It’s a big week for Aussie banks. Nothing like a few billion in profit to put the fear of god into markets.
This week ANZ [ASX:ANZ] released their first half results to market. A cash profit of $3.4 billion. Not bad. Certainly better than their first half from 2016.
In February Commonwealth Bank [ASX:CBA] released their first half results. Their profit was $4.9 billion.
And in the next few days NAB [ASX:NAB] and Westpac [ASX:WBC] will release their results.
It’s fair to say that you can expect both of them to report profits in the billions too.
All up we’re probably looking at somewhere around $15 billion to $16 billion in first half profits from the ‘Big Four’.
Since CBA’s results their stock price has gone up slightly. Very slightly. Around 3.29% in total. Since ANZ’s results this week their stock price is down around 4%. Clearly the market doesn’t like billion in cash. Always wanting more…
With Westpac and NAB to come, how do we expect it to play out? Probably the same as ANZ and CBA. More profit, and probably more market worry.
And you can expect the broader ASX/200 to follow suit.
As Greg Canavan pointed out in Tuesday’s Money Morning,
‘The big four banks make up around 25% of the ASX 200 index. When they do well, ‘the market’ does well.
‘The banks are also a good barometer for the health of Australia’s heavily financialised economy.’
That means if it’s trouble for the Big Four then it’s going to be trouble for the broader ‘market’.
But what if it’s not trouble for the Big Four?
What if they’re about to drag the entire Aussie market to record highs over the coming four years? What if Australia’s economy is actually on the verge of something great?
Instead of looking at ANZ’s $3.4 billion profit and selling the stock, like most of the market, why not buy up in spades?
Think like its 2003, not 2008
Back in 2003 the ASX/200 was at around 2,750 points. Four years later it was at 6,748 points. That’s the broad market.
You could buy stock in BHP Billiton [ASX:BHP] for around $9. From there it went on a five year run, up to $48. Commonwealth Bank at the time was in the same boat. In 2003 a single share was around $24. Four years later that single stock was worth over $60. Heck, even Woolworths [ASX:WOW] went from just over $11 to more than $33.
Let’s remember here, we’re talking about huge companies. In this case Australia’s biggest miner, biggest bank and biggest supermarket. Back in 2003 they were huge. By 2007 they were ‘uber-huge’.
Of course we know why they increased in price so much. Australia was riding the commodities boom, while the world was in one giant bull market.
Sure, the party ended a little later. But if you’d cashed out in 2007, then you wouldn’t give two hoots about 2008–2009.
Now it appears on the surface that today the Aussie economy is on shaky ground. It appears that the Big Four banks are also on shaky ground.
The overall market is ready to sell off at the whiff of trouble — as we saw with ANZ this week.
But again, I ask the question…what if it’s more like 2003 than 2008?
Instead of waiting, and waiting, and waiting for another crash, what if you changed your mindset? Perhaps we’re at the base of another incredible bull market?
How can I possibly suggest that? Let me tell you…
No one thought we’d have a huge, four year bull market in 2003. In fact, here’s an article from CNN Asia in 2003. The headline reads, ‘Australian consumer confidence sags’. The article goes on to say,
‘Consumer confidence in Australia plunged sharply in February under the weight of global tensions, stock-market weakness and the nagging impact of drought.
‘The consumer sentiment index compiled by Westpac Bank and the Melbourne Institute fell 7.8 percent month on month to 99.7, the lowest level since May 2001.’
Whoa! Stock-market weakness. Global tensions. Sound eerily familiar?
Here’s some more from just two years later in 2005. This time from the ABC. The headline reads, ‘Consumer confidence slide continues.’
‘The Westpac/Melbourne Institute index of consumer sentiment, a key measure of consumer confidence, has sunk to a new two-and-a-half year low.
‘Last week’s two-day share market plunge of 4.2 per cent and the failure of petrol prices to subside any further have done the damage.
‘The index of consumer sentiment has followed up last month’s 13.3 per cent slump — the eighth largest in the index’s history — with a further decline of 1.6 per cent.’
Oh no. A huge plunge in the market. Market turmoil! Dejavu?
At the time of that article in October 2005 the ASX 200 was at 4,450 points. That’s 61% higher than just two years earlier.
The point here is that not many saw the bull market that was coming. No one really saw the broader market rising for four consecutive years.
Sure it did halve in 2008. But if you’d already made two and half times, three times and over five times your money with CBA, WOW and BHP, then you wouldn’t care.
If in 2003 you had been a ‘nervous nelly’ then you might have sat on the sideline.
If by 2005 you had seen the market rise and thought it would all crash then you might have sat on the sideline.
If by 2007 you were adamant that this bull market couldn’t continue much longer…well you would have been right. And sitting on sidelines then was a good call.
But by then you would have missed out on four years of astonishing gains.
If you constantly wait for a crash, then eventually you’ll be right. But wait long enough and you’ll miss every opportunity that comes before it.
In tomorrow’s Money Morning I’ll tell you exactly why we’re more like 2003 than 2008. And tell you exactly why it might just be the Aussie ‘Big Four’ that leads the way.