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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

Are Donald, the Italians and this Royal Commission blowing away your future wealth?

Friday, May 25, 2018

No wonder my hairline isn’t as strong as it once was, with Donald ‘the human headwind’ Trump, the Club Med countries and the Royal Commission all making wealth-building damn difficult!

Let me break with my usual positive pattern to outline why stocks will find it hard to rise today and why the Donald, those infantile Italians and bad behaving banks could make me look a little crazy by year’s end. This odd collection of financial forces could easily determine whether our stock portfolios and super fund balances go up or down from here.

Before explaining why, let me confess that earlier this year, before Donald started tweeting about tariffs and trade wars, the combination of US and Australian company earnings’ outlooks, along with both economic outlooks, all pointed to a good year for stocks. I boldly said that I wouldn’t be surprised if the S&P/ASX 200 Index (which tracks the stock market performance of our top 200 listed companies) hit the 7000 level.

We started the year at 6061. On 1 May we got to 6135. And today we kick off at 6037. So if my big 7000 call ends up being right, our stock market could go up 15% (throw in dividends and we’ll be 20% richer).

However, as I told my Switzer Report subscribers on Monday, because of Donald’s odd international negotiating tactics and his associated tweeting, the stock market has had difficulty fighting gravity.

If he could go back to his “I love Xi Jinping and Kim Jong-un is a good guy” position of a couple of weeks ago, and the US economic and company earnings story remains as it currently looks, then Wall Street should track higher, the Aussie dollar should slip lower and our earnings and economic stories should help our stock market track higher.

To thicken the plot, let me share with you a surprise that made me revisit my 7000 call. A couple of weeks ago on my Sky News Business TV show (Money Talks on Monday nights), I admitted to two of my expert guests that I thought I’d be happy if we got to 6700, given all the odd geopolitical challenges out there for stocks.

To my surprise, Gary Stone from Share Wealth Systems, who bases a lot of his stock calls on what charts say, told me not to give up on my 7000 speculation for year’s end. He reckoned the charts say positive things about our stocks going forward.

And then he was quickly supported by CMC Market’s chief equity strategist, Michael McCarthy, who said the market fundamentals are on the improve, so he advised me to keep the faith with my big call.

My colleague, Paul Rickard, who started a little business called CommSec and who has been labelled Stockbroker of the Year in a earlier life, said to me “courageous call, Minister” when I first uttered the words “seven thousand”. Paul reiterated his view after I went public with my story (that experts say I should stick with the 7000 number).

But then Donald breaks up with his new buddies and today he has called off the North Korea Summit in Singapore and Wall Street sold off. Thank you Donald.

And to make matters worse, we have these infantile Italians who have voted in a crazy coalition government and the bond market has done an Al Capone (“somebody messes with me, I’m gonna mess with him”) reaction.

Italian bonds have become as popular as Donald Trump in North Korea, Iran, Syria and (after the Stormy Daniels affair) in his own house that he shares with Melania!

Melania has to be the modern day Job, given the Trump trials and tribulations she would’ve endured living with this “wild and crazy guy”, as the actor Steve Martin might describe him.

Back to the Italians, and today’s headlines bring us back to Grexit, which was happening around this time three years ago. And with talk of a possible Itexit, Italian bond yields are spiking and CNBC is running with this story this morning: Spain’s economy minister says he’s not concerned about contagion!

Yep, bond market contagion talk is resurfacing. We saw it when Greece was talking Eurozone exits in 2015. And there’s new talk about it right now, coming with Italians showing interest in an EU-exit!

And poor old Spain is being judged guilty by its Club Med economy tag, which is an insult reserved for the Latin-based countries of Italy, Greece and Spain.

Right now, Spanish bond yields reflect a more sensible country but there are exit-type political forces there, so bond market experts are watching our Spanish amigos very carefully.

As CNBC explained: “The Italian bond market has recorded one of its worst weeks since the euro zone crisis, with the 10-year yield more than 50 basis points higher in the last week of trading.

“The difference between Italian and Spanish 10-year bond yields is now at 100 basis points, the widest it has been since 2012.”

Rising bond yields can choke of the impressive European economic recovery and it underlines how geopolitical problems can hurt economies and stock markets and then our super.

On that subject, when you add the human headwind of Donald Trump to the infantile Italian voter and we throw in our Royal Commission, which has crucified our financial stocks, the performance of our stock market has been pretty good.

I think it says that the market wants to go up but Donald, Italy and the Commission are not making it easy.

My 7000 call (and your super) needs Donald to start loving the Chinese and North Korean leaders again. It needs the Italians to stop worrying the bond market and the Royal Commission to eventually wind up. When all these happen, that precious 7000 level might be a chance.

 

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When an economist meets a journalist...

Thursday, May 24, 2018

 

When economists are let loose on the media, the impact can be as scary as being caught living on Elm Street with Freddy Krueger as your neighbour! This bizarre thought came to me after reading an account of our Reserve Bank boss, Dr Phil Lowe, warning about the risks that China brings.

Now before I show the potential worrying/nightmare fiction that an economist plus a journalist could create, take in this headline and contemplate how much it worries you. Here it goes, “Chinese debt a major risk to Australia, says RBA governor Philip Lowe.”

This might not worry you unduly but if China went to hell in a hand basket with its growth tumbling as a consequence of a huge debt pile problem, which KO’d its financial system, you’d find it hard to be optimistic.

