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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

Who do you believe on house prices? Headline grabbing journos or the Reserve Bank?

Wednesday, July 18, 2018

Who do you want to believe on property prices — sensationalist journalists looking for a front page story, career doomsday merchant Harry Dent or the boring old Reserve Bank of Australia? Well, even though I love making tiring economics and business stuff entertaining, readable and educational, when it comes to forecasting and economic assessments, I rely more on the Reserve Bank of Australia.

That’s not to say the RBA is always right. I called the Bank out ‘big time’ when it kept interest rates too high for too long when the GFC was starting, and then a few years back before it moved to their historic low cash rate of 1.5%.

Forecasting is a tough game but the guys and gals at the RBA are well-qualified, they’re not sensationalists and they know the importance of their job. And understanding how house prices are pulling back in Sydney and Melbourne is economically crucial, so there would be a lot of brainpower going into their best guessing on this subject.

I like the US star doomster Harry Dent as a person only. He keeps tipping doom, knowing one day he will be right! Anyone listening to him and others, who have been predicting real estate and stock market Armageddon for years, could have lost a lot of capital gain.

The Daily Mail in the UK reported this in February this year: “A leading American economist who correctly predicted the 2008 financial crisis has claimed Australian housing prices will plummet by 30 to 60 per cent when the country's stocks crash 'just weeks from now'.

“Harry Dent has predicted Australia's stocks will crash by up to 80% in the coming days, creating an opportune time in the housing market for home buyers to snap up properties. 

“The author also warned of a global real estate and stock market crash between the end of the year and 2020, according to news.com.au.”

Right now a lot of people think house prices are already on a big slide, but this chart shows you the slide over the past year and bad news headlines on property have been coming for at least that time.

 

Sydney is down only 4.5% after a 75% rise over five years! Melbourne is still rising. And what about Hobart! Now the numbers will get more negative for Sydney and Melbourne but there are no signs of an Armageddon.

I interviewed Charles Tarbey, the founder of Century 21, for my radio podcast show on Monday. He said prices are coming back and expects places like Sydney to eventually lose about 15% over the next year or so. Charles says some suburbs could lose more, while others will lose less.

It's a buying opportunity for first homebuyers and those who missed out at auction over the past few years. For those who bought at too high prices, well, that’s happened to lots of us over time. But time will eventually repay you with higher prices if you stay in the house long enough.

What’s important is that we all stay employed and our businesses remain profitable, which is why we don’t need house price alarmists spooking consumers, just as consumer confidence is picking up.

The RBA’s latest minutes from its board meeting say the Big Bank likes the house price deflation and it doesn’t see a collapse on the horizon.

In a very calm way, the Bank said: “Housing prices had declined in Sydney and Melbourne following significant increases in previous years.

“Housing prices had fallen by almost 5% in Sydney over the preceding year.”

Interestingly the RBA is comfortable about household debt, but we’re not alone in loading up on debt on our beloved properties. “Household debt has increased by more than household income over the preceding three decades in many countries, but particularly so in Australia.”

But where we are a little more special is that we are more inclined to become landlords or property investors per head of population.

Karen Maley in the SMH has pointed this out today. “Where we are unusual is that we're more inclined than most to borrow in order to invest in housing, and this has helped push Australia's household debt to income ratio to a record high of close to 200%,” she wrote.

What the RBA knows is that as long as we can grow our economy strongly, this high debt to income problem becomes less worrying. That’s why I love our positive economic future via the great outlook for the global economy, which was reinforced by the latest IMF forecast. “The International Monetary Fund (IMF) left its forecast for global economic growth unchanged at 3.9% in 2018 and 2019, above the 40-year average growth rate of 3.5%,” CommSec’s Craig James pointed out yesterday. “If realised, it would be the fastest pace of growth in seven years. While there was no update for Australia, economic growth is forecast to grow by 3.0% in 2018 and 3.1% in 2019.”

If the economic road ahead was weak, all these house price surges powered by too much debt would be a big worry. However, it’s highly likely that we have two solid years of economic growth ahead and with expected wage rises and lower house prices, it makes a pretty economic picture.

This is what the RBA is seeing and they can count me in as a Big Bank believer!

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Could this witch hunt Royal Commission haunt our economy!?

Tuesday, July 17, 2018

While it has been valuable to actually see “which banks” and other financial institutions haven’t been playing fair by consumers, like all witch stories, the witch hunt that has been the Royal Commission has the very real danger and capability of coming back to haunt us economically.

Let’s face it, the Royal Commission was a great political opportunity for Labor’s leader, Bill Shorten, to stand up for the little guy and gal in their battle with their bank. The Coalition did what you’d expect of a conservative political party and try to avoid a company crushing event, which has played havoc with bank share prices, investors’ portfolios and super fund balances.

Thankfully, other companies, other stocks and the overall economy is advancing, as my column yesterday showed, pretty clearly. Our economy is heading in the right direction and last night on my Money Talks programme on the Sky Business Channel, fund manager Mark Christensen, of the Pengana Australian Equities Income Fund, agreed with my view saying his investment team has given the Oz economy the thumbs up.

It's always comforting to know I’m not alone in being a believer in the local economy but it’s on that subject that the Royal Commission’s unexpected effects worry me.

