3 signs that the banks may be about to roll over

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“People may remember that Kerry Packer tried to buy Westpac in 1993… at 90-95c to the dollar. He was trying to buy Westpac for below NTA. Fast forward to now… Westpac is trading at 3 times NTA. So there’s a dollar of NTA… and it’s trading at $3. The reason it’s got there is because Mums and Dads are happy to pay $3 for a dollar of assets because they’re getting 5.5% fully franked yield. So of course the impetus is for the banks to keep doing that until they get the NTA price differential as high as possible, until it gets completely out of whack. And then what happens is you start to have a few bad a doubtful debts and suddenly your million dollar loan that you’ve lent someone that you are earning a 20% interest margin on… suddenly you take a $250,000 hit on the capital. That’s when banks get extremely dangerous. In this video, Karl outlines the 3 signs that he’s looking for that tell him when the music has stopped.


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