It could trigger a rerun of the GFC, remembering that the US Government relies on Chinese funding to the tune of $US1.18 trillion. That’s 19% of the $US6.29 trillion it has on its national credit card bill. If China’s economy found itself in trouble, it could take money home and interest rates would rise. As big borrowers overseas, that wouldn’t be great news for us.

Also, Chinese economic growth, which has been near 7% in past years, creates great demand for our exports, so BHP’s wonderful rebound of its share price is directly linked to this economic activity.

Companies such as Treasury Wine Estates, Blackmores and our nation of farmers simply don’t want to contemplate China’s growth being a “major risk”, as the worrying headline warns.

And remember, China is our most important export customer. As The Age’s Peter Martin pointed out recently, “Chinese tourists accounted for one quarter of all the tourist dollars spent in Australia, and Chinese students for one third of all education exports. Service exports to China exceeded those to the United States and Britain combined.”

So let me give you the crux of the story, as it was told by Dr Phil.

He’s worried about the build-up of debt and bad loans in China. In a speech to the Australia-China Relations Institute (ACRI) in Sydney on Wednesday, he pointed out that similar situations in the past have led to a slowdown in growth or to a financial crisis.

This is what he said, “Perhaps the single biggest risk to the Chinese economy at the moment lies in the financial sector and the big run-up in debt there over the past decade,” he told a forum on Wednesday night. “Among the largest economic risks that Australia faces is something going wrong in China.”

Since the GFC, when China rode to the rescue of Western capitalism, which was facing a possible Great Depression MkII, its debt to GDP has gone from 100% to 260%. That is worrying but it’s not as bad as other countries with huge debt problems because the Chinese borrow from themselves.

OK, let’s accept there’s reason not to be too complacent about China but buried lower in the story we’re told that “Dr Lowe agreed the scepticism and pessimism some people had about China had been “misplaced”, as authorities had managed to keep the economy on a reasonable growth trajectory and that he was confident they’d continue.” (The Age)

He even went further with, “They are addressing the vulnerabilities of the financial system before the problems actually arise.”

These are pretty damn important remarks from Dr Phil, who virtually has said, “China could be a major risk but its responsible policy-making is turning itself into a minor risk.”

Imagine truth in headlines, which could produce something like, “Chinese debt a MINOR risk to Australia, says RBA governor Philip Lowe.”

Freddy Krueger becomes Mary Poppins or maybe Inspector Gadget, because there are a few risks out there, but it’s nothing like A Nightmare on Elm Street.

Economists + journalists = be scared of what scary stories they can dream up!

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The 7 habits of highly effective investors

Wednesday, May 23, 2018

Let me introduce you to a guy who worked in a good finance sector job and was well paid. However, even this job never paid him enough to have an amount of $5 million in super to retire! He planned for this and invested his way to $5 million. And by the way, his average yield or dividend was around 10%, which was tax free when he retired!

Yeah sure, recent Budget changes to super mean he has to put $3.4 million into a super fund in accumulation mode, where he pays 15% tax. But he’s still laughing all the way ‘from’ the bank.

There were no bells or whistles with this investment plan. There was no extraordinary good luck. He simply had a clear goal and desired a comfortable retirement but did better than that. He believed in his plan and his job was to tell others about it. Importantly, he had the knowledge. Even more importantly, he put it all into action.

He planned to succeed and did just that!

Of course, my $5 million man wasn’t like everybody else. As the poet Robert Frost once told us: “Two roads diverged in a wood and I took the one less travelled by and that has made all the difference.”

I know this poetry bit shows a soft side of Switzer, but I’ve always tried to take the road less travelled. Because I did, I’ve made money and had a lot of fun too.

In this little story about the 7 Habits of Highly Effective Investors, I want to give you the benchmarks that you can compare yourself to, so you know what you have to change to be a damn good builder of wealth.

Habit 1

First, know what you want out of investing. Describe your goals. Write them down because if they’re just in your head, they’re not on the planet! Make sure you see them every day. Once you’ve described them (e.g. a nice home, a good car, a four-week holiday each year, kids maybe at private schools, a holiday home and to retire with enough in your super to give you a comfortable independent life), then quantify what you need to save and invest on a regular basis to make all this happen. You need to know the amount you can regularly earmark for investing, while realising there will be windfall events or chaos happenings that can derail your plans but, eventually, the agreed to plan will reassert itself. Some people might put a $1000 a quarter into stocks as a set plan, so they know from age 23 to age 65 they’ll save $172,000 over that time. And if they get a 6% return on average after tax, they’ll have $687,000 to add to their super fund nest egg.         

Habit 2

Second, a smart investor will use the most tax-effective structure to invest in. If someone invests inside a self-managed super fund, they’ll pay 15% tax on their investment returns. If they do it outside, they could be slugged 47%. The Medicare levy of 2% doesn’t apply to taxable income inside a super fund. Sure, you won’t be able to access this money inside a super fund until you retire but there’s the advantage of seeing your wealth grow via the magic of compound interest.

Habit 3

Given the above, a wise investor gets the best advice on investments and tax-related matters. For many years, most Australians thought negative gearing was something wrong with the clutch in their car! Because of this, they missed out on opportunities to hold assets that surged in value where the holding of these stocks and property was made easier via the taxman. Those on high incomes paying huge tax bills missed out on investment opportunities that could have had a big impact on their wealth.

