Packer Calls the Top in Property


The first week of reporting season is coming to an end. So far it hasn’t been too bad…a few hits and a few misses. But yesterday’s miss from ANZ [ASX:ANZ] probably matters a bit more than most.

That’s because it gives an early insight into how the banks are faring as they move deep into an expansion cycle.

The big news was that ANZ announced a $3 billion capital raising at $30.95 per share. It also announced slightly weaker than expected profit growth and a 13% jump in bad debt charges to $877 million.

For years now the banks have reported lower and lower bad debt charges, which along with generally robust conditions have allowed them to post higher profits.

But if the cycle for bad debts has indeed turned, then it could be as good as it gets for the banks. Perhaps that’s why CEO Mike Smith surprised with the rights issue. He wanted to get in ahead of Westpac and the Commonwealth Bank (NAB has already tapped the market).

ANZ’s announcement sent investors running from the other banks. The ‘Australia’ proxy, Commonwealth Bank [ASX:CBA] dropped 3.2%. Investors are nervous about CBA’s own capital raising and its future profit growth.

The big question for bank investors though is whether the trend of ongoing profit growth has now changed? My guess is yes it has. But that’s just my opinion. Let’s see what the market thinks about CBA by looking at its chart.

A chart can be of crucial importance. I know many people who think chart reading is a load of bollocks. I used to be sceptical too. But when you think about it, a chart is simply a historical record of people’s opinions, analysis and valuation of a particular company.

It is also a record a human emotion, and for that reason chart patterns tend to repeat.

A chart tells you what people who are putting their hard earned cash on the line really think about a stock. In the parlance of old-school Wall Street, the ‘tape’ never lies.

I wouldn’t go so far as saying the charts never lie, but I would say that they give you a lot of useful information if you know how to look.

So let’s have a look at the chart of CBA and see what it’s ‘saying’. The blue and gold lines you see in the chart are called the moving averages. I’ll explain why they’re so useful some other time.

For now, note how CBA’s share price crashed in May and June, and then worked it’s way above the moving averages in late June and July. But then yesterday the stock fell decisively though the moving averages.


That tells me you’re going to see some near term weakness.

But that’s not a big deal. Stocks are volatile. So what.

Longer term investors should keep an eye on the June low, which is just below $80. If that level breaks, it will increase the probability that CBA may be heading into a longer term downtrend.

From there, the October 2014 low becomes very important. If, for whatever reason, that level goes, then something is obviously happening in the economy that is not good for the banks.

But that’s a hypothetical. Right now, the chart tells you not to panic. But keep your eye on the $78/79 level. If that goes, maybe panic a little bit, and lighten your holdings.

While it might seem hard to believe that CBA could actually fall below $80 and $70 per share, absolutely anything can happen in this market. So be prepared. Have a plan and be ready to act if you need to.

More importantly, never fall in love with a stock. A stock doesn’t know you own it, so it won’t take offence to you selling it. If the stock turns on you, dump it!

By ‘turns’ I mean changes trend. This is such an important thing to be mindful of in investment markets, yet very few people take any notice of it. Until last year, I didn’t either.

But I tell you what, taking note of trends has made a massive difference to my investing. I’ll tell you more about that next week.

For now, let’s stick with the banks.

What could make the sector go into a downtrend, or at least put a stop to the unrelenting bull market that’s been underway since mid-2012?

I know this is even HARDER to believe, and Daily Reckoning co-editor Callum Newman will be chuckling at my stupidity as he reads this, but what about an end to the Aussie housing boom as a reason to stop the banks in their tracks?

I know, it sounds far-fetched.

I’m not talking about a housing crash. I’m simply referring to a situation where mortgage demand drops right off at the same time that banks raise capital (and therefore have more shares on issue).

And if the bad debt cycle starts to pick up, then bank earnings will go backwards, dividend per share growth will be over, and share prices will fall.

For things to get really ugly though, you’d need to see the property market really fall over. That doesn’t look likely anytime soon, but in terms of symbolism, the record price fetched by the sale of James Packer’s Vaucluse house this week smells a bit toppy.

Chinese Australian billionaire Chau Chak Wing apparently paid a record price of $70 million for Packers’ pad. Crazy record prices generally happen at or close to the top. And Packer’s got some reasonable form. He sold out of his media assets at top dollar, just before the sector’s structural woes become apparent.

He did have a shocker by buying into the Ten Network in 2010 though, a horrendous investment by anyone’s standards. But overall his strategy of getting out of media and doubling up on gaming has been the right one.

Has he just picked the top of another market?


Greg Canavan+,

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Greg Canavan
Greg Canavan is the Managing Editor of The Daily Reckoning and is the foremost authority for retail investors on value investing in Australia. He is a former head of Australasian Research for an Australian asset-management group and has been a regular guest on CNBC, Sky Business’s The Perrett Report and Lateline Business. Greg is also the editor of Crisis & Opportunity, an investment publication designed to help investors profit from companies and stocks that are undervalued on the market. To follow Greg's financial world view more closely you can subscribe to The Daily Reckoning for free here. If you’re already a Daily Reckoning subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Daily Reckoning emails. For more on Greg go here.

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slewie the pi-rat
slewie the pi-rat
1 year 2 months ago
slewie’s ‘FLATION Report ~for US Thursday 8.6.15 ~US Dollars only US Dollar INDEX 97.8; -0.1 BLOOMBERG COMMODITY INDEX 90.4; -0.3; [-0.33%] DEflation, no Correlation. the BCI 13-year-low mark set Monday [8.3.15], of 90.3, was re-visited, today, just before the close was settled. on the USDX side of thingies, the 1-year chart gives a pretty good indication of the importance of the 98.0 level on the Index: the Republican “debate” is on the radio. repeal Dodd-Frank! repeal Obama-Care! i’ll institute a regressive Salex Tax to pay for Social Security AND Disability! *wild cheering* [cut short due to time constraints. short… Read more »
deToke deVille
deToke deVille
1 year 2 months ago
slewie missed the best part! [Paste, fr. transcript} FOX News Brett Baier (talking to Trump): Now, 15 years ago, you called yourself a liberal on health care. You were for a single-payer system, a Canadian-style system. Why were you for that then and why aren’t you for it now? TRUMP: As far as single payer, it works in Canada. It works incredibly well in Scotland. It could have worked in a different age, which is the age you’re talking about here. What I’d like to see is a private system without the artificial lines around every state. I have a… Read more »
Radio-Active Rat
Radio-Active Rat
1 year 2 months ago


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