Andy Semple

So just how BIG are our “Big Four Banks?”

On the back of a pretty good first half profit result for ANZ bank has seen it, CBA and WBC make fresh record price highs today and the combined market capitalisation of the four major Australian banks (ANZ, CBA, NAB, WBC) in US dollar terms is now $403.25B.

• That is equal to the world’s largest public company Apple, who is capped at $403.7B.

• That is larger than the world’s second-largest public company Exxon Mobil, who is capped at $395.2B.

• That is larger than the combined capitalisation of Bank of America, Citigroup, Morgan Stanley and Goldman Sachs, who are on net capped at $389.7B.

• That is equal to the capitalisation of Banco Santander, Barclays, BNP Paribas, Credit Suisse, Deutsche Bank, Royal Bank of Scotland and UBS, who are on net capped at $404.6B US dollar terms).

So what’s the bet that Wayne Swan will now want to rip more taxation from our highly successful banking sector? I mean, it’s not like he’s gone after other sectors of the market before, right?

 

 

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So is the US Fed behind the recent Gold price crash?

Do yourself a favour and read Paul Craig Roberts’ excellent article. There is plenty of circumstantial evidence to suggest the Fed’s finger prints are all over the recent Gold Price correction.

 

 

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OVERDOSE: The Next Financial Crisis

It might be the start of a bull market, but there are plenty of risks still out there.

Winner - Best Documentary - San Francisco Frozen Film Festival

  

 

 

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Swannee’s MRRT is looking like a Dead Duck

Not only is Swannee’s MRRT looking like a dead duck, he can now effectively kiss good-bye any chance of Labor delivering a budget surplus next year.

Australian Foundation Investment Co. (AFI.AU), a fund that owns shares in BHP Billiton Ltd. (BHP, BHP.AU), said Sunday that it would encourage miners to reassess the viability of new projects amid softer commodity prices.

Although there is likely to be a lot more economic growth in China, a period of very high commodity prices appears to be coming to an end, AFI Chief Executive Ross Barker told the Australian Broadcasting Corp. in a television interview. AFI owns less than 1% of BHP Billiton shares.

"There are still an enormously large number of mining projects in train and on the drawing board in Australia. The big question for immediate- to long-term investors is how many of those will actually get up," Mr. Barker said.

His comments come after the Australian newspaper, citing documents it obtained from an unidentified consultancy, reported that BHP Billiton has delayed by two years, to 2014, a decision on whether to proceed with the A$30 billion expansion of the Olympic Dam uranium, copper and gold mine in South Australia state.

Representatives for BHP Billiton in Sydney wouldn't comment Sunday on the company's timetable for Olympic Dam.

"We will approve projects in a sequence that maximizes value, reduces risk and balances the consideration of short- and long-term returns," a BHP spokeswoman said.

 

 

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Labor’s New FOFA Law Actively Discriminates against ASIC Licensed Non-ASX Participants

FOFA is the acronym for the government’s Future of Financial Advice reforms but it might as well stand for “F..k off (non-ASX participant) Financial Advisers.”

Let me explain why the FOFA legislation passed into law last week actively discriminates against ASIC licensed non-ASX participants like my company, ANDIKA Pty Ltd (AFSL# 297069). The relevant section is below:

7.7A.4.12 Conflicted Remuneration—Monetary Benefit

Brokerage fees given to representatives

(6) The monetary benefit is not conflicted remuneration if:

(a) the benefit consists of a percentage, of no more than 100%, of a brokerage fee that is given to a provider who is a participant in a licensed market; and

(b) the provider gives the benefit to a representative of the provider; and

(c) the provider has anti-churning arrangements in place.

The evil part of 7.7A.4.12 (6) (a) is the fact that this legislation WAS amended to specifically discriminate against ASIC licensed non-ASX participants. From the 1^st July 2013, ASX participant firms WILL be allowed to continue to charge their Retail clients brokerage. The same ASIC AFS Licensed non-ASX participants, like ANDIKA (and approximately 450 other small AFS licensed firms), WON’T be able to charge their Retail clients brokerage. The law as it stands actively discriminates against the non-ASX participants.  This provision was inserted late in the proceedings, and the amendments have been made and passed into law without consultation with the non-ASX participant AFS Licence holders.  In my opinion, this will ensure that non-ASX participants will be crushed, and reeks of either malice or outright idiocy.