Habit 4

Investors who don’t have the stomach for day-to-day trading (punting) need to recognise that they are long-term investors. They understand the need to identify quality companies or quality people who help them comprehend how to do that. Putting their longer view on investing together with their knowledge of what a quality company/asset means, they can follow the advice of Warren Buffett who has advised: “Be fearful when others are greedy. Be greedy when others are fearful.”

You become an ‘outside the square’ investor because you buy when others are selling. You’re unique because you really know what constitutes a quality asset.

Habit 5

You develop an investment strategy that suits who you are when it comes to risk. This strategy has to be linked to your goals — there can’t be a disconnect or your dreams will never come true, unless it’s by luck. When young people ask me for guidance, I suggest being fully invested in stocks. It is sensible because there’ll be many ups and down in their lifetime but the upward trend of stocks is persistent over time.

Habit 6

Investing isn’t punting — it’s investing in assets that you hope will rise in value and probably pay you income. A quality share that rises in value and pays income or dividends can be like a quality investment property that rises in value over time and pays income or rent. You must dedicate yourself to become an expert on investing so you know the difference between speculation (punting) and putting your money to work into a quality share/business that will help you grow your wealth. It’s an attitude thing where you progress over time from being an amateur investor to eventually becoming a professional, albeit an unpaid one! Investing and wealth-building is an aspirational activity and you have to be up for self-improvement and be committed to learn about all the stuff that a pro knows. It means you need to understand risk, diversification, reweighting your portfolio, dollar-cost averaging and so on.

Habit 7

The seventh habit is encapsulated in this story of my $5 million mate. Let’s call him Jack. From a young age he decided he would buy quality dividend-payers, as he believed the history of the stock market that tells us that something like an ETF for our top 200 stocks (such as IOZ or STM) returns 10% per annum over a 10-year period, where half of that return comes from dividends.

So here is his investment strategy in a nutshell:

  • He believed the market history that says stock markets go up eight out of 10 years on average.
  • He bought quality dividend stocks or ETFs that give him his exposure to both capital gain and income.
  • He invested on a regular basis, say quarterly, and stuck to his guns in downturns and upturns in the market. In fact, he says some of his best buys were in the depths of market crashes and recessions. For example, he bought CBA during the GFC crash of 2008 for $27!
  • He worked on the idea that his portfolio of assets should return 10% p.a. but when he had a good year, where say his stocks were up 15%, he banked the 5% and built up a cash reserve (a buffer), which was to be used for when he retired. So if ever his dividend returns were less than what he needed for living, he could take from the buffer. It was set at $200,000 and when that exceeded this balance, he re-invested into his favourite stocks or ETFs. This process meant that he would never have to see his capital base reduced by his withdrawals.
  • While he knew the market could hurt his capital base, he also knew that share prices fall a lot faster and further than dividends, so his buffer helped him preserve his capital. He knew eventually the market would rebound and his capital would grow to a higher level than it was before the crash. Re-look at my chart above if you need proof.

Of course, there are many different investment strategies out there but this is one that was designed to suit my mate, given his appetite for risk and given his preference of income over capital gain. The irony is that both forms of rewards from investing in stocks have conspired together to give him a very rewarding return.

Here are 7 Habits of Highly Effective Investors in a nutshell:

  1. Know what you want out of investing
  2. Use the most tax effective structure to invest
  3. Access experts – pay for investment and tax advice
  4. Invest for the long term
  5. Have an investment strategy that matches your risk appetite and is linked to your goals
  6. Get into self improvement – be committed to learn
  7. Have a buffer for a “rainy day” or for the unexpected

 

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The Turnbull Government is failing marketing 101

Tuesday, May 22, 2018

 

Malcolm Turnbull and his team certainly need a “Come to Jesus” moment. I don’t know, however, if their hubris (an infliction that most politicians lured to Canberra suffer from) can be overcome.

Their misguided self-belief is so problematic, they don’t even know how to sell what they’ve got going for them. How do I know they have a marketing problem?

Well, appearing on the Beattie and Newman show on Sky News last night, the excessively politically savvy Graham Richardson was filling as host. As the co-hosts wanted to talk about super changes and the Royal Commission, I mentioned that I think we need a consumer claims tribunal, funded by the financial sector. Consumers could then take bad behaving finance businesses to a mediator, with no lawyers involved and their case could be heard, decisions made and penalties imposed.

The best way to change a financial institution’s behaviour is to show them that an objective Aussie, called a mediator, is appalled by their actions. Eventually, the continued losses in the tribunal, say from charging dead people fees, would mean they’d have to change their behaviour.

I’ve written about this before on this website and by chance I bumped into the Treasurer, Scott Morrison, in Melbourne airport and told him of my idea.

Scott surprised me when he said they have set up AFCA (the Australian Financial Complaints Authority). I had to confess I’d never heard of it! With Scott being an old economics student of mine in my UNSW days, I couldn’t help but say: “Mate, you need to improve your marketing because I’ve never heard of AFCA.”

I followed up by inquiring about AFCA with a government operative, who passed on my details to people in Kelly O’Dwyer’s office. No one has contacted me so far to explain about AFCA.

But this isn’t just an “ignore Switzer” thing, as the host of The Outsiders, Ross Cameron (an ex-Liberal MP) told me last night at Sky that he’d never heard of AFCA! And it gets worse when Richo and Campbell Newman both said they’d never heard of it either!

