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Looking Ahead To ‘The Poor Bank Redemption’
"The Poor Bank Redemption", reads the title atop the latest edition of BofA's popular weekly "Flow Show" series.
There's a reason the bank's Michael Hartnett is a crowd pleaser, and it's not just down to the charts, although he's got a way with the eye candy too.
The figure (below) says it all. Banks have underperformed tech by the most during any period over the past two decades save the dot-com bubble and the GFC.
"Bears will argue that big 2020 underperformance of banks [is] a signal of
Banks are cyclical, rate-sensitive, and bricks/mortar – not surprisingly a tough place to be.
The tech/bank and KBW index charts look more like contrarian indicators here – when they’re at these extremes, historically more of a buy signal than a sell signal.
Banks are about to publish ( with Q2 earnings) a long, long list of very bad news- mostly around the fact that they are having a lot of trouble collecting on their loans (commercial business, commercial asset, and residential asset loans).
In addition, they are too scared to make new loans because they might not get repaid and they might need their existing cash because of the loan reserve problems that already exist.
IMO, bank stocks are not tanking because the stock market is assuming that – no matter how big this problem of inadequate loan loss reserves is- the Federal Reserve/Congress will send cash to US banks (via TARP 2.0).
TARP 1.0 was about $.5T. TARP 2.0 will need to be a massive multiple of TARP 1.0.
If you start quantifying all these situations that will need USD (TARP 2.0, forgiving student loans, healthcare, UI, free college education – am I forgetting anything?) that the Democrats and even many Republicans will want to give out USD for, the US can not print enough USD for all of this without driving a lot of global investment funds out of USA and into China, Europe and EM.
Just as wealth between low and high net worth individuals in the USA will be evened out more in next decade- the same thing will happen between USA and the rest of the world.
It is going to be interesting. Prepare to hunker down – as our heavily weighted service economy can not make a meaningful comeback.
I wouldn’t mind a democratic sweep in Nov, actually not too sanguine about that option, but we Americans do not seem to understand that it’s the people we don’t elect, the cabinet, key senior officials, etc. that can have the biggest impact. Warren as Treasury Sec’y … what a concept.