Why bank stocks are rising through a crisis. Tesla automates cash incineration

This week in The Money Cafe, James Kirby and I discuss:

  • What next for the banks?
  • Can Matt Comyn really sort out the Commonwealth Bank as an insider?
  • AMP: no CEO, no chairman. Spectacular.
  • Analysts don’t care about the royal commission. They’re buying the banks through the controversies.
  • Has buying the good guys been the first really bad idea JB have made in a while?
  • Alan doesn’t think that shorters have any power
  • Tesla burns 10mill of cash a day. Will they ever come through?
  • Is now the perfect time to give AMP your super?
  • Is money sentient? (woah dude)


G’day, I’m Alan Kohler, Publisher of The Constant Investor.

And I’m James Kirby, Wealth Editor at The Australian.

And we are The Money Café.

The Money Café.

G’day, James, well it’s been a great week in paradise, hasn’t it really?

It’s been a great week if you are working on a national newspaper, Alan, because you know what?  You don’t have to think about what you might do next because so much is just rolling in the door.

It certainly is.

It’s just like trying to select what is most important to talk and analyse about is the main issue just now and it’s been like that for weeks.

The question is where are the banks at now, are they at a road that’s just leading off a cliff or are they at a T intersection?  Or is there a fork in the road or…?

They’re never at a road leading off a cliff because they’re gigantic, because they’re an oligopoly, because they’re 30% or so of the ASX and believe it or not they’re lifting in price this week.  But, they’re at a crossroads when it comes to financial advice and wealth management and NAB announced this morning they’re selling their big operation MLC with all its financial advice brands in there, Godfrey, Pembrooke and Apogee, and everything else.  So, here we go around again, they buy wealth advice, they sell wealth advice, they can’t live with it, can’t live without it.

Now, you listened, I think, to the NAB conference call concerning their results.

I did, yeah, just this morning.

Was there much discussion about MLC on there?

There was zero discussion about it actually.

Why would that be, that’s a bit of a big deal.

Yeah, well the analysts were just looking at the sort of running numbers, if you like.  They were much more interested in the running numbers of the bank as an operation, they weren’t the slightest bit preoccupied with the Royal Commission.  This sale of MLC is related to the Royal Commission, of course it is.  The banks are embarrassed now with the situation with their wealth management operations.  NAB has taken the quick easy solution, just sell it.

Well, they’ve said they’re going to sell it but they haven’t got a buyer presumably.

No, and they also said that they could float it.  They’re going to examine all options.  But, it’s no good if you just shunt them around.

We’d probably better not make this our BT Mega Trend moment because BT is owned by Westpac and…

It is, and all the banks are in this business.

If it’s a Mega Trend BT is off as well.

I would say one thing, though.  Actually, Westpac, I would not expect to sell like CBA or NAB, I don’t expect them to sell their wealth management services because Brian Hartzer said a few things last week which suggests to me strongly that he isn’t going to do that.  In a way it’s an opportunity for someone to try and sort it out and say we do it well or we do it better.  It’s also an opportunity, of course, for regional banks, for credit unions, for little boutique operations, for robo advisers.  So, I think it is a milestone, no two ways about it in financial advice.  Did you look at this week’s horror story from Commbank?

Well, yes.  So there was a report put out by APRA, it was a panel, an independent review of Commonwealth Bank following the AUSTRAC atrocity last year.

Yeah, so it’s nothing to do with the Commission as such, it’s running parallel.

No.  After it was revealed that Commonwealth Bank has been facilitating crooks laundering money and so on and they were charged – I don’t know, I can’t remember the details of it, but APRA came out and said well we’re going to have an independent panel looking into CBA and they appointed John Laker who was the former head of APRA, currently in charge of something called the Banking and Financial Oath Ltd.

Not as busy as he used to be.

No, indeed, and in fact he is running this thing.  It’s a not for profit independent thing that manages an oath that they’re all supposed to take which says that their word is their bond.  Anyway, we won’t go to that.

Yes, we won’t, we won’t throw spears at that.

But anyway, John Lake – so he is this former head of APRA, also Jillian Broadbent, Company Director, and Graham Samuel.

What a trio, heavy hitters.

They have spent since August last year, so what’s that, five months, six or seven months, looking into CBA, talking to them all and they came out with the most extraordinary report.  It’s unbelievable, it’s 111 pages long and it absolutely tears them to shreds. 

It does, doesn’t it, it really does, I know.  I read clumps of it and it’s going to cost them a lot to sort it out.

 

Well, you wonder, you read it and you think golly, these people ought to just be all be marching out the door.  I mean, forget about costing money, they ought to just go.  I mean, honestly, they’re hopeless, they’ve been obviously sitting in board meetings looking at their phones and paying no attention. 

Well, the thing that struck me was that we were told for so long that Commbank was the bank with the IT prowess, that it was way ahead of everybody.  Well, not in the operational risk department.

Well, that’s right, but also just in the way that they’re running the bank and their remuneration.  They’re not actually properly checking whether anyone has met their targets, they’re just giving them bonuses anyway and so on.  I mean it’s a really extraordinary document.

So, here’s the tough question.  Can Matt Comyn, being from inside the bank, really sort the bank out?

Well, they’re a bit stuck now.  I mean, I reckon that if this report came before Matt Comyn’s appointment he wouldn’t have got the job.

Yeah, that’s interesting.

But, after this report they would have had to appoint an outsider it seems to me because it’s so critical of the entire Executive Committee and not just the previous CEO, Ian Narev, and the board but the entire executive committee who apparently are hopeless as well.

Especially the legal unit.  But, Matt was there at executive level.

Sure, so I think he wouldn’t have got the job and they would have had to bring in someone from outside.  Anyway he’s got the job, they’re stuck with him and his job is now to do it.  I mean, they’re not going to sack him now.  Can he fix it?  Well, gosh I don’t know but gosh there’s a lot of work to do.  The other thing that strikes me about it is the people who are running the Commonwealth Bank are not the same people running the other banks and the other big companies in Australia but they’re the same sort of people.  I mean, they’re all part of the same mob, really.

They’re sort of a class, of an executive class.

Yeah, do we really think that Commonwealth Bank is an outlier here?  That they’re in some way completely different to everyone else?  I don’t think so.

No, but it has had more scandals than the others and they’re nastier.

Sure.  But, if John Laker, Jillian Broadbent and Graham Samuel went through every other big company on the ASX and wrote a 111 page report on it, I mean, I don’t think it’d make pretty reading, I’m just saying.

No, they’d have material, absolutely.  I suppose Commbank has come out the worst so far, by the way ‘so far’, there’s plenty to go in this Commission.  There’s small business coming up next but you have to say small business, I will bet now with you, Alan, that it’s going to be dominated by Commbank again because the whole Bankwest story, if you remember, the people who were in Bankwest when Commbank took over and this long lingering action about what did they really do and how did they behave to the people who they took over and quite a few small businesses got into trouble.

Well, they appear to have closed down a bunch of small businesses.

Exactly, and that’s going to dominate this.  So, Commbank, I’m afraid, are going to stay up there as the worst performing.

Then AMP.

Then AMP, well no CEO or no Chairman, there’s a situation for you.

Yeah.

Spectacular.

There was a story the other day I saw suggesting that maybe David Murray has been approached to chair AMP.

Yeah, that was in The Australian.  It would be really interesting if he was because I don’t think he has any big Chairman gig but he is always close to the government of the day and he did the Financial Services Inquiry.  One of the things he said in that inquiry was – I’m going slightly off on a tangent here but one of the things he said was close down lending and borrowing in super funds which I just wonder would that come up in the budget next week because there’s so little really coming out about the budget and it seems when we’re sitting here to be very predictable, a couple of personal tax cuts and a few little brush around the edges on R&D but it might have more than that so we’ll just have a look.  I’d certainly back David Murray into AMP, he is of course ex-Commbank but he is three back, three execs back.