Richo was flabbergasted. He watches politics daily. He said he was going to Google it in the ad break!

The Royal Commission’s revelations haven’t been good for the Government as they weren’t keen on the idea but coming up with a good solution like AFCA (you’d think) would be something they’d want to market.

The sad news out of Canberra today is that Senator Pauline Hansen and her One Nation party have back-flipped and now won’t support the Government’s company tax plan.

This reliance on the weird and wild Senate that features unusual Australians like Pauline and Derryn Hinch (we used to have Jacqui Lambie before the foreigner detection witch hunt got rid of her) has made political achievement hard for the Coalition.

Senator Hansen was opposed to the cut in company tax from 30% to 25% but changed her mind when the Government said they would introduce a $60 million apprenticeship plan.

She said the failure of the Government to get the tax through and the fact that the people don’t support it were the reasons for her change of heart! She probably thinks tax cuts for banks won’t pass the voter sniff test (a line Labor has been running with) so it’s not a smart one to support.

While Pauline has her reasons for being a welcher, the Government’s failures mean it looks likely we could see a future PM called Bill Shorten, despite his plans to shorten super pay-offs for retirees (pun intended) and to make life harder for property investors.

With Bill, it will be hard to do well with super, with the banning of tax refunds for retirees. And if you want to get rents from investment properties outside of super, there’ll be ‘wealth-killing police’ stopping you, as Bill will kill negative gearing.

Malcolm and his team have done well selling the Budget but they need to get their tax plan through Parliament. They have to not only market to us but also to the likes of Pauline.

I’ve noticed the Government’s marketing failures on many occasions but the missed opportunity was when Bill promised to take tax refunds off retirees. That’s when the Government could have reminded retirees that their beloved grown up, voting children needed to know if Bill gets his way, their inheritance will be shrunk.

I worked out that response when a worried retiree at a conference publicly asked me what they could do?

I said, “Get political and market your concerns to the people who love you and the future wealth you’ll leave them!”

This is marketing 101.

 

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If we were all smarter about money maybe we wouldn't need a Royal Commission

Monday, May 21, 2018

What you’re about to read has been inspired by a scene from the TV show Silicon Valley, where a painful, very successful IT executive described himself as “ridiculously candid” and tried to rescue people described as “ruinously empathetic” from themselves.

With the Royal Commission due to restart its finger pointing today to expose bad business loan practices, I though I’d be “ridiculously candid” and blame the real enemies of our bank accounts and wealth in the financial sector.

My favourite money cartoon has always been a Larson one, where he depicted a dinner party with a whole lot of bored dogs and cats with their heads on their hands, as if contemplating sleep. The caption said: “Everyone was having a great time until Sally brought up the subject of superannuation!”

Money and what you can do with it is really exciting. Why is it that we really find it so boring that we endure Test cricket, play golf or watch The English Patient?

There’s something wrong with us Aussies. I know that because I bet most of us spent more time watching Meghan and Harry over the weekend than thinking about our money, our wealth, our future and the future of the people we love, who might have a better life if we were money smarter.

As you can see, I’m trying to guilt-trip you into being grown up about your money. Please stick with me because I am trying to rescue you from yourself!

The motivation for this story (one designed with you in mind) came up when I was talking to a friend about getting the best home loan interest rates. I’ve explained this idea about advertised interest rates and comparison rates at least five times before to him over the last 20 years.

The reason why we were talking about interest rates over a Sunday breakfast was because I had a crazy email during the week, where a radio listener thanked me for my ‘advice’. She’d called my radio program and asked for some advice about her loan.

I told her to find out from her bank what her advertised rate of interest was and the comparison rate, which throws in fees and other charges. When she knew what she was really paying, I said she should ring Adrian, who works for my Switzer Home Loans, where our rates are generally at the lower end, especially on a comparison rate basis.

She did that and Adrian offered her one of our low rates. Then she did what I recommended (stupidly, yet honestly). She went back to her bank to see if they’d match it. And yep, they did and she accepted it!

That was a win, win, loss outcome. The caller won. The bank won. But I lost out.

Being an accommodating type, I was happy that my caller got a good bottom line outcome, though I would’ve liked it if she had gone with us. My friend then asked, “I wonder why she didn’t go with you rather than the lender that had been overcharging her for years, until you showed her the way?”

Fairfax media has run a story on why we don’t easily switch our loans to get the best deal.

A CoreData survey of 1,500 mortgage holders suggests about one in two suspect they're not getting a good deal on their home loan but won’t switch because of laziness, loyalty to their lender or the fear of someone looking at their finances,” the press release tells us.

The first two reasons (laziness and misplaced loyalty) didn’t surprise me but the fear of being exposed as a money moron or mistake maker is an understandable concern.

That said, it has been one of my greatest life discoveries that the best intrusion into our lives is when someone does an objective test on you and then honestly shares its insights. Doctors advising you that your lifestyle will kill you, accountants telling business owners they’ll go broke unless things change and teachers warning you that your kid is going off the rails at school are all big motivations to change the way you do things.

I’ve always loved Jim Rohn’s take on self-improvement and success. He counselled that “just about everything we want in life is just outside our comfort zone.”

You have to get uncomfortable to make progress but it also helps if you have good knowledge. Even well meaning journalists can leave some important info out.

