asic

Those cheeky scamps at the Australian Securities & Investments Commission surprised everyone yesterday by ending early the ban on short selling of financial stocks.

Based on the reaction to the news you would think that short sellers have been sat on the ears for the last six months doing nothing, waiting for ASIC to remove the ban so they can charge headlong into the market.

It’s of note the major banks plus Macquarie were all down yesterday. Macquarie in fact lost 6%.

According to Chris Weston at IG Markets, “I don’t think [bands] would have been 3 per cent down if the ban were there. There is no way that Westpac should have been down by 3 per cent.”

Of course he’s right on that score. Based on what we’ve seen of the banking industry it should be trading for less than $1 – roughly the price of most of the stocks in the Australian Small Cap Investigator portfolio.

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When is competition good for the economy? Any time apart from now if you listen to the talking heads on the business channels and ‘respected experts.’

Early last week former Reserve Bank of Australia (RBA) governor Ian Macfarlane told an ASIC conference that Australian banks had survived the credit crunch because of the ‘Four Pillars’ banking policy.

You know our views on competition – Competition is the only way to ensure the consumer receives the best value. No ifs or buts. No exceptions. No “but not in this case.”

Yet the gist of Mr. Macfarlane’s comments was two-fold. First, that because the four major Australian banks are not able to merge with each other there was less focus on competition, which means the banks were able to take fewer risks.
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During the last few months we’ve shamelessly written that we believe the market has bottomed out. But just like the patient who is on life support, it is too early to tell whether it really will improve from here or whether it will have another cardiac arrest.

The only sector of the market we have been cautious on is financials. The banks especially. But now we are tempted to start whistling a different tune.

It’s risky because the Australian banks are not out of the woods yet. In fact some of them are only just starting to admit they have been hiding in the woods. Commonwealth Bank [ASX: CBA] springs to mind.

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Here’s a headline to warm your cockles, “US car giants ‘laugh at Aussie suckers.’” The Australian newspaper tells us that “former managing director of Mitsubishi Australia Graham Spurling said the car companies would get a “free ride” from the Rudd Government on research and development.”

Obviously having a domestic manufacturing industry is important. And it is preferable that it is an Australian business so that investment and profits remain on shore. If that isn’t possible then the next best thing is for foreign businesses to invest in Australia. At least that way it creates jobs for the economy which means employees will spend their wages domestically.

The third option is that the manufacturing is done offshore and delivered to Australian distributors who then mark up the price for a profit so then again at least some of the profits remain on shore.

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