now its the time to sell, page-40

Abacus

In short run (next few months), as long as US financial system doesn't collapse, the upside exceeds the downside, so I am holding my position (I'm long at $26.40).

Over medium run (say 1 year), the risk is exponetial rise in bad debts, chiefly from institutional lending defaults.

My view is going into this mess, Aust corporate balance sheets (excluding property and investment banks) were by the large part strong. In addition you have $50b of capital being raised in the last 12 months, which makes most large caps balance sheets much stronger.

Also macroeconomically there have been unprecedented fiscal and monetary pumps unleashed. Inevitably they will work to some extent, and remember we have 325pts of easing to go before we get to liquidity trap.

Hence my view is that we will not see another $1.6bn of bad debts for CBA second half. Rather, we will see contintinual balance sheet growth (given that foreign banks/non bank mortgage originators are gone and the commercial paper market is still shut) and widening margins. If so, profit is likely to surprise on upside.

So I think hold CBA till at least $35-$40. My preference is though to buy the other banks, especially ANZ and NAB which look as oversold as CBA was at $25.