In the story about why we don’t switch loans, the very low rate of Easy Street Home Loans at 3.39% was featured. When I checked out the comparison rate for this loan, I found it was 4.13%. This means with fees, the loan is actually dearer. If someone compared it to the Switzer Home Loan at 3.89% (for both advertised and comparison rates because there are no added fees), then they’d know the true story on which loan has the lowest rate.

A couple of weeks ago I went to one of the loan comparison websites as I was writing a piece on whether it was time to fix. I found the lowest advertised rate in the market for three-year fixed, which looked good. But when I checked out the comparison rate, our loan was actually the lowest!

That even shocked me, so the lesson is always this: ask what the comparison rate is for the amount you’re borrowing. Lenders do show the comparison rate with their ads (they have to by law) but most people don't know what it means.

There is a fine print explanation on ads but most people don’t read it. It says the comparison rate is worked out on a given size of loan but when you borrow, you should ask the lender what the comparison rate is for your size of loan.

I’ve blown up the fine print explanation about the comparison rate, so you’ll partly know what you are getting into when you borrow. This is a typical example: “The comparison rate is based on a secured loan of $150,000 and a term of 25 years. WARNING: The comparison rate applies only to the example given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees and cost savings such as fee waivers are not included in the comparison rate but may influence the cost of the loan.”

After reading the above and my story today, I hope you can motivate yourself to do the best you can to give yourself the best possible deal available.

Let’s face it, if you’re prepared to rip yourself off by being lazy, loyal or afraid of showing someone the truth about your money madness, then how can you be so damning of the banks? Many Aussies have been accessories before the fact to financial felonies!

 

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Whinging about wages is unfair, unwise, uneconomic, untimely and un-historical!

Friday, May 18, 2018

A day after seeing some more good news on the jobs front, where employment was up more than expected in April, hours worked rose by the biggest amount in 18 years and the participation rate rose, one media outlet complained that wages have risen at the second slowest rate in two decades!

I don’t mind economic revelations that are negative but it would be fair to the Government, employers, consumers (who want to feel economically safe in their jobs) and Australians generally (who want to think the economy they depend on is getting better), that media outlets keep it balanced.

I think whinging about wage rises is unbalanced, unfair, unwise, uneconomic, untimely and un-historical.

It’s unbalanced because we’ve been lucky to avoid a recession for close on 27 years. We dodged the GFC with unemployment not topping 6%, where most Western economies saw the jobless rate go sky high and respected economists like Deloitte’s Chris Richardson are tipping 2018 to be the year that wages start lifting.

Unwise because unnecessarily complaining about slow wage rises ignores the need to get consumer confidence up and to keep business confidence rising.

The NAB business conditions index rose to a record high +21.1 points in April, up from an upwardly-revised +15.4 points in March (previously +14.1 points). Meanwhile, the business confidence index rose to +10.1 points in April from an upwardly-revised 8.0 points in March (previously +7.4 points).

And following the Budget, the weekly ANZ/Roy Morgan consumer confidence rating rose by 1% to a 14-week high of 120.8. Confidence is up by 9.3% over the year and above the average of 113.6 since 2014.

The economy is clearly turning confidence-wise, so keeping it positive seems like a sensible strategy. Until last September, pessimistic consumers outnumbered positive ones, as the chart below shows.

The next chart shows how business confidence has trended up but how crushed it was because of the GFC in 2008.

The charts below paint more than a thousand words. Note how the annual change in pay per hour is high when interest rates are big and scary for those in debt.

As the GFC was waiting to strike in 2008, the cash rate was over 6%, so home loan interest rates would’ve been 8-9% but pay rates were rising by just over 4% per annum.

The current wage rate rise is around 2% but home loan interest rates are more like 4%. I reckon a large number of Aussies would prefer today’s mix of wage and interest rates than the mix that history shows predated the GFC!

I think history also shows that interest rates and inflation have hardly ever been as low, so 2.1% payrises with inflation at 1.9% actually means real wages are rising.

It’s cute to try and imply that employers are being stingy with workers and some in some sectors that might be the case but look at what’s going on now:

  • The financial sector is being bashed by the Royal Commission, APRA, the Government, a slow economy and a slowing housing sector.
  • Retail is being smashed by a cautious consumer, the likes of Amazon and other online, overseas and local rivals.
  • The mining sector is coming back but it fell into a hole only 18 months ago.
  • The building sector is coming off the boil but at least infrastructure investment is on the rise.
  • Governments are being told to get into surplus and cut spending.
  • And digital disruption and globalization is making price rises in good, old fashioned businesses that have historically employed people, really damn hard.

Just think that workers in The Phillipines and India are now directly competing with businesses and employees in areas such as bookkeeping, computer support, website building and servicing and so on, which makes payrises harder to give for many businesses.

I doubt we’ll ever see payrises like we used to in the 1980s but I could be wrong, especially if nationalism worldwide gives into Trump-like tariff policies. In the short-term, it will help wage rises but it will result in inflation, spiking interest rates and then a recession.

The Great Depression was partly caused by the Smoot-Hawley tariff of 1930, and since that huge economic slump, tariffs have been gradually crushed worldwide and the global economy has grown like topsy ever since.

Be careful what you whinge about.

 

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Forget Princess Meghan... Is your economic life going to be a fairy tale?

Thursday, May 17, 2018

Forget a future Princess Meghan and her pesky Dad, let’s concentrate on important stuff — our economy and your economic future!

Among all the day-to-day news, which gets dominated by ‘what ifs?’ (such as what would a future Labor Treasurer Chris Bowen do to your life?, which I do reckon is more important than Megan and Harry), there is important stuff, like today’s unemployment numbers.

Out this morning, this news is an important piece in the economic puzzle that depicts how our collective material life is heading. In case you’re missing it (undoubtedly distracted by important stuff such as Megan’s Dad’s pre-wedding heart attack and will he or won’t he show up? And, even more importantly, who will walk the princess to be down the aisle?), these job numbers are big news.

Even forgetting the importance of our fellow Australians finding work (20,000 is the expectation for April), the growth of employment and the actual unemployment rate has a big bearing on the Reserve Bank’s view on interest rates and when they will rise.

At the moment, the consensus of economists remains positive on our economy but not wildly so. The Reserve Bank and Treasury see 2018-19 being a 3% or so growth year but my perception of what I’m hearing from the economists I‘ve interviewed and have read, the feeling 2.5% to 2.75% growth is more their collective guess.

This has meant a huge number of economists think interest rates won’t move in 2018. Some are even speculating that the next move in rates by the RBA will be down!

I don’t agree because I argue our economy is improving, albeit too slowly. Let me give you a quick catch up on what’s going on in your beloved economy:

  • The housing sector is slowing down, with house prices slipping after a boom run.
  • The mining sector is on a surge higher.
  • Infrastructure spending is going to be a great job and growth creator.
  • The consumer isn’t going mad with purchasing but, since September last year, optimists have outnumbered pessimists.
  • Business conditions are at a record high and business confidence is way over its long-term average.
  • Wages are rising but not as fast as economists would like and real people aren’t happy either.
  • The Budget has had a positive impact on the economy, with the weekly ANZ/Roy Morgan consumer confidence rating rising by 1% to a 14-week high of 120.8. And confidence is up by 9.3% over the year and above the average of 113.6 since 2014.
  • The dollar is falling, which helps economic growth and the stock market, which is getting into decade high territory.

The greatest story of the past year was the spectacular creation of jobs in Australia (431,000 for the 12 months to January). However the job creation since February has been less than spectacular, which kind of makes sense, given the huge job making in 2017.

However, we need a nice, positive number today to tell us that the labour market is tightening enough to help us believe that better wage rises are happening this year.

If we see this occur and the dollar keeps trending lower and Donald Trump doesn’t tweet us into trade troubles and Kim Jong-un fear and loathing, we could have a story bigger than Megan and Harry.

If we get the above, then 2018 will bring more jobs, higher wages, a stronger stock market, healthier super balances, a lower Budget Deficit (as company tax dollars roll into Canberra) and maybe even a more popular Turnbull Government, which in itself would be good for confidence and our economic future.

I hope I haven’t just told you a fairy tale and today’s job numbers could be the test!

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The questions you must answer to be richer, smarter and more successful!

Wednesday, May 16, 2018

It has been a week since we were Budget-exposed to what our Government would do for us to make us richer via tax cuts. But relying on a JFK line, with a twist, maybe it’s time you asked what can you do for you?

If you want to get richer, build a better a business or secure a promotion at work, there are crucial questions you need to answer. Let me help you know those questions.

Over the years I’ve interviewed some of the most impressive Australians from Prime Ministers like John Howard and Bob Hawke to legendary sportsmen like Herb Elliott and women like winter gold medalist Alisa Camplin to some of the greatest business brains of all-time.

I suspect Richard Branson and GE’s famous CEO, Jack Welch pass that sniff test. And while I was asking the questions, my brush with the greats of high achievement taught me that these people are always asking the hard questions of themselves. Answering them gave them their edge.

Life coach Tony Robbins believes in the power of asking the right questions. He has pointed out that: “Quality questions create a quality life. Successful people ask better questions, and as a result, they get better answers.” 

The one question that has always struck me as the best any young person could be asked was directed at a young John Maxwell, who went on to become one of the great leadership thinkers of the world. He came here earlier this year but his best-selling books such as The 21 Irrefutable Laws of Leadership are worth getting your hands on, if you think you’d like to be a winner.

John said when he was at college he had a mentor and that brings me to my first question that will give you an edge:

Do I need a mentor or a coach?

The answer is yes, definitely yes. Lots of famous achievers say they owe a lot to having an objective set of eyes in their lives.

John’s mentor asked him my favourite question, which every human being alive should be asked:

“What’s your plan for self-improvement?”

One of the standout characteristics of the ‘standout from the crowd’ performers was their commitment to making themselves better. The most unlikely people have admitted to doing things like meditation and also indicated that they were influenced to get into it by people they respect, who also meditated.

Gerry Harvey reads biographies, while Mark Bouris does boxing to keep himself fit and ultra-alpha competitive.

On the subject of being competitive, Edward DeBono asked:

“Do you think laterally or outside the square?”

He argues the best competitors will size up their opponents and ask: Do I have the tools for an edge? This might mean technology, better trained people, brilliant contractors, efficient processes and a better understanding of what customers want. I’ve argued many times in my writings that Steve Jobs had a fanatical commitment to what his customers wanted but it was his determination to know what they want that explains the brilliance and success of Apple products.

