+ About Peter Switzer
About Peter Switzer
Peter Switzer is one of Australia’s leading business and financial commentators, launching his own business 20 years ago. The Switzer Group has since grown into three successful companies spanning media and publishing, financial services and business coaching.
Peter is an award-winning broadcaster, twice runner-up for the Best Current Affairs Commentator award for radio, behind broadcaster Alan Jones. A former lecturer in economics at the University of NSW, Peter is currently:
• weekly columnist for Yahoo!7 Finance
• a regular contributor to The Australian newspaper and ABC radio
• host of his own TV show, Switzer and Grow Your Business, on SKY News Business
• regular host of the Super Show on 2GB radio.
Dear Peter, What fun! You are really very good at what you do. I appreciated our time together and wish you continued success in all you do. Have fun (I know you will).
Jack Welch, former CEO, GE, and ‘Manager of the Century’ (Fortune magazine)
Peter, It was great to have worked with you – you really made the event come alive. I hope you enjoyed yourself. I know Steve Ballmer [CEO, Microsoft Corporation] did.
John Galligan, Director of Corporate Affairs & Citizenship, Microsoft Australia
Here’s a home truth, my only real education – or teacher who I actually ever listen to – is your interviews on Qantas. So thank you with sincere respect.
Sean Ashby, Co-Founder, AussieBum
Peter did a wonderful job on the night; keeping the program moving, working around changes to the run sheet, and ensuring each award recipient, and our sponsors, were made to feel welcome and important.
The feedback received from those attending has all been extremely positive.
Peter Mace, General Manager NSW, Australian Institute of Export
Peter, We would like to congratulate you for performing your master of ceremonies role in such a professional, entertaining and informative manner. We were impressed by your ability to tease out each winner’s story so that the audience gained maximum benefit from their collective business experiences.
Greg Evans and Nicolle Flint, Directors, Australian Chamber of Commerce and Industry
Hi Peter, I listened to you speak this morning and thought you were amazing. I am an accountant and in risk management and have never thought about doing a SWOT on myself – thanks for the tip!
Serife Ibrahim, Stockland Corporation Ltd
Dear Peter, Thank you for your valuable contribution to this year’s forum. Ninety-two per cent of delegates rated your presentation highly, commenting on its useful and topical content.
Catherine Batch, Head of Marketing and Communications, Indue
Peter has facilitated our CEO and CFO symposiums over the last three years. A true professional, he takes away the stresses of hosting and organising an event.
Justine Goss, Strategy Group
Friday, March 24, 2017
Anyone who loves programs such as The West Wing and Veep have an idea of what has been going on in Washington on Capitol Hill, as Republicans get roughed up or loved up by President Donald Trump’s main negotiators ahead of the healthcare vote scheduled for Thursday.
No one knows when the vote will be held because the Trump camp definitely hasn’t got the numbers. A Republican group called the House Freedom Caucus stands in the way of the bill. (Where do the Yanks dream up these dramatic names? Oh, that’s right, from The West Wing and Veep!)
So what’s the count position before the vote? This is how Reuters saw it: “Although Republicans have a majority in the House, Democrats are united against the bill and Trump and House Speaker Paul Ryan, who has championed the bill, can afford to lose only 21 Republican votes. On Thursday morning, MSNBC said a count by NBC News showed that 30 Republicans were planning to vote "no" or were leaning that way.”
A critical part of the Trump pitch to be President was to ditch Obamacare and the new Administration put this forward as the first measure to show what a President Trump would do. The issue for the stock market is this: if this fails, what will happen to Mr. Trump’s big ideas to cut taxes, reduce financial regulations and build ‘the Great Wall of Mexico’ (or is it ‘the Great Wall of the USA’)?
The Freedom mob are arch-conservatives, who don't think the American Health Care Act does enough to kill off any memories and remnants of Obamacare!
Ahead of the vote, at 6am (our time), the Dow was up but by 6.30am, ahead of the closing bell of the New York Stock Exchange (NYSE), it was off 16 points. And be sure of this: if these Freedom morons vote this bill down, stocks will fall more than the 1.5% we saw on Wednesday. That wiped $23 billion off the value of our shares but since Donald has been the main man in the USA, he has helped the stock market add over $200 billion in market capitalisation.
We’re not in danger of losing all this but we could see a 5% slide (in a worst case scenario), which would cost our share portfolios and our super funds a pretty penny!
On my TV program last night, Warren Chant from Chant West, which monitors our super funds, admitted that you might not like Trump’s politics or him, himself, but he has been great for returns for our super funds.