Well, the other thing about David Murray is that he is an absolute hard-ass.

He is a hard operator and I know that because we had a lot of difficulty…

Am I allowed to say hard-ass?

On this occasion I’m comfortable with it because I had some tough run-ins with him over the years but I do respect him, actually, as an operator.

Maybe he needs to go back into Commonwealth Bank as well, maybe he could do two.

He could do what?

He could do two, he could do Commonwealth Bank and AMP.

Yeah, I think one will be enough, Commbank will be the to do or at least AMP will be the one to do because Commbank perhaps he’s too close.  Just to clarify there Murray is tipped for AMP chairmanship, Commbank has a Chairman already in Catherine Livingstone and she’s not going anywhere, she is actually not there very long.

Now, we mentioned before that the banks – we were talking about the banks, the bank share price has been going up.

Yeah.

It’s partly because their results are good, right?

Their results are alright, they’re okay, they’re predictable.

So, everyone in the street, all our esteemed listeners and so on, are wondering what the hell is going on, the share price is going up and they’re getting torn strips off in the Royal Commission, and their ethics are being found to be wanting and so on, this is all the banks and AMP.  AMP shares have been going down, the banks are going up, so what’s going on?  The answer is because the big investors and the analysts who advise them couldn’t give a bugger about the Royal Commission.

No, they don’t care, they don’t sit around sort of worrying and having moral crises about the Royal Commission.  I listened to the NAB CEO’s analyst briefing this morning for an hour and the Royal Commission wasn’t mentioned once.  But, I think that’s a bit myopic, actually, they have to be aware of the world they’re in and where it’s going.  But, for what it’s worth banks are starting to recover and the whole market is recovering.  It’s gone back over 6,000 for the first time since February.

Yeah, but the banks make up a big part of the market, if the banks are going up the market is going up.

Yeah, they make about a third of it basically.  Well, if the banks and miners are firing at the same time then the market is going up, simple as that.  But, it’s worth bearing in mind that while all of this is going on, and to some extent the legal system and inquiries, they lag the real world and the market looks ahead, and the market is pushing it over 6,000.

Can we make this our BT Financial Services Mega Trend, is that safe?

Yes, an ideal choice, I think it’s safe.  So, folks, the BT Mega Trend this week is definitely the recovery in the ASX which topped 6,000 I think it was Tuesday for the first time since February, it has recovered all of those losses that we were running through in March except, of course, if you were unfortunate enough to have shares in JB Hi-Fi or anything else that’s been heavily shorted just now.  Afterpay is being shorted and Myer, of course, but JB Hi-Fi was interesting, I thought, Alan.  They seemed to have survived just about everything up to now.

Sure, but it does look like the only two retailers, perhaps the only two retailers in Australia, that are worth investing in are Kogan and Amazon, forget the rest.

Yeah, but Kogan, the company is great and it would seem to have superb figures the problem is the share price has gone bananas.

That’s it, so don’t buy it now.

Don’t buy it now and you’ll be waiting for it to drop to anything reasonable.  Amazon in Australia you can’t buy.

No, but you can buy Amazon if you…

It’s not a great duo is it, really, of potential buys.

The Amazon shares are $1,500 each or something.

I think so, yeah, but they keep bringing in the numbers, don’t they?  But, for what it’s worth JB Hi-Fi you thought they’re able to survive anything, and maybe JB Hi-Fi was but then they went and bought The Good Guys and The Good Guys has turned out to be a bad idea.

That’s good, that’s a dad joke.

That was terrible, I’m sorry.

No, that’s a dad joke and you’re a dad.

It’s a dad joke and I’m a dad, there you go.  But, bad jokes aside JB Hi-Fi, folks, for so long resilient to all negatives, fell 10% in a day.

You’ve written on your brief here the power of the shorter, see I don’t think it’s the shorters that sent it down, it’s JB Hi-Fi that caused its own self to go down.  The shorters have won but I don’t think the shorters…

Well, hang on a second, it was one of the top three most shorted stocks in the market, is that relevant?

Yes, I know, but I don’t think the shorters have any power, I don’t think the shorters drive stocks down.

I didn’t say they have power but they’re a great indicator.

That’s right, they may be an indicator, the company’s fall because they muck up or whatever.  I mean, JB Hi-Fi has had a bad result and they came out and said the appliance market is no good.

Yes, and The Good Guys – it’s the old thing, acquisition is a very different business than running a business.

And also, in their release JB Hi-Fi cited bad weather, or at least difficult weather or something.  I couldn’t figure out whether it was because the weather was too hot or too cold.  I mean, what’s going on, is it because they’re…

I don’t know, when you start talking about the weather things aren’t great.

Are they starting to go into farming?  Have they got a farm maybe?

I don’t know.

I mean, are they selling air conditioners and the weather is too cold or are they selling heaters and the weather is too hot?

To be fair I remember Gerry Harvey putting out that one about weather at various times over the years too but I’ve got to say if the company is talking about the weather I am not listening any longer.  Tesla, while we’re talking about companies that are so interesting but perhaps not great investments, $10 million Aussie a day they’re spending.

There you are.

There you are, $10 million a day.

They’re an autonomous cash burner would you say?

Yes, autonomous cash burner.  Here’s the thing, though, do you think they’ll ever come through?  I mean it’s a fabulous story and everyone loves the cars but their $10 million a day is going down the drain and it’s getting bigger.  All their forecasts are based on the cars being produced and they’re not being produced, they’re not producing enough.

The true believers think that this is the Ford Motor Company of the future and Elon Musk is Henry Ford.

And the non-believers think it’s the Tucker of the future, do you know the Tucker story?

Yeah, so where do you sit, James?

Gee, I’m sorry, I think it’s a Tucker, I do.  I think the Volkswagens and etcetera, they’re just going to come in and are just going to walk all over them.  You can’t burn that amount of money for so long.  It’s a 15-year-old company, they’re very weak.

Yeah, it’s too long.

They’re financially weak.  I know it’s a marvellous engineering story.

It’s time to make our excuses and leave.

Yeah, time to make your excuses and leave, yeah.  Having said that they do look great and we want to see them on the road.

We want the cars, don’t we?  We want a car, we want a Tesla car.

Yeah, we do.  We want a Tesla to have a spin in.  Will we do some of the questions?  Because, you did a very creative thing this morning, you tweeted “let’s have some questions” and boy, did we get a spectrum of questions or what.

Well, we got a few.  To be honest we got some stupid questions.

We got some colourful questions.  I want to put one that isn’t on the list here, Alan, because someone, I can’t remember who, I’m sorry, but someone said how much is avocado toast in The Money Café, which I thought was a good question.

And so you went and found out.

I went over and I just asked them and they said – they didn’t tell me but they said look at the menu, and I looked at the menu and the avocado option is called The Spartan and it’s $18.  Bernard Salt would love to hear that.  But, I didn’t ask them how much for avocado and toast.

It couldn’t be $18 for avocado on toast, this place is not Vue de Monde, it’s cheap.

Well, there you are, he had his moment to tell me the price and he was busy.

I’m saying they’ve got a steak on top as well.  Anyway, we’ve got some questions.  This one is not from Twitter, it’s from Nick who says – before I get into this question do you know anything about stop losses?

No, to be honest with you I’ve never used one, no.

Nick says if I buy shares can I put a stop loss on them at say 5% so they are sold if they drop this amount?  Is a fee charged for this?  Also, do online platforms like E-Trade and CommSec also provide this facility?  Thanks for your podcast and answering my question.

I’m pretty certain the answer is yes to everything.  Yes, you can, yes they’ll do it, yes you can do it online, yes, and there is a fee, yes.

Well, that’s what I didn’t know, I didn’t know if there’s a fee.  I mean, there’s a fee for everything.

Yeah, there’s a cost in there, I can’t recall how it works.

Nothing is free.

Yeah, nothing is free, Nick, sorry.  Especially when you’re dealing with stock brokers.

