Spread curves are flattening, which he interprets as a cautionary signal.  He would pay attention to the recent consolidation as another sign of caution.  The provisions for credit losses are the lowest he has seen – be careful.  

XLY-US or XLF-US? January saw massive gains in the U.S., which was too much, too soon. So, he pulled back and held a lot of cash. Then, in early-Feb he bought both ETFs. He recommends buying both right now.

(A Top Pick Sept. 25/17, Up 17%) There are three drivers of U.S. banks. One is de-leveraging is done with corporations and household both in great shape. Two, U.S. bank de-regulation and, three, are interest rates are rising. All are tailwinds for the U.S. economy.

This one has all the big U.S. banks. About 49% U.S Banks, 30% insurance companies, also, and about 10% Berkshire. It really represents the heavyweight in the U.S. financial sectors and he thinks they are going to do very well.  Obviously not just because of the tax cuts, but because of Dodd-Frank and also with increasing interest rates they are going to get better net interest margins. Lots of reasons to like the U.S. banks.

The pillars of Trump’s platform had infrastructure, lower taxes and reduced regulations. It is pretty clear that infrastructure and lower taxes is going to be, if ever, some time in the future. However, reduced regulations is something that can be done. They said that regulations don’t necessarily have to change the laws, they just have to reinterpret existing laws. Trump’s overall impact on the global economy won’t be as large as people had thought, but his sectorial impact will be massive. Banks are incredibly under owned and under loved, and extremely oversold.

He was looking to buy ZUB-T when it was testing multi-month rallies.  This rally is about expected rate hikes from the Fed and he expects they are over.  He would sell into strength on the banks.