“After a flat January, super funds had a better month in February, with the median growth fund (61 to 80% growth assets) up 1.2%. This brings the return over the first eight months of the 2017 financial year to a healthy 6.8%,” Warren’s media released revealed. That was the eighth consecutive gain for the financial year.
If this vote gets up, Wall Street will spike and our super funds will have a great financial year. If it fails to get up, think big sell off.
One veteran member of the House told CNBC that “if this goes down, we could take a 1,000-point market hit," but that looks a little excessive. UBS’s Art Cashin, whom I’ve interviewed both times when I’ve taken my TV show to the NYSE, saw the vote’s potential drama this way: “If they decide to postpone and not vote either tonight or whatever, [there'll] be a mild sell off because people say the votes still remain questionable. If they vote and have it voted down, there will be a more substantial sell off."
This healthcare vote is important because the overall attitude to stocks is positive, as the following from Lisa Kopp, head of traditional investments at US Bank Wealth Management shows: "The economic data seems to be positive; that's why we are still positive on stocks for the year."
For local stock players and super fund members, in American ‘freedom riders’ we trust!
P.S. For those interested in social matters: “The nonpartisan Congressional Budget Office estimated that 14 million people would lose medical coverage under the Republican plan by next year. It also said 24 million fewer people would be insured by 2026.” (Reuters)
This House Freedom Caucus sounds like a great bunch of guys and gals!
Thursday, March 23, 2017
Yesterday was the Trump dump and US market expert Dennis Gartman thinks a 5% correction is coming. While he’s smart, he has made some big wrong calls in the past. Most of us expected that the Trump train would eventually hit a bump on the track as stocks head higher. Trouble in Congress, with his ambitious policies of reform, is one hell of a significant obstacle to crash through.
By the way, if stocks fell 5%, I’d be arguing that it would be a buying opportunity, provided Congress was still a chance to support most of Mr. Trump’s policies that have helped the US market go up 12%.
Just like the market, I didn’t want President Donald Trump. However, once Wall Street changed its collective view on him, I quickly bought tickets and jumped on the Trump train. It was a case of my better judgment of humanity versus what my job is in guiding my followers — readers, viewers, listeners, subscribers and now fellow fund investors — to anticipate where stocks are heading.
As I say, the US market was up about 14% since the Trump victory, while our market was up about 11% until the 1.5% fall yesterday. And if Donald has trouble getting his health plans through the US legislation process, there could be more stock sell offs, as a lot of experts think a 4%-5% pullback would be historically healthy.
Marcel von Pfyffer of Arminius Capital (a hedge fund out of Brisbane) thinks US political experts know that the health reforms of changing Obamacare were always going to be harder than the tax reform measures.
Yesterday’s Trump dump of stocks was linked to “what if the Trump promises get stymied by Congress?” and a bit of a “pullback is overdue” sentiment from professional market players, who wouldn’t see a problem of taking profit as the stock market stresses about potential presidential political problems.
Not long before the closing bell, the S&P 500 was in positive territory and the Dow was down a measly 6 points*. So again, we’re seeing a shallow dip, which could be annoying for those dip-buyers out there waiting for an opportunity to buy into the Trump rally.
Clearly, we have seen what the market would do if Donald comes up short on his big plans of infrastructure spending, less financial regulation and lower taxes. However, there’s also the issue of what his import tax policy might do to world trade.
This wild, weird and wacky entrepreneur turned US President has added a few more concerns to the wall of worry that stock markets climb during a bull market. However, his presence has done a lot for stocks and, therefore, he has helped confidence and the world’s economic outlook.
Donald Trump is not a market messiah. At times he does looks like one but it’s Congress that now is critical to stocks. And that’s why there was an overreaction yesterday.
If Congress plays ball with Donald, then stocks go higher. If they cause trouble, stocks go lower. However, as long as a good deal of his agenda that he took to the election sees the light of day, then this bull market has legs.
Wednesday, March 22, 2017
If you’re buying properties in Sydney or Melbourne, you really need to do your homework because the bubble word is starting to be used and it’s starting to even worry me a little. I’m not alone, with the Reserve Bank of Australia and the Australian Prudential Regulatory Authority (APRA) getting a tad nervous, though they still haven’t uttered the bubble word.
Why won’t they?
Well, because on present criteria, many of the buyers/borrowers can service their loans and have sufficient collateral to justify a bank trusting them with their money. The risk would be that things might change.
As I reflect, Donald Trump and China (now there’s two strange bedfellows) could prick this ballooning house price story in Sydney and Melbourne!
