Selling season?, page-43

Hi Matie

I'm not commenting specifically on the CBA - what I am trying to reconcile is the optimism expressed in the stock index vs the what I see in the fundamentals - and I can't.

On the CBA specifically, I don't rate Comyn. Narev was a poor choice, Comyn is worse. The CBA hd an opportunity to signal a strong change in culture after the catastrophic findings at the Commission but they failed: they promoted the Head of Retail to run the entire bank - and the epicentre of most of the RC findings....

I'm not seeing a change in culture - and I am seeing a collapse in customer trust.....

More specifically, of the "the four" the CBA is the most heavily exposed to the domestic real estate market, and it has the largest book of retail lending. On its borrowings side it is also the most heavily exposed internationally but unlike Westpac (about 85% hedged) and the AMP (100% hedged) it has left 30% of its international borrowings uncovered - which means A$ weakness against all the majors will start to make the 90-day rolls on the international markets progressively more expensive .

On the counter-side, funds continue to pour into the superannuation accounts, it has to be invested somewhere and the fund managers have to maintain their ratios and exposures - buying demand remains: eventually however, fundamentals will lead and the markets will correct - the flight will be to cash and all asset values will correct.

I'm looking for about a 20% correction in asset pricing and a significant amount of debt write-off with this occurring over a 24 to 36 month period. Progressive and escalating loan book impairment will have the effect of suppressing share price activity on all the bank stocks - to capture this price action you have to look to where there is liquidity - and that's the CBA .

To this end bought some more CBA puts - Dec 2019 / $68 strike price - yesterday - overall I'm short about 150,000 CBA shares both in the physical and the derivative markets....

The critical question to this trade is not "if' but "when" - I think asset price correction is now inevitable: I may be a touch early in the cycle.

Hope this helps

MP