Your Retirement Could Be Hostage to This Trend

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I used to be a financial adviser. I can’t tell you how many share portfolios I’ve seen in my time, but it sure is a lot.

What did they all have in common?

Bank shares!

This is a problem…a big problem.

I’ll show you why below!

But first, let’s wrap up your week.

Now, I want to take you over to the United States.

More specifically, through the doors of the great Federal Reserve.

Why this matters to you will soon become apparent.

Here’s the main thing: These guys can print trillions of dollars at the stroke of a key!

The Fed has the power

The story for the Fed changed in 2007. The world was in chaos and financial markets were rattling…

The global financial crisis meant central banks needed to take action. And fast!

As a result, the Fed stepped in…

Here is the important stuff…

The Fed’s balance sheet grew from US$870 billion in August 2007 to around US$4.5 trillion in 2015.

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Today, the Fed’s balance sheet sits at around $3.7 trillion.

Source: US Federal Reserve

Wow!

And to think the Fed created this from nothing.

Where did this money go? It went into the bond market! The Fed buys US government bonds as part of its ‘open market’ operations. This is what it uses to implement its monetary policy.

Here’s why I am telling you this…

There’s a suspicion that our own central bank may be forced to do the same thing here in Australia.

This is known as quantitative easing.

The banking sector is skating on thin ice

Why could this be coming?

The RBA is running out of interest rate ammunition. Early Friday morning — as I was waiting for my tea to brew — I read that ANZ thinks the cash rate will go to 0.25%.

It’s currently 1%.

The RBA is skating on dangerously thin ice. It needs another tool to stimulate the economy if we get into further trouble.

Hence QE could be coming to Australia.

How many billions will the RBA spring from nowhere? We might just find out.

This might sound obscure to you. But here’s the gist of what you need to know…

These low interest rates are not good for the banking sector, as they lessen the net interest margin the banks earn.

That means smaller profits and dividends in your super fund!

This is not the only problem for the banks.

The regulators are pushing for them to hold more capital…which means setting money aside for a rainy day.

That becomes harder if they are earning smaller profits.

And competition is coming to eat their market share in mortgages and business lending.

The banks are beginning to look like dinosaurs.

Aussie banks to get Craigslisted

Opportunity lies here!

The banks control about 80% of the financial system.

We’re taking savings and lending, and even insurance and wealth services.

Let’s take a look at the home loan lending space. Here is what Greg Jericho from The Guardian said: ‘The Australian banking sector is dominated by the big four – Commonwealth, Westpac, ANZ and NAB. Together they control just over 80% of all owner occupier home loans and 85% of all investor housing loans’.

If that wasn’t striking enough, then consider this…

The big four banks, along with AMP, control over 80% of Australia’s financial advisers.

But change is coming.

Thanks to the Banking Royal Commission, which you’re very familiar with…

…the Australian banking sector is about to be rebuilt from the ground up.

And herein lies your opportunity.

My colleague, Ryan Dinse, believes this to be the case too. In fact, he’s suggesting the banks are about to get Craigslisted.

If Ryan is right…a handful of companies stand to benefit from this. It could just be the best investment you make in the coming decade.

If you carry the same line of thinking, I suggest you hear what he has to say.

Until next time,

Jonathan Evans Signature

Jonathan Evans,
Analyst, Profit Watch

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