The Best of a Doomed Lot

Wednesday, 12 February 2020
Adelaide, Australia
By Bernd Struben

  • Markets
  • Crypto on your credit card?

Ignore the fluff and stay away from CBA.’

Lachlann Tierney, Analyst, Exponential Stock Investor

Regular readers will know we’re no cheerleaders for the Big Four banks.

Not even before the rather damning results from the royal banking commission.

More recently we’ve been sharing colleague Ryan Dinse’s concerns with you about the banks’ lack of foresight in adopting emerging technologies. That won’t put the banks out of business. But it is opening the door to a group of tech savvy newcomers. Upstarts Ryan believes will continue to chip away at the bank’s market dominance.

(Full details in Ryan’s report here.)

With more on how that dominance is actually working against the banks, here’s Ryan:

If you dominate 81% of the market like Australia’s Big Four do, you try and make it hard for anyone else to implement change.

The status quo is your goal for as long as you can keep it…

 ‘They’re too big, too entrenched in outdated technology, and too reliant on “old” profits, which usually rely on customer habit rather than anything “better”.

The very concept of change is anathema to their whole business model.

But big changes are coming. And they — the big banks — can’t do anything about it.

Keeping this in mind we wondered how the rather positive half year results (through 31 December) just released by Commonwealth Bank of Australia [ASX:CBA] fit into this picture.

As the AFR notes:

Commonwealth Bank has beaten expectations after reporting a 4.3 per cent fall in cash profit in continuing operations to $4.47 billion against expectations for $4.34 billion in a remarkably upbeat first half result.

Importantly for investors, the bank maintained its dividend at $2 per share. It also nudged up its net interest margin to 2.11%, from 2.10%.

Now that’s no huge margin increase. But Chanticleer tells us that aside from Westpac, CBA is the only other Aussie bank ‘with net interest margins that still have a two in front of them’.

Investors clearly liked the news. At time of writing, CBA’s share price is up 4.3% in intraday trading. That puts it up 10.6% so far in 2020.

Not bad.

But Ryan Dinse and his lead analyst Lachlann Tierney are less than impressed.

Here’s Lachlann:

When you look at the chart, CBA is hovering around 2017 share price levels. Not great if you’ve been in it for two years.

Who honestly thinks CBA can grow its market cap in a significant way?

It’s also the only one of the Big Four not to get crushed over the last three months.

Sure, they have economies of scale and have pushed some chips into the fintech space. But they can’t change quick enough. Decentralized finance is simply coming at them too fast.

Which makes them the best of a doomed lot, really.

Ignore the fluff and stay away from CBA.

To discover the upstart financial stocks Ryan and Lachlann believe do have a good chance to greatly grow their market cap, go here.

Now a look at the markets…

Markets

Overnight, the Dow Jones Industrial Average closed flat…down 0.48 points, or 0.00%.

The S&P 500 closed up 5.66 points, or 0.17%.

In Europe the Euro Stoxx 50 index closed up 32.66 points, or 0.86%. Meanwhile, the FTSE 100 gained 0.71%, and Germany’s DAX closed up 133.81 points, or 0.99%.

In Asian markets Japan’s Nikkei 225 is up 145.61 points, or 0.61%. China’s CSI 300 is up 0.27%.

The S&P/ASX 200 is up 35.69 points, or 0.51%.

West Texas Intermediate crude oil is US$50.10 per barrel. Brent crude is US$54.01 per barrel.

Turning to gold, the yellow metal is trading for US$1,567.58 (AU$2,333.40) per troy ounce. Silver is US$17.64 (AU$26.26) per troy ounce.

And bitcoin’s reclaimed its US$10k plus mark, gaining 4.3% overnight. One bitcoin is worth US$10,304.79.

The Aussie dollar is worth 67.18 US cents.

Crypto on your credit card?

Reader interest in cryptocurrencies tends to rise along with their prices. So no surprise we’re seeing more mail coming in relating to cryptos.

The world’s two biggest cryptocurrencies by market cap — bitcoin and ether — have had a stellar 30-day run.

You can see bitcoin’s one month price chart below (in US dollars):



chart image
Source: CoinDesk
Click to enlarge

Bitcoin is up 27.9% in 30 days. The current price of US$10,304.79 gives bitcoin a market cap of US$188.1 billion (AU$300.0 billion).

Ether had an even better month. Here’s its 30-day price chart:



chart image
Source: CoinDesk
Click to enlarge

The current price of US$242.92 puts ether up 69.2% over the past month. And gives it a market cap of US$26.6 billion (AU$39.6 billion).

Sam Volkering, editor of Secret Crypto Network, has been expecting this rebound.

With bitcoin, he predicts more price gains as we approach the next halving, likely in May. That’s where the reward received by bitcoin miners gets cut in half. It’s happened twice before, and both times saw bitcoin run far higher over the following year.

Of course, there’s no guarantee we’ll see the same thing happen again.

Sam remains confident on bitcoin’s long term future. But he cautions cryptos remain a highly volatile market. One where you can see ‘20% of your holdings wiped out in a day’.

Which brings us to this letter, from reader David:

Credit cards that can be used for buying cryptocurrencies…

Can I suggest that you update readers on this topic, as most of the common credit card providers will not support purchases of cryptocurrency. CBA, NAB, St George, and Virgin to name a few.

I’ve recently had to search to find a suitable card, and settled on ING, but there may be other options.

I haven’t verified that the credit card providers David lists indeed don’t let you buy cryptos. But I did run this by Sam Volkering. Here’s his reply:

Buying cryptos on credit cards? It’s like margin lending or borrowing to buy stock. I’m just not a fan. Take the most high risk asset class we’ve ever seen, then leverage into it. You’re just asking to get burnt. Conversely I’ve never had an issue with my CBA debit card buying crypto.

There you have it.

Pay for your crypto investments up front. Don’t risk seeing them lose money and having to pay 18% or more in credit card interest.

That’s a wrap for today.

Questions or comments…see our email address below.

Cheers,
Bernd