Ironically, it’s those two characters who make me sleep easy at night and not be too worried about the madness happening at auctions every Saturday in Sydney and Melbourne. Donald Trump has added positivity to the US and global economic outlooks, which delays the eventual recession that one day will show up in Australia. A recession, which brings rising unemployment, would bring a lot of borrowers undone. And the resultant oversupply of properties on the market would bring price crashes to many suburbs where buyers have taken a huge punt.
China is also a big help to global growth. Yesterday, its decision to scrap its import restrictions on the products of companies such as Blackmores, A2 Milk and Bellamys showed what it can do to share prices and corporate confidence.
Even the IMF has upgraded world growth, which is good for a country such as Australia, which thrives off a greater global economic setting.
Of course, the Reserve Bank, which didn’t use the B-word in its minutes released yesterday, says there is a “build up of risks” (that’s the wording of the Big Bank), while “bubble” is oh-so-media or can be used by an economist looking for attention.
Yesterday’s minutes told us that:
- The RBA is optimistic on the Oz economy, medium term.
- The housing sector and its price increases in Sydney and Melbourne is a concern.
- The pending oversupply of apartments — basically in Brisbane and Melbourne — is an upcoming issue.
- The rise of investors borrowing is a concern.
- And so is a slow growth in rents.
In the old days, the RBA would simply raise interest rates. In the past, concerned central bank bosses have opted for two quick rate rises in a row. Maybe one would be 0.5% and not an expected 0.25%. However, our economy isn’t strong enough for that right now.
With wages growth slow but with hopes that things will improve slightly this year, and business investment still not in gangbusters land, the RBA can’t simply raise interest rates.
Also, such rate moves would push up the Oz dollar over 80 US cents and hurt economic growth.
The RBA is caught between a rock and a hard place. They really wish homebuyers and investors would stop buying properties or potential sellers at least started putting their homes on the market to increase supply to depress price rises.
In a perfect world, our economic saviours, Trump and China, help us grow stronger, which makes it easier for the RBA to raise rates, which might then spook the bolshy buyers out there who have become addicted to property.
Of course, the irony is that if the Trump/China story works over the next two years, interest rate rises could surprise a few thousand borrowers out there and the mechanics of a property price turnaround will be put in place.
I’m certain Mr Trump will help create an economic boom and then a recession and that’s when a bit of good sense will return to property prices. But that’s a story for another day.
In case you’re a bubble worrier, the head of APRA, Wayne Byers, spoke yesterday at the Australian Securities and Investments Commission (ASIC) annual forum and refused to utter the “bubble” word, instead opting for the “B-word” reference.
This was his take: "I don't use the B-word. I refuse to use the B-word. It implies a binary, that's too simplistic," Mr Byres said.
"We are in an environment of heightened risk. House prices are high and particularly in this one (Sydney) they're rapidly rising." (SMH)
Given the problem the RBA has with raising rates now to take air out of the balloon (not the bubble), in his May 9 Budget, Treasurer Scott Morrison is tipped to come up with a property price play policy. Watch this space.
Tuesday, March 21, 2017
A sign that was lambasting greedy developers in my suburb got me thinking about how important greed is in our economic system. And sometimes when we try to play around with it, there can be unwanted consequences.
This can be because the architects of reform don’t know how the market will react. And it can be that the change is ill-timed.
As Treasurer, Paul Keating took away negative gearing. Within a year, he reversed his decision. Nowadays, supporters of ending negative gearing try to play down the reasons for Keating’s U-turn but a politician of his ego doesn’t do a back down unless either the economic and/or political consequences of his decision were too hard to endure.
On ill-timing, the mining tax was introduced by Labor in 2012 just as the mining boom was turning into a slide. It not only failed to deliver the expected revenue, it contributed to the slide.
Now I know house price rises in parts of Sydney and Melbourne are out of hand and something needs to be done. However, killing negative gearing on existing homes (which Labor advocates) but allowing it for new homes needs to be thought through.
I like the fact that the measure would increase demand for new homes, which increases the supply of properties. This is part of the problem for house prices but investors would bid for these because this is where the tax concession would be!
About 93% of home loans go to existing homes. Taking out a lot of investor buyers could have serious consequences that no one right now could calculate the impact of.
Also, no one really knows how important negative gearing is to the level of home prices. If it was taken away, it could be a shock to the system. Retail spending is not great right now and the consumer is not as confident as the RBA and the Government would like. Potentially, reducing the value of their homes might be ill-timed.
