Yesterday we promised to explain exactly why this year is more like 2003 than 2008. Why we think that there’s a four-year long bull market coming for the Aussie market.
That might even be conservative. It could last a decade. And if it does, you could even see the ASX All Ords top 20,000 points. Sounds crazy, doesn’t it? 20,000 points. That’d be 3.16 times higher than it is today.
We’ve even put together a special report on why we think that’s going to happen. And you can find out more here, if you want the finer details.
And today we’ll demonstrate why it could be the Aussie Big Four banks that lead this charge. We’ll get to that in the briefest of moments.
Tough times for Teflon Tesla
We had to put in a quick section today on Tesla Inc. [NASDAQ:TSLA]. Tesla released their first quarter figures yesterday. Now, if you’ve been reading Money Morning for some time you’ll know we’re not great fans of Tesla. In fact we think they’re about five times overvalued.
We’re not saying their products aren’t any good. In fact we think that the world needs Tesla. Without them there wouldn’t be nearly as fast progress towards the future. And Elon Musk? Well he’s a bit of a nutty professor. And what he’s doing for the car, space, transportation, and green energy industries is nothing short of world changing.
But we think Tesla sucks as an investment right now. And based on their Q1 report, our view hasn’t changed. In fact, it’s even stronger. Our publisher, Kris Sayce, is on exactly the same page. We often share our musings on the ridiculousness of Tesla.
And after reading their Q1 report last night we sent this email to Kris. The subject line read: ‘Here’s why Tesla is a giant ponzi scheme.’
‘Net loss is more. Debt is $1bn more. Customer deposits are lower. Also, they make note that people are getting confused about the Model 3. Apparently people think it’s the updated, newer version of the Model S. No, no. It’s cheaper in every sense of the word. Methinks there’s going to be a lot of disappointed Model 3 owners, and deposits that pull out last minute. You don’t add that kind of info in a quarterly unless it’s a substantial problem.
‘And then Musk teases the Model Y that’s maybe coming…one day. Nothing to do with the Qtly, but hey whatever it takes to boost the price and distract the masses.’
Fortunately this time is seems the market is seeing through the fanfare. The stock is down almost 9% since Tuesday. But at US$295 a share we still think it’s about US$204 more expensive than it should be.
Back to the Banks…
We all love a to give the banks a good bash from time to time. And let’s be fair, they don’t really care about you. We mean that in the most sincere way. But think about it. You’re a necessary evil to them. If the bank had a choice to make money without you, they would.
For example, if they figured out they’d be more profitable without an entire retail bank business, they’d cut it. Clearly retail banking is huge to them, so that’s not going to happen. But if it meant better returns to shareholders, they’d do it.
In fact, if any business in the world could make money without customers, they’d have the ultimate business. But no such business exists. At the end of the day someone is always selling something to someone else. That’s how the world works.
The banks’ priority is shareholder returns. That’s their primary goal. If it weren’t, the board and management would get the boot. Welcome to the cutthroat world of banking.
If the cost of doing business is too high, then banks will trim the fat. Just like the recent decision by CBA to axe the corporate banking division of BankWest.
Or like ANZ’s recent decision to adopt ‘agile’ management.
ANZ is trying to emulate the tech giants of the world like Google. This ‘agile’ management does away with the typical hierarchy you seen in the banking world. Instead it focuses on core project teams and cross-operations.
Think of it like a whole bunch of different servers on a network. They all operate independently. They all do their own thing. But they’re all still connected and combined to power a huge network — like the internet.
And if one server is struggling with load, other servers can pick up the slack. Like shared resources. That’s generally how ‘agile’ teams work. Like one big network.
This isn’t happening at ANZ by chance of course. It’s internal. You see, the Big Four Aussie banks are trying to be more like tech companies. They know that their industry is in the midst of radical change.
The Blockchain boom
Everything from asset transfer to payments, remittance, currency, investing, deposits, and lending is at risk from tech companies. Every tech company that comes up with a better way to do what banks once did, eats directly into the big fours’ bottom lines. If you can’t beat ‘em, be like ‘em.
For instance, ANZ, CBA, NAB and Westpac are all investing in blockchain tech. A blockchain is the technology that cryptocurrencies like Bitcoin and Ethereum operate on.
CBA earlier this year built a blockchain for government bonds. It was even tested by the Queensland Treasury Corporation.
Global payments organisation SWIFT is developing a proof-of-concept blockchain project. The aim is to dramatically improve international transactions. One of the banks working with SWIFT on the project is ANZ.
In September last year NAB said they transferred $10 using blockchain tech. Jonathan Davey, GM said,
‘We believe that [blockchain] technology has the potential to not only deliver real-time international payments, but also improved security and efficiency of our payments systems, so this is an important piece of work.’
Even Westpac is in on the action. Last year Westpac put on a Blockchain Hackathon. The idea was to allow teams to create blockchain solutions live during the event.
The upside of this tech is massive. If every one of the Big Four adopts blockchain tech, they would all be better for it.
It would improve every aspect of the bank. Domestic and international payments would be cheaper and faster. Compliance and audit would be faster, more reliable and more accurate. Retail banking for people like you and I would be faster, safer and cheaper.
In our view, blockchain applications are the single biggest opportunity for Australia to lead the world. We lead the world during the commodities boom. And that saw a huge bull market from 2003–2007.
Now we can do it again. This time with the banks and the blockchain boom. It’s an opportunity for the Big Four to adopt tech set to revolutionise the global banking system.
Blockchain technology is early stage. It’s still almost experimental. But it has the potential to change the world from banking and finance to logistics, property, employment and investment.
The great bull run of the next four years is going to be driven by high-tech industry. And in Australia the biggest opportunity to cash in is via blockchain tech.
If the Big Four go hard at blockchain tech, they could become four of the most powerful banks in the world. And in doing so, they could drag the entire Aussie market higher with them.
The bull market is coming. It’s going to be built on the blockchain. And for investors, it’s going to be one hell of a ride.