So, we don’t know specifically whether there’s a fee for this but we’re guessing there is.  Here’s a question from someone who’s got two names.  One is the Monash Forum and the other is @socialdemocrat…

And neither of them are probably true.

Neither are true but they’re sort of a bit mutually exclusive I would have thought.  Mr Social Democrat, hello there.  He says if super was turned back into wages not current deposits, I mean the 9.5% contributions weekly, what would be the effect of this for inequality, poverty, homelessness, housing and the economy?  I should add that when I hadn’t answered that immediately he said…

I saw that, he said are you going to answer it or what?

Are you going to answer it or put in the too hard basket?

Yeah, give us a chance there Mr Social Democrat, we have to think it through.

Well, so anyway I looked it up and so the average weekly…

This question is basically – there’s someone asking for this, isn’t there, I mean there’s kind of a bit of a groundswell to scrap superannuation guarantee.

Yeah, but I mean they’re weeing into the wind, it’s not going to happen.  Anyway, so I looked it up, the average earnings are $81,000 per year, there are about 12,000,000 workers so it’s 12,000,000 times 81,000 which is a shitload, times…

The profanity is really going off the end of the runway on this episode today.

I’m sorry, James.  I actually worked it out before and I can’t remember the number now but it’s a lot.  It turns out to be 12 billion dollars extra money per year.

To the community.

If it was spent.  So, the answer is, Mr Social Democrat, it would make a difference if it was spent.

Yes, it would, but I suppose the question behind this is the SGC, are less well off people better off if they didn’t have the SGC, that’s the underpinning theme, isn’t it?

By which he means the super guarantee contribution.

The super guarantee which is 9.5%.  If you work you’ve got to pay 9.5% of your salary into super whether you like it or not, it’s the law, and it’s not the law in other countries so there’s an argument to say that people would be better off if they didn’t have to do it.  I don’t think so myself, I think it’s a good thing.

No, I’m not saying it’s a bad thing but if it wasn’t taken out and people spent it it would definitely boost the economy and would help poverty, homelessness, housing…

Short term it would, yeah, and everyone gets older and turns around in 20 years’ time and they all go on the pension.

That’s it, so there you go.  Question from Andrew Barrett, is now the best time to look at AMP as my super fund based on the theory that after an accident if the safest time to fly?  Now, there’s two ways to look at AMP, one is as your super fund and my view is that it’s a terrible super fund to have whether it’s now or not.

Hang on, does he mean to have a super fund with them?

Yes, have AMP as my super fund because they have super funds, right?

Yeah, retail, to use them.

And they’re bad super funds because their returns are sub-par and I don’t think they’re going to improve their returns after having had this accident.  However, the share price has fallen quite a lot and it may be a good time to buy the shares, maybe.  I’m not saying it is I’m just saying that there are some people who believe that this is a good time to buy any shares after they’ve had an exogenous shock like this and the shares have fallen for reasons other than the profits.

I’ve got to say to Andrew, though, history would suggest AMP is a perennially disappointing stock and this isn’t the first crisis it’s had and it’s been a very poor performer on the market.

You’d be much better off in an industry fund than AMP as your super fund, go into Australian Super or Host Plus.

The top 10 funds this year were all industry funds.

Yeah, and AMP wouldn’t be anywhere near the top 10, I’m just saying.

No.  Question from Geoff, is it possible to live off Newstart and Rent Assistance?  This is a good question.  Again, this is off the news cycle, Alan, in that to explain what’s going on here the question from Geoff is could you live on Newstart and for what it’s worth it’s $40 a day, that’s dole, what we used to call the dole.  The reason it’s an issue is because this woman who is a Liberal member for Chisolm, her name is Julie Banks, she went on radio yesterday and she said – you know, because everyone was saying it would be impossible to do and I think Bill Shorten said…

Well, Chris Richardson started it off, Chris Richardson of Deloitte Access Economics started it off by saying that it’s urgent to increase Newstart because it’s too low and it’s been allowed to fall too low, and he gets taken notice of because he is sort of a white haired conservative economist saying that you’ve got to put the dole up.