And by the way, if negative gearing is so bad for house prices, where was it for the 10 years to 2013 in Sydney? Look at the chart below:
Yes, for 10 years, that terrible price-hungry Sydney went nowhere and couldn’t even beat the inflation rate!
But what I’ve been wondering is: what would have happened if negative gearing was not in place over that time? Would the virtual flat-lining of house prices for a decade actually have brought a fall?
After the mining boom petered out, the recovery of the housing sector saved our economy from going into recession. And now that banks are raising interest rates, I reckon we have to be careful that we don’t introduce a draconian ‘tax’ measure that could see a huge change in the property market with unknown consequences.
I know property developers and business-builders sometimes can be seen as profiteers who pursue their own gain without, say, worrying about the existing residents as they build their monoliths in the sky. However, they do create jobs, buy lots of stuff from other businesses that employ people, train them and give them the basis of our material life that many of us kind of enjoy.
Unfortunately, this is the democratic capitalist system we live in, as Winston Churchill argued: "The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries."
Monday, March 20, 2017
Former OK Prime Minister but better ex-Treasurer, Paul Keating, has weighed into the super stoush over the Turnbull Government’s pre-Budget consideration of letting young people access their super for housing deposits. And he’s both right and wrong.
He accuses the Government of being ideologically opposed to his well-created super system, which I think is a national treasure that stupid governments tinker with for money reasons. I’ve seen no real evidence of this typical Keating criticism.
In fact, before being PM, Malcolm Turnbull opposed the idea of accessing super for home deposits. Financial Systems Inquiry heavyweight David Murray does not like super losing a lump sum at a critical time in the compounding process, which I think will deliver so many young people nest eggs over a million dollars in today’s terms!
Keating is also right and Murray agrees that "There are many issues in the tax and superannuation systems, but to allow savings to be withdrawn to be used for other investments really defeats the purpose," he said. (SMH)
The former CBA boss thinks it would add to housing demand and rising house prices and he made reference to what would happen to super funds, which Keating implied.
You see, if more money is withdrawn from super funds by the young, then the super funds would need more cash on hand than they do now. And that would mean they would have to change their investment strategy. All of us know that cash at call at banks pays a lower interest rate to a term deposit, so all members of a super fund would pay for this innovation to help young people.
However, young people could argue that losing 9.5% of their annual income stops them from raising a deposit and means they are even delaying having children for their bricks and mortar dreams.
This problem is a government-created mess, with Federal Governments regularly hitting super with new imposts, which have made rational investors look at alternatives to super, such as real estate.
Once upon a time, all Aussies expected a pension (like they get in New Zealand) but that was taken away for prudent fiscal reasons. Many baby boomers with low super balances and high tax rates (another creation of past Governments) went after the investment they trusted, which is property.
Making the mess even messier, state governments add at least 33% to the cost of developers supplying properties so we have a supply problem in Australia. Add in record low interest rates that have created more younger buyers and house prices go through the roof.
This is why the Government is looking at changes to property taxes, tax concessions and allowing super to be ‘pilfered’ for a home deposit. It’s helping today’s dream of a house but hurting tomorrow’s dream of a big, super nest egg on retirement.
In reality, no one in government has done enough to make super sexy to young people. This has been a public failure, just like the supply of housing problem. There is a feel good factor of owning and living in a home today and it’s why the promise of super being this great prize that Keating talks about doesn’t cut it with younger, cooler generations.
As Paul’s union mates might have said: “What do we want? Housing! When do we want it? Now” And they would also throw in “and we don’t want to be in the sticks where you can’t get café lattes 24/7!”
OK, Keating has got a lot right but where is he wrong? He says young people drawing out money from super would undermine the compounding process, which I said was right. However, that’s only the case if the money was drawn out and spent on some consumer good or service, such as a holiday or new car.
If the money went into a house, say bought at the bottom of the cycle and in a suburb that might become the Paddo or Albert Park of tomorrow, then the retirement nest egg of the young super withdrawer could be better than leaving it with a super fund that overcharges, underperforms and is rifled by greedy, gutless governments.
Good super funds return around 7% per annum over a 10-year period. Great ones might do a bit better but poor or very conservative ones can do worse. There are plenty of suburbs that have delivered homeowners these returns and even better, while also delivering shelter where the interest repayments were less than alternative rents.
In my perfect world, Keating gets his way, state governments help the supply problem by allowing a lot more low density high rise complexes and younger people accept that if they want to live 10 kilometres from the Sydney or Melbourne CBD, for café latte reasons, then they might have to bring up their kids in apartment blocks like New Yorkers, Parisians and our friends in Tokyo!
