We have taken banks and financials to max underweight. We have raised cash in US ETF strategies.
Brexit is a risk to banks. If the referendum passes and is implemented, banks lose.
LCR issues mean more pressure on banks to meet Basel III. See our recent piece on LCR and the Fed’s balance sheet being too small:http://www.cumber.com/lcr-is-the-fedas-balance-sheet-too-small/.
Flattening yield curves hurt banks.
Tighter capital rules hurt banks. See this June 2 interview with Fed Governor Tarullo: http://www.bloomberg.com/news/articles/2016-06-02/tarullo-says-eight-biggest-banks-to-face-higher-capital-rules.
Negative rates hurt banks. Other financials are hurt, too.
Using the price/sales ratio we examined the financials with the help of Ned Davis Research. The Financial Sector is more than 2 Standard deviations above its 30-year average. It is the highest ever using weekly data.
Certain REITS, on the other hand, benefit. Community banks will benefit if they are well-run. This is a hard subsector to reach in the ETF space, however, as liquidity of those ETFs is poor.
Insurers may be hurt, depending on their structure.
Both political presumptive nominees are unfriendly to banks. Congress is unfriendly to banks. Regulators are unfriendly to banks. The climate for bankers is difficult.
So: the market weight of financials is about 16%. Cumberland is at about 6%.
We are holding cash reserves. We expect some rocky market periods. We may deploy at any time or wait.
About The Author
Images: Flickr (licence details)
About the Author
David R. Kotok cofounded Cumberland Advisors in 1973 and has been its Chief Investment Officer since inception. He holds a B.S. in economics from The Wharton School of the University of Pennsylvania, an M.S. in organizational dynamics from The School of Arts and Sciences at the University of Pennsylvania, and a masters in philosophy from the University of Pennsylvania.
Mr. Kotok’s articles and financial market commentary have appeared in The New York Times, The Wall Street Journal, Barron’s, and other publications. He is a participant in Bloomberg radio programs. He is a frequent contributor to CNBC programs, including Morning Call, Power Lunch, Kudlow & Company, Squawk on the Street, Squawk Box Asia, and Worldwide Exchange. He co-authored the book Invest in Europe Now!
Mr. Kotok currently serves as a Director and Program Chairman of the Global Interdependence Center (GIC) (www.interdependence.org), whose mission is to encourage the expansion of global dialogue and free trade in order to improve cooperation and understanding among nation states, with the goal of reducing international conflicts and improving worldwide living standards. Mr. Kotok chairs its Central Banking Series, and organized a five-continent dialogue held in Philadelphia, Paris, Zambia (Livingstone), Hanoi, Singapore, Prague, Capetown, Shanghai, Hong Kong, Rome, Milan, Tallinn, and Santiago, Chile. He has received the Global Citizen Award from GIC for his efforts.
Mr. Kotok is a member of the National Business Economics Issues Council (NBEIC), the National Association for Business Economics (NABE), serves on the Research Advisory Board of BCA Research, and is also a member of the Philadelphia Council for Business Economics (PCBE).
Mr. Kotok has served as a Commissioner of the Delaware River Port Authority (DRPA) and on the Treasury Transition Teams for New Jersey Governors Kean and Whitman. He has also served as a board member of the New Jersey Economic Development Authority and as Chairman of the New Jersey Casino Reinvestment Development Authority.
Mr. Kotok hosts an annual Maine fishing trip, where, it is rumored, most of the nation’s important financial and economic decisions are actually made.