies. They’re more likely to be middle-income types, who hate stuff like high prices of houses in Sydney and Melbourne, slow wage rises, competition from online, international companies such as Uber, or foreign workers doing work overseas that we used to do here.

I understand their pain but this, regrettably, is progress. When Labor reduced car tariffs in the 1980s, people lost jobs and so did workers in the textile, clothing and footwear industry.

A mate of mine — a Labor man whose family were Labor politicians — lost his clothing business because of tariff cuts from his beloved Gough Whitlam! He votes Labor to this day but he’s not a whinger.

I get it. There are many reasons for wanting to whinge but giving in to negativity is never going to be a solution. Sorry for this coaching session, but I feel there are a lot of whingers out there who need some tough love. Note I’m doing this out of love, not spite. I promise.

Now that I’ve dealt with many of the individual reasons why you might want to whinge, let me look at the macro or big-world reasons for not voicing your disappointment with the world.

1. Australia is poised to break the world record for economic growth, which means we haven’t had a national recession since June 1991. We're living through the record-breaking 104th quarter without recession, which means we’ll soon be able to give it to the Dutch, who once were the greatest recession beaters in recorded economic history.

2. This chart of home loan interest rates for the period 1982-2012 shows why there’s no reason to complain about interest rates. Apart from the time in the late 1980s, when rates went to around 16%, the average squeeze from banks for deciding to buy a home was about 8%. You can get under 4% today! If you haven’t got under 4% on your home loan, you haven’t tried hard enough or you have some special issues that prevent you getting these great rates but you should be under 5%.

3. Let’s look at the jobless rate over time. This chart says it all.

In 1994, whinging might have been tolerable, and also in 1983-84. Now the case is not as convincing.

4. Linked to the above visual case for my position against whinging, is the fact that in 2008, we stared a Great Depression gun in the face and dodged a bullet. Our unemployment rate didn’t go over 6% and sure, we ended up with a big budget deficit. But that’s nothing compared to 10% or 15% unemployment! I didn’t like Labor having to increase the deficit, and they could have spent money wiser, but we dodged a big, scary recession-creating bullet and that’s why I refuse to whinge.

5. I had a TV viewer whinging about the stock market doing nothing for two years. He ignored the fact that it has risen from around 3100 to where it is today at 5800, which is an 87% gain since March 2009. And if you throw in dividends, you could be up 120% over nine years! 

Yep, I know we haven’t passed our old low but ‘you know what’ happens and it’s time we stopped whinging and started to look at the great things we have in this country/economy.

When I first did economics, we used to talk about the misery index, which was the unemployment rate plus the inflation rate. In 2014, it was 9% and had just passed what it was in 2008.

The misery index now would be around 7.5% but in the early 1990s, it was close to 14%!

I can tolerate low-range complaints in private about the vicissitudes of life but whinging about the economy is a typical new age, first world problem! And whingers needs to stop doing it.

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Do RBA revelations point to a rate cut?

Wednesday, April 19, 2017

By Peter Switzer

The Reserve Bank has ‘spoken’ and one economist is preparing us for a rate cut, after he read between the lines of the Big Bank’s board minutes. However, another economist read the same thing and is far more optimistic.

Fairfax reports that JP Morgan analyst, Ben Jarman, looked at yesterday’s revelations and noted how concerned the RBA was over "developments in the labour and housing markets” and that they “warranted careful monitoring over coming months".

This seemed a little at odds with other minutes that emphasised that current policy settings are "consistent with sustainable growth in the economy".

Jarman then concluded: "If an interest rate move is to be made in the near term, down is much more likely than up, so today's shift in guidance can only feasibly be read as the RBA opening the door to a possible easing."

But wait, there’s more. And it’s different — diametrically different!

CommSec’s Savanth Sebastian read the same minutes and this is how he saw our interest rate future: “The minutes from the April 4 Board meeting show that the Reserve Bank believes that the global economy is on a stronger footing,” he wrote in his daily note. “Importantly, domestic inflation is estimated to have bottomed, removing the need for further rate cuts.”

Well, surprise, surprise, economists disagree but who’s likely to be right?

We all know that the RBA and other regulators, such as APRA and ASIC, are worried about house price rises in Sydney and Melbourne, where the spikes have been 18% and 13% respectively. And well they should. The RBA boss, Phil Lowe, has got a little stressed about what happens if rates rise and those who have over-borrowed find themselves with serious cash flow problems or mortgage stress.

But this is a future shock issue and, in reality, most economists don’t expect a rate rise this year and there are quite a number out there — economists, that is — who think a rate cut can’t be ruled out.

So stressed out, over-borrowed Aussies could be an issue for 2018 or 2019. That said, I expect most of us could cop a 2% rise in rates, as most lenders factor that amount in.

Also, by 2019, I’d expect some movements upwards on wages and inflation, so the actual future debt stress problem could be a 2020 or later issue. In reality, Dr. Phil Lowe is jawboning to try to make Sydney and Melbourne homebuyers get real. The buyers of recent times may well be the more stressed out Aussies of the future but, for now, things look a lot better than Ben would have us believe, if you accept the RBA’s minutes.

Here’s an excerpt Savanth latched on to: “Nevertheless, indicators of financial stress in the household sector remained contained. Low interest rates and improved lending standards over recent years had been supporting households' ability to service debt, and households on average had continued to build repayment buffers.”

Decoding that says the RBA might be worried about debt stress in the future but it’s not an issue now.

“Members noted, however, that some households with home loans appeared to have little or no buffer of excess mortgage repayments and could be vulnerable if household income were lower than expected.”

That’s the recognition of a potential issue but this is where the irony of the hysterical housing headlines comes in because the more we scare consumers or households about rising interest rates set to KO family finances, the more likely we might see rising unemployment rates KO family finances.

Maybe the better strategy would be for regulators to tell banks what they want and simply restrict loans to riskier borrowers in Sydney and Melbourne. It actually is happening and I suspect the housing markets are starting to cool. However, the Aussie consumer is not over-confident and retail is somewhat on the weak side, so near daily warnings of hone loan repayment Armageddon being around the corner is becoming excessive and even counterproductive.

With too many Aussies over-borrowed, the last thing we need is rising unemployment. Last week’s extraordinary 74,500 jobs created in March should have been a cause for celebration but, of course, all we got from media/economist reports was suspicion over the numbers.

But when unemployment spiked in February from 5.7% to 5.9%, no one doubted the ABS then. So do we only doubt good news? I wonder if we need to change that.

I hope Treasurer Scott Morrison reads this one!

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China! Negative gearing! Are things really so bad?

Tuesday, April 18, 2017

By Peter Switzer

Yes, I get it — we, in the media, need to scare the pants off you so you keep coming back to us for reassurance that things are really worrying. Imagine if our messages were simply summed up as things, for most of us, are pretty good so just go out there, work hard, believe in your potential and enjoy yourself!

In recent times, we keep hearing about how bad negative gearing is and how it has created the property price problem we now suffer from.

Today, the Fairfax press have stories promising doom with “Financial distress looms due to spike in negatively geared properties among Australia’s poorest: report.”

The report came from KPMG Economics, called “Financial Stress in Australian Households: the haves, the have-nots, the taxed-nots and the have-nothings.”

The report found that the bottom 20% of Aussie households recorded the highest rate of growth in investment income — 8.5% per annum — compared to an average of 2.3% over the past decade for the other households.

On its own, and with a more positive spin rather than an entrenched negative one, it could be that a lot of young people, who are working and still at the bottom of the pay scales, have learnt that if they can’t buy and live where they want to live then they can be a landlord. In doing this, one day they can move into the rented property when they move up the pay scale, or say get married and have two incomes.

I bet there has been no qualitative surveying in this report, which means it really knows who is doing the borrowing. I have a loan business and you don’t easily get a home loan, especially if you’re low income and have no prospects. You might get a credit card but not a home loan.

Also, all the doom-and-gloom scenarios work off a sudden big surge in interest rates. However, most economists think there’ll be no rate rise in Australia this year. And while most of us think the next move will be up, there are numerous good economists who think the next move will be down!

There is some presumption that lower income people are silly enough to back themselves into a loan repayment problem but wealthy people have possibly a greater exposure to lending problems because they borrow more, they back themselves and lenders often are too generous to get the business.

The hate session by the media and others against negative gearing always leaves out how this process didn’t help Sydney house prices when they were flat for 10 years between 2002 and 2012. 