The big news story from the world of banking is that Westpac is getting out of lending to SMSF loans, which has shocked mortgage brokers, financial planners and others in the financial industry. The news will please conventional super funds and stock brokers because if it’s harder to get an SMSF loan to buy property, then that super money will probably end up in stocks.

Now I’m not talking my own book because this development could encourage super trustees looking for reliable income from property to look at products like my Switzer Dividend Growth Fund, which last financial year returned a grossed up dividend yield of 6.96% and a total gain of 11.76%.

And while I like that prospect, I’m more worried about the economic effects of the Royal Commission.

As the AFR put it: “It will also make already jittery property investors even more nervous about the outlook amid falling prices, rising costs and oversupply, particularly for apartments in the inner suburbs of Melbourne, Sydney and Brisbane.”

Yesterday I interviewed Charles Tarbey, the founder and boss of Century 21, who’s nearly always positive on property. Charles thinks the housing boom went on one year too long and expects a pullback in house prices over the next few years of around 15% on average. This isn’t huge, given Sydney and Melbourne have gone up about 75% in five years but it’s just another curve ball for the economy, on top of Donald Trump’s trade war, Italy’s EU exit rumours, Brexit and the question whether China could be faltering.

But wait, there’s more Royal Commission challenges for the economy.

Until this Westpac story, the news I’ve been getting from my many sources in the mortgage industry is that banks have reacted to the Royal Commission by making it harder for people to get loans. This sounds good on a personal front but throws another curve ball at the economy.

Not only is the supply of loans being reduced by banks saying “No” to be good little acolytes of the Royal Commission, the time it takes to get all the information required has become longer. As a result, the economy is hanging around waiting for approvals, which doesn’t help economic growth, job creation, consumer spending, confidence and wages growth.

If governments of today and the past had seriously cared about consumers, they could have created a proper banking consumer claims tribunal, which would have looked at the many cases of exploitation we heard about at the Commission and the financial suffering could have been stopped years ago.

Believe it or not, the Turnbull Government has come up with such a consumer claims body called the Australian Financial Complaints Authority or AFCA.

The press release on February 18 this year said: “Millions of Australian consumers and small businesses are today the big winners, with the passage of legislation to establish the Australian Financial Complaints Authority (AFCA), and confirmation of how access to the new body will be significantly increased.”

It went on.

“The Minister for Revenue and Financial Services, the Hon Kelly O'Dwyer MP, and Minister for Small and Family Business, the Hon Craig Laundy MP, said significantly more consumers and small businesses will have access to free, fast and binding dispute resolution following the passage of the Treasury Laws Amendment (Putting Consumers First – Establishment of the Australian Financial Complaints Authority) Bill.”

And this is how Minister O'Dwyer said she saw AFCA: "AFCA will provide a one-stop shop to ensure consumers get a fair deal in resolving disputes with banks, insurers, super funds and small amount credit providers, without the expense, inconvenience, and trauma associated with going to court."

There is one problem with this good idea and that’s that no one knows about it. But before November 1 this year, when AFCA opens its doors for consumer complaints, let’s hope this Government reads the book Marketing for Dummies.

Even if the Royal Commission doesn’t stop economic growth going higher, the failure of governments to protect consumers from many bad practices in the financial sector means the implications of what banks are doing now — post-Commission — suggests growth will be slower, less jobs will be created and there will be a wider economic price to pay because our political leaders were asleep at the wheel.

That conclusion shouldn’t surprise too many.

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Who's right on the Oz economy? Doomsday merchants or optimists?

Monday, July 16, 2018

The rising strength of the Australian economy still seems to be doubted by many in the media and in the economics fraternity but not by the UK recruitment firm Hays, whose share price rose over 8% on Friday on the back of double-digit growth, thanks to its businesses in Germany and Australia! This comes when some local banks are starting to raise interest rates because they need to borrow from overseas, where rates are on the rise.

Certainly, our job creation story has been the best economic news headline coming out of the past two years but the readings from NAB's business conditions indicator have also been record-breaking.

And while business confidence has also shown signs of strong positivity, the latest reading saw a significant pull back. On the other hand, the Westpac consumer sentiment number has continued to trend higher, with the latest result for July showing that confidence is at a two-year high.

Making some experts on the economy glum to the point where they think the Reserve Bank won’t raise interest rates until 2020, is the lack of inflation and wage rises, as well as a negative outlook for house prices that they think will hurt the confidence of consumers as they see their houses become less valuable.

There’s also the concern that banks will raise interest rates again because of overseas funding costs and then mortgage stress could kick in. Yep, the doomsday merchants (or maybe the realists) have things to worry about, but it seldom seems to be an “on the other hand” argument, where the bad parts of the economy are matched against the good parts.

I will try that now.

The good bits:

• The Westpac/Melbourne Institute survey of consumer sentiment index rose by 3.9% to 106.1 in July – the highest level in 4½ years. The index is above its long-term average of 101.4. A reading above 100 denotes optimism.

• The number of dwelling starts rose by 5.2% to 57,112 in the March quarter, driven higher by an 8.8% surge in apartments. Work started on 221,043 new dwellings over the year.

• The number of loans (commitments) by home owners (owner-occupiers) rose by 1.1% in May – the first increase in six months but loans are down by 2.5% on the year, though this isn’t shock, horror news, given the negative housing headlines.

• The average credit card balance rose by $56.40 to $3,251.30 in May, up by 4.1% over the year – the strongest annual growth rate in 7½ years. This shows the consumer is getting more confident to borrow to spend.

• The NAB business conditions index rose from +14.0 points in May to +15.0 points in June. The long-term average is +5.7 points. 

• The Performance of Construction index (PCI) fell from 54 in May to 50.6 in June – the 17th consecutive month of expansion, but the lowest level in 17 months. Readings over 50 signify construction sector expansion. Despite the lower number, the expansion story is a good one.

• Australia's annual exports to China rose from US$100.78 billion in April to US$102.65 billion in May – a new record high.

• The trade surplus rose from a downwardly-revised $472 million (previously $977 million) in April to $827 million in May. It was the 10th surplus in 12 months.

• ANZ job advertisements fell 1.7% in June but these important future indicators have been at 7-year highs!

• The CoreLogic Home Value Index of capital city home prices fell by 0.3% in June, to stand 1.6% lower over the year. The national home price index fell by 0.2% in the month to be down 0.8% over the year. Hobart home prices are up 12.7% over the year. (I know these are down numbers but that’s what the monetary officials wanted but the falls are small and not telling me that a house price disaster is coming).

• Private sector credit (effectively outstanding loans) rose by 0.2% in May after a 0.4% rise in April. It was the slowest monthly growth in 16 months. Credit was up 4.8% over the year – equalling the slowest rate in four years. (This could have been in the bad bits part but it looks like an orderly slowdown, which is what the RBA would’ve hoped for).

• The Australian Industry Group (AiGroup) Performance of Manufacturing Index fell from 57.5 points to 57.4 in June. But the CBA/Markit Manufacturing Purchasing Managers’ Index rose from 53.2 points to 55 in June. Both surveys have readings above 50 points, indicating that the manufacturing sector is expanding.

• In the 12 months to May 2018, the Budget deficit stood at $12.8 billion (less than 0.7% of GDP), up from $12.1 billion in the year to April – the smallest rolling annual deficit for nine years.

• Job vacancies rose by 5.7% to a record 236,000 in the three months to May. Job vacancies are up by 24.1% on a year ago – the strongest annual growth rate in 7½ years. 

• Australia's unemployment rate unexpectedly dropped to 5.4% in May 2018 from 5.6% in the prior month, while markets expected 5.5%.

• Engineering construction work done rose by 2.8% in the March quarter to stand 13.7% higher than a year ago. A month ago, it was estimated that engineering construction was up by 1.5% in the quarter.

• Excluding resources, engineering work yet to be done stands at $44.2 billion, just below record highs. Outstanding road and railway work are both at record highs.

The bad bits

•  In trend terms, lending for alterations and additions (renovations) of homes fell to 17-year lows of $310.8 million in May, down 22.6% from the most recent peak of $401.3 million in September last year. The annual decline of 19.9% was the lowest in 7½ years. 

• NAB’s business confidence index fell from +6.7 points  in May to +5.7 points in June – the lowest level in 20 months. The long-term average is +6.0 points, though this could be a rogue number or affected by talk of trade wars.

• Construction employment fell by 3.3 points to 48.2 points in June – the lowest level and the first contraction in jobs in 17 months. 

• Council approvals to build new homes fell by 3.2% in May – the third fall in four months. But the rolling annual total of approvals rose to a 15-month high, so it’s not all bad!

• In seasonally-adjusted terms, new detached house sales fell by 4.4% in May to stand 12.8% down on the peak in December and stand 14.1% lower than a year ago.

As you can see, the case for optimism still looks pretty strong, though I do worry about what a trade war might do to this pretty picture. Ruling out external threats, I remain bullish on Australia, and especially like this from CommSec’s Craig James: “Consumer views on current economic conditions (for the next year) rose by 5.1% to 116.5 points last week – the second highest level on record.”

Yep, I’ll run with that!

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Trump trade war threat ignored! What just happened?

Friday, July 13, 2018

A $200 billion promise of an escalation of a trade war with China from the US President made Europeans stock markets and Wall Street dive on Wednesday. On Thursday, however, the Asian market and our market went higher, seemingly ignoring the new threat and then Europe and Wall Street followed suit.

This strange behaviour makes me think of the movie What Just Happened? All this could be the basis of a script summary for a future movie, which might go like this:

“During the course of an ordinary week in Washington DC, US President Trump must navigate his way through shark-infested waters as he struggles to complete his latest projects, including beating China into submission on trade abuses” (This is how the movie was summed up but I’ve substituted the Robert De Niro character with Donald Trump, which is ironic, given De Niro’s hate for the President, and the projects are very much the work of Mr Trump).

Why What Just Happened?

Well, most sensible people would be asking why wouldn’t a threat of a $US200 billion slug on Chinese imports into the USA and the high likelihood that China will retaliate lead to fear rather than optimism on stock markets?

Let’s go through the possible reasons:

• The market doesn’t believe it will happen and that it’s all the breast-beating of a tough guy negotiator, who knows his limits but isn’t prepared to show his cards when he knows his bluffing with a good hand rather than a great hand.

• There’s not enough information on what goods and companies will be affected so professionals can’t work out whose companies’ bottom lines will be affected.

• The fiscal stimulation ahead for the USA will more than offset any potential trade losses

• The combined positives of good earnings news as reporting season starts again and the solid state of the US economy is offsetting any negatives from the threat of an escalated trade war.

