XLF In Trouble? Short Setup
Aggiornato
There is a common misconception that higher rates are bullish for banks. This is wrong! Banks make money
on a spread between short-term bonds 2yr or less and loan out at 10 years or more. Thus when the yield curve
collapses as it is doing right now. Bank profits are dwindling as there is less margin for risk-taking when making loans.
Dec. 3rd I posted this chart below and said this chart should scare the hell out of you.
The simple way to read it is when the spread drops so do bank profits. As a result, earnings should fall. Couple that with
the chart indicating a break of a long term up the channel and we have ourselves an excellent short from a risk-reward perspective.
As always I remind everyone this is a key area. As such it can go either way. But the bias for me is to the downside.
on a spread between short-term bonds 2yr or less and loan out at 10 years or more. Thus when the yield curve
collapses as it is doing right now. Bank profits are dwindling as there is less margin for risk-taking when making loans.
Dec. 3rd I posted this chart below and said this chart should scare the hell out of you.
The simple way to read it is when the spread drops so do bank profits. As a result, earnings should fall. Couple that with
the chart indicating a break of a long term up the channel and we have ourselves an excellent short from a risk-reward perspective.
As always I remind everyone this is a key area. As such it can go either way. But the bias for me is to the downside.
Nota
While "experts" are falling all over themselves to tell you about Credit Suisse. I warned people almost a year ago about XLFNota
I was warning people about banks right at the top. Now everyone wants to tell you all about it and holding emergency meetings. LOL!
Real Macro Economic Investing
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