I have heard anecdotally that the Stockbrokers Association of Australia (SAA), (led by Managing Director and CEO, Mr. David Horsfield), lobbied the Minister and Treasury hard for this amendment (refer to the copy of email below from the SAA that was sent to all member CEO's, Retail Broking Committee, and Retail Compliance Sub-Committee).

I was once a member of the SAA. I was actually contracted by the SAA for several years to conduct their Options and Margin Lending educational workshops in Brisbane.

In 2010 the SAA opened applications for new board members, and I thought that I’d throw my hat in the ring, so I nominated. That was as far as I got.  I was informed by Mr. Horsfield in person that, even though ANDIKA was a fully paid up member, I would not be allowed to nominate, as my company was not an ASX participant. 

Naturally, I was disgusted, as I had been a member of the SAA’s since its inception (when they were known as the Securities and Derivatives Association or SDIA).  I had been under the impression that the SAA was there to actively represent all of its members, not just the ASX participant members. I immediately resigned my membership and made my opinion known to Mr. Horsfield.

The Australasian Securities Dealer Association (ASDA) notes in their 19^th June media release that “approximately 450 firms provide advice and trade in direct equities and options on behalf of around 2.2 million Australian clients that will be directly affected by this legislation.”

This one amendment made in favour of the “top end of town” will have severe consequences, not only for ASIC licensed firms like ANDIKA, but also for millions of Australian “mum and dad” retail investors.

It is the non-participant firms that deal with the small retail client, who from time to time might like to buy or sell a few shares. We also deal with the retail client who is sick of having (often unsolicited) corporate products forced upon them by the large multi-national broking houses. We deal with the retail clients who want real independent advice, not advice that’s in the best interests of the Corporate/Institutional broking arms of the Martin Place wizards. We provide competition to the sector that helps to keep brokerage fees low and equitable, and provides access to professional licensed stockbroking services to the smaller retail investors.  Our existence provides much needed market liquidity to the ASX, which in turn helps to provide a sound and more transparent stock market. We employ thousands of fellow Australians, pay our ASIC Licensing fees, along with our share of corporate taxation.

If this legislation is not amended immediately, a vocal bunch of Collins Street and Martin Place elites will have succeeded in subverting the FOFA legislation to ensure that their ultimate goal of crushing their small business competitors is realised.

You might find yourself asking “why not just join them”, instead of trying to have your voice heard on this legislation, and become an ASX participant.  It’s quite simple, in order to become an ASX participant you must have at least $10 million in surplus capital – I don’t know of any small or medium business enterprises that have that amount of surplus capital laying around.

Section 7.7A.4.12 (6) (a) must be amended to ensure that non-ASX participants are not discriminated against, and I urge the Hon Bill Shorten MP, Minister for Finance, to put an immediate end to this discriminative legislative action.

If the Hon Bill Shorten doesn’t make this amendment, he has effectively signed the death warrant for 450 perfectly viable Australian firms, and put the very people he wants to protect, the small retail “mum and dad” investors, at the mercy of the “big end of town”.

It is also important to remember that the large multinational stockbroking houses played a significant role in the GFC, not the small non-ASX participant Australian security businesses that are being discriminated against with this legislation.

You can read a copy of my letter here, which was sent on the 22^nd June to the Department of Treasury – who have asked for submissions - and was also cc’d to the Hon Bill Shorten MP, Minister for Finance.

You can also read here, the media release from the ASDA, dated 19^th June, 2012.

UPDATE:

Below is a copy of email from Mr. Doug Clark, Policy Executive - Stockbrokers Association of Australia. I received this copy on 21^st  June.

