The Problem with Banks

I have always had an aversion to banks. When I was young, in the late 80s and early 90s, banking in India was a nightmare. I actually hated going to the bank, but had to for a variety of reasons - when my parents took me along, and subsequently when I was a student studying away from home. It all changed when the first ATM machine came along. In 1997, I was working in Ahmedabad, and HDFC Bank had just one ATM in the entire city - 5 minutes from my work place. I opened an account there with the specific purpose of avoiding the crowds and officious 'babus' that I had come to loathe. HDFC subsequently proved to be quite the leader in introducing technology to banking, and became my preferred bank - I still bank with them in India.

In 2003, when I came to Australia, my first encounter with a bank here was with CBA in Burwood. I realised that personal banking needn't be a chore. No queues... ever! Fast and efficient staff... fantastic! As a result, it took me awhile to get onto Internet banking (vastly ironic, since I was studying Information Systems!) - I enjoyed immersing myself in the joys of receiving customer service.

That changed when I finished studying, and the 'student' tag was removed from my account. I had to now actually PAY the bank $6 a month (now its $4) to hold my money! Absolutely insane, I thought! For all of India's banks woes, at least they never charged you to hold your money. In fact, every personal transaction account also acts as a Savings account, and pays a decent interest rate.

Since then, banks have returned to become a pet peeve. I refuse to understand why I should be charged fees to have access to my money. What about the old "3-6-3" (borrow at 3%, lend at 6% (thus earning the 3% spread), be on the golf course by 3 pm) mantra? Shouldn't that cover all expenses, including golf clubs? And isn't ensuring access to ATMs, internet and telephone banking covered under the 21st century definition of "customer service"? Shouldn't the banks be spilling their guts to get my business? Since they aren't, am I supposed to feel 'privileged' that someone has condescended to hold my account?

In addition, I was subjected to a large dose of peanuttage from CBA last month. I was charged 3 x $30 for overdrawing on my limit (cashflow issues that always got sorted out 1 day too late on each occassion) + $25 at the end of the month for a weird fee + $2.something as interest. The strange thing is:
1. the money from the direct debits went to Commsec (i.e. CBA) and Save The Children (a charity I support)
2. I called CBA and was told that after the $90 in fees that went out over the period of a week, I wouldn't get slugged with any further charges or interest... and that's exactly what happened at the end of the month. When I called CBA back, I was told to go look at something in the PDS that apparently covered their a*se.

I've realised after a lot of thought and reading, that banking in Australia is oligopolistic as a result of a unique "Four Pillars" policy which prevents the top 4 banks from merging with one another. As a result, the big banks are inefficient behemoths - if the policy was scrapped, the fear is that as a result of the ensuing mergers jobs would be lost, which is always bad news for politicians. Because of this policy, bankers have their customers over a barrel; and given that Australia is only a 20 million person market spread over a massive continent, none of the big international banks are likely to have a serious crack at it. In this environment, banks collude with each other to screw the individual. You know its true when they stick their name on most of the tall buildings in your city - just to rub it in that they own you.

The situation is unlikely to change in the near future; and the only thing for me to do is to move my banking to where I see the best value (i.e. lowest transaction costs and minimum peanuttage).

Here is the result of a 30 minute study I did just now (criteria: no minimum balance, unlimited Net and ATM trasactions) on various transaction accounts in the market:

BANK -ACCOUNT NAME - LOWEST MAINTENANCE CHARGE (p.m.)

• NAB - Smart Direct - $3
• CBA - Streamline - $4
• WestPac - Westpac One - $5
• ANZ - ANZ Access Select - $2
• St George - Simply Freedom - $6
• SunCorp - Everyday Banking - $5
• Bank of Queensland - Reverse Charges - $4
• BankWest - Lite Transaction - $2.99
• Bendigo Bank - Ultimate Everyday - $2
• Citibank - Citibank Plus - $5
• AMP Banking - Transact - $8
  

Based on this study, its either ANZ or Bendigo. Now the question is: is it worth the hassle of opening a new bank account, changing my details with my employer, etc. to save $2 a month? There is also the 'known devil' factor in staying with CBA.