And what about property markets other than Sydney and Melbourne? Have a look at the chart above and work out if Perth, Adelaide, Darwin and Brisbane need to kill off negative gearing?

Even Labor wants to keep negative gearing for new homes, so if it’s so bad, why are they hanging on to it? Well, politically, it’s hard to kill off but it does encourage buying and therefore building, job creation and it actually helps the economy.

Sure, it also encourages the buying of existing homes and maybe too much of that is by investors. However, the problems in Melbourne and Sydney have come about because regulators thought the above markets would slow down under rising price pressure. However they haven’t because interest rates are so low.

This is a very special period in history and it has caused a special problem in Sydney and Melbourne. Price in these cities will fall. Some people will lose out, just like those who went long on property in 2000 in Sydney and then had to wait 10 years to really make money!

Let’s go to China now. Whenever we feel good about a rising stock market and better super returns, some killjoy warns us about China and the media picks up the ball and runs with it.

Deloitte Access Economics’ Chris Richardson gave three China/Australia stories last week but we only heard about the third negative one.

And did you hear about this yesterday? “Strongest Chinese Production in 27 months.” This was a CommSec headline in one of its press releases and was big news but it gets buried because it’s, well, too positive. Here’s the summary:

  • The Chinese economy grew at a 6.9% annual pace in the March quarter, above forecasts (+6.8%). 
  • Retail sales rose at a 10.9% annual rate in the year to March. The result was above the 9.6% forecast and the 9.5% growth in the year to January/February.
  • Industrial production rose at a 7.6% annual rate in March – the fastest growth in 27 months. The result was above the forecast average (6.3%) and above the 6.3% growth in the year to January/February.

Last week at the Switzer Investor Strategy Days in Melbourne and Brisbane, Charlie Aitken of Aitken Investment Management showed the attendees a chart of the Li Keqiang index.

This is the preferred measure of the economic growth of China by the current Premier Li, who opted for this indicator, instead of the official figure for growth, when he was the head of Liaoning province in the North East of China in 2010.

It was later adopted by the likes of The Economist as a better guide to what’s going on in China. To cut a long story short, the collapse of commodity prices in 2015 coincided with a big drop on the Li Keqiang index and the spike last year again matched the comeback in the index.

My message on China is this: one day there could be a China problem, like one day there will be a recession in Australia but, for now, things for most of us are pretty good, so just go out there, work hard, believe in your potential and enjoy yourself!

One last positive point. We’re getting wealthier! As CommSec showed over two weeks ago:

  • Total Aussie household wealth stood at a record $9,404.5 billion at the end of December 2016, up $328.1 billion or 3.5% over the quarter – marking the largest quarterly increase in net wealth in seven years. CommSec estimates that wealth rose to a record $386,972 per capita in the December quarter, up $12,227 over the quarter and up around $24,000 over the year.
  • Households held a record $1,046 billion in cash and deposits at the end of December. Cash and deposit holdings represented 22.4% of financial assets. A record $798.2 billion was held in shares.

I wonder how many low income Aussies are in shares and, therefore, will be hit hardest when the next stock market crash happens? Whoops, I’m starting to think like many of my colleagues!

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Charlie and the Chinese factory say don't be scared about China!

Thursday, April 13, 2017

By Peter Switzer

Yesterday morning was disturbed by media reports that one stumble from China and we’re in the you-know-what! Media outlets laid it on thick. What made me more spooked was that it came from an economist I respect — Chris Richardson of Deloitte Access Economics!

Rushing to a news website, I found that if China pulled the wrong rein, we’d see a big fall in GDP and 500,000 jobs would go by 2020. It was pretty serious stuff and I could see why my media mates would have seized on all this.

However, it has come when China’s growth story has been better than expected. It also has come as others (whom I respect) have been talking up the potential for China, as millions of middle class Chinese seemed to be spat out each year like steel girders from a factory in Shanghai!

In fact, at our recent Switzer Investor Strategy Days in Sydney, Melbourne and Brisbane, Charlie Aitken of Aitken Investment Management showed an alternative Chinese index for the economy, which was created by the former Chinese President Li, who, like many Western economists, did not believe China’s GDP statisticians.

The credibility issue of their numbers links to how quickly they come out — days after the end of the month! As Charlie joked: “Everything and everyone must be barcoded!”

Li’s index puts together key industrial sectors and the index was going down when we struck market problems in early 2016. As it recovered over the second half of the year, so did commodity prices and stock markets — especially ours.

George Boubouras of Contango Asset Management has a similar positive view of China, especially over the medium term, as it creates people who will travel, eat our food, use our education institutions, consume our wine and even our financial services.

Because of Richo’s scenario, I asked my in-house Switzer producer of my TV program, Andrew Brown, to chase Chris for the show. He instantly emailed back: “He’s on tonight!” (The value of great employees can never be underestimated.)

My first question to Chris was something like: “Given your experience, how could you throw this scary story to the media?”

He conceded that he should have realised that this would get all the attention but he apparently did say that the spooky scenario was the least likely!

He said he produced two other possible outcomes, which were more likely, which had happy endings. He even conceded that China’s debt, though growing faster than he likes, was because of borrowing from themselves, not overseas savers. And they’re growing faster than say, Japan, which also has big debts, once again borrowed from locals.

Growth is critical. That’s why I like the revelation about President Li’s more reliable indicator of China’s economic health.

You can’t be cavalier about China and the unknown unknowns there. However, as Chris Richardson revealed to me on my TV show last night, you shouldn’t be losing too much sleep over the China Syndrome as we’re not on the eve of an economic nuclear blow up, even if my media mates implied that yesterday.

That said, the geopolitical misbehavior in Syria and around North Korea could be a different matter but for now, I’ll hope sanity prevails. And yes, I know, “hope is not a plan” but it’s all we have when it comes to international politics!

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Is the economy weak? Look at the scoreboard!

Wednesday, April 12, 2017

By Peter Switzer

Tomorrow could be a revealing day for our economy with the latest jobs report out. The February reading saw the jobless rate go up from 5.7% to 5.9%, but you can never trust one month’s statistics.

When CommSec’s Craig James saw the numbers, this is what he wrote: “It would be easier to accept the latest jobs data if it lined up with other evidence but it doesn’t. 

“There have been healthy business surveys in recent months, with the NAB business conditions index hitting 9-year highs in January. Mining prices have lifted, the agricultural sector is buoyant, tourist arrivals are at record highs and more homes are being built than ever before. 

“Certainly leading indicators like job ads are pointing to higher rather than lower, and low real unit labour costs give employers plenty of reasons to be taking on staff.”

That accepted, the Australian economy has, on some measures, slipped a gear into a slightly slower pace of growth. On other indicators, it continues to impress. The professional economists say the data is mixed. In its recent ramblings, the Reserve Bank has quietly stepped away from its 3% growth expectation for 2017, though it hasn’t gone too negative on us.

Our last growth reading was a great 1.1% number for the December quarter. If we were in the USA, that number would be annualised or multiplied by four and we’d be calling it a 4.4% result. That would be huge in the US, where in Trumpland they’re only producing 2% growth rates!

Our September number was a shocker, coming in at minus 0.5%. However it was a rogue one-off — thank God!

So what’s the latest local economic show and tell? Here goes:

  • The CoreLogic Home Value Index of capital city home prices rose by 1.4% in March and was up 12.9% over the year. 
  • The NAB business conditions reading was the best in nine years! It went from 9.3 to 14.2 in March and the long-term average is only 5.
  • Business confidence slipped from 6.7 to 6.1 but that’s still a solid result. The long-term average being 5.8.
  • Consumer confidence has been disappointing but the ANZ/Roy Morgan reading for the week of April 11 was up 3.3% to 114.8, which beats the average since 2014 of 113.2.
  • There were 105,410 new vehicles sold in March, the highest for any March month and 0.9% higher than a year ago.
  • The Performance of Services index rose by 2.7 points to 51.7 in March and edging closer to the 8½-year high of 54.5 in January. Any number over 50 means expansion.
  • The Performance of Manufacturing index eased from 15-year highs, down by 1.8 points to 57.5 in March. This was the sixth consecutive month of expansion.
  • Total household wealth (net worth) stood at a record $9,404.5 billion at the end of December 2016, up $328.1 billion, or 3.5%, over the quarter – marking the largest quarterly increase in net wealth in seven years. 
  • Job vacancies rose by 1.8% to 185,600 in the three months to February – a 6-year high. Job vacancies are up 7.3% on a year ago.
  • The number of passengers on the Sydney-Melbourne route rose in January, up 1.6% on a year ago. The Sydney-Melbourne route is a key measure of business activity.
  • Private sector credit rose by 0.3% in February after a 0.2% gain in January. Annual credit growth of 5% is near 3-year lows.
  • The Commonwealth Bank Business Sales Indicator (BSI) – a measure of economy-wide spending – rose by just 0.1% in trend terms in February, the slowest growth in two years.
  • The trade surplus lifted from $1,503 million to $3,574 million in February. 
  • In trend terms, exports are up 30.9% on a year ago – the fastest pace in eight years.
  • Unemployment rose from 5.7% to 5.9% in February but let’s hope this is not a trend.
  • The overseas story remains promising, with even Europe showing positive growth signs. The global story partly explains why stock markets are so positive.

