Question 1: Last Friday Commonwealth Bank (CBA) hit another all-time high of $149.32 up 5% for the week. I have read that it is the most expensive bank stock in the world. Nearly every analyst has a sell on it. So, who keeps buying the stock and therefore pushing the price up? Overseas institutional investors?
Answer: With Commonwealth Bank, I think investors keep buying it (or perhaps more correctly, don’t sell it) because they don’t know what else to buy (in a global bull market) and are scared to be “underweight it”. If investors aren’t buying the banks, they have to buy something else. The next biggest sector is resources, and because commodity prices are still soft due to the uncertainty about the world and Chinese economies, they don’t really want to go overweight resource companies. They have also been “badly burnt” by being underweight CBA in the past, and know that despite it being horribly expensive, it is miles in front of the other banks.
Another factor is passive index funds (from Vanguard, iShares, Betashares et al.) Ultimately, they are “bad” for markets…because counter intuitively and illogically, the more expensive a stock gets, they need to buy more of it …and the cheaper a stock gets, the more they have to sell or reduce their holdings.
Question 2: With Mr Trump returning to the Whitehouse and talk of corporate tax cuts coming in the U.S, is it a good time to buy ETFs with a strong focus on American companies? Specifically, do you think IVV and IOO are good buys at these levels?
Answer: I think your basic strategy to buy US domestically focussed companies makes sense. I query, however, whether the market has already moved down this path, so you might be a little late to the party. Certainly, US small and mid-caps have rallied very strongly post the election. I think I would be less inclined to buy IVV or IOO, because they are focussed on the mega-caps (IVV tracks the top 500, IOO the top 100 global companies). Potentially, some of the big US multinationals may face some hostile actions from China/Europe if Trump ignites a trade war. Consider some of the actively managed funds. Of the index funds, potentially IJH, IJR or IWM. The latter tracks the Russell 2000, the former 400 mid cap stocks and IJR 600 small cap stocks.
Question 3: Are the brokers still bullish on uranium miner Paladin (PDN) following its downgrade of production guidance?
Answer: According to FN Arena, the brokers are still very bullish on Paladin. All have buy recommendations. While a couple of the major brokers reduced their target prices, the consensus still sits at $13.50, about 80.5% higher than the last ASX price of $7.47. The range is a low of $11.50 through to high of $15.80.
Question 4: Why are people so bullish about Bitcoin following the election of Donald Trump?
Answer: Trump is considered to be a supporter of cryptocurrencies (bitcoin in particular), and the price of bitcoin was a lead indicator in the run up to the Presidential election. Since the election, the price of bitcoin has jumped from around US$75,000 to US$87,000 per bitcoin.
There are three main reasons. Firstly, it is expected that he will remove the perceived “anti-bitcoin” heads of key US Government agencies such as the SEC. Secondly, he has said he will encourage a more de-regulatory agenda when it comes to cryptocurrencies. Finally, it is believed he will “ask” the US Federal Reserve to hold bitcoin as part of the US Reserve assets.
