Why Your Bank is Lying to You
Malcolm, I feel for you, brother.
On Wednesday, after the banks behaved like brats by not passing on all of the Reserve Bank’s rate cut, the Prime Minister held a press conference. He said -- essentially word for word -- the same things I say to my toddler each night at the dinner table:
“Your behaviour is just totally unacceptable. We treat you so well -- and this is how you repay us?! I think you need to explain your behaviour -- very clearly -- to your mother … because I am very disappointed in you. Now I demand that you eat all your vegetables!”
At which point my son pushes his bowl off the table and brussels sprouts go everywhere, and he grins at me as if to say, ‘and what are you going to do about it?’
Or in the case of the banks, they collude, collectively trouser $917 million … and grin even harder when Malcolm ‘demands’ they pass on the cut in full. They know he doesn’t have the mettle to put them over his knee and give them a politically incorrect spanking.
Yet the truth is, it’s not the banks’ fault for acting this way, any more than a tantrum-throwing toddler.
It’s our fault.
Just like parents, we set the rules and we decide what is acceptable behaviour:
We created these four precocious banking brats when we enshrined the ‘four pillars’ policy.
We underwrote their deposits.
And we have continually turned a blind eye to their naughty ways -- like when they rig interest rates, or when their financial planners rip off their customers’ life savings. Or, in the case of Commonwealth Bank, when they callously knock back insurance claims (like the case of the young dad with terminal cancer), simply because they can.
Former ANZ chief John McFarlane this week said he was ashamed at the reputation of our banks. "I joined the industry over 40 years ago where the bank manager was the doyen of the community".
McFarlane says that it’s no longer sufficient for banks to have an agenda "purely around shareholder value".
Easy for him to say, of course -- he retired in 2007 with a final salary of $4.2 million and a swag of shares worth $61 million. The bloke who took over from him, Mike Smith, was paid $88 million for his eight years of service -- over which time ANZ’s market value actually fell by 6 per cent. Where’s the value for the shareholder in that?
The banking lobbyists -- who I know and love so well -- will trot out the only argument they have: the Australian economy needs strong banks. And they’re totally right. The ‘net interest margin’ (the difference between what they pay on deposits and what they charge borrowers) needs to be maintained. Yet when four companies make a collective $30 billion in profits this year -- they’re in no danger of going broke.
Yes, we need strong banks, but what we need even more is strong customers.
The truth is that the banks are lying.
They can afford to give you an interest rate cut -- maybe even two or three.
You see, it costs your bank about $1,000 in marketing costs to replace you (and about six times that amount if you come via a mortgage broker they pay kickbacks to). That’s your negotiating power right there.
Here’s how to use it.On your way home from work, ring your bank and say this:
"I’ve decided to move my business over to Reduce Home Loans, who are offering me a comparison rate of 3.44 per cent. I’ve completed the online application, so can you please tell me what steps I have to do to move across my mortgage?"
This is a bluff, of course.Yet the bank’s sales team have strict targets (backed by incentives) they have to meet -- one of which is retaining profitable customers by giving them discounts to keep their business.
Sure it’s not as sexy as giving you a stock tip, but it works, and your gains are guaranteed.
Now let’s talk about another petulant child, Donald Trump.
Trump Says It's Time To Sell Stocks, Warns Of "Very Scary Scenarios" For Investors
Yes, you read that right.
The man who wants to be the leader of the biggest and most successful economy in the world is advising people to sell their stocks.
And maybe we should listen to him, because, like all things Trump does, he says he's the best.
While he’s admitted that he’s not much of a stock investor, he’s also claimed that 40 out of 45 of his stock purchases “rose substantially in a short period of time”. Analysis by Bloomberg suggests that if this is actually true it would rank him among the world’s top stock pickers.
More likely is that Trump is the Kim Jong Un of the stock picking world. The tubby leader doesn’t always play golf, but when he does he scores a hole in one, on every hole!
The world’s greatest investor of all time, Warren Buffett, is not having a bar of the Trump bulldust.
Says Buffett of Trump: “In 1995, when he listed Trump Entertainment and Resorts on the stock exchange, if a monkey had thrown a dart at the stock page, the monkey on average would've made 150% over the next decade. But the people that believed in him, who listened to his siren song, ended up losing well over 90 cents in the dollar. They got back less than a dime. I've really never known another businessman that brags about his bankruptcies.”
Yet maybe Trump has another angle for talking down the share market.
After all, according to S&P Global Market Intelligence, the performance of the Dow Jones in the three months leading up to a presidential election has displayed an uncanny ability to forecast who’ll win the White House. Historically, if stocks rise in price in the next three months, the incumbent party -- this year, Hillary -- wins the election 82% of the time. (And the opposite is true if stocks drop -- at least that’s what Donald’s banking on.)
Yet another reason to will the sharemarket higher.
Tread Your Own Path!
Reminder: I first wrote about this years ago and highlighted the low costs. Today there are better deals on offer. How do I know? Because my readers constantly email me about them! So before you do anything, do a quick google.
