3 August 2021
1300 794 893

Time and a place for bank bashing but maybe now isn't the time!

Peter Switzer
27 June 2017

By Peter Switzer

The one big economic benefit of taking an overseas holiday is to put into perspective just how important we are in the grand scheme of things. This is not to say that we are not important — we are as a member of the top 20 countries of the world — but there are so many things going on outside of our borders, which are actually heading in the right direction right now, and they should be good for us as well.

If this continues, it adds to my general optimism that stocks can go higher, our economy can pick up its growth rate, and jobs can be created. Of course if that happens, then tax receipts should increase and government spending can be pared back, which is good news for those who need to worry about our budget deficit and rising debt levels.

Those who would change the world for the social good often are a little too close to cloud cuckoo land when it comes to the economic implications of righting the wrongs of capitalism too fast and at the wrong time. 

Bank bashing and coal cursing are cases in point, and while better behaving banks and a reduced reliance on the coal that pollutes the atmosphere are worthy causes, so is creating a healthy economy that provides jobs.

There is a lot of happiness that comes out of people being employed, being able to pay off a home loan, and ensuring their kids don’t have to live with a mum or dad out of work.

I’m currently in Italy, where the debt to GDP ratio is 132% and a couple of regional banks were this week bailed out by a deal with the European Commission and the country’s second largest bank — Intesa Sanpaolo.

Those who do criticism as a life imperative often whinge about the taxpayer implications of bank bail outs, but they never seem to think seriously and deeply about the alternative scenario.

We’ve had similar arguments here and the recent bank levy and the South Australian Government’s tax on banks is starting to split the commentators on what looks like politically ideological lines.

Mind you, I think our banks can endure these left-field levies, but they are not economically ideal. However, as we have a Senate that says no and a Turnbull Government that has a slimmest of slim majorities in the House of Reps, slugging banks looks like the least politically harmful trick for those running the place out of Canberra.

The point I need to make is that the overall vibe from the three key areas that drive stocks prices — economic growth, earnings and future positive policies — remains good right now. And that’s despite the disappointment about Donald Trump’s tax plans, which look like they could be delayed longer than the market would like.

Ultimately these three key drivers of stock prices are also a guide for economic optimism, economic potential and the related happiness that can stem from these.

So my argument gets down to this: with the good stories outpointing the bad stories right now, stock markets are fighting gravity bravely and that’s despite an unbelievable amount of political instability from the UK to the USA to France and to our own Australia.

Yet optimism is winning such that CNBC ran with this headline overnight: “Stock markets buoyed by Italian banks rescue…”

Want more good news headlines? Well try this from CNBC as well overnight: “Greek yields hit lowest level since 2009…”

In case you don’t understand bond talk, when yields fall for bonds like those of the Greeks, it says lenders are less worried about the good old Greeks. It's also a plus for the European economic outlook and in turn it’s a positive for global growth, which is good for an economy like ours that sells a lot of exports to the world economy.

So the Italians and the Greeks are now being positives for stocks and that represents progress from where we were during the GFC and even compared to two years ago when Grexit was spooking the hell out of stock markets.

If I had my way, I would prefer the enemies of capitalist economies to hold back on vindictive, economically-inhibiting policies until we are totally out of the woods.

I can imagine a time in the not too distant future, say when Mr Trump’s tax policies get the thumbs up, stock markets are spiking higher, the European economy is continuing its comeback trail and China is still looking strong, where tougher policies on banks, for example, could be coped with better because the economy is stronger.

I only wish someone in Parliament would make this reasonable case more often. If they did, voters might actually think the country’s leaders are making such sensible arguments that they might be worth voting for!

Want to know the 7 stocks our experts are buying in August?

We're giving you unprecedented FREE access to find out which stocks our experts in the Switzer Report team are looking to buy in August and beyond!

Get the latest financial, business, and political expert commentary delivered to your inbox.

When you sign up, we will never give away or sell or barter or trade your email address.

And you can unsubscribe at any time!
1300 794 893
© 2006-2021 Switzer. All Rights Reserved. Australian Financial Services Licence Number 286531. 
homeshopping-cartphoneenvelopedollargraduation-cap linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram