Equity rally led by investors piling into banks: likely wrong move

Investors adding new money to the market and to the bank sector in particular, drive the current rally in US equities. Two reasons: deregulation and higher interest rates. We have discussed the deregulation issue already, creating a longer-term risk to the economy, as investment banks can now play chicken with the Fed all over again, and spreading risk throughout the financial system. Expectations for higher short-term rates, sooner rather than later, have given another reason to invest in banks. We have seen this cycle many times over the last few years. When the Fed threatens or even delivers rate rises, the…

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