And if they reduce their super to buy a home today, they might have to sell their home/apartment on retirement and scale back.
Anyone who thinks super is better than property under all circumstances is being ideological, even political and possibly economically-biased.
As I say, I’d prefer super to be left as it is but I understand the arguments for permitting super deposits. However, there’s no evidence that it has to create impoverishment as property, over the long-term, compounds higher, just like super.
Friday, March 17, 2017
February’s job statistics and the media response made me ponder why so many economists and their media buddies treat the Oz economy like that great singing legend Kamahl?
At the height of his career in the 1970s, Kamahl was often teased for his old-fashioned ways, songs and his ‘uncool’ nature. The oldies loved him but the hipster, cool generation found him corny. And he was often gently teased by the likes of Doug Mulray on Sydney’s number one breakfast radio program on Triple M.
It gave rise to Kamahl’s question: “Why are people so unkind?”
In the same vein, I have to ask: Why are so many ‘experts’ so unkind to the Oz economy?
Provided it’s not rained out, in Sydney tomorrow, the Golden Slipper will run. This is the world’s richest race for two-year old racehorses. Novices might think a tip from a jockey is a great leg up to making money but the racing fraternity thinks differently.
In fact, “that’s like a tip from a jockey” is often used as an observation of derision and it’s what I sometimes think when I see another surprise number from the Australian Bureau of Statistics.
I try not to be hyper-critical of the ABS because it’s a tough job in a changing world. In fact, as someone has to do it (find the numbers to explain the real world) and as I like this number-crunching mob when the story is positive, it’s fair that I try to explain the disappointing jobs report on Thursday for the month of February.
This was the story in summary form:
- Jobs unexpectedly contracted by 6,400 in February, the first monthly decline in five months. It followed a string of reasonably healthy job gains towards the end of 2016 and at the turn of the year.
- The unemployment rate edged up from 5.7% in January to 5.9% in February. It was the highest unemployment rate in just over a year.
- The weakness in February was concentrated in the part-time category, which fell 33,500 but full-time jobs rose 27,100 in February.
Now it’s not good news, though it makes sense that part-timers who worked over the Christmas period might lose jobs in February. And it has to be positive that full-time jobs are on the rise.
The St. George economics team had this as a final conclusion: “Nonetheless, above-average business conditions and ongoing growth in job ads suggest that the economy has enough strength to post job gains at a pace sufficient to keep the unemployment rate broadly steady.”
That’s eco-speak for them saying: don’t worry be happy about the economy.
This is what CommSec’s chief economist, Craig James, said about the numbers: “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 higher rather than lower and low real unit labour costs give employers plenty of reasons to be taking on staff. Investors are best advised to move on and focus on the next major economic data which is retail trade, released on April 3.”
This eco-speak for Craig is virtually saying: “I don’t totally trust these one month’s worth of figures and I remain positive based on other data, so move on.”
People with economics training are always suspicious about one month’s data. They also know that unemployment is a lagged indicator. It can reflect what was happening six to nine months ago when the September quarterly economic growth number was a negative 0.5%.
The December growth result was plus 1.1%, which suggests that this jobs report might be a bit dodgy for assessing what’s going on right now.
And remember, the September quarter had to deal with the fallout of the Federal election and the crazy Senate that was elected.
Personally, I can’t wait to see the April and May numbers. I hope their positivity will stop so many economists and media ‘experts’ being so unkind to the economy that soon will break the record for the most quarters of economic growth without a recession! That’s impressive and worth crowing about.
Thursday, March 16, 2017
A year ago, if someone in US Federal Reserve officialdom hinted that an interest rate rise was imminent, you wouldn’t have been surprised if Wall Street dumped stocks. Well, overnight, the Fed actually raised interest rates and the Dow pretty well instantly shot up over 100 points!
That was then. This is now. What has changed?
Three things explain this investing world that accepts rate rises. First, the US economy looks to be on a stronger footing and this Fed rate rise of a quarter of a percent, which takes the overnight Fed rate to 0.75-1%, is seen by the market as confirmation of that view.
Second, higher interest rates throw off the pall of the GFC, which meant economies like the USA were so troubled that they went within a quarter of a percent of negative interest rates! Europe and Japan have actually needed to endure the economic embarrassment of exactly that.
Third, Donald Trump has come to the US presidency with a program that has turbo-charged expectations of what might economically happen.
And while these are all valid reasons why rate rises are now more palatable than a year ago, there was another help to optimism following the Fed decision.
