Banks, bitcoin, and a world of uncertainty

Monday, 19 March 2018
Melbourne, Australia
By Bernd Struben

  • When $8 billion in profit isn’t enough…
  • The bubble that never pops

Is it time to sell the banks and buy bitcoin?

I posed this question to you in Port Phillip Insider on 29 November 2017. Yet it’s just as relevant today.

At the time, bitcoin had just passed the US$10,000 milestone. And Malcolm Turnbull was only hours away from performing a vigorous backflip on the royal banking commission.

Turnbull, as you likely recall, was adamantly opposed to a royal commission. But he caved into political pressure with all the resilience of wet tissue paper.

So despite 18 previous government reviews and inquiries into the sector, the royal commission was a go.

More, after the markets…


Over the weekend, the Dow Jones Industrial Average closed up 72.85 points, or 0.29%.

The S&P 500 gained 4.68 points, or 0.17%.

In Europe the Euro Stoxx 50 index finished up 23.27 points, or 0.68%. Meanwhile, the FTSE 100 rose 0.34%, and Germany’s DAX added 44.02 points, or 0.36%.

In Asian markets, Japan’s Nikkei 225 is down 175.99 points, or 0.81%. China’s CSI 300 is up 0.29%.

In Australia, the S&P/ASX 200 is up 17.78 points, or 0.30%.

On the commodities markets, West Texas Intermediate crude oil is US$62.17 per barrel. Brent crude is US$66.02 per barrel.

Gold is trading for US$1,313.07 (AU$1,701.75) per troy ounce. Silver is US$16.29 (AU$21.11) per troy ounce.

One bitcoin is worth US$8,168.99.

The Aussie dollar is worth 77.16 US cents.

When $8 billion in profit isn’t enough…

As we saw last week, the banks and mortgage brokers have plenty of skeletons left in their closets. And as we’ll see over the coming weeks, that was likely just the tip of a very corrupt iceberg.

Detailing the fraud and dubious practices unveiled in the first week would exceed my word count. Not to mention make for rather dull reading.

But a few snippets from The Australian Financial Review should suffice:

‘[S]taff in some NAB branches in greater western Sydney were accepting cash bribes to facilitate loans they knew were based on fraudulent documents in order to exceed their sales targets, and ensure they received incentive payments…

‘[CBA boss Ian] Narev acknowledged the current system of remuneration for mortgage brokers was inherently conflicted and lead to brokers encouraging their customers to take out bigger, interest only loans so that they could pocket bigger upfront fees and trailing commissions.’

Cash bribes. ‘Liar loans’. Conflicted remuneration incentives…

It’s sordid stuff. And while the Big Four banks are trading in the black today, their share prices, predictably, have suffered.

I’ll give you a quick summary below. For comparison’s sake, the ASX 200 is down 1.5% since 29 November. While the index is up 2.95% over the past year.

As for the banks:

Australia and New Zealand Banking Group [ASX:ANZ] is is down 2.57% since I suggested lightening your holding of banks stocks on 29 November. That puts it down 10.87% year-on-year, excluding dividends.

Commonwealth Bank of Australia [ASX:CBA] is down 6.96% since 29 November. The share price is down 10.86% over the past year.

National Australia Bank Ltd. [ASX:NAB] has fared somewhat better recently. It’s only down 0.24% since 29 November. Although, year-on-year the share price is down 8.78%.

Rounding off the Big Four, shares in Westpac Banking Corp [ASX:WBC] are down 6.23% since 29 November. That brings WBC’s one year loss to 14.34%.

Now this is an industry that controls Australia’s $1.6 trillion home mortgage debt market. Not to mention Aussie’s fondness for car loans. And the high interest credit card debt for all those must-have-today items you can’t actually afford until next month…or next year.

And make no mistake. The banks are still highly profitable. Westpac, for example, reported a full-year cash profit of $8.06 billion in November. That was up 3% from the previous year. Though still about $100 million shy of consensus forecasts.

