Long regional banks and short Mag Seven
The speakers argued for a structural rotation out of mega-cap technology stocks and into regional banks, driven by a steepening yield curve and deregulation.
The argument
The guest argued that nominating Kevin Warsh and Scott Bessent signals a policy shift toward a steeper yield curve and deregulation of bank ratios (like SLR). This steepening makes regional banks highly profitable and allows them to resume marginal liquidity creation for Main Street, while capital rotates out of over-concentrated mega-cap tech.
The thesis, stress-tested
✓ What validates it
- ✓Two-tens yield curve continues to steepen
- ✓Deregulatory actions on SLR and risk-based ratios are officially announced
▸ Risks discussed
- ▸Rapid yield curve steepening could cause credit tightening
- ▸Widening high-yield credit spreads and private equity debt rollovers
Hear it yourself
"It makes them a lot more profitable. That allows them to if you do that, if you steepen the curve and you deregulate things like SLR and and and risk based ratios like that and allow them to actually create loans, you get the fed out of the game of marginal liquidity creation."
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