I used to work for a bank. I guess that made me a banker—otherwise known as “bankster” or “terrorist.” Not only did I work for a bank, I worked for a bank that took down the global financial system: Lehman Brothers.

I take pains to tell people that I wasn’t trading the CDOs and unicorn piss that cracked it.

Most people, unfortunately, don’t have the ability to distinguish between ETFs and CDOs.

I’ve gotten interested in banks again—this time as an investor—because they’ve performed so poorly, and because it’s become quite a consensus that they’re circling the drain.

But this isn’t the worst-looking chart in the world: 



Regulations and inflation will only strengthen the banking industry

Some people argue that the already overregulated banks are headed for more regulations.

Great! Regulation benefits scale players. Say that five times in a row.

Regulation is supposedly the answer to that, but it only seems to make the banks larger.

This shouldn’t be difficult to understand—bigger banks have the resources to cope with the regulations.

Pretty much anything the government does to the banks, outside of breaking them up, will actually have the effect of making the bank stocks go up.

People on the right and left (Kashkari and Sanders, respectively) want to break them apart, but I don’t see the point of a market intervention to offset previously failed market interventions. Besides, they broke up Ma Bell, and 20 years later, once again we ended up with… Ma Bell.

Breaking up the banks is infeasible. It would be a 20-year legal morass to try to untangle every loan and every OTC derivative contract Citigroup has on the books. It’s great for politics, but practically impossible.

Plus, if you think that we will get a little inflation and that the yield curve might steepen, then that would really help the banking industry. I think this is quite possible.
 


History repeats itself

The last time I got involved with the banks was back in 2011, around Occupy Wall Street. I bought Bank of America purely because of the protests going on in Zuccotti Park. It was a great trade—I should have held on to it longer. I called it the “Occupy XLF” trade.

The anti-bank volume has been picking up once again, possibly because of The Big Short, possibly because of Bernie Sanders, or possibly because it’s election season—or possibly because of all three. The last time people hated the banks this much, they went up for four years straight.

A master in behavioral economics, Jared Dillan probes the mind of today’s market to gauge the trends of tomorrow. Following his intellectual adventures is a true thrill ride for every investor.