You’ll Find Stock Market ‘Catapults’ Right Here
- Market shrugs off CBA scandal
- Remembering the Brexit fondly
- Plus, what a Vietnamese roll reveals about the future of payments…
Today’s Daily Reckoning Australia begins with the Commonwealth Bank. But I won’t go over the results. Those will be blasted all over town all day.
What interests me is the fact that the market is holding up despite the scandal surrounding CBA. This should interest you.
I mentioned on Monday that the market was moving up that morning despite the money laundering allegations. I thought things would keep running Tuesday.
Not quite. It was more of day that was neither here nor there. But this suggests overall strength to me.
A guy called Jeremy Calnan is a good mate of mine, and a fine trader. He sent over a note this morning and suggested pegging the negative headlines around CBA on the wall somewhere.
We might look back and wonder what a buying opportunity it proved to be for the overall market.
That’s what I’m positioning for. We’ll find out if the market cooperates shortly!
Enter PM David Cameron…
You can have a bit of fun with these headlines at times.
Here’s a snapshot I grabbed last year just after Britain decided to leave the UK…
Source: Australian Financial Review
The Dow Jones Index, by way of example, made a low of 17,063 on 27 June 2016 in the wake of the Brexit panic.
It closed at 22,085 in US trade last night (our time).
That’s up 29%.
It’s never easy going the opposite way of the crowd.
Of course, the CBA ‘scandal’ is not on par with the Brexit shock.
But it’s always good to track your emotions and decisions in real time. I do my best to write down every decision I make, and the evidence and reasoning around it.
Markets are very easy to navigate in hindsight. When it’s all happening in real time and it’s your money on the line, it’s a different story.
I also find it helps with regret. It’s easy in the market to say you should’ve bought this and sold that here and there.
It’s NEVER so obvious.
There are always conflicting signals.
Anyway, back to the banks in general. I think we can pencil in a lot of branch closures and retail staff to be cut in the near future as a high possibility.
The Australian reported the other day that Aussies have doubled their use of finance apps in the last two years. We also have ANZ chief executive Shayne Elliot saying people equate going to a bank branch like visiting the dentist.
He looks the most interesting CEO to watch to me. Elliot is actively saying the banks (or his bank, at least) need to shift their business model to the modern world.
Branch closes look inevitable.
I also wonder if the banks will begin to push to abolish physical cash themselves.
A big part of their cost base is handling and securing it all. I also think ATMs might get removed in a lot of places. They’re beginning to look as cumbersome and as dated as the fax machine.
Investing insights from my regular Vietnamese roll
I often go to the South Melbourne market for lunch when I’m in the Agora Financial Australia office. Occasionally, I don’t have a lobster on hand for a Vietnamese roll.
I dutifully trundle over to the ATM and pay $2.50 to get some money out. Really? They say in China even the local street fruit-sellers take mobile payments, down to tiny figures.
But often we can’t do the same here unless we spend over 10? Crazy.
We need things like Apple Pay and small payments to be accepted widely and at no or low cost for this shift to happen. But we’re going this way. I’m not sure ATMs and cash fit in to this future much.
That means the banks have a big opportunity to strip out a lot of costs here.
This could help drive their profitability over the next few years, and support a rise in the market index too.
They do have the fintech firms nibbling at their toes. On that, it was notable this week that Westpac has invested $40 million in small cap Aussie firm zipMoney Ltd [ASX: ZML].
zipMoney is a consumer finance company. It helps you pay for things, interest free. In return, it gets your spending habits and other data to help fine tune the algorithms behind its technology.
zipMoney also now has access to Westpac’s payment network. I expect we’ll see many more major banks partnering up with smaller firms like this. They’ll snuff out as much competition as they can.
Shareholders in ZipMoney got a nice surprise from this. At one point it was up 19% on the previous days close.
I call these type of moves ‘catapult’ moments.
They’re very common in the small cap sector. That’s because one key announcement can rerate the entire outlook for the business in a flash.
I expect we’re going to see a lot more of these as deals and the market really heat up over the next 18 months. If you’d like to see the companies I’m positioning in for more of these ‘catapults’ to happen, go here.
Editor, The Daily Reckoning Australia