I love banks, especially American ones.
I like those imposing, monumental edifices. I am attracted to those smooth marble surfaces. Those wrought iron grills at the teller windows are not to be trifled with.
They all reek of safety, stability, and certainty. What better place to park your life savings.
And I never hesitate to grab one of those free breath mints on the way out the door.
What?
They got rid of those during a 1980’s cost cutting binge? You always know that when they have to dump the breath mints to preserve their profit margin, there’s a problem.
The airlines did it 40 years ago, and look what happened to them.
However, today, banks and financial shares in general offer some unique investment opportunities.
What is a manager to do when the stock market is at a decade high valuation? You only buy cheap stuff.
What do you do when stock markets move in a narrow sideways range with no net movement? You only buy more cheap stuff.
What is a trader to do in a stock market characterized by rapid sector rotation? You only buy, you guessed it, cheap sectors.
Enter the banks.
You remember the banks, don’t you? That was the sector that was priced for perfection in anticipation of eight consecutive quarter point interest rate raises starting in December.
It only took a 10% stock market correction to rain on that parade, as the prospect of any further rate hikes was put on ice. Bank stocks plunged 40% in a heartbeat.
Now that the April Open Market Committee minutes have put a rate rise back on the table, we’re seeing that movie replayed one more time.
Banks stocks have already recovered half their January losses, except for JP Morgan Chase (JPM), which has already made back all the lost ground.
Nice trade Jamie Diamond!
This time around, banks have attractions that were missing in past cycles.
Oversight is now at record levels of intensity.
Nearly a decade of new share issues has brought bank capital to record levels, and liquidity is at an all time high.
