THE BANKS Mower put me onto checking out the Weekend Australian’s article on the banks. my thoughts on the main points for and against are as follows.
1.THE TAPER - When Bernanke utters the word “taper” the aussie dollar falls and so do the share prices of the banks. It happened recently, and it happened earlier this year. However while the US seem to be agreed on reduction of their monthly stimulus from $US 85b. to $US75B. that relatively is not a lot. + the current artificially low interest rates will still remain.
I believe that the US have about 17 trillion reasons to keep their currency low and in fact depreciate their currency, so i do not think they will do too much to increase their interest rates or their dollar any time soon – regardless of what appears to be a now much stronger US economy.
Further the Australian markets seem to have priced all of the recent talk in, ie. with the lower $A etc. and the recent retreat in the bank share prices.
2. Government enquiry into banking + Bassel 3 and APRA regulations . the gov’t enquiry into banking is being chaired by an ex banker so cross that off the list of concerns immediately. likewise with APRA there seems to be a wink wink nod nod understanding here also.
3. there has been a A PICK UP IN RESIDENTIAL CONSTRUCTION AND LOANS FOR NEW HOUSING
4. While it is being said that bank PE’s indicate the stocks are fully priced by historical standards, i don’t think that takes into consideration our current extremely low interest rate environment . to me yields of 5% to 5.5% + franking credits still make the banks a stand out investment proposition compared with bank interest rates .
So in short i think the banks are a excelent short to medium term long - if you can understand that.
