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April
19
2018

Why Half of the Country’s Banks Could Disappear
Justin Spittler

Forget tech stocