I’ve never tried magic mushrooms. Have you?
I’m asking because apparently plenty of people around Sydney seem to enjoy taking them.
I just finished the book The Profound Benefits of a Stint in Prison. A former drug dealer wrote it.
He started out as a small-time seller of magic mushrooms to his friends. It was a side income to his PR job in Sydney’s CBD.
Pretty soon he diversified into weed and cocaine – and was earning $25,000 a week, out of his house.
Unfortunately, by this time he was snorting whatever profits were left after his fiancée had gone luxury shopping.
Why am I telling you this?
The illegal drug industry is a parallel economy to the mainstream.
There’s certainly plenty of money there. However, the risks and the potential downside are gigantic.
A life of crime is no way to get rich, or even ahead.
However, there ARE other ‘parallel’ ways to source profits outside of the mainstream. You can potentially get the same big upside…without going to the black or illegal economy.
My colleague Ryan Dinse will showcase his main strategy right here.
It’s exclusively launched today and it’s a lot more exciting than a magic mushroom!
Again, for the full report on the parallel economy, click here.
For now, onwards…
While everyone in the market is currently fixated on the ‘rotation’ out of the big banks into the big miners, I have a question for you.
Shouldn’t we explore why CBA is up 30% this year despite the fact its earnings growth is flat?
There’s something deeper happening than just passive money flows and a stable dividend.
Right now, the Price to Earnings (P/E) ratio of Australia’s biggest bank is over 20. That’s what you normally get on a small cap with high revenue growth.
CBA is the complete opposite. However, the market is not stupid. It’s seeing something that, at first glance, isn’t obvious.
Certainly, very few people saw the rally in CBA coming – including me.
What could it be?
Let me tell you my reasoning…and why you should care!
Our answer might be in the following news story last month from the Australian Financial Review…
‘Commonwealth Bank is exploring the possibility of replacing thousands of local call centre staff with a ChatGPT-style platform in an expanded use of artificial intelligence for customers being considered by the country’s largest financial institution.’
A ha!
A company can boost its profit by growing sales or cutting costs, or both. As mentioned above, earnings projections for CBA are flat.
The only justifiable explanation for the share price move is the market sees an aggressive way for the business to slash expenses. Here’s a logical way to think about this.
My guess is CBA could outsource as much of its workforce to artificial intelligence as it can. It’s not going to all happen at once, of course.
Think of a chessboard. The pawns are the bank branch staff and then the customer service agents in the call centres.
That’s the first wave.
However, the disruptive potential of AI is so potent, there’s no reason to think it can’t go for the castles and rooks over time as well. Think loan and credit risk officers.
We’re not talking small change here. That AFR piece points out that if 10% of costs are on call centres, and you can halve that, CBA save $600 million a year.
Hello. Further bank job losses are as certain as anything can be on current trends. Look at the vision in play:
‘CBA chief data and analytics officer Andrew McMullan said in the future he expected customers would become “so familiar with using ChatGPT-style services that it becomes the way that they interact with the bank as well, through our digital channels”.’
Whatever bank branches are left will be gone soon enough too.
Now CBA’s AI is analysing every call or customer interaction right now to understand and respond to future calls with no human interaction whatsoever.
I don’t think it’s much of a leap to see this same vision rolling out to businesses like Telstra too.
Here’s another example. Aussie Broadband [ASX:ABB] is a small cap stock that sells broadband services. They just launched a sister company called Buddy Telco.
Buddy Telco is their value proposition. This is how they’re trying to win the budget consumer.
Part of their strategy is to make it self-service. They use automation, machine learning and an AI chatbot to deal with clients.
Here we have a megatrend in play as far as the share market is concerned. Businesses can use AI in myriad ways to cut costs. This could boost their earnings for years.
You see it in play elsewhere too. There’s a fashion shop down in my local shopping centre that doesn’t have a clerk anymore to take payment.
You just scan it all yourself. How long before your personal AI gives you fashion suggestions from the store’s range?
I don’t know, but I can’t wait to find out. All this is to say the market can see both lower costs and higher revenue potential from the AI revolution.
In other words, don’t miss the forest for the trees. It’s easy to get caught up in weekly swings, interest rate chatter and shifting political winds.
The big trend is AI and its deflation of the costs across the economy.
What’s clear is this is going to shape the share market for a long time to come. If a business can harness AI in a powerful way, their future could be very profitable indeed.
And let’s not forget. Investors thrive on narratives.
They’ll feel better about putting their money in the market if they sense their part in the industrial, commercial and cultural shift that is AI. Everything else is a distraction.
Personally, the outlook for shares just keeps looking better and better to me.
Best,
 |
Callum Newman,
Editor, Small-Cap Systems and Australian Small-Cap Investigator
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