The question for Investors (longer term horizon) is when do you sell $XLF ?
The answer is when Deposit Betas finally catch up to ~50% or 10Y3M Inverts Investors start to Pay Less & Less for every $1 of earnings power (driven by the Flow Through Rate of Inflation)….
Long Term “Investors” who respect the Credit Cycle Started selling $XLF at the Peak of Price/TBV on $BKX in Jan 2018 at 2.1x & also long $ZROZ …as Deposit Betas were Peaking + Cyclicals/Commodity stocks like $CAT etc..
The other natural question that should pop up is…well if the Taper is coming & BKX is 1.8x…why shouldn’t 1 sell now? Won’t the Fed kill the Cycle w QT.. why on earth would 1 wait around… after doubling/tripling money from the March 20 bottom.. why wouldn’t 1 crystallize gains?
Yield Curve (10Y3M) Steepening, Dr. Copper Ripping, HY Bonds Unch all year at +310bps OAS, CCCs have tightened -12bps this year..& tightened by -18bps in the last 10 days…
$HYG is 4 year effective/spread duration… not terrible… CCCs shorter at 3 yrs & +667bps OAS. $XLF
The Yield Curve is Steepening….
Front End of the Curve ain’t anywhere close to a Double Dip Recession.
Maybe the Talking Heads know more than the Bond Markets?
I Highly Doubt it.
$XLF #Reflation
The good news 4Banks is that the #AltLeft BBB Green economic agenda puts a Nasty Secular overlay on Inflation, that’s like adding Kerosene on one of the biggest Cyclical Recoveries since WWII… So when Consumer Savings get drawn $XLF Cards will be ready to Finance Deficit = NII🚀
UK’s Bulb files for Chapter 11 (Insolvency)…at some point the bulb should switch on for the #AltLeft#GreatReset Stepping back a bit.. Wind & Solar likely never commercially viable.. adds to Public Debt & Subtracts from Consumer Savings.. As for Bulb, thx Germany! #EnergyCrisis
What do you make if right & IORB Hikes won’t blast the economy coz of Private Sector De-Leveraging.. & what’s your downside at ZIRP if wrong?
$XLF #Reflation
Let’s say PermaBears are right & we have ZIRP forever… Banks have the highest Capital levels in 30+ Years… & can easily payout 100% of earnings at 13% CET1…
Worse case ATM payout machines w 10% All In Yields… Sure beats buying a Massive 10 Year Govt Bubble at 70x P/E imho.
30% Divy… & 70% Buyback Ratios….in 5 Years…amount of Tangible Book Value Reduction… in a PermaBear ZIRP forever world…+ low credit costs…can easily get u to high Teen ROTCEs… & if we do get Inflation & Rate Hikes don’t Invert the Curve..ROTCEs are gonna Rip w TBVs👆 $XLF
Central Clearing helps not hurts Banks.
It’s gonna help get back > 20%
ROTCEs…blunting GSIB Score requirements, giving path to further Buybacks within context of getting off the ZIRP Floor (NII 👆) while Inflation Rises. $XLF #Reflation
It all starts w tons of XS Capital.
Banks love $TLT Central Clearing & moving Volume from Triparty to Sponsored FICC that Nets.
$XLF #Reflation
In simple DuPont terms:
ROTCE = Net Income/Revenues x Revenues/Tangible Assets x Tangible Assets/Tangible Equity
Net Margin x Asset Turnover x Financial Leverage Force Multiplier
Last turn is a Turbo Charger (Now think Central Clearing of $TLT )