And now for a Commonwealth Bank bubble

Is the Commonwealth Bank now a tech growth stock? Because it sure ain’t trading like a bank. You know, the boring, slow, reliable dividend growth of a utility. None of that, thanks. Apparently, it’s a 21x forward earnings, massively margined, FAANG or similar. The highest ever over-valuation by a country mile:

The other banks are all on 15x and lower, also high but justifiable given the state of the cycle and policy support. The yield is still good. They’re all going to write back lots of provisions, asset growth is solid and macroprudential not coming for a while yet.

MB Fund has enjoyed the CBA run into the stratosphere. But at 21x forward with a near 50% premium to other banks that are exactly the same beyond a few systems advantages, the CBA is preposterously overpriced.

QE does not explain it. Inflation does not justify it. The economy does not legitimise it. The business does not support it.

It’s another bubble.

Houses and Holes
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Comments

    • strange economicsMEMBER

      Banks are doing well – just vampires on this latest govt pumped up house price boom,so willalso go up 10% a year forever. With 3 times margin leverage thats 30% a year forever. Beats bitcoin.

  1. MathiasMEMBER

    Aussie Stocks have been overpriced for a VERY long time. People like em, I guess… but I wouldnt touch em.

    I traded Health Care once. Those did very well… but I’d rather keep one foot close to the door these days.

    I dont trust politicians. I dont trust Australians. I dont trust whats going in Australia today.

    I havent bought a single stock since 2010.

    If I remember my dates, CBA was the Bank that jacked up its Account Keeping Fee’s back in 2008 phenomenally. They where charging people $5 bucks per month just to keep money in the bank. I told them to stick it up there a$$ and went elsewhere. They are the ‘hi-tech bank’ but you sure as hell pay for it. They are expensive as hell.

    BHP, CBA, Telstra… all old farts shares. Boomers like that stuff. Get all giggly excited over it. Its bluechip. It cant fail. It pays dividends which subs as my pension. Then I can afford my bingo outings and go grey nomad.

    Yep. Boomers like that stuff. I found Dividends are the worst way to invest but still, Boomers like that stuff.

    I used to do naughty things to extract data I wasnt supposed to have, pipe it into a large database and formulate all the calculations. As long as your data was kept up to date, it made it dead simple to trade shares.

    Its amazing how many people buy shares that dont actually generate any cashflow ha ha. You’d think, ” The business needs to actually make money ” would be one your first criterion. Not for a Boomer.

    • To be fair, the generations after the boomers are the ones who have taken buying shares in businesses that never make a profit to another level.

  2. BubbleyMEMBER

    Been watching a bit of Charlie Munger, Rush, Buffet, Dalio and few other heavy hitters – and they all expect a dramatic drop.

    They can’t see the fundamentals justifying the prices and all think its bubbly. Many of them seem to think its because people are at home during Covid and had time and money to dabble in the stock market. The result of millions of people dabbling is a frothy stock exchange.

    Of course a few of them have predicted 11 of the last 2 market drops.

  3. RanganutsMEMBER

    Everyone said they were overpriced when I bought them at $65 a year ago. Im still holding. Ive always invested in banks and will continue to do so.

    Banks are becoming tech stocks because their investment in automation and streamlining manual redundant systems is out of this world. They are huge beneficiaries of IT advancement. Plus they have the majority of Australians locked into a lifetime subscription service – a big fat mortgage.

  4. Even StevenMEMBER

    1. Stocks generally still offer some of the best value in a world where almost everything is overvalued due to ultra low interest rates.
    2. DLS’ characterisation of CBA as a bubble is hyperbole. Overvalued, sure, but 21x PE (earnings yield of 5% p.a.) is hardly extreme when term deposits are paying around 0.5%.
    3. Notwithstanding above, selling CBA and buying the other banks is a smart relative play.