I can’t recall who introduced me to SWOT because so many high achievers have admitted to doing them but a crucial question for anyone trying to build a business or a personal brand is:

What are my Strengths, Weaknesses, Opportunities and Threats?

Great business plans are based on these honest questions, which, if answered objectively, give you the blueprint for a ball-breaking business plan. John Maxwell says you don’t have to become good at what you are weak at but you should make your weaknesses irrelevant by recruiting people who are strong where you’re weak. As Marcus Buckingham, the author of Go Put Your Strengths to Work, would advise: “operate in your strength zone.”

Undoubtedly, thinking about and writing down your SWOT is a great way to see where your opportunities for victories will come from and what you must do to beat threats and weaknesses.

Our legendary chef, Neil Perry, was a SWOT guy when he was building his business and big brand.

So being objective about what we do and how people respond to it brings me to the great sales and marketing question that runs like this:

“Why should anyone buy from me?”

This question ultimately defines what you’re selling. Everyone is in selling — from financial planners to retail assistants to schoolteachers to politicians and even a sporting team. The great teams attract big crowds because the people showing up like what the team is selling — success, thrills and positive reinforcement.

Australian sales coach Marty Grunstein argues that our marketing messages can say any words we like but they must answer the buyer’s crucial question: “Why should I buy from you?” And that’s why the greatest unique selling propositions (USP) will do exactly that.

FedEx Corporation proves my point, with their now famous unique USP: “When it absolutely, positively has to be there overnight.”

Again with DeBeers their USP “A diamond is forever” has become legend, while David Jones nailed it with: “There’s no other store like David Jones.”

One surprising revelation from my inquiries into great people is that they often ask a question that only helps them indirectly. It goes like:

"Who can I help or bring on?”

The great leaders not only achieve for themselves but help others achieve. The great coaches take good players and turn them into exceptional players. That becomes the pay off — better people producing better results!

I haven’t seen a great business that didn’t have great people brought on by the leader and his or her leadership team.

Obviously the piece I’m writing and your reading today aims to inspire you to re-evaluate what you’re doing in your business and/or your life, with the aim of prompting you to do things differently to get better results.

And so a crucial question has to be:

“Who can help me get my competitive advantage?”

With all endeavours, you have to ask: What do I want? What is the price? And am I willing to pay the price?

It could be dollars to secure an expert employee, a coach or a partner. Or it could be getting up early and running 20 kilometres a day to get fit beyond your wildest dreams.

So your ‘Mission Possible’ task is to keep asking questions. Try to make them better so you go looking for better answers, so day by day, you become smarter, stronger and more competitive.

John Maxwell wisely counsels us that leadership doesn’t happen in a day but daily. Anyone determined to win or improve has to have a daily commitment to beating what Herb Elliott calls “the little voice” that talks us out of doing things that are hard.

The exceptional Robbins, who I’ve interviewed a couple of times, sums it up brilliantly with the following: “The quality of your life is not necessarily based on the quality of your circumstances, it’s based on your mental and emotional filters that determine your perception of the outside world.

“These filters have been shaped by a number of factors – your culture, your socioeconomic status, your race, your religion, your values, your experiences. And they influence the stories you tell yourself about who you are, what you’re capable of and what’s achievable or not.

“By rewiring the root of these filters, however, we can begin to change our habitual perception patterns. And one of the most effective ways of doing this is by asking ourselves better questions.”

Herein lies the starting point for anyone who wants to get better results for themselves or their team or family but you have to be willing to get into change. And if you can do it daily, you will get surprisingly great results!

And you won’t need a Federal Treasurer to give you tax cuts or anything else to make your life comfortable! Get asking and answering.

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Is your super in danger? Should you get out of the stock market now?

Tuesday, May 15, 2018

I’ve posed this question before but it’s so steeped in history that I have to keep pondering its relevance — should we sell our stocks in May and go away? It’s such an interesting issue that I pursued it on my TV show — Money Talks on the Sky Business Channel.

For those who run their own stocks portfolio, either outside of super or inside a self-managed super fund, the old piece of market advice could have a big bearing on how they invest.

I do know of people who have recognised that the months November to April have been largely positive for stocks, while the period May to October has been pretty ordinary. CMC’s Michael McCarthy said he has a colleague who has done the homework on the old adage that goes: “Sell in May and go away, come back on St. Legers Day.”

It’s clearly a British ditty, with St. Legers Day is around the end of summer holidays in the Northern Hemisphere.

The chart below shows how the advice has worked out in the past. The dark blue line covers May to October, while the pale blue line looks at November to April. What this chart shows is that the advice was wrong for the past five years but spot on over a 10-year period. It worked for 20 years, 50 years and for all-time, though I don’t know how far it goes back.

So it’s looks like a no brainer if you want to rely on history but markets and statistics can be deceptive.

Gary Stone, founder of Sharewealth Systems, also joined my show last night. He loves charts and this is what he found and revealed:

The dark blue line looks at what happens to $100,000 between 1982 and 2018, without dividends included, by simply playing the stock market based on the Index.

On this criteria, the history of the advice works out where you sold in May and bought back into the market in November. Being long stocks in November to April and then selling to go swimming between May and October, was a good and rewarding idea.

Using this strategy, your $100,000 goes to $1,064,312, while being invested over the worst period only would have seen your $100,000 go to $207,011.

It seems to be an open and shut case. But wait, there’s more.

