CBA - Commonwealth Bank of Australia

[cheeyeen]

Thanks boofhead.

I have read the propectus but I was just interested to see if people who had invested in them before had anything else to add.

I would be looking to hold them for the full 5 years so I'm not too concerned about what they are trading at, would just be looking for the dividend return.

I am actually looking at PERLS III (PCAPA). The margin is only 1.05% and hence it is trading at 18% discount of face value. I see it has a potential capital gain is 18/82 = 21.9% in 6.5 year time, equal to 3.37% per year on average. So if hold to maturity the margin looks like 3.37% + (1.05/0.82 = 1.28%) + (3.3%/0.82 - 3.3% = 0.72%) = 5.37% per year. Actually, the yield to maturity based on 3.3% BBSW is about 10%p.a. according to Macquarie.

It is weird that WCTPA which has similar rating and margin of 1% is actually trading at 87AUD (though it is about to go ex-div in one week time, but PCAPA is only 4 weeks away as well). I think the selling is mainly because people sells it to fund the purchase of the new issue that offers higher yield. But return wise may be PCAPA is better for long term investor. There is also tax benefits as you get 50% CGT discount in 6 years time rather than paying marginal tax now. Just view at it in different angle..

 

[Bill M]

Has anyone invested in any of the other PERLS? And were you happy with it?

Any hidden pros and cons of investing in something like PERLS?

I invested in PERLS 4. At the time a 1.05% interest margin was great when the RBA rate was around 7%. I was getting 8% return on my funds. I thought getting in on the prospectus was going to be a great deal.

Then interest rates tumbled, along with the stock market in general. Not only did you get get lower interest rates the capital value dropped to around $175 at one stage. I then thought long and hard about this investment and decided to collect one more dividend and sell at a capital loss at around $185. My thoughts were, why own this when I can get fully franked dividends elsewhere at around 8%? I am not sorry I did that at the time because since then PERLS 4 has barely moved where as banks stocks themselves have nearly doubled.

The risk was interest rates plummeting to 3%, nobody saw this coming.

So to PERLS 5, my opinion is that this offer is better than any other CBA PERLS offer thus far. The 3.4% interest rate spread is as good as it gets for a top blue chip company. Sure, Tabcorp and AMP's interest rate spread was slightly more but so was the risk. Would you rather buy Tabcorp bonds with a 4% spread or CBA with a 3.4% spread? I would go CBA anytime.

Another thing is that interest rates are going to be going up, without any doubt in my mind. That means your CBA PERLS 5 will be going up also. You might be buying it at a 3.25% bank bill rate now but where do thing the bank bill rate will be in 2, 3 or 4 years time? I reckon up. So lets say the bank bill rate goes to 7% like it was 2 years ago and it can happen and probably will, then with 3.4% on top of that it brings it to a whopping 10.4% interest rate. It can only mean one thing, that the capital value of PERLS 5 will probably go up also. On the flip side if rates stay the same you still get 6.6% now and your capital looks pretty safe.

I will be buying as much as I can get buy splitting 2 applications in both mine and my wife's name. My aim is get good interest income and possibly some capital growth as well. If the capital growth is anywhere near what TABCORP or AMP got on their offers then I might consider selling them also. Just my opinion.

 

[nomore4s]

Thanks for your thoughts Cheeyeen & BillM.

Bill, your thinking is very similar to mine atm. With a 3.4% spread it is looking very attractive, especially considering we are at or near the bottom of the interest rate cycle imo.

I have bit of money sitting in a term deposit getting cr@p return atm, so am looking for some better return on a % of it. And seeing as the NAB spp got scaled back so much I have a bit extra I could invest in PERLSV.

Any capital gain would a bonus as this would become part of my income portfolio and I'm only really interested in getting a good annual return in d/e's.

 

[Zarate]

Assuming you are in the 30% tax bracket;

If you have money in a cba net saver, you get 2.75% and pay 30% tax on this. If you buy into PERLS V you receive 3.4% above the market rate - call it 3% so 6.8%*0.7 = 4.76% fully franked. So essentially pay no tax on this. Would that be correct?

Cheers.

 

[boofhead]

That would be a resonable assumption, yes but only you have an idea of your full circumstances and things may be a little different. The prospectus does indicate there is a possibility they won't be fully franked. It would be the same as any dividend.

 

[Bill M]

Assuming you are in the 30% tax bracket;

If you have money in a cba net saver, you get 2.75% and pay 30% tax on this. If you buy into PERLS V you receive 3.4% above the market rate - call it 3% so 6.8%*0.7 = 4.76% fully franked. So essentially pay no tax on this. Would that be correct?

Cheers.

Yes that's correct but I think you meant if the market rate was 3.4%. Anyhow that's why I am taking it up instead doing another term deposit, good luck.

 

[Zarate]

Thanks guys. I think this is a great opportunity. I don't have any money set aside to be able to invest here but will definately tell others of it.

 

[sinner]

Hi guys,

I went short CBA today at 56.07 with SL at 56.37 (above previous swing high).

Here is my justification chart, hopefully this will be a nice moneymaker.

 

[cutz]

Hope it goes well for you sinner.

Out of curiosity are you shorting the stock or using CFD's, it seems like a lot of brokers are experiencing difficulty obtaining (borrowing) stock for this purpose.

 

[sinner]

Hope it goes well for you sinner.

Out of curiosity are you shorting the stock or using CFD's, it seems like a lot of brokers are experiencing difficulty obtaining (borrowing) stock for this purpose.

Yes, CFD with IGmarkets. Dodgy I know, but it is a quick yes or no on this one for me either we go above 56.21 today before the close and I will close at a loss or we close below 56.21 in which case I expect CBA to gap down on tomorrows open.

There is definitely a lack of borrowable stock to short the world over, in fact some respected (by me) analysts like the crew at Zero Hedge have been claiming this entire rally is one big short squeeze.

 

[cutz]

No worries sinner, as long as it gets the job done.

I'm always wondering who out there is able to short stock without impediment (on the oz market) , nil availability is a real hinderance at times.

 

[sinner]

No worries sinner, as long as it gets the job done.

I'm always wondering who out there is able to short stock without impediment (on the oz market) , nil availability is a real hinderance at times.

I would say, only the market makers have this ability now. The likes of GS and JPM who have huge piles of their clients stock which they can probably borrow onto the market as sells.

Market makers have also realised they can induce a rally by calling up their clients en masse and forcing short redemptions at market.

 

[clayton4115]

good on you, im about to enter short cba myself.

waiting for the right signal.

i think banks looking overvalued.

 

[sinner]

good on you, im about to enter short cba myself.

waiting for the right signal.

i think banks looking overvalued.

Good to know I'm not the only one. I've been largely ignoring stocks and trading forex these days, because it fits better with my schedule, but seeing that high volume bar into the close on Friday I just had to test it.

 

[sinner]

Alright, trading is closed for the day guys.

Pretty happy with my entry as we closed below 56.

Plan of action on this trade:

Go home, ignore the markets until tomorrow ASX open. If we gap down I will move my stoploss to the entry point to make this a free trade and let it ride till the cows come home.

If I am completely and utterly wrong about what happened on Fridays close then we will gap up tomorrow morning and I will never take another counter-trend trade in my life.

 

[nomore4s]

Alright, trading is closed for the day guys.

Pretty happy with my entry as we closed below 56.

Plan of action on this trade:

Go home, ignore the markets until tomorrow ASX open. If we gap down I will move my stoploss to the entry point to make this a free trade and let it ride till the cows come home.

If I am completely and utterly wrong about what happened on Fridays close then we will gap up tomorrow morning and I will never take another counter-trend trade in my life.

While I understand the basis of you taking this trade it strikes me as having a large reliance on what happens overseas tonight, if the DOW has a strong night there is every chance CBA will open higher and of course if it tanks CBA will open lower.

 

[sinner]

While I understand the basis of you taking this trade it

Yes, my trade is based on the basis of the high volume bar from Friday which I took as "smart money" exiting the market in front of what could be bad news for the financials this week. Did I state otherwise anywhere at all?

strikes me as having a large reliance on what happens overseas tonight, if the DOW has a strong night there is every chance CBA will open higher and of course if it tanks CBA will open lower

It's pretty naive to think every single stock on the ASX and most indices isn't affected the same way. Trembling Hand once pointed out that during the bull run before 08 crash, if you had gone long the XAO every morning at open and exited every afternoon at close then you would only be up 6 points over 8 years. i.e. 99.9% of the moves which affect all stocks happen when the exchange isn't open at all and just on the basis of index futures movement.

For reference, it's 2 minutes before the open and last night:
DJIA/SP500/QQQQ finished down.
UK Speciality Finance sector closed: -1.53%
UK Banks sector closed: -2.3%
JP Morgan closed: -3.12%

 

[nomore4s]

Did I state otherwise anywhere at all?

Um no, I thought I said I understood why you took the trade.

It's pretty naive to think every single stock on the ASX and most indices isn't affected the same way.

I never stated otherwise.

All I was doing was making an observation that this trade had a heavy reliance on one nights movement on the DOW. I wasn't saying this is a good or bad thing was just purely making an observation.

 

[swm79]

if you disregard the chart and put this trade into fundamentals ...using the context of US dollars being pumped into the CBA over the last few months - hence putting a rocket under the price and pushing it far and beyond where it is valued as a means of dumping the USD... and then taking into account that this week the "reord size" US treasury auction is taking place... in which 60% of all investors are non-resident investors, who will have to buy USD to settle their accounts, funnelling money out of the CBA (and other banks) and into the USD... then your short was actually a very smart trade

 

[skyQuake]

Might want to have a read of this:

http://www.theage.com.au/opinion/fo...y-is-a-bubble-set-to-burst-20091025-heo5.html

Our banks are more momentumn than mean reverting