Trading Thoughts for 2007

Around the 20th of December, 2006, when I had just started my study of stock markets, I decided to write down my forecast for the salient issues in 2007.

GLOBAL

• USD to remain weak
• Low global inflation
• Money is cheap
• Slowdown in US, but pick-up in EU + developing economies
• Oil prices to remain historically high
• Re-alignment of global economic forces in progress - gold to be a dominant standard again
• More international takeovers - especially in Africa of minerals

INDIA

• Strong economy
• Higher interest rates
• Moderate inflation - under control
• More emphasis on infrastructure

AUSTRALIA

• Australia to sign N-agreement with India
• Forward/Futures market in Uranium to come into existence
• Australia to sign Kyoto Protocol - or increase funding for green technology
• More takeovers in Australia - good year for investment bankers
• Bad year for banks and insurance - drought, bushfires, economic slowdown
• Fall in AUD - to reflect fall in resources prices, good year for grain exports, bad year for mining cos. (except Gold)

On reflection, with only slightly more of a clue now, I would add:

Global:

• Re-emergence of growth in the Japanese economy + easing back (i.e. not a complete 'unwind') of the Yen carry-trade due to a stronger Yen + possible interest rate rises.
• Money is still cheap - plenty of petro-dollars about, plus HUGE amounts of the USD lying about in China and Japan.
  

Australia:

• Strong dollar: due to weakness in USD but combined with demand for resources from strong China - earlier I had believed that the Chinese economy would slow down in tandem with the US economy - I now believe that the growth in the Chinese domestic economy is an even bigger animal about to be unleashed on the world.
• Weaker profits for Aussie based miners (due to strong A$), except where offset by rising international prices of the underlying commodity (eg. Uranium, rare earths, molybdenum (?))
• Good year for banks, insurance and mutual funds - more capital inflows into the Aussie market
• At least 1 more interest rate hike this year
• Property market - to remain at insane levels. The higher it goes, the harder it will fall.
  

CFDs, etc.

Finally got round to funding my CFD account with IG Markets today. Its been a bit of an ordeal trying to decide which provider gets my hard-earned $$, but eventually it became a toss-up between Tricom and IG Markets. Eventually chose IGM since their platform is hosted, which means no down-loading of software, and the freedom to access my a/c from any internet site (I'm not convinced my life is completely computer-failure proof).

The flip side is that the IGM platform is static, and can't be tailored to suit my needs. Also, Tricom has a daily newsletter from Marcus Padley, who I think is a severely under-rated dude. Since I'd signed up for a demo-version of the Tricom platform in late Jan, I'm still on the mailing list - and so am pretty happy...

Funding the account, however, has proved to be quite an event. As usual, since I don't have any money, I've had to ask my long-suffering Woman for a loan. On Sunday, 11 March, she deposited $5K into the IGM nominated account. Monday was a bank holiday, so things finally got going on Tuesday. By Thursday, however, the funds had still not showed up in my account. A phone call revealed that they couldn't trace the money! Several rounds of phonecalls later, it became clear that the seed money needed to come through MY bank account (apparently, there's this whole thing about money-laundering that they want to avoid). So the money was sent back to My Woman, who sent it to me, and I finally got round to funding my account today.

Now, as we wait patiently for it to get activated for trading, I came across this article. This quote is particularly disconcerting: "You are on the learning curve and are paying your dues. How long does it take? This is the question most frequently asked. The answer is: in my experience, it takes 10 years and 10-20,000 hours of practice before the average person gains enough expertise to succeed consistently in the trading shark tank." 20,000 hours of practice!! Crap - I'm screwed!!!

Listing with Technorati

Technorati Profile

World Cup Cricket

Tis a dark day for Indian and Pakistani cricket - last nite, India lost to Bangladesh and Pakistan to Ireland. The odds against this happening in the same World Cup must have been substantial - like 500 to 1.

However, to put things in perspective, Bob Woolmer passed in what may eventually be labeled as 'mysterious circumstances'. My money is on the D-company doing the dirty on him in that eventuality.

