Weekly Update: 4.12.18

April 12, 2018 Tobin Smith

Financials Ready to Rock: Lets Buy the FINU Ultra Financial ETF at OPEN

Dear Subscriber,

Apologies for getting this out late--had a little technology issue.

Earnings season starts tomorrow and the some of the big banks announce in the morning.

The ONE key point I think investors have missed on the financials is the 6X higher LIBOR interest rates. From 40 basis points to 2.45% is HUGE move...and with so many mortgages and commercial loans tied to this index the earnings power of the big money center banks has really transformed.

#2 The return to normal volatility paradigm shift now that the $200 billion in low volatility ETFs and options have been blown up allows the trading desks of these big money center banks to quit sucking--the is financial term for a return to profits.

With the 200-day finally supported and 20-day trading average now hurdled, I think we have a window to $145-$150 with banks reporting and guiding UP on this Libor surge.

Higher Libor, Higher Profits

The surge in one short-term interest rate benefit sU.S. banks, which don't borrow much indexed to it but lend billions based on the rate

The largest U.S. lenders will easily make $1 billion in additional pretax profit in 2018 from a jump in the London interbank offered rate for dollars, based on data disclosed by the companies. That’s because customers who take out loans are forced to pay more as Libor rises while the banks’ own cost of credit has mostly held steady because they use deposits to fund these floating rate loans

Citigroup $1.8 billion JPMorgan $1.5 billion Wells Fargo and BofA $1 billion+

“During the 2008 crisis, it was the sign capital markets were frozen,” said Fred Cannon, head of research at Keefe, Bruyette & Woods. “Now there’s all this liquidity, so they don’t need to borrow in the Eurodollar market,” where rates are based on Libor, he said. Since banks aren’t dependent on the short-term overseas markets the way they were 10 years ago, they’re funding much of their operations through deposits. The companies pay those customers interest rates that stayed low even after the Federal Reserve raised its benchmark rate three times in 2017, for a total of 0.75 percentage point. The average rate paid by the largest U.S. banks on their deposits climbed only about 0.1 percentage point last year, according to company filings.

Let's get this earnings party started!

More short-term plays coming to MAX out this record earnings season and now 15 p/e market. Adding some "Cloud Kings" positions as well.

FACEBOOK FB Facebook performed as we hoped in the Congressional inquisition: these old fogies sounded like a grandparent asking their grandchild to help them get on their home wi-fi system. Let's ADD the last half of the position IF we get the $170 May 4 Calls down under $4 on a pullback from the $14 move from the bottom.

Toby

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