(Emphasis Added)

To All CEO's, Retail Broking Committee, and Retail Compliance Sub-Committee  
 
Dear Member,
 
STOCKBROKERS CARVE-OUTS RELEASED
 
Late yesterday, Treasury released the draft FOFA regulations which give effect to the long-awaited stockbrokers carve-outs.  The draft regulations, available hereinclude measures to:

• exempt ‘stamping fees’ from the ban on conflicted remuneration; and
• exempt employee remuneration for market participants based on a split of brokerage from the ban on conflicted remuneration.  

Importantly, the splitting brokerage carve-out ONLY applies to market participants (subject to anti-churning measures which Treasury flagged to us, and which brokers already have). Limiting this to market participants is recognition of the status of market participant and the additional responsibilities, financial strength and higher standards that come with it.  
 
The argument we put for the stamping fee carve-out was that prohibiting stamping fees would impede capital raisings, especially by small to mid cap companies. Accordingly, the carve-out does not extend to new issues by listed investment companies, since they don't raise capital in the normal sense.
 
Thanks are due to all the members who participated in our lobbying efforts to achieve this, especially those senior members of the Board and Retail Broking Committee who accompanied us to Canberra to meet with Treasury and the Minister.  
 
Treasury is seeking comments on the draft regs by Tuesday 28 June 2012.  While we have been closely involved in the framing of these carve-outs, we will be submitting Members' additional comments by then.  The two FOFA Bills have passed the House of Representatives, and return to the Senate during the sittings 18-28 June, so FOFA appears on track to commence 1 July (with a one year transition) as previously announced.
 
Kind regards,
 
Doug Clark
Policy Executive
Stockbrokers Association of Australia
T: +612 8080 3200
M:+61 (0)417 168804
F: +612 8080 3299
A: Level 6, 56 Pitt Street, Sydney NSW 2000
P: PO Box R1461, Royal Exchange NSW 1225
www.stockbrokers.org.au

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The Market’s Verdict Is In: Green Energy is a Massive Market Failure

From the GWPF:

The RENIXX Index of the 30 largest renewable energy companies in the world is trading at an all-time low and has lost over 90% of its value since 2008. A partial listing of green energy companies that have already filed bankruptcy or are teetering on the brink is below. Many of these companies were financed by taxpayers.

The RENIXX^® (Renewable Energy Industrial Index) World is the first global stock index, which comprises the performance of the world´s 30 largest companies of the renewable energy industry

Filed Bankruptcy:

Solyndra
Beacon Power
Ener1
Range Fuels
Solar Trust of America
Spectrawatt
Evergreen Solar
Eastern Energy
Unisolar
Bright Automotive
Olson's Crop Service
Energy Conversion Devices
Sovello
Siag
Solon
Q-Cells
Mountain Plaza

Teetering on the Brink:

Abound Solar
A123 Systems
Brightsource Energy
Fisker Automotive
First Solar
Nevada Geothermal
SunPower
Nordex
The Bard Group
Amonix
NRG Energy
Alterra Power
Enel Green Power
Sunpower Corp

AGW is nothing but a scam.

 

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How I made 14.07% in 53 days trading XJO options over the STW ETF

The ANDIKA BULLetin presents short and long term trading opportunities on the ASX.

Here is how I made 14.07% in 53 days trading XJO options over the STW ETF.

On 12^th January 2012, I purchased for my SMSF 600 STW @ $39.13 (XJO @ 4173.6)

I then immediately sold 6 XJO MAR12 4400 calls for 38 points (each point is worth $10)

On 17^th January I then sold the following MAR12 XJO bull put spread:

Sold 6 XJO MAR12 4000 puts for 62 points

Bought 6 XJO MAR12 3700 puts for 22 points (earning a net credit of 40 points).

On 19^th January 2012, I purchased a further 300 STW @ $39.49 (XJO @ 4164.9)

I then immediately sold 3 more XJO MAR12 4400 calls for 36 points.

The following trading day, I sold 3 more of the MAR12 XJO bull put spread:

Sold 3 XJO MAR12 4000 puts for 47 points.

