Oh look, we’re saved, the banks can make more money due to higher rates!
Uh, did you forget something?
What has driven the market over the last six, seven years?
Extremely low rates and therefore greatly increased borrowing, an enormous percentage of which was used to buy back stock and pay dividends.
That’s over. It was over before the election, but now we know that “low and flat” as a trajectory for rates, the benign case, is far less-likely.
Most bubbles end this way. Financials get the last gasp of buying and price appreciation while those that have been consuming that cheap credit begin to underperform and then roll over.
Then the defaults start, the debt loads cause negative earnings and forced dividend cuts (which are magnified due to lower share counts in EPS terms) and finally, the financials collapse.
This post was published at Market-Ticker on 2016-11-10.
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