In case you aren’t avid Fed watchers, the voting members actually give the market a sneak preview of what might happen with their rates decisions for the rest of the year, via something called a dot plot. These dot plots didn’t change from the last meeting’s statement and combined with the actual statement from the Fed boss, Janet Yellen, it was concluded that two more rate rises were likely for 2017.
Yep, things have progressed towards economic normalcy and the market likes the idea of two more rate rises but that’s because some ‘experts’ had predicted four were in store. And some weirdo even threw a fifth into the mix!
If rates rise too quickly, Wall Street could easily panic and start selling off stocks, as it would mean the Fed fears a big spike in inflation. However, given what was done and said overnight, the expectation is that the US economy improves nicely and inflation only moves higher in a pretty orderly fashion.
"They met expectations perfectly," said J.J. Kinahan, chief market strategist at TD Ameritrade. "They stayed to the script that Wall Street wanted to hear."(CNBC)
Of course, this is only a hope but it’s the prevailing one and it’s one that has bred positivity for stocks in the USA.
The Fed hasn’t changed its mind much on the outlook for the US economy. Economic growth is tipped to be 2.1% for 2017 and 2018 and longer run growth is tipped to be 1.8%, which means we should wipe the floor with the Yanks, as our economy is tipped to be pumping along closer to 3%!
Finally, can we believe this nice little scenario painted by the Fed? It’s hard to be categorical but if Donald Trump is unbelievably successful with his policy ideas and doesn’t create a global trade war, then the US could grow more quickly and inflation could be higher. However, this is now, and we like it. And that would be then and it could bring some negatives for stocks, so let’s embrace mindfulness and live in the moment.
I have always liked the philosophy, if something is worth doing, then it’s worth doing for money!
Wednesday, March 15, 2017
In his inaugural address to the American people, the truly revered US President, Franklin D. Roosevelt, famously warned that the “only thing we have to fear is fear itself”. Nowadays however I’m more afraid of newspaper headlines that pedal fear. One prominent newspaper, that I won’t name, ran with the click bait of “RBA fears house prices are heading for a collapse”. However, after you’ve fallen for that lure, you find a new headline: “Reserve Bank worried about collapse in apartment prices.”
Last time I looked, an apartment is not a house. And to add to the inaccuracy masquerading as news, we discover the Big Bank’s Assistant Governor, Michele Bullock, was really only talking about a “looming oversupply of apartments in Brisbane in particular, and possibly some parts of Melbourne.”
Note the word “possibly”. Also, note that Sydney is not on the RBA’s worry radar screen!
Wisely and pretty obviously, Ms Bullock points out if there is a downturn there could be “systemic issues for the banking system.” Really, who’d be surprised about that?
If there is an economic downturn, then unemployment will go up and so will bankruptcies. And considering most households and businesses borrow from the banks, well, yep, the banks will be in trouble. Their share prices will fall. Our super will become less valuable, as it did in 2008 and 2009 but then it will recover.
The CBA’s share price fell to around $27 during the GFC period of misery but it’s now at $84.49!
We live in an economy that passes through cycles of booms and recessions. One day we will see a downturn, which will end up being a recession but we’ve dodged a recession for over 102 quarters.
Then house prices will fall in many areas. Some suburbs will see prices level off. Others will see a house and apartment price collapse.
During the GFC, house prices in Palm Beach, Sydney, the Central Coast of New South Wales and the Gold Coast in Queensland all saw price collapses because these areas are often volatile in both directions.
The biggest worry for house and apartment prices isn't foreign buyers or ‘terrible’ investors but a recession. And there’s more chance of that happening if media headlines scare consumers and stop them from spending, which hurts business profits, which leads to less investment as well as less job creation.
Right now, we live in a local and global economy that has been slightly ‘trumped’ into positive action. If the US President gets a lot of his economic policies up, we can stop worrying about a recession for at least a couple of years.
If Trump succeeds in being the global economic circuit-breaker (as many suspect he will), then we will grow faster, the RBA will raise interest rates later this year and get the banks to impose more lending controls. And some of the hot air in the property balloon will be gradually released.
When the recession eventually shows up, stock prices and house prices will fall in many parts of Australia. Right now, however, we have better things to be concerned about and better things to be positive about.
So I proclaim: “The only thing not to fear is scary economic headlines in desperate media outlets.” Be positive, confident and happy.
Tuesday, March 14, 2017
What advice do you give to a 21-year old who has an investment property, earns $120,000 a year and still has $20,000 available for investment? And who wants a tax-effective strategy!