Early Days

Before November 2006, I had never owned a share in any company. My only previous experience of trying to get into the stock market was pretty tragic - I bought some units in a mutual fund with prime exposure to IT and dot-com stocks .... in July 2000! Needless to say, that went Down (with a capital D) in flames.

However, last November, we (i.e. My Woman and I) subscribed for a modest 500 shares in the T3 float. Since that went well, emboldened, I started looking at this animal called the stock market with interest.

The main reason why I had never invested in shares before was because I didn't understand them. My understanding of the Indian share market was that 'fundamentals' mattered little - sentiment was all-important; so much so that if the Dow Jones fell marginally, the BSE Index would gyrate like a Bollywood heroine's bosom during a particularly melodramatic scene, and with all the attendant tears. Plus, numerous securities scams in the 90s didn't help me feel interested in finding out more either.

When I arrived in Oz in 2003, I briefly considered if the ASX was going to be different. I went online, decided that since BHP was the only company I'd heard of, it might be worth putting up a few $$. However, since I didn't know whether that was a good time to buy or not, and not knowing where to begin, I quickly found other pursuits to follow. As I recall, BHP was trading around $10. After T3, I went looking for BHP again - found that it had gone as high as $32 the previous May, and felt duly foolish.

Then, I was intrigued, and in January 07, I opened a ComSec account and bought AWB. Why? Because it had gone from $2.50 to $3.26 in just over a month, and I saw somewhere that it had come down from $6+ levels from June of '06 due to the Iraq Wheat scandal. I thought - heck, it might just go back to $6 again, now that the Cole inquiry had submitted its report and heads had rolled.

Since then, I've invested over $8000 in the market ($5000 from My Woman, and $3000 from me); read the mandatory book about Warren Buffett and about finding value in the markets, and found Hotcopper and IncredibleCharts. As of today (i.e. post-'China Syndrome') we are up 10% on our investments. I shortly intend to start trading CFDs, and keeping track of those trades is the main purpose behind this blog. Yup - public hoomiliashun - nothing like it!

Why?

So, you ask, "What's possessed you to try this? If you want a deposit, why not just go to a casino; or buy a Tatts Lotto ticket? Or get a better paying job?" I mean, fer-cryin-out-loud - there's so much beer that going undrunk while you make a giddy fool of yourself in public!

(Yes - you, the one looking at these points right here ----> : ..... you did ask that)

And in response, I sit you down, pass you a tissue, and embark on a tale of woe and sordid betrayal.

It all began many years ago - even before I was born ... even before you were born... in fact, even before Time. And then Time invented itself, the dinosaurs came and went, the Kama Sutra was written, Beer was discovered and through a confluence of last two world-changing events, we came to be.

Next thing I know, I find myself at university. Nothing had prepared me for this. Nothing, I tell you, nothing at all! I felt like Sirius Brontosaurus (nice guy - though he never quite recovered from that experience with the meteor), in his last days - lumbering through a wasteland searching for true meaning among the chaos, or at least another dinosaur from the fairer sex.

University is strange - you don’t know why you're there, you get fed a bunch of stuff you can't use, and you accumulate a lot of expensive junk along the way.

Like books; and I never much used them either - preferring to rely on my 'Superior commonsense' (hey, I passed, right - so roll those eyes elsewhere)

And the stuff you really need - like hot dates, or el-cheapo scalped tickets - you cant seem to get enough of 'em either.

Anyhoo, one thing led to another. Someone hired me, I worked for awhile. Then I quit, and someone else hired me. Then, I quit again and came to Australia to drink more beer. In fact - to drink free beer (membership of certain university clubs has its privileges).

And, as you would, I met someone and stayed on. Of course, now we need a place to nest, and that’s the kicker, see - house prices are insane. And I mean nuts! Our combined income is about $80K. The median price for a house is about $360K. Our combined savings (net of debt) as of Jan. 1, '07 was $20K. Our average age is 31.

See the problem?

Now I’m fairly confident the situation is not going to change. House prices aren't going to halve, and our incomes aren't going to double anytime soon. Taking on a humongous debt that we can barely repay is not only stupid, foolish and suicidal, it's also out of the question.

But - and this is the moment of inspiration folks, savour it - drastic times call for drastic measures. Hence... this.