It’s Like Kryptonite For Bank Stocks — Don’s Daily Brief

by | Dec 15, 2022

The market is learning a little bit about “Don’t Fight The Fed…” The Fed’s got several billion dollars worth of bond “bullets”…

They can keep this fight up for a while and I think their reputation is on the line.

The market is underestimating how far they are willing to go — how much pain they are willing to put the economy through.

I’m surprised by this conclusion myself, but I think they’re willing to do it.

So today I want you to short banks, here’s why:

Banks make money by borrowing short term money and lending long term money. Those long-term rates need to be higher than short term rates for them to make money.

This is the most simple driver of value for banks.

Well, the Fed is undoing that. When the 10 year treasury is negative or below the 2 year treasury rate, that means the short term rates are higher than long term rates.

We’re getting to extreme levels and I believe we could get deeper.

All this makes profitability and margins very difficult to sustain for banks.

► So today I want you to short banking stocks through KRE.

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