Then there’s a mum who has an 18-year old, who has just got a job as a tradie apprentice and who’ll soon inherit $200,000?
These are the types of questions I field on my Talking Lifestyle radio channel show called On The Money. It goes to Sydney on the old 2UE-954 channel, the old Magic channel in Melbourne at 1278 on the dial and in Brisbane on 4BH’s 882.
A hell of a lot of questions come from 40- or 50-somethings but there are also a lot of questions from mums and dads, as well as grandparents, who want to invest for their kids or grandkids.
They include the idea of investing early and letting compound interest build up your wealth. Second, there’s no trying to time the market but to spend time in the market. Third looks at how to make sure you don’t pay more than 1% because, over time, fees act like compounding but in reverse!
Finally, Robbins runs the story that most financial advisers recommend: be diversified.
These are all good premises to build wealth but I’d like to share with you a graph that explains why I like the scary world of stocks.
This graph shows that between 1970 and 2009 (one year after the 50% crash of the stock market with the GFC) $10,000 invested (and with its dividends reinvested each year) grows to $453,165! That figure would be about 60% higher because (along with dividends) the stock market has grown by about that since 2010.
And it will go higher before a crash comes, as it often does. If you follow the blue line, you see many scary crashes and corrections but see the uptrend of the blue line, which shows what happens to Aussie stocks.
The yellow line shows what happens to US stocks. This has exploded even higher compared to Australia, with the Dow Jones index going as low as 7,062 in February 2009 before it rebounded to the 20,878 we see today! That was a 195% gain!
Imagine if that young boy had invested his $200,000 in an exchange traded fund for the Dow Jones index. He’d now have over $400,000 because he would have received dividends as well!
Now that would have been too undiversified and no financial planner would have recommended that. However, given his age, he could be 100% invested in a range of stocks that take in an index, such as the Dow Jones or S&P/ASX 200, because he’d get diversification by having so many stocks from different sectors.
For our youngster with $200,000, a planner might use $100,000 as a deposit into an investment property and $80,000 into an ETF — exchange traded fund — for the overall stock market index such as IOZ or STW, which are ETFs listed on the Stock Exchange. If the market rises or falls 2% in a day, you’re 2% richer or poorer (minus a small fee) but they also pay collective dividends for the 200 stocks in these ETFs.
We created the Switzer Dividend Growth Fund (SWTZ on the stock exchange) for those who like dividends. Our fund manager puts together about 50 reliable dividend-paying stocks. This won’t shoot the lights out in terms of price but should give a reliable stream of dividend income each quarter.
The planner then might put $20,000 into term deposits so the young investor can access cash if he needs to when the term deposits roll off. As rates are low, the planner would take shorter terms, as he’d expect rates to rise over the next few years.
If you explain to a young person that stock markets crash every 10 years or so but as long as you invest in quality companies (15 to 20) or invest in an ETF (or even a number of ETFs that could include ones for the US stock market indices), then you’re likely to build wealth that grows at 10% or better each year.
So let’s look at our youngster at age 18 with $200,000. If he buys say IOZ and history repeats (of course, there can be exceptions when markets rise slower or faster), then his money will double every seven years.
So, by the time he’s 25, the money total could be $400,000. By age 32, it’s $800,000. When he’s 39, he’s coping $1.6 million. At 46, he’s got $3.2 million and at age 53 it’s $6.4 million. This makes him a significant player! By 60 that $200,000 could be $12.8 million! This is the magic of compound interest.
Of course, there would be tax to pay so a planner might suggest he invests it in super but that would mean he wouldn’t be able to access it. A planner might put some in super or work with an accountant, who might recommend a trust arrangement to keep the taxes as low as legally possible but still maintain potential access to the money.
All this shows the power of the stock market and getting wise advice at the right time. I always advise people who want to build wealth that you need to look at growth assets, such as stocks and property. And sometimes it’s good to start when economic times are rough.
Warren Buffett advises to be greedy when everyone is fearful and fearful when everyone is greedy. He also recommends that if you aren’t like him — a masterful investor who does it 24/7 — then an ETF is the way to go. They are low on fees and the ones I’ve talked about are diversified.
I know many people are afraid of stocks but they have done them badly, without good advice. Exchange traded funds are simply funds that you can buy into and out of on the stock exchange. Their arrival in recent times has made it easier for people to build wealth.
By investing in good assets, such as property where people want to live and in stocks of companies that people want to do business with, you can build wealth. Just give it time and faith in the investing process explained above and guess what? You will become wealthier.
This is investing. Anything else that promises riches faster is punting and that’s where the losers outnumber the winners!
Monday, March 13, 2017
I sometimes wonder why we read, listen to and watch stuff. Sure I get it, lots of time it’s about getting some ‘compatainment’ (company plus entertainment) when you’re on your own in a car or home, or when you just want to chill out.
News and TV stuff absorbs so much of our time but what good does it do?
Recently, I thought that we don't commit enough time to self-improvement and it bugs me that we waste time on the dumb stuff instead of the smart and valuable things of life.
I know why: few people in our life actually get in our ear and encourage us to do so. Of course, we might have a parent or boss who says we should study, do training, get fit, eat better, etc. but most of us don’t have someone who actually mounts the case for investing time and/or money in getting smarter, fitter, healthier and so on.
We lack life coaches, objective commentators who are out to help you, and people who really show you the way.
I was knocked out by US leadership speaker, John Maxwell, when I emceed him around Australia a few years back. John revealed to the audiences he spoke to that he was knocked out as a young man when he was asked by his mentor: “What’s your plan for self-improvement?”
He was embarrassed as he didn’t really have one, even thought he doubted if anyone else he knew had one either! I must admit I’m surprised he did not say: “Having you and taking your advice is my first step to creating one!”
Yep, having a mentor is a significant step. I’m yet to meet someone who has one, or has invested in a business or life coach, who hasn’t impressed me as someone with high aspirations.
The same applies to those who seek out groups that are designed to help fellow business people network, share ideas and get insights, or even customers.
All these moves are stepping stones to what I think is the ultimate big step of writing down your self-improvement plan. Something like this would cover fitness and diet to cover health. You might commit to reading or listening to inspirational educators on subjects that will make your smarter and wiser, while you should have a money plan to make sure your wealth is heading in the right direction.
Imagine having a single person who acted as your caring inspector on these subjects. What if they got you out of bed for a hard 30-minute exercise routine every day, stopped you eating processed and sugar-laden food, found great YouTube mind-expanding videos to listen to on the way to work and delivered you books on highly successful people that gave you clues on how to be a success yourself?
I was lucky to marry someone like that and I owe a lot of my success to Maureen. In all honesty, I’ve been better at receiving than giving but I am in the process of changing that — better late than never!
So why all of this life coaching and self-examination from Peter Switzer today?
Well, Tony Robbins has a new book called Unshakeable, which he wrote with a financial adviser to try and dispel financial fears with facts that hold people back from building wealth.
"I really wanted to write a book to show what you can do when everybody else is afraid to get that peace of mind," Robbins told Forbes.com. "I want to protect people, but I also want them to see how this could be an opportunity for the greatest growth."
In looking at some of the big mistakes that people make with money, he pinpointed out four biggies:
1. Failing to cash in on compounding. He uses an example similar to one I used when I wrote the Aussie version of the US book A Complete Idiot’s Guide to Getting Rich. “Robbins uses the example of someone who invests $300 monthly for eight years until he’s 27, investing a total of $28,800. Even if he doesn't invest another penny, says Robbins, he’ll have close to $2 million when he retires at 65, if the market continues to compound like it has over time, at 10 percent or more annually on average.” (Forbes). And the later you start, the less you’ll get when you retire or the more you will have to save to catch up.
2. Time in the market is the next great piece of advice. Again, it’s something I’ve educated people about for decades. You see, if stock markets gain about 8.2% per annum over a 20 year, despite some shocker years over that time, if you missed the 10 best trading days over a 20-year period, your returns drop to 4.5%, according to an analysis by the Schwab Center for Financial Research. Fear after a crash drives people out of the stock market and they often miss the rebound year, which can be anything from 30-80% here in Australia!
3. Don’t pay too much in fees. While income compounds in the right direction, fees compound your nest egg in the wrong direction. As Robbins points out, generally, if you’re paying more than 1%, you’re paying too much.
4. Robbins has discovered what all financial advisers know makes sense: be diversified. Having property, stocks, term deposits, bonds and even collectables can be a way to be more protected when, say, the stock market goes haywire because other markets might be gaining nicely. Perth house prices are under pressure now when the stock market is rising but when the GFC hit, house prices were heading up, thanks to China and the building boom in mining.
Robbins is a master at motivating people and in reality, I’d be surprised if he tells me anything I don’t know, though I’m always up for a new lesson. What I like about him is that he knows how to provoke people to self-improve.
If you can master that, there’s a damn good chance you will be happy, healthy, wealthy and wise.