The Secret Broker: Sticking with the Big 4, or leaving on a jet plane?
The Secret Broker
The Secret Broker
After 35 years of stockbroking for some of the biggest houses and investors in Australia and the UK, the Secret Broker is regaling Stockhead readers with his colourful war stories — from the trading floor to the dealer’s desk.
As Australian 10-year bond yields now nudge 4.4%, which are the highest they have been for 17 years, there appears to be an eerie silence overhanging the market.
I can’t work out if we are in the middle of a slow-motion financial car crash or maybe I am getting too old and looking back into the past too much.
We have had some weird things happen in the last decade, what with COVID and interest rates pushed down to 0.1% and these are all things that recent financial history cannot guide us on.
If you look at Dan Andrews and Alan Joyce, they don’t seem to be connected until you recognise the financial damage they have left behind after their resignations.
Victoria is now bloated with so much debt that it will take decades to repay, via tax increases and budget cutting.
And Qantas’ share price is nudging its 52-week low after allowing Alan Joyce to sell $17m worth of shares after the board knew of an ACCC enquiry, whilst none of us ordinary folks did.
You always tell people that they should never look back at the past, as there is nothing they can do about it in their present life – but in the financial world it can give potential future outcomes.
When you are broking, you are expected to be able to predict the future.
What will happen to the market today?
What price do you expect these shares to go to?
The last one was easy to predict, especially if it was a Friday but the first two were always just educated (via previous financial pain) guesses.
So, and I’m not patting my own back here, the older the broker the more experienced they should be at predicting the future.
By the way, I’m writing all of this with a full moon shining through my study window, so this may be why some of the things I am about to type may seem a bit out there!
If you step back and take a global view of Australia, compared with the rest of the world, you may be able to find a few answers.
In the GFC, no Australian bank went bankrupt, so their current share prices are kind of reflecting a premium in their valuations.
Having only four of them and no merging allowed, it gives them certain protection. And unlike QANTAS which seems to have relied on the government for protection, financial evolution has managed to put the Big 4 in a unique global position.
Now, I don’t know if any of you have noticed but this time around, as the financial squeeze is on, banking headlines are only about mortgages and never about business lending.
This tells me that the banks have been pulling away from business lending and concentrating on just funding the Australian dream of owning your own home.
Unlike in the ’80s and ’90s, where banks had huge exposure to the likes of Alan Bond etc, there appears to be silence.
This tells me that the four banks are ‘as safe as houses’, as your grandparents would drum into you, and as every Australian cuts back on everything just to pay the mortgage, things may not be as bad as other banks around the world have it.
Also, you have to look at their fully franked yields. Just as everything else goes up (rates, building insurance, cost of repairs etc) the four bank’s dividends remain constant.
According to Morningstar, the average trailing yield of CBA over the last five years is 4.5% and that almost mirrors where the 10-year bonds are at now.
So that’s the first thing on our banks which will be attractive to international investors.
The second thing is the weakness of the Australian dollar.
The further it falls, the cheaper it gets for an American to buy Australian listed shares and companies in general.
But the real icing on the cake, the real sweet spot, especially for American investors, are the miners.
Can you imagine yourself sitting in America and looking over at Australia, with a broker explaining to you how you can swap your American dollars for Australian dollars and buy a producer who sells their end product for American dollars?
All major commodities are traded in US$ and companies like RIO and BHP collect billions of them yearly on behalf of their shareholders… yet their shares are priced and traded in the weaker A$.
For me the takeaway points in all of this are:
The very last part for me in all of this though is, did Alan Joyce fly out of Australia to holiday on a Qantas jet, after selling $17m worth of shares and collecting a $10m bonus?
I’d say he took the safer option – private!
Feel free to contact him with your best stock tips and ideas.