Bought 3 XJO MAR12 3700 puts for 16 points (earning a net credit of 31 points).

On 29^th February 2012, I closed out the 9 XJO MAR12 4000 puts for 5 points.

On 5^th March 2012, I closed out the 9 XJO MAR12 4400 calls for 5 points also.

The total capital employed into the STW after brokerage was $35,713.58

The total XJO Premium received net after brokerage and OCH fees was $5,024.65

The net premium earned represents a return of approximately 14.07%. When annualised it is a mind boggling 96.89%

On 21^st February 2012, I purchased a further 175 STW @ $40.06

The XJO covered combo strategy has now been re-set for the JUN12 XJO expiry.

On 29^th February 2012 I sold the following JUN12 XJO bull put spread:

Sold 10 XJO JUN12 4150 puts for 96 points.

Bought 10 XJO JUN12 3850 puts for 43 points (earning a net credit of 53 points).

On 5^th March 2012, I purchased a further 350 STW @ $40.15. My SMSF now owns 1,425 STW at an average price of $40.025 (I’m using the XJO premium earned to buy more STW, thus compounding my investment).

I then immediately sold 14 XJO JUN12 4500 calls for 54 points (each point is worth $10).

As at COB 6^th March 2012, the STW closed at $39.66 and the XJO closed at 4204.70.

The investment in STW now stands at $57,035.66 compared to the initial starting investment of $35,713.58

Since inception, the total XJO Premium received net after brokerage and OCH fees is $16,485.02

All the option premium has be re-invested into more STW (along with $4,837 coming from super contributions).

Copies of the actual trading contract notes can be provided on request for verification.

Please contact Andy Semple, Managing Director, of ANDIKA on 07 5657 3620 for more information.

S&P's Ratings Report of SPDR S&P/ASX 200 Fund (STW)

Rated Very Strong. Click the link above to download the S&P's detailed product assessment.

 

RISKS

There are two downside risks all investors need to be aware of. 1) Should the S&P/ASX200 index decline in value, this will also result in the STW declining in value.

2) Should the S&P/ASX200 decline in value, the sold XJO JUN12 4150 put option risks becoming in-the-money and the investor is therefore exposed to the cash difference between the strike price of the option and the closing price of the XJO at expiry. However, the downside risk is limited to the difference between the sold strike of 4150 and bought strike of 3850 points – 300 points or $3,000 per contract.

Should the S&P/ASX200 rise in value, the sold XJO JUN12 4500 call option risks becoming in-the-money and the investor is therefore exposed to the cash difference between the strike price of the option and the closing price of the XJO at expiry. However, the ownership of the STW will off-set any risk above 4,500 points.

 

What to learn more?

If you like to learn more about Exchange Trade Options and how they can enhance returns, please visit the ANDIKA Options Made Easy page.

Here you will find informative videos on what options are and how to trade them like a seasoned pro.

You can also download a free copy of my book, Options Made Easy.

Important Information:

This information contains unsolicited general information only, without regard to any individual’s investment objectives, financial situation or needs. It is not specific advice for any particular investor or trader. Investment in the stock market involves risk. 

This document may not take into account your investment objectives or financial situation and you should obtain advice based on your own individual circumstances before making an investment decision.

This document is made available to you by ANDIKA Pty Limited ABN 41 117 403 326, a licensed securities and derivatives dealer.

While the ASX200 Index Flounders, the Dow Jones Index Booms

The Dow Jones Industrial Average closed at 12,980 points on 1^st March 2012.

The last time the Dow Jones (in blue) was above 12,980 points was back on the 16^th May 2008 when it closed at 12,986 points.

The Australian benchmark index – the S&P/ASX 200 - closed at 4,255.5 points on 1^st March 2012.

On the 16^th May 2008, the S&P/ASX 200 (in red) - closed at 5,931 points.

So while the Dow Jones has recovered, the ASX200 is 1,675.5 points or 28.25% below its 16^th May 2008 closing price.

So why is our ASX200 index floundering while the US Dow Jones index is booming?

There are three key reasons for the underperformance:

1)      The RBA/US Fed interest rate differential.

