Nick’s Note: Regular readers know that we’re bullish on financial stocks at the Daily. But we’re not the only ones. Our friends over at Casey Research are jumping on the train as well. Our profit expectations are a bit more conservative than theirs… But we think their thesis for buying banks is spot-on…
By Justin Spittler, editor, Casey Daily Dispatch
Forget tech stocks. If you want to make 10 times your money, look at bank stocks.
Regular readers aren’t used to hearing that, and for good reason. You see, bank stocks aren’t Casey Research’s bread and butter. Our specialty is in natural resource stocks and making bets on assets that other investors want nothing to do with.
With that said, bank stocks obviously don’t fall in the commodity basket.
But they could be one of today’s top contrarian plays.
At least, that’s what Strategic Investor editor E.B. Tucker thinks.
I know this because I heard E.B. give a speech on the topic recently in Miami. It was one of the best presentations I heard that week.
After his talk, E.B. and I caught up over dinner. We talked about music and LA’s out-of-control homelessness problem. He even recommended his favorite parrilla (steakhouse) in Buenos Aires, my home for the next few weeks.
But the conversation kept coming back to bank stocks. He was pounding the table on them.
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Today, I’ll tell you why E.B.’s so bullish on bank stocks. And I’ll also tell you why I think he’s spot-on with this call. But first, let me say a few words on the big picture…
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U.S. investors have fewer choices than ever…
In short, there are about half as many U.S. publicly traded stocks as there were 20 years ago. And E.B. says that the Federal Reserve’s to blame for this.
You see, the Fed has been running an ultra-low interest rate experiment for the last two decades. This has made it incredibly cheap to borrow money.
When you can borrow money for next to nothing, you spend more money than you would otherwise. Everyday people do this. Large corporations do, too.
You can see that the number of U.S. banks has plummeted. There are now 65% fewer banks than there were in the 1980s.
That’s a dramatic decline. But E.B. says that “there will be half as many banks at the turn of the next cycle.”
That’s a bold call. But I believe E.B.’s spot-on with this prediction for a simple reason.
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Donald Trump is leaving the banking industry alone…
Two weeks ago, American Banker reported that financial regulations have fallen to a 40-year low under Trump:
Regulators now are issuing or revising two to four items a week, a dramatic drop from the five to seven items a week, on average, that companies have had to comply with for years, according to Continuity. The new range is the lowest that the compliance management provider has found since tracking the issuance of regulations dating back to the 1970s.
The company’s “bank compliance index” currently measures an average range of 24 to 48 regulatory actions per quarter, compared with a 30-year average of 60 to 85 per quarter that had held steady through the financial crisis and dates back to the 1980s.
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It’s now only a matter of time before Trump repeals Obama-era banking regulations…
That would obviously be good news for banks.
It means they’ll spend less money on compliance, and more money on growing their businesses. They’ll become more profitable. As a result, they’ll have more cash to go out and acquire other banks.
That’s why E.B. thinks we’re about to see a huge wave of consolidation in the banking sector.
The one-click way to take advantage of this trend is to buy the SPDR S&P Regional Banking ETF (KRE). It holds a basket of smaller, regional stocks that are likely to benefit the most from lax regulations and M&A activity.
Regards,
Justin Spittler
Editor, Casey Daily Dispatch
P.S. I also encourage you to test drive E.B.’s new advisory, Strategic Investor. By signing up today, you’ll learn about E.B.’s top bank stock. This company has an incredible track record of acquiring other banks. Because of that, E.B. says this company will emerge as a takeover target itself in the coming years. Click here to learn more about a subscription to Strategic Investor.
IN CASE YOU MISSED IT…
“When this anomaly appears, I can make three years’ worth of profits in as little as three hours.”
