Four ways to play the big banks’ demise

Thursday, 12 September 2019
Adelaide, Australia
By Bernd Struben

When you go to McDonald’s you expect the staff to try and upsell you. And you don’t take it personally. It’s probably in their contract somewhere.

‘Would you like fries with that?’ they ask helpfully. As if in rattling off your order you’d somehow forgotten you were craving French fries…or chips, if you will.

You give a polite shake of your head. But they’re not quite done with the script yet.

‘Shall I supersize your order for just an extra dollar?’ they persist, indicating a stack of bucket-sized drink cups behind the counter.

You may or may not fall for their upsell gimmicks. But there’s a good reason they do it. It’s the same reason a clothing store may offer you a 30% discount if you buy a second dress or pair of shoes. And it has nothing to do with generosity.

Their profit margin may go down in convincing you to buy more than you wanted or needed. But their overall profit still goes up.

Now again, you expect this at fast food outlets and retail stores. And spending a few extra dollars at Hungry Jack’s isn’t going to cause much harm…except perhaps to your waistline.

But you shouldn’t have to put up with these kind of tactics from your bank.

Yet, following the disgraceful revelations that came to light during last year’s Banking Royal Commission, we now know they were working off the same upsell script.

Fees for no service. Mortgage brokers acting in the best interest of their banks — and themselves — rather than the customer. Dubious add-on insurance products…

The list is lengthy.

Now Australia’s once indomitable big banks are under fire.

From The Sydney Morning Herald (SMH):

The corporate watchdog [ASIC] is conducting 86 investigations into the big four banks and AMP, in a sign of the high potential for more lawsuits against the country’s biggest financial institutions following the Hayne royal commission.

If you’re wondering, ASIC has a total of 88 enforcement investigations going on right now. And 86 of those involve the Big Four banks along with AMP.

That’s just some of the fallout they can expect from the royal commission’s findings.

But it’s not just Hayne’s commission putting the banks under pressure. They’re taking hits from all sides. And they have only themselves to blame. Having grown soft under their oligarchic business models, they’ve been far too slow to adapt to today’s rapidly changing financial environment.

Over at Exponential Stock Investor, Ryan Dinse isn’t shedding any tears. In fact, he sees the bank’s predicament as a tremendous opportunity.

Here’s Ryan:

A swarm of sly little upstarts are coming to cut the Big Four’s lunch.

Unlike our Big Four, they’re not stuck with dated 1970’s technology, costly branches and old-fashioned notions of customer service.

They’re at the cutting edge of technology.

And they’re ready to explode onto the market and disrupt every single aspect of Australian finance.

The disruption is well and truly underway. Though you may not have heard of most of the disruptors. Like Xinja.

From the SMH:

Xinja, the latest “neobank” to be given a full banking licence, is looking to raise more than $50 million from big investors as part of its plan to disrupt the lucrative retail banking sector.

In a key milestone that allows the bank to take deposits from the public, Xinja was on Monday granted an unrestricted licence from the Australian Prudential Regulation Authority (APRA)…

“We are 100 per cent digital; we want people to have a real alternative to the incumbent banks, to have real choice to be able to bank with a bank that really looks after them,” said [co-founder of the bank Eric] Wilson...’

Now many of the new wave of disruptors, like Xinja, aren’t listed on any exchanges yet. And many of the would-be disruptors that are listed are likely to be pushed aside by superior competitors.

It’s precisely these superior competitors Ryan Dinse’s research into the sector has turned up. He eventually narrowed the field to four unique disruptors. Stocks he believes are perfectly positioned to steal a big slice of the Big Four’s business.

For the full details on Ryan’s four exponential investing opportunities, click here.

Now a look at the markets…

Markets

Overnight, the Dow Jones Industrial Average closed up 227.61 points, or 0.85%.

The S&P 500 closed up 21.54 points, or 0.72%.

