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CBA boss and I have a lot in ‘Comyn’!

Peter Switzer
10 February 2022

I like it when the CEO of Australia’s biggest bank agrees with me on the economy going forward. And while it shores up my ego that my forecasting powers are still at least on par with the economics team at the CBA, it also makes my expectation more credible that stocks can go up by 10% at least this year.

For my Monday Switzer Investing program, I recently interviewed Chris Joye, who predicted a 30-60% fall in stocks. Someone called Jones thought my call was “comedy gold!” I like this turn of phrase but didn’t like this guy’s ignorance of my predicting record.

(You can catch that here.)

I guess he could be a youngster or a recent discoverer of my work! More on my 10% call later.

Now back to CBA’s CEO, Matt Comyn, and what his profit report told us. Here it is in a nutshell:

1. CBA’s boss sees strong economic growth at least to the end of 2023.

2. Unemployment goes into the low 3% region, which hasn’t happened since the 1970s.

3. Underlying inflation will average between 3-3.25% in 2022, which isn’t disastrous.

4. The cash rate target will rise from 10 basis points to 75 basis points by the end of this year, and 1.25% by ‘‘mid to late’’ 2023.

5. If you borrowed at 3%, then by late next year you’ll be paying 4.15%, which is his best guess.

6. Matt Comyn thinks borrowers can “absorb” these rises and implies this should chase away recession talk.

7. Finally, these interest rate rises will push house prices down 10% in 2023.

And borrowers will love this suggestion from the CBA boss: the RBA will use a ‘‘gradual and modest’’ approach to raising interest rates because it could have an adverse effect on those with big home loans.

In many ways, Comyn has shown a better understanding of RBA Governor Dr Phil Lowe, who’s clearly in no rush to raise rates. ‘‘We think rates will go up quite slowly,’’ Mr Comyn said. ‘‘We expect the strong economic momentum to carry through to at least the end of 2023 and feel very optimistic about the outlook for the Australian economy over this period.’’

The bank’s profit show-and-tell yesterday revealed that cash profit for the six months to December was up 23% to $4.7bn, thanks to after record growth in home loans, business loans and deposits.

The good showing means CBA will send $5bn worth of cash to shareholders via a $3bn interim dividend and an additional $2bn share buyback. Not surprisingly, the stock closed up 5.58% to $99.56.

A few months ago, our Switzer Report was tipping a good year for energy, iron ore and financial stocks and that seems to be playing out. And all we need is Omicron to keep on being a lesser threat and we have to hope no new business-bashing variants come along.

In that context, I look at the CBA’s positive view for growth, jobs, wages and the slow raising of interest rates. And this should all roll into company profits and share prices — just like it did for all banks yesterday.

Provided no new Coronavirus curveballs happen this year, I think that the $245bn worth of savings we have stashed away will power a lot of buying that will feed into company profits and share prices.

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