Gary looked at what would happen if you just stayed invested and ignored the advice. The red line says it all!

Your $100,000 has become $2,354,061, making a very stong case that if you try and time the market, it often ends in more problems than it solves.

Academic work has regaulrly shown that time in the market works out better than trying to time the market, as you often miss the biggest days of rises that invariably show up without notice. And the very impact of a turnaround of sentiment can lead to huge days for stocks.

Some investors who miss these days then get in the next day, when smarties are taking profit. Or they delay getting in because they think they’ve missed the boat and the market goes on a seven-day run higher because sentiment has totally changed. Our stock market is close to a 10-year high at 6135 on the S&P/ASX 200 Index, so I asked Michael McCarthy what happens if it breaks through 6158? He believes we will run up substantially higher. Earlier this year, I thought we could see the 7000-level but that was before President Trump got tweeting on tariffs!

McCarthy and Stone think we have a good chance of tracking higher over the rest of this year and neither of them were in the business of bagging my big call.

They both seem comfortable supporting stocks for at least two years. In fact, both seemed to believe that not selling and running away for a longer period wouldn’t be a high risk play.

Gee, I hope they’re right!

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Is our economic recovery like that movie The English Patient — long and boring?

Monday, May 14, 2018

 

Is our economic recovery, like The English Patient, long and boring? And you can throw the stock market recovery into the same class, as I think they’re related. The related question is: should we complain about it?

Interestingly, the Government and the Prime Minister got a popularity bounce out of the Newspoll out today. In the better PM stakes, Malcolm Turnbull is up 8% to 46%, while Bill Shorten is down 3% to 32%. But on the two party preferred basis, Labor still leads 51%.

The economics of a tax cut in last Tuesday’s Budget has made the future lives of people earning around $90,000 a little more exciting, or less boring.

The expert number crunchers say some Aussies will be $665 better off because of Scott Morrison’s pre-election offerings, so it looks like money can work wonders on the boredom that has characterized our economy and stock market in recent years.

Right now, the economy is not producing pay rises that can excite consumers so consumption is not stimulating enough growth to beat the 3% growth rate that invariably creates a vibrant economic environment.

Interestingly, we have seen some characteristics of an exciting economy, with house prices booming in Sydney, Melbourne and Hobart. And last year we saw 431,000 jobs created after years of lackluster employment numbers. But wage rises remain an indictable failing, along with a buoyant stock market, which really has struggled since the GFC.

In case you missed it, we haven’t passed the old high of the stock market prior to the GFC market crash, which was around 6800 on the S&P/ASX 200 Index. The Yanks peaked around 1526 in 2007 but they’re now at 2272. The gain since the stock market rebounded there after the GFC has been around 184%! That’s an exciting stock market!

In comparison, our market has rebounded only about 82% (capital gain wise). That’s a boring stock market!

So why are we so boring? (In the movie The English Patient, which actually became the theme for a Seinfeld TV episode, one of the key characters, Elaine, walked out of a theatre showing the movie, screaming out, “It’s too long! I hate it!”)

So where has the excitement gone and why has it gone? The Financial Times’ John Authers thinks that even in the USA, they’re “fed up with capitalism.” He says CEOs caring about bottom lines, cost cutting and the like has meant that the free enterprise economy is losing fans.

He contrasts the great US reporting season (where earnings of the S&P 500 companies spiked 26% — that’s an exciting surge!) with the slow growth of wages at a paltry 2.6% on an average hourly rate basis.

US social surveys of young people show that the word “capitalism” is becoming despised and socialism has a nicer ring!

This was the revelation of pollster Frank Luntz, at the Milken Institute's global conference in Los Angeles recently. Companies making terrific profits but not sharing them with workers is creating anti-capitalists, which must make Bill Shorten happy, as he pieces his anti-big end of town policies for the next election.

The next election is going to be an interesting litmus test of how bored we are with the The English Patient economy, which drags on too long, without exciting bits like higher wages for employees, higher interest rates for savers and better stock prices for investors as well as retirees, who now have to link their day-to-day lifestyle to the share market!

The irony of lower wages is that it’s not just linked to greedy CEOs and business owners. The consumer worldwide has fallen in love with the Internet. They can buy stuff overseas so their market has broadened. The workers and the wages of India, China, Vietnam and so on are now competing with the workers and wages of developed economies.

Globalisation via the Internet means bookkeepers in Sydney compete with bookkeepers in India or The Phillipines. This is slowing up wage rises. Meanwhile, the likes of Amazon, which consumers love, makes it harder for Harvey Norman and JB Hi-Fi to offer big pay rises.

Similarly, as Airbnb takes customers away from hotels, these hospitality businesses see their profits fall, especially when comparison websites such as Trivago help drive room rates down.

It’s an exciting world for the consumer and third world employees but boring and even threatening for 1st world workers.

Capitalism gets the blame but we consumers are accessories before the fact. Our desire for low-priced stuff is creating slow wages growth. That’s why Scott Morrison had to come at tax cuts in the Budget as a peace offering before the next election.

One final point about our slow, boring economic recovery: — at least it delays the inevitable crash and recession. This has been a long recovery, starting in 2009. It has kept interest rates low. A quick recovery with exciting stock prices movements up and good wages growth brings faster growing interest rates, which then breeds market crashes and recessions.

And for those who have never lived through a recession, think The English Patient times three!

 

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