FYI | Oct 23 2013
By Peter Switzer, Switzer Super Report
For all my subscribers who are getting worried about the soundness of Australian banks, well, I make one recommendation, and I do this with a heavy heart — stop reading the Australian Financial Review!
Don’t get me wrong, I read this respected newspaper but I’m qualified to cope with its broad range of offerings. As I’ve been a newspaper writer since 1985, a former academic economist, a financial adviser and a student of the best investors who’ve ever lived, I know I can cope with some of the scary pieces the AFR has been putting out, since the election.
On the weekend, my old friend Christopher Joye wrote a piece citing some unknown Aussie financial genius, who has managed billions in the USA for years, and who doesn’t like the vulnerability of our banks. The really smart Christopher (who must be going through a mid-life crisis), seems to be surrendering his entrepreneurial past to his new passion of being the lead writer or scaremonger for the AFR. And he is really embracing the new task like a method actor of Russell Crowe proportions!
If anyone can remember a good-news story he has written, would you please remind me! He is warning about everything from a housing bubble to CIA conspiracies and, if you believed everything he has railed against, you’d simply go to term deposits.
The banks aren’t bad
On the weekend I bumped into CBA’s boss Ian Narev who said he noted the story but added “I didn’t agree with it.” Now remember Ian is the guy who the ultimate invested-bank-buck stops with, but you could argue that he would say that wouldn’t he?
Well there’s also Charlie Aitken’s view and this is what he said only this morning in his Ringing The Bell note: “The Australian Banks will give investors clear evidence why their money should be in bank equities not bank deposits. The pending bank full-year reporting and dividend season is going to be a cracker. That is obviously important for a wide variety of reasons.
“Fully franked dividend growth alongside the risk of special dividends is going to be the key. These bank boards are fully aware what their shareholder army wants and they will feed them it again.
“The Australia Bank reporting season has every chance of being the catalyst that drives the ASX200 into a new higher trading range.”
And if you think Charlie is an excitable broker, then there’s a very cautious guy called Glenn Stevens of the RBA, who would be giving Joe Hockey, our new Treasurer, a first up warning, if he thought there was an inherent problem with our banks.
Better value elsewhere?
Adding more support to my view was Tanya Branwhite, head of equities strategy at Macquarie Bank, who actually is not recommending bank stocks now. I was doing a speech with her recently and it prompted me to ask why?
She said that she did not have any reservations about the banks themselves but that she thought other investments had better upside and I think she is right.
That said, for safe investors looking for yield with a bit of capital gain, the banks are still a good play.
Of course, the banks one day will slide when the next crash comes along, and they do happen nearly every decade, and that’s when wise investors buy these good, no great companies, at very good prices.
The local fella-come-fund manager whiz that Christopher glowingly reported about is Matthew McLennan of First Eagle Investment Management, who told us what he looks for in companies he wants to invest in. “We love businesses that have been around for a long time. Businesses that have things that ought to make them persist — relative scale advantages, customer captivity and so forth. We are mindful that a business that can take market share quickly, can lose it quickly. So we look for evidence of historic durability in a company’s market position.”
I don’t know about you but that sounds like a pretty good description of the big four banks to me!
(By the way, McLennan thinks Joe Hockey is too complacent about a housing bubble, so this is another testing point we will be able to assess him on. I hope he is wrong but if he is right, I will remind you. I will remind you if he is wrong as well! This is the upside and the downside of the commentary game!
Peter Switzer is the founder and publisher of the Switzer Super Report, a newsletter and website that offers advice, information and education to help you grow your DIY super.
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