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The top of this cycle for ASX200, cash is king ?


kahuna1

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quantum mechanics and biochemistry are sciences and economics is not. If it was a science it would be taught in the ence department

 

The distinction lies between a scientific and non scientific approach to economics, hence the Nobel prize for Economic Science.

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Back on the theme of bloated Australian banks and soaring residential property prices. I have spoken on this before and there is no doubt Australia has become dangerously and heavily over-balanced towards its banking and property sectors. The Australian governmentÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s long run tax policies which favour and encourage massive mal-investment in property at the expense of all other productive endeavours in society will ultimately kill AustraliaÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s future. The warped dependence on bank yields by equity market investors and savers alike, together with the upwards property valuation spiral that the banks have created to meet their shareholders expectations is a recipe for financial disaster. The saddest thing for Australia is that there is no way out of the trap we have set for ourselves, as voters will never vote out the tax benefits that sit under their family homes or the absolutely ridiculous negative gearing free government money give away to people who have more money than sense.

 

I have put together a few numbers in the table below which show how bloated the banks in Australia have become. The bank market cap numbers in the table are valid as of last nightÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s share prices for those banks (on the markets on which they trade).

 

post-330300-1424410673_thumb.png

 

The US has a population 13.78 times larger than Australia, but its 4 largest banks only have combined market capitalisations 2.35 larger than AustraliaÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s 4 largest banks.

 

Every man woman and child in Australia is invested in Australian banks to the tune of US$15,280, in the US it is only US$2,601. The US is a power house of banking, with its tentacles reaching into almost every country in the world. Australian banks on the other hand are insular and feeding at the tits of the fat sow, which is the Australian property market, a market which the banks together with the government are now cultivating to its ruin.

 

I have also run the numbers for Sweden. It was too much work to put in other countries so I chose Sweden as it is another comparatively rich country. In fact measured on a GDP per capita basis it has practically the same GDP per capita as Australia, depending on whose numbers you use (the World Bank or the IMF).

 

http://en.wikipedia.org/wiki/List_of_count...PPP)_per_capita.

 

You might remember if youÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢ve read my previous posts on this subject, that from last yearsÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢ Bank of International Settlements report on residential property price statistics across the globe (dated 14 Sep 2014), Sweden and Australia were in a handful of advanced economies where very expensive house prices have not been affected by a major property devaluation event. Sweden in fact according to the charts in the BIS report has the 3rd most expensive house prices behind Norway and Australia. You can see in my table that SwedenÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s Big4 bank market cap per capita is just under that of Australia at US$14,448 and also disproportionately large compared to the US. I havenÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢t done it yet but IÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢m sure if you do the same exercise for Norway and the other countries where property bubbles havenÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢t burst, you will find the same. Conversely if you did the same for the countries whose bubbles have burst you would probably find that the Big4 bank market cap per capita number would be more in line with that of the US. If I was being paid to do this I would prove this to you further by going through and calculating this factor for a larger set of countries. Unfortunately this is only a blog and I canÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢t afford that time.

 

Trust me, Australia is in a dying breed of countries with bloated banks and overvalued property prices.

 

Eshmun

 

 

 

 

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Sorry handel if you want that comparison you'll have to crunch the numbers yourself. Doesn't it seem strange to you that CBA's market cap is approaching that of Citigroup, which was once the largest banking group in the world? If the AUD was back at parity with the US dollar CBA would almost be there.

 

Eshmun

 

 

 

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If you think our 4 largest banks can be compared to main street commercial banks in the US then I'm not comparing apples with apples.

 

The main street banks in the US during the GFC held about $2 trillion in residential mortgages and home equity lines of credit. These main street banks fared well in the GFC as their loans were held whole on their books and not sliced and diced into tradable securities and losses in these banks could be charged to loan loss reserves and written off over years in an orderly fashion.

 

What's more they were not susceptible to the market panic which saw Citigroup's share price fall from US$575 to US$15 (a fall of 97%), before the taxpayers were called to the party to stop the rot. It seems as if investors now a days have memories no better than goldfish, WARNING we just haven't got all the way around the fish bowl yet.

 

If you think CBA, ANZ, Westpac and NAB will behave like provincial down town US banks in the next financial crisis well good luck to you my friend.

 

Eshmun

 

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If you think our 4 largest banks can be compared to main street commercial banks in the US then I'm not comparing apples with apples.

 

The main street banks in the US during the GFC held about $2 trillion in residential mortgages and home equity lines of credit. These main street banks fared well in the GFC as their loans were held whole on their books and not sliced and diced into tradable securities and losses in these banks could be charged to loan loss reserves and written off over years in an orderly fashion.

 

What's more they were not susceptible to the market panic which saw Citigroup's share price fall from US$575 to US$15 (a fall of 97%), before the taxpayers were called to the party to stop the rot. It seems as if investors now a days have memories no better than goldfish, WARNING we just haven't got all the way around the fish bowl yet.

 

If you think CBA, ANZ, Westpac and NAB will behave like provincial down town US banks in the next financial crisis well good luck to you my friend.

 

Eshmun

 

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