And then there’s Trump and what he promises. Until further notice, it’s OK to be relatively optimistic on the Oz economy.

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Debt expert hoses down housing hysteria

Tuesday, April 11, 2017

By Peter Switzer

Try this as a headline: Experts wrong on house price bubble collapse! Sure, it’s possibly a wrong warning but, then again, it could be right. And at least this one comes from an international expert on debt, the economy and the future — Moody’s!

Yep, you all know Moody’s — the debt ratings agency. And when they get negative, really worryingly negative, media outlets break their necks to scare the pants off us.

To its credit, this morning The Age gave prominence to the revealing story with the headline: Australian property prices forecast to fall then stagnate: Moody's.

At a time when most stories focus on the craziness of Sydney and Melbourne house price rises, the expert agency that looks at the threat of debt to the economic health of countries, industries, companies, etc. has given a pretty measured view of the year or so ahead for the price of property.

This contrasts with the alarmist view that accepts, without dispute, that there is a housing bubble, that apartment prices in Melbourne are about to collapse, Brisbane’s apartment problem is worse, that bank balance sheets will be corrupted by silly loans to crazy customers and get ready for economic Armageddon!

This is the kind of story propagated by a foreign economist a year ago. Later, it was argued that he was working with a hedge fund that was trying to take bank share prices down. There was no clear proof of this but it looked really dodgy. And it certainly attracted the attention of many headline hungry media businesses at the time.

Then along comes Moody’s. In its time, Moody’s has been an accessory before the fact to market maddening headlines that have caused a fair bit of angst, anxiety and angina for politicians, company leaders and anyone in serious debt.

This time, however, the story seems measured, which might mean it could be their true view! To be fair, they also could be wrong. However, I think there is some value in acknowledging their position, just in case they are right and we don’t have to spook homeowners in our two biggest capital cities.

Remember, scared consumers spend less, which hurts job creation and business investment. This, in turn, might just create the slowdown or recession that would really make former excessive house price purchases the basis for a real economic problem for those borrowers and, ultimately, the economy!

So what did Moody’s tell us?

  • First, rising interest rates (which the banks have started to deliver) and greater housing supply will bring down house prices in 2018 in hot markets such as Sydney and Melbourne.
  • Second, detached houses nationally will rise 5.6% this year before falling by 0.6% in 2018. 
  • Third, 2019 will bring a 0.3% fall and then prices will stagnate into 2020.
  • Fourth, great regulation from the likes of APRA will also contribute to the price slowdown. We saw that yesterday, with investor loans falling 5.9% in February.

I love this simple sentence from The Age: “Moody's doesn't expect steep price falls in Sydney, but said prices there will be stagnate until 2020.”

What I like about this overall Moody’s view on our too-hot-to-handle housing market is that it’s not excessive fear mongering. It’s just their best guess on the future. And hey, it’s not as scary as some would have us believe.

I think it reinforces the view that the overall economic outlook for the global economy, and then our economy, is pretty good. 

If this happens to be right and unemployment doesn’t go sky high in the next few years, then a lot of the people who paid silly prices for their homes will make their monthly repayments to the bank. And as long as they don’t read the property pages and websites, they might not know that their home’s value is going nowhere, for a while!

That’s what happens when you buy at the top of a market.

Go Moody’s!

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