A few months ago, when the President first talked about the tariffs on steel and aluminium, I was interviewing the CFO of BHP, Peter Bevan, who told me he’s calculated that the Trump tax cuts would more than offset the negatives from the tariffs, so a lot of other CFOs and analysts of company stocks have been doing that. And collectively, the conclusion was “buy!”

Interestingly, China’s response to the $US200 billion upping of the President’s stakes was matched by it saying it would look at qualitative responses. Why and what would that mean?

It could mean certain companies, such as Apple, could see its products banned but that’s me guessing, though a qualitative measure has to hurt some key company economically, so Donald would feel it politically.

Why qualitative retaliation? Well, last year the Chinese sold about $US505 billion worth of exports into the USA but only imported $US130 billion worth of Yankee stuff! Nearly 22% of exports to the States come from China and the USA pushed for China to join the World Trade Organisation in 2001, the year US imports of Chinese goods took off in earnest.

The Americans liked the lower cost of goods and China became a one-stop shop for building and selling products and a strong electronics supply chain emerged in Asia, centred around China. But then along came Donald Trump, with voters who wanted their jobs back. And that’s why we are where we are with this trade war trauma.

I hope global markets are right in estimating the impact of a trade war will be manageable (or that it won’t be escalated). But betting on Donald Trump’s predictability is like playing roulette at one of the President’s old casinos!

One last point that could explain why Wall Street can remain positive with the talk of a $200 billion bump up in tariffs for Chinese exports is the other stimulation for the US economy coming down the road: tax cuts worth $1.5 trillion. And then there’s infrastructure spending and $500 billion worth of profit repatriation from overseas to the USA. So a China tariff slug could hurt but might not really crush the US economy.

These numbers aside, we still have to hope that what just happened (trade war escalation talk up and stocks up) is a sign that a trade war won’t actually happen.

But as I often say, I don’t like hope being a strategy!

 

 

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Love Donald if you want but please hate his tariff tantrums!

Thursday, July 12, 2018

The temptation of twitter is that in a rush of blood moment you can show the world (well, at least your twitter-sphere), that at times you can be an impetuous, too ‘up yourself’ smart Alec. One of my twitter followers showed her darker side late last week when the trade war began and nothing happened.

Recall the US slapping $US34 billion worth of tariffs on China, as promised. And, as promised, China returned serve. My ‘tweetster’ pondered to me: “What was the fuss all about?”

Now this lady could’ve been spooked by my “beware Donald’s tariff war” stories last week, so she was genuinely asking: “What was the fuss about?” Or else she could be a Trump fan, who thinks all leaders need to be charged by testosterone and entrepreneurial zeal, even if it means that rationality, good sense and international collegiality has to be the price.

Apart from ruining a global economic outlook that really was promising (remember, we are a country that gets a lot of money from exports), a trade war could send the stock market earthwards, really hurting our super fund balances and our stock prices. Also remember that I have a listed fund called the Switzer Dividend Growth Fund (or SWTZ), which hit its all-time high of $2.66 last week. With post-trade war talk, we’re down to $2.57!

Not happy, Donald, not happy!

Sure, I’m talking my own book but I’m also talking your wealth via super fund balances, which are typically very affected  by what’s happening on the stock market. And if you’re a wealth-builder via stock-buying (or worst still, you borrow to buy stocks), Donald’s upping the ante on the trade war could be devastating.

At the moment, Trump seems as though he’s on an international tirade tour, bagging every ally he thinks or knows has been taking the US for a ride economically, militarily and even politically. In that he might have a point but the Yanks have also taken a fair bit as a reward for their international role as global cop.

I’m not saying that poor old Europe and China are innocents in the trade protection stakes. Also, soft US leaders have let their international buddies get away with some uneven trade practices and intellectual property thieving, as in the case of China. However, the USA hasn’t been a babe in the woods either.

Historically, America has given aid to countries as what lefties called “economic imperialism”, which meant it hasn’t just kept the Communist threat from the door of struggling third world countries, it has tapped into cheap resources and made a nice buck out of its ‘cop’ work.

With all this considered, I must say that I really hope Donald doesn’t go ahead with this $US200 billion upping of his tariffs stakes. The reason the market went up last week was because China (the Communist country in a capitalist world) didn’t do a Robert De Niro/Capone gangster response of “Somebody messes with meI'm gonna mess with him”

But if Donald goes ahead with his latest threat, China could do something silly, like banning Apple and other big tech giants that now make up 25% of the S&P 500 index. I’m hoping and punting that China is too smart for that. But who knows what happens when you have Trump testosterone versus China’s Xi testosterone?

And it comes as he has berated Germany for accepting Russian energy supply and his NATO allies for underspending on military outlays, which all have been done very publicly. Now I don’t want to be accused of being racist, but nearly all my European friends don’t take kindly to aggressive criticism, so we could have a situation developing here that could have serious economic implications.

Donald is also lining up tariffs for the EU, Canada and Mexico, so if everyone in the world leadership caper decides to ‘do a Donald’ by saying what they think and acting accordingly, then a very good global economic recovery might turn into a global recession! A very nice stock market rebound for local stocks could U-turn and head down.

In addition, an improving economy, where consumer confidence has hit its highest level in 4½ years, could be side-swiped and knocked off course. This could kill job creation and predicted wage rises! So if you’re not a card-carrying Trump lover or groupie, you have to look at his tariff trade war tantrums and ask: “what the f•••!?”

I’m objective on Donald, which means I can praise him when he gets it right. But I have to call out his bad plays, when this ex-casino owner looks like he’s gambling with our jobs, business profits, wages and our super nest eggs.

Don’t do it, Donald! Don’t raise tariffs by $US200 billion, as it might awaken a sleeping giant with a testosterone problem of De Niro proportions!

By the way, the Dow was down 219 points overnight, which says the market still hopes Donald won’t go there. If he does, the Dow could go into steroidal rage mode and it won’t be pretty.

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Here's why billions of Bitcoins can't get me excited about cryptocrap!

Wednesday, July 11, 2018

The last thing I want to be seen as is a grumpy old guy who can’t get the new age of bitcoin and cryptocurrencies. But the more I read the analysis about bitcoin from the smartest guys on the planet, the more I think it’s probably all ‘cryptocrap’!

Don’t get me wrong, I know the blockchain technology that underpins bitcoin and other cryptocurrencies is revolutionary. It will be applied to many innovative ideas in the future. However, its application to currency will eventually be trumped by central banks and worried politicians, who haven’t had yet the guts to blow the whistle on this new age ‘currency.’

I used single inverted commas because bitcoin and its imitators are not real currencies but are ‘wannabe’ mediums of exchange, which one day will be forced to become regulated or be banned.

One of the earliest cryptocurrency deniers was the boss of JPMorgan, Jamie Dimon, who I reckon would’ve taken advice before he gave bitcoin the ‘kiss of death’. In 2017 he called it a “fraud” but did backpedal and admit that the blockchain technology was a winner.

After backing away from his fraud views, he did get it right when he told CNBC that: “The bitcoin was always to me what the governments are going to feel about bitcoin when it gets really big. And I just have a different opinion than other people."

When bitcoin’s price went to $18,000 and my radio listeners were asking if they should jump on board, I’d say: “I wouldn’t, because I think the price has been driven by irrational speculation. That’s not to say it won’t survive, though I admit I don’t fully understand the concept.”

As an economist, I always thought that central banks would have to regulate it like other currencies, and that’s when its appeal would fall and with it, its price!

I knew regulation or even banning bitcoin was probable after watching the latest season of Netflix’s Billions, which has been conceived by the host of Squawk Box on CNBC — Andrew Ross Sorkin — who also wrote the book Too Big to Fail.

In one scene in this TV drama, the villain/hero of the series talks about a shady investment deal where the proceeds are paid to a cryptocurrency account.

That’s when the penny dropped that regulators of the stock exchanges of the world (the monetary authorities, the Treasuries and the tax offices) would be worried if these secret currency accounts grow like topsy.

The game eventually will be up the faster its popularity grows. It doesn’t mean they fail or disappear but they will become less speculative and less attractive.

And as I said earlier, some of the smartest old guys in the world refuse to jump on board the crypto-train.

One such smart guy is legendary economist, Joseph Stiglitz. Joe is a Nobel prize-winning economist and isn’t easily tagged as a dummy, given his body of work in his 75 years of living and thinking.

He thinks the fact that criminals love the crypto-world kills off its potential to be a real currency.

“You cannot have a means of payment that is based on secrecy when you’re trying to create a transparent banking system,” Stiglitz, told the Financial News. "If you open up a hole like bitcoin, then all the nefarious activity will go through that hole, and no government can allow that.”

Joe says regulation will turn criminals off cryptocurrencies and a lot of demand will disappear, driving down the price.

The original idea-creators of the prototype of Facebook, Tyler and Cameron Winklevoss, who are big bitcoin investors, think grumpy old blokes simply don’t understand cryptocurrencies. But a matter of faith and massive, worldwide regulation could prove these Olympic rowing twins wrong.

Three wise men, albeit old ones again, namely Warren Buffett, the world’s greatest investor, Charlie Munger, who Buffett says is smarter than him and a ‘plodder’ in the world of thinking — Bill Gates — are all crypto-deniers.

In a great three-way interview on CNBC, these guys clobbered bitcoin. “Bitcoin is one of the crazier speculative things," Gates said. “I would short it if there was a way to do it.”

Munger, whose a measured man, ripped into bitcoin calling it “worthless, artificial gold!” Furthermore he said “the fact that it is clever computer science doesn’t mean it should be widely used and respectable people should encourage other people to speculate in it.

He used an Oscar Wilde view on fox hunting to describe bitcoin as “the pursuit of the uneatable by the unspeakable.’

Buffett thinks bitcoin believers get too personal when others like him criticise the would-be currency.

He says when the market sells off say Apple, he buys more because he thinks he knows what the company is worth, as he can value the asset. If his value is more than what the stock market is paying, then “I buy more.”

However, when the bitcoin price falls, it’s hard to work out what its price should be because the pricing is pure speculation.

It’s effectively gambling. Like a lot of illegal gambling that’s now being tolerated, officialdom will close it down eventually, or I suspect will regulate it. And that’s when the price of bitcoins and others will stop rising and could easily plummet.

When people ask me about companies or other assets that I don’t fully understand, I quote Buffett and other investment gurus, who basically are always advising us that if you d­on’t understand it, don’t invest in it.

But in a spirit of objectivity, there are alternative views and here’s one from FX Empire: “Bitcoin (BTC) is on its way to world dominion, and any currency that stands in its way will experience demonetization or Hyperbitcoinization. Those are the sentiments held by leading cryptocurrency philosopher, Daniel Krawisz, who believes the cryptocurrency will be worth $100,000,000 by 2030.”

 

 

 

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How can you make money the easy way from stocks this year?

Tuesday, July 10, 2018

Crawling out of bed at 4.30 this morning to write my daily piece for Switzer Daily is always a bit more easier to take if the Dow Jones is in the green and not plummeting into the red. This morning the most talked about stock market index — the Dow Jones Industrial Average — was up 327 points (or 1.34%) and headlines were predictably telling me that “trade war fears were dissipating.” And it got me thinking about what stocks might do for the rest of the year.

Last night on my Money Talks program on the Sky Business Channel, I spoke to two market experts who didn’t argue with my view that stocks should rise for the rest of the year. Sure, neither said they will keep rising without some worrying drops, so anyone hoping to make money without any fear, loathing and anxiety should stick to term deposits where you’ll be lucky to get more than 3% for your ‘punt.’

However, stocks could be a place where the return might be as much as 14%, though 10% definitely looks doable if my experts — Gary Stone from Share Wealth Systems and June Bei Liu — are on the money.

How do those returns result?

Well, if you look at our most watched index for stocks — the S&P/ASX 200 index — it’s now at a level of 6280. If it makes the more difficult level of 7000 by champagne corking time on 31 December, then you’d make 11.4% via stock prices going higher and about 2.5% for half a year of dividends, which equals 13.9% — let’s round it up to 14%.

If I get less optimistic and say that the index gets to 6700, then that’s around a 10% return. But how does anyone access this potential return?

Nowadays there are products called exchange traded funds (ETFs) that make buying stocks really easy. These funds are sold on the stock exchange, which means you can get in and get out when you like.

Funds not on the stock market can be harder to get out of, especially if a market panic is on. Of course, a bad day for stocks could mean you get out at a silly price but that’s what happens when all stock players are rushing for the exit doors.

For the novice investor or the more cautious new market player, there are two ETFs that I’ve dealt with that give the investor the 200 stocks in the S&P/ASX 200 index. It means you’re invested in our top 200 companies and get paid a collective dividend from those companies with an ETF.

And if you worry that a surprise market crash could come along this year, at least you’re holding a quality group of companies that would have a high likelihood of rebounding after a crash. Phil Ruthven, founder of the research house IBISworld, told me in 2009, (just before the market started rising after the 2008 GFC crash) that our market has rebounded between 30-80% in any year following crashes!

Gary’s charts point to a solid rise in the index that powers these two ETFs with the ticker codes of IOZ or STW, justifying my predictions on possible returns. If you went to an online broker, you’d search for these codes just like you would if you wanted to invest in BHP, whose ticker code is, surprise, surprise — BHP. Yep CBA is CBA and I loved it when the stock exchange gave us SWTZ — (my nickname) for my ETF product called the Switzer Dividend Growth Fund.

But you might be saying, I’ve never invested in stocks before, so how does this help me? Well, I got one of my young workers to do a step-by-step experience of signing up to buy stocks with Nabtrade and I got him to chronicle each step. This is what he came up with:

• It’s free to set up an account.

• In about 10 minutes, you can start buying shares all over the world.

To create a nabtrade account you will need:

·      Your basic contact details.

·      A valid email address.

·      A tax file number (you can set up an account without a TFN, but you’ll be slugged extra tax if you leave this out so it’s better to have this up front).

·      A valid driver’s licence or passport.

To set up an account:

1.     Visit nabtrade.com.au/onboarding.

2.     Select the account you want to open and click next. If you’re new to shares and are investing in your own name, it’s likely an ‘individual’ account.

3.     Select ‘With a Cash Account’ on the next page then continue.

4.     If you’re an existing NAB customer you can login with your Internet Banking details, otherwise you can create a new account from scratch.

5.     Fill out the details and submit. You’ll be sent some temporary login details, which you will update the first time you log in.

It’s that easy.

To make an investment:

1.     Login at nabtrade.com.au and click ‘trade’ in the top right.

2.     Enter the details of the company or fund you want to buy. For example, you could search ‘Switzer’ and select the option that appears.

3.     Select ‘Buy’ as the action.

4.     Under ‘Amount type’, select ‘Value’, then enter how much you want to invest.

5.     Under ‘Order type’, select ‘Market’, and leave ‘Duration’ as ‘Good Till Cancelled’

6.     Click ‘Review order’ to make sure you’re happy with the details.

7.     Click ‘Submit’.

You’re now a fully-fledged share investor!

Overnight the dropping of trade war fears saw financial stocks spike and Goldman Sachs put out a note with a big, positive call for commodity prices, which is good news for our big miners BHP and RIO.

If the miners and our banks have a good second half of 2018, the S&P/ASX 200 index should also do well as these are big stocks in the index.

June Bei Liu thinks our index goes higher from here but she wasn’t as bullish as Gary. However it tells me that it might be an OK time to have a little flutter on stocks. I hope they’re right because my SWTZ, which tries to be a good income payer via dividends, tends to track IOZ and STW.

By the way, this isn’t financial advice, as I don’t know your individual situation, but I reckon it is pretty good financial education!