In Europe the Euro Stoxx 50 index closed up 17.83 points, or 0.51%. Meanwhile, the FTSE 100 gained 0.96% and Germany’s DAX closed up 90.36 points, or 0.74%.

In Asian markets Japan’s Nikkei 225 is up 216.89 points, or 1.00%. China’s CSI 300 is up 0.40%.

In Australia, the S&P/ASX 200 is up 12.16 points, or 0.18%.

West Texas Intermediate crude oil is US$56.16 per barrel. Brent crude is US$61.21 per barrel.

Turning to gold, the yellow metal is trading for US$1,491.59 (AU$2,170.22) per troy ounce. Silver is US$18.06 (AU$26.28) per troy ounce.

One bitcoin is worth US$10,162.81.

The Aussie dollar is worth 68.73 US cents.

A 568% price rise for gold?

You may have noticed something in the market’s section above. All the major indices we regularly track are in black.

Why?

Rekindled hopes for an easing in Donald Trump and Xi Jinping’s trade war, of course.

On Xi’s part, China revealed it will exempt a range of US goods from its 25% punitive tariff measures.

Trump responded by delaying — by two weeks — a planned 1 October 5% increase in tariffs on US$250 billion of Chinese goods. He labelled it ‘a gesture of good will’ with a nod towards China’s 70th anniversary celebrations on 1 October.

High level trade talks are set to resume in early October. Investors are clearly hoping the latest olive branches point to a pending resolution. But are they putting the cart well before the horse here?

Global strategist Jim Rickards certainly thinks so.

When it comes to the US–China trade war, Jim advises investors to dig in for the long haul.

Here’s Jim’s latest outlook on the trade war…and gold:

China cannot give up its theft of US intellectual property because it depends on that theft to propel growth. China cannot amend its internal laws to provide enforceability of any agreement because that involves a major loss of face and erodes Xi’s power.

Trump cannot let the Chinese trade surplus with the US persist because it’s a major drag on US growth and it steals US jobs. None of the big issues are any closer to a solution and that state of affairs may last for years.

Despite the temporary euphoria, the market will realise sooner than later that the resumption of trade talks is just part of China’s strategy of delay and Trump’s strategy of propping up the stock market.

When that realisation sinks in, probably in late October, I say stocks will reverse course and bond and gold prices will resume their long-term climb.’

Jim, as you may know, has long been an advocate for holding gold. In fact, one of his bestselling books goes by the title The New Case for Gold.

While gold is down around 4% from its recent peak, it continues to trade near six-year highs. And mainstream analysts are beginning to increasingly echo Jim’s arguments. Like Citibank’s commodity research team.

From the SMH:

“We now expect spot gold prices to trade stronger for longer, possibly breaching $US2,000 per ounce and posting new cyclical highs at some point in the next year or two,” Citi said in a note released this week.

“Lower for longer nominal and real interest rates, escalating global recession risks – exacerbated by US-China trade tensions – heightened geopolitical rifts amid rich equity and credit market valuations, coupled with strong central bank and investor buying activity, are all combining to buttress a bullish gold market environment.”

For their part Jim Rickards, alongside Australia’s preeminent gold analyst Shae Russell, are forecasting gold prices of US$1,600–$1,650 per ounce heading into 2020.

But their three–five year forecast is far higher. US$10,000 per ounce, to be precise.

They’re not picking that number out of thin air. Or doing it to grab headlines.

In tomorrow’s ‘2019 Gold Mania Summit’ Jim details precisely why he expects gold to reach these lofty heights.

And Shae explains how ordinary Aussie investors can potentially gain $37 for every $1 rise in the price of gold.

As a paying subscriber to Port Phillip Publishing you can tune into the ‘2019 Gold Mania Summit’ for free, courtesy of our good friends at AFAU. The original broadcast commences at 2pm AEST.

We’ll send you a reminder email with a link when that’s ready to go.

Cheers,
Bernd