The sell-off in bank stocks, then, goes to show just how much investors dislike uncertainty. And when it comes to uncertainty, you can’t beat a government led, sector–wide inquisition. Not to mention the ill-defined impact from smaller fintech competitors on the horizon.

With the royal commission only entering its second week, I’d still steer clear of the bank stocks for now. If the broader stock market enjoys a run up, the banks will likely join in the rally. But that doesn’t make them a great investment at this point in time.

So the first part of my advice from 29 November remains in play. Sell the banks.

But how about bitcoin?

The bubble that never pops

If you’d bought bitcoin on 29 November and sold it on 17 December, you would have roughly doubled your money.

Of course, that’s just me picking the high with 20-20 hindsight. And odds are, after watching bitcoin rocket from US$10,000 to US$19,350 in less than 18 days, you wouldn’t have been eager to sell on 17 December.

If you’d held on for the ride through today, you’d be sitting on a loss of 18.42%.

So if you are holding bitcoin today, should you continue to hold on tight? And if you’ve been sitting on the virtual sidelines until now, is bitcoin a bargain at the current price of US$8,168?

That depends on who you ask.

The mainstream financial media is full of conflicting advice. That mainly reflects the new nature of investing in cryptocurrencies. And how little the experts really understand it.

This headline, for example, comes from Bloomberg: ‘Bitcoin’s “Death Cross” Looms as Strategist Eyes $2,800 Level’. The article notes:

Traders who look for future price direction in chart patterns are finding more indicators suggesting the world’s largest digital currency may have further to fall.

Bitcoin’s 50-day moving average has dropped to the closest proximity to its 200-day moving average in nine months. Crossing below that level — something it hasn’t done since 2015 — signals fresh weakness to come for technical traders who would dub such a move a “death cross”…

Paul Day, a technical analyst and head of futures and options at Market Securities Dubai Ltd… studied the virtual currency’s 2013 tumble for clues on how it may act this time round. His conclusion? Gear up for a 76 percent tumble from late February highs, which would take Bitcoin to a paltry $2,800, if the downtrend is repeated.’

I’m no expert on technical analysis. Or on futures and options trading, for that matter. But I wouldn’t risk my capital gambling on bitcoin repeating price moves from five years ago, when almost no one had heard of it.

Peter Thiel, for one, would agree. The billionaire investor is still all in on bitcoin.

Also from Bloomberg:

The Facebook Inc. board member on Thursday said Bitcoin will become more important, squeezing out Ethereum and other newer cryptocurrencies. His venture firm, Founders Fund, has been quietly buying Bitcoin since 2012 — as has Thiel who is worth more than $3 billion, according to Bloomberg estimates.

Thiel compared Bitcoin to a digital version of gold and argued that the quest to amass money “is the bubble that never pops.”

Clearly Thiel isn’t buying into the ‘death cross’. And if he believes bitcoin is equivalent to digital gold, you can bet he’s buying more during the dips.

But we’re not all billionaires. And the question remains, if you sell some of your Big Four bank shares tomorrow, should you still plough some of your cash into bitcoin?

My decidedly nonexpert opinion is ‘yes’. Though do so knowing bitcoin is notoriously volatile. And never invest more in cryptocurrencies — or any investment — than you can afford to lose.

Of course, if you subscribe to Sam Volkering’s Secret Crypto Network you’ll already have access to what I believe is the best advice on crypto investing available anywhere in the world.

If you’re not yet a subscriber, you can find out more about the introductory service here.

And finally, this from The Australian Tribune:

Why Rex Tillerson Really Got Fired

Last week former Secretary of State Rex Tillerson became the latest member of President Donald Trump’s cabinet to hear the dreaded words, ‘You’re fired!’

Or, in Tillerson’s case, he may have read those words on Twitter.

The mainstream media was caught off guard by Tillerson’s dismissal. And many sought to use the issue to further press their anti-Trump agenda.

Foreign politicians also used the opportunity to…’

If you’re fed up with sanitised, politically correct dogma cut and pasted from one mainstream source to another then The Australian Tribune is for you.

And it’s absolutely free.

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