Yeah, and it’s fallen in real terms.  She came on radio playing her role as a Liberal Party person with the policy that they have and she said yes, I think I could live on $40 a day which is interesting particularly from her because it turns out on the parliamentary register she’s got five houses which is not unusual for a politician.  She’s got two houses and she’s got three investment properties, a home and I suppose some other house that she uses.  So, I’ve got to say the chances that someone with five houses really knows whether you could live on $40 a day are zilch.

Well, we can assume she perhaps burnt the midnight oil last night working out a budget, the $40 a day budget, so presumably it’s all there, would you like to see it?

I’d like to see, yes indeed.  I think both of us spend $40 easily by lunch time most days.  A question from Paul, do you agree that money is sentient?  Lord, what does that mean?

That’s a stupid question, come on, Paul.  You’re better than that, Paul, come on.

God, what does sentient mean again, it means it can feel or something like that.  Yeah, I don’t think so, Paul, I don’t think it’s sentient.  There you go, can we move on.  Question from Andrew.

I keep hearing that deposits are guaranteed up to $250,000 per account – this is your kind of question, James – but I read that it is capped up to $20 billion per ADI from the RBA.  How far should this go, should I still trust the guarantee?

Yeah, okay.  Quick one, Andrew.  Yes, you can trust the guarantee, that’s right, the person can have up to 250 in any bank and it’s guaranteed up to 250.  So, if you’re lucky enough to have more than 250 then put it in two banks.  As for the $20 billion per ADI well let me tell you if there’s a gigantic global banking crash the government will open up that $20 billion limit pretty fast because the four banks, as we say, are literally in our country too big to fail.  So, you can trust the guarantee.  The last question of the day, Alan, is from someone called – we’re really getting them today – Anarcho Taoist…

Yeah, I would have thought all Taoists are kind of anarchists, you would think.  They are followers of the way and – anyway.

I wouldn’t have thought they were actually very interested in banks but there you go.

No, well I’ve never heard of an Anarcho Taoist and I must say we are delighted to have an Anarcho Taoist following us.

Yeah, he’s the first or she’s the first, don’t know who it is.

Anyway, when the housing market collapses will it affect the banks and AMP?  Vortex down super – that’s a lovely expression, vortex down.  Will the government nationalise the remaining super to pay off national debt?  Well, I think our Anarcho Taoist we’d hope so, is all I can say.

Yes, you’d have to think so.  We would be dancing in the streets on that one if the housing market collapses.  Well, anyway they’d nationalise the banks before they’d nationalise super, I think.

So, when the housing market collapses – well, firstly it’s not going to collapse but if it did collapse would it affect the banks?  Definitely would.  I see, and the AMP thing is just a glitch, it’s not talking about AMP as such.  Anyway, vortex down super, well yes not a lot of super is invested in housing, the banks are invested in housing obviously by lending on it, they would fall, super would fall.

But, actually, Anarcho we don’t think the housing market is going to collapse.  It’s going to slow down, it is slowing down.  First National annualised slow down since 2012 actually, just now.  So, it is slowing down but no sign of collapse I’m afraid.

And we’re going to go off and read our copy of Tao Te Ching now just to see if there’s any mention in there…

Of the Australian housing market.

That’s it.  Well, we should leave it there for today, James, it’s been great talking to you again as always in The Money Café.  Now, don’t forget, everyone, you can subscribe to The Money Café on Apple Podcasts or your app of choice and please leave a review or rating if you would, it helps everyone find it.  Also, send in a question, we’ll answer it, you can actually tweet the question now, if you like, at me and I’ll pass it on to those that collect these things.  You can tweet us any thoughts you like, just use the hashtag #themoneycafe, all one word, or e-mail us at hello@theconstantinvestor.com.  Until next week, I’m Alan Kohler, Publisher of The Constant Investor.

And I’m James Kirby, Wealth Editor of The Australian.