2)      The AUDUSD strength

3)      The systematic political risk of the Gillard government 

 

The RBA/US Fed interest rate differential.

The Federal Open Market Committee (FOMC) cut the federal funds rate from 2.25% to 2% on 30^th April 2008. The RBA on 6^th May 2008 decided to leave the cash rate unchanged at 7.25%

As the GFC got worse, the FOMC cut the federal funds rate from 2% to 1.5% on 8^th October 2008, from 1.5% to 1% on 29^th October 2008 and finally they cut the federal funds rate from 1% to effectively zero per cent on 16^th December 2008, where it has remained unchanged ever since.

The RBA decided to lower the cash rate by 0.25% to 7% on 2^nd September 2008, followed by a further 1% to 6% on 7^th October 2008, followed by a further 0.75% to 5.25% on 4^th November 2008 and they finally the RBA cut the cash rate by a another 1% to 4.25% on 2^nd December 2008. Things were still looking grim globally and the RBA on 3^rd February 2009 reduced the cash rate by a further 1% to 3.25%. The cash rate hit a record low of 3% when the RBA cut it from 3.25% on 7^th April 2009. The cash rate stayed at 3% until the RBA ratcheted them up 0.25% on 6^th October 2009.

As the economic conditions slowly improved, the RBA eventually ratcheted the cash rate to a high of 4.75% in November 2010. The RBA cash rate at present set at 4.25%.

The AUDUSD during 2008 declined from a high of $0.9540 (16^th May 2008) to low of $0.6193 (24^th October 2008).

But the relationship with the ASX200 and the AUDUSD broke down just before the GFC became really nasty. The chart below illustrates the AUDUSD (in blue) against the ASX200 (in red) and up until the beginning of 2008, both were highly correlated with each other.

The onset of the GFC altered that high correlation.

When the GFC finally concluded, it left a lot of bodies, especially in the US. The FOMC made it obvious to the rest of the world that the federal funds rate would not be changing any time soon so that was the catalyst that lead to the steady and remarkable rise of the AUDUSD.

 

The AUDUSD strength.

The two main reasons for the continued strength in the AUDUSD since early 2009 are the carry trade and the mining boom mark 2.

The carry trade is when foreign investors convert their foreign currency (USD, YEN etc) into AUD and then invest their AUD in Australian government bonds which are earning anywhere well north of 5%. You can understand why they do that, why bother investing in US or Japanese bonds which are yielding less than 2% - so that fueled strong demand for AUD. Meanwhile, China emerged as our saviour and bought more and more of our commodities – iron ore, coal, natural gas and base metals. With the USD weakening thanks to two massive lots of quantitative easing (that’s printing more money) the AUD was going one way – up. With the price of commodities increasing faster than the USD price decline meant mining profits would continue to boom.

 

The systematic political risk of the Gillard government.

It is fairly obvious from the chart below that the once highly correlated Dow Jones and ASX200 indices started to break down around May 2010 when the then Prime Minister Kevin Rudd along with Treasury Wayne Swan surprised everyone with planned introduction of the Resource Super Profit Tax (RSPT). As we all know it went down like a lead balloon especially with the mining companies who had probably single handedly saved Australia from the death throes of the GFC.

Ultimately the RSPT cost Kevin Rudd his Prime Ministership and lead the election of the minority Gillard government. Interestingly, the S&P/ASX200 index closed on Monday 23^rd August 2010 at 4,429 points. So since Julia Gillard has been Prime Minister, our stock market has done nothing. In fact we’re down 173.5 points or 3.9% since the 21^st August 2010 federal election. The AUDUSD incidentally was at $0.8930 and as of 1^st March 2012 the AUDUSD closed at $1.0802 – some $0.1872 higher (+20.96%).

Since Julia Gillard’s election as Prime Minister on 21^st August 2010, the correlation between the Dow Jones and ASX200 has deteriorated even further. We all know Julia Gillard lied when she said 5 days before the 2010 federal election that “there would be no carbon tax under a government I lead”. The lie became reality on the 24^th February 2011 when Julia Gillard struck a deal with the Greens to introduce a $23 per ton (the highest in the world) carbon tax on 1^st July 2012. The Carbon Tax law is passed in the House of Representatives, 76 to 74 on 12^th October 2011 and is passed into law by the Senate, 36-32 on 8^th November 2011.

Greens leader Bob Brown told the world on 26^th June 2011 that the carbon price has to result in shutting down the Australian coal industry. Such a statement would make any foreign investor assign Australia as a “sell”.

The divergence between the Dow Jones and the ASX200 has never been wider since Labor has been in government. Sure we can lay part of the reason at the feet of the RBA for holding interests rates too high against the rest of the world and the subsequent overvalued AUDUSD. But the overwhelming reason for our poor underperformance of our stock market compared to the USA’s stock market can be laid squarely on the “economic and investor confidence destroying” polices – namely the mining tax and the carbon tax - of the Gillard government.

International investors are voting with their wallets and while Labor is in government Australia is presently a “sell”.

Just follow the money.

 

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Al Gore’s Newest Scam: Overhaul Capitalism

Reuters reports:

Former U.S. Vice President Al Gore wants to end the default practice of quarterly earnings guidance and explore issuing loyalty-driven securities as part of an overhaul of capitalism which he says has turned many of the world's largest economies into hotbeds of irresponsible short-term investment.

Together with David Blood, senior partner of “green” fund firm Generation Investment Management, the environmental activist has crafted a blueprint for "sustainable capitalism" he wants the financial industry to adopt to support lasting economic growth.

"While we believe that capitalism is fundamentally superior to any other system for organising economic activity, it is also clear that some of the ways in which it is now practised do not incorporate sufficient regard for its impact on people, society and the planet," Gore said.

At a briefing ahead of Thursday's launch, David Blood said capitalism has been blighted with short-termism and an obsession with instant investment results, which had ramped up market volatility, widened the gap between rich and poor and deflected attention from the deepening climate crisis.

The former CEO of Goldman Sachs Asset Management put forward five key actions which he hoped would revive the discussion on how to clean up capitalism and put companies, investors and stakeholders on the path towards long-term, sustainable profit.

These include ending quarterly earnings guidance from companies, which the authors said incentivised executives and investors to base decisions on short-term factors at the expense of longer-term objectives.

Companies have also been encouraged to integrate financial reporting with insight on environmental, social and governance policy so investors can clearly see how performance in the latter can contribute to the former.

Al Gore obviously wants his mojo back as his hysterical CAGW message seems to have faded into the background. Is he changing tack because most people are more concerned about their jobs, their standard of living and the economy than they are with the environmental impact of catastrophic bovine flatulence? You betcha he is.

Follow the Money!

 

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Is the RBA Becoming Irrelevant?

ANZ has increased its standard variable interest rate by 6 basis points to 7.36 per cent despite no move in Australia's official cash rate earlier this week.

ANZ said it has increased its standard variable home loan rate to 7.36 per cent from 7.30 per cent.

The move follows the Reserve Bank of Australia's decision on Tuesday to leave the cash rate on hold at 4.25 per cent.

ANZ no longer announces interest rate movements in lock-step with the RBA. The move was designed to change the public's perception ANZ's loan rates, and cost of funds, were tied to the RBA's cash rate.

So is the RBA becoming irrelevant?

I’d say it is becoming less relevant. The banks for example don’t price their credit card, or bank overdraft, or personal loan rates on the changes to monetary policy. The banks price the “credit” they offer on what the market is prepared to pay and the risk of the loan.

ANZ’s move is justified and welcome. Anyone who is critical of ANZ’s decision should remember that the only thing worse than a super profitable bank is a bankrupt bank. Just have a look at Greece, Italy, Spain, France, Germany, the UK and the US.

Also, you can forget about the RBA trying to defend (sell down) the hot AUD. FX markets worldwide trade around $250 billion per day in the AUD exchange trades and our RBA has only enough reserves to last about 4 hours.

 

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