 

 

 

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No real trade war yet. Let's hope for our super's sake it remains that way

Monday, July 09, 2018

In a staggering win for optimists (which I’m regularly accused of being), the nation’s number one cheer leader, the stock market, has defied the potential threats of a full-blown trade war. Wall Street finished up, despite the start of US tariffs, which were matched by Chinese return fire impositions on US products sold in China.

The positivity on the New York Stock Exchange and the hi-tech Nasdaq Exchange on Times Square (which was up 1.34%) was also helped by a better-than-expected jobs number, with 213,000 positions showing up in June, rather than the 195,000 forecasted by economists.

The US economy continues to boom but not so fast that the Fed will have to raise interest rates too quickly, which could kill off this sustained stock market rally.

Right now, the market experts got it right — Trump played his $34 billion tariffs card on Chinese goods and China returned fire, like a tennis match, but the point is still to be played.

Out there is an overhead smash that the US President, Donald Trump, has in his arsenal of shots, which he said he could use, a $500 billion tariff play that could turn this pop gun fight into an economic near-nuclear encounter that Wall Street would have a seizure over. And our stock market couldn’t ignore it!

This comes at a good time for our stock market and we really don’t need Donald to ruin it with a fight with unclear consequences.

Right now, our super funds are in a great delivery mode. According to Chant West, they are poised to deliver a positive return for a ninth consecutive financial year.

“The only previous time we had a streak that long was from 1992/93 to 2000/01,” Chant West Team tells us.

Late last week, the super monitoring service revealed that early estimates suggest that the median growth fund will post an impressive 9.2% for 2017/18, while some of the better-performing funds may deliver as much as 11.5%. Growth funds have 60% to 80% of their investments in growth assets, and are the ones in which the majority of Australian workers are invested.

Here are Chant’s main observations, which you should use to rate your own fund’s performance:

  • This year's top funds may report returns as high as 11.5%, which is about 9.5% above the inflation rate. Even funds at the bottom end of the range are likely to achieve that performance objective, with a return of about 6.5%.
  • The better performing funds have been those with higher allocations to listed shares (particularly unhedged international shares) and to unlisted assets generally. A lower exposure to traditional bonds and cash would also have helped greatly, because those have been the most disappointing sectors.
  • Looking at the two major industry segments, we expect industry funds to finish the year ahead of retail funds by about 1%.

Bound to help our super funds is the recent offer from BP for BHP’s shale oil and gas assets, which, according to Reuters, was a bigger-than-expected $13.5 billion. The company was expecting a bid closer to $10 billion!

Our super funds hold a stock like BHP, which this year is tipped to pay a handsome dividend, and even a special dividend linked to the sale of these energy assets on the selling block.

However, an out of control Trump trade war could ruin this deal. I’m not saying this will happen, but Donald brings a new problem for stocks — his unpredictable approach to international politics.

I’m remaining long stocks but I know it’s a gamble and one I’d prefer not to be worrying about. That’s our new money-making investing and super life with Donald!

This Trump trade threat also comes at a time when the outlook for Aussie stocks remains damn good. Today for the Switzer Report (our subscriber investment newsletter) I talked to Gary Stone of Sharewealth Systems, who is a charts guy.

He looked at what the charts say about our top 20 stocks, which is captured in the ASX 20 index. Gary says the numbers point to a strong rise ahead. And because this index has the likes of the big four banks, BHP, Rio, Telstra, Woolies and Wesfarmers (which owns Coles) in it, they drive the overall stock market index.

If we can rule out a real, ‘rooting tooting’ trade war, then our stock market and superannuation could again be in for some super returns for the rest of the year.

Prayers for a more rational Donald would be appreciated.

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Experts think this trade war will be a fizzer. I hope this courageous guess is right

Friday, July 06, 2018

One of the staggering developments from the mad money world of stock markets is that US stocks rose overnight, with the Dow Jones index up over  180 points, as the deadline to President Trump’s trade war looms today. And what’s even more surprising is that some professionals reckon the market has priced in the effects of a trade war!

Gee I hope they’re right, but I don’t know how I or anyone could really test that.

This confidence that market experts know what lies ahead was captured by this from Jeremy Klein, chief market strategist at FBN Securities: “Any news we get on trade in the short term will be neutral or good,” he said. “We already know all the bad news that's out there on this issue.” (CNBC)

What he’s saying is that experts on the significant companies affected by a tit-for-tat trade war have worked out the profit effects of tariffs and then changed their valuation on that company. But those calculations operate off assumptions that might end up being wrong! 

This is how the trade war should begin, with a U.S. Trade Representative statement saying tariffs on $34 billion of Chinese goods will take effect at 12:01 a.m. in Washington. Then China will return fire immediately. The assumption is that China will hit back with equal force. But what if they don’t, instead hitting harder than expected and on industries that were not expected to be affected?

All’s fair in love and war. And you can’t expect that a trade war will be fought out following some gentlemanly rules of engagement. Mind you, I hope it is, and I also hope the market experts have calculated the effects accurately. But I always argue that hope is not a strategy upon which you can build wealth in the stock market!

What worries me about this complacency on the trade war is that it comes when the doomsday drones are ganging up to ramp their warnings about an imminent recession and stock market sell off.

You shouldn’t be surprised about this, as since the end of the GFC this mob has tipped a Great Depression, countless market crashes and some have even had the Dow Jones plummeting below 10,000 while it’s now over 24,300!

Donald Trump has been seen as the trigger, with this one from Bloomberg showing how the negative nervous Nellies have been scaring us for some time: "Citigroup: A Trump Victory in November Could Cause a Global Recession!"  (Bloomberg Financial News headline, August 2016)

And then this one: "A President Trump Could Destroy the World Economy!” (Washington Post editorial, October 2016).

Then there have been the likes of Harry Dent and Marc Faber who have been tipping a market Armageddon for at least three years, probably longer. These guys will get it right one day, after being wrong for a long time. And this trade war could be the trigger for them being free to boast about their insights.

All this comes at a time when investor surveys show that those playing the stock market are losing confidence. And some well-known fund managers have expressed their concerns about being long stocks, with the likes of Bridgewater Associates’ Ray Dalio saying he’s getting out of financial assets.

“It’s a classical late cycle story. So, when I was here last time, I said we were long and nervous. We are no longer long, we are increasingly nervous about this,” Roelof Salomons, chief strategist at Kempen Capital Management, told CNBC’s “Squawk Box Europe” on Thursday.

A late cycle represents an economy that has been growing, but is poised to fall into a recession, amid rising interest rates, lower profit margins and other negative economic headwinds.

And a trade war could be a cyclone, while the experts are treating it more like a zephyr. I’m gambling that these guys and their assessments are right because I think the current economic and corporate profitability stories are so strong. But I know I’m gambling.

If you can’t afford to gamble and see stock prices slide, then you might have to play it safer than me. But let’s all pray that this trade war doesn’t prove some Trump-haters right.

Here are some of the worst predictions that I can’t forget:

• “Under Trump, I would expect a protracted recession to begin within 18 months. The damage would be felt far beyond the United States.” Larry Summers, former chief economist to Bill Clinton and Barack Obama, June 2016.

“If the unlikely event happens and Trump wins, you will see a market crash of historic proportions, I think. … The markets are terrified of him.” Steve Rattner, MSNBC economic guru, October 2016.

“It really does now look like President Donald J. Trump, and markets are plunging. When might we expect them to recover? We are very probably looking at a global recession, with no end in sight.” Paul Krugman of the New York Times, the day after the election.
This damn trade war could rescue these guys reputations. And because I don’t know what a trade war might create, I can’t tell you these people will remain looking like dopes!

 

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Will Trump's trade war start on Friday? Will we be collateral damage?

Thursday, July 05, 2018

“US pig farmers, asked to be good patriots, brace for a new round of pork tariffs from China, Mexico…”

This unbelievable headline could border on the funny if it wasn’t so important and if it came from the efforts of a President who is more economically and business savvy than just about any US leader ever! And even more worrying is the possibility that this reality for US pig farmers could be replicated for many other business owners and their employees, as the trade war could officially start on Friday, US time.

And we could end up being a part of the collateral damage of this trade war!

Until now it has been mainly talk and pre-emptive action, as Harley Davidson has shown, making preparations to make some of their bikes overseas to avoid possible European tariffs. This prompted Mr Trump to give the iconic motorcycle maker a blasting. "Harley-Davidson should stay 100% in America, with the people that got you your success. I’ve done so much for you, and then this,” he tweeted. “Other companies are coming back where they belong! We won’t forget, and neither will your customers or your now very HAPPY competitors!"

But wait, there’s more overnight on Twitter: “Now that Harley-Davidson is moving part of its operation out of the U.S., my Administration is working with other motor cycle companies who want to move into the U.S. Harley customers are not happy with their move - sales are down 7% in 2017. The U.S. is where the action is!.” (CNBC)

This is getting very personal for a publicly-listed company that has a responsibility to their shareholders. And it might make them lesser patriots for this new age and very unique President.

Only in a real war would a President ask businesses to cop losses for patriotic reasons. So we and the stock market wait with bated breath to see if this former casino-owning President is playing a form of bluff poker with his trade rivals. I hope, so given the impact it could have on stocks, if a volley of trade sanctions/ tariffs kick off on Friday.

I said on 2GB yesterday and on my Mad About Money video on this website, that Friday could be a ‘fry-day’ for stocks if this trade war actually kicks off, with Trump-style madness and Chinese and European revenge dictating how serious it gets.

I’m not looking forward to this, as it comes as our stock market has had a nice run higher.

Recently we’ve seen 10-year highs for our stock market with the month of June delivering a 3% gain to bring annual gain, including dividends, to 13%, while the capital gain was 8.3%. So that 3% rise in June has been really important to the overall rise in stock prices and our portfolio of stocks’ values and the balances of our super funds.

Now all this is at risk because of Trump’s trade war which could, as I say, start on Friday.

Now, I’m not saying that the Europeans and Chinese have been playing with a straight bat when it comes to protection measures but the Trump method of nuking his rivals is not only questionable international negotiating tactics, it can have serious impacts on our wealth.

And as a country, we derive a lot of our wealth from a global market dominated by free trade arrangements. These tit-for-tat trade taunts, tirades and then tariffs don’t augur well for our economy.

I’m hoping that Donald pulls off a win of Kim Jong-un proportions but somehow that could be even stretching my usually very optimistic take on most things!

The US dollar has a nice little line that reads “In God we trust”. God’s intervention could be required if this trade war really starts on Friday.

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