We 've taken banks and financials to max underweight. We have raised cash in US ETF strategies.Bullets:
- 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.
- Flattening yield curves hurt banks.
- Tighter capital rules hurt banks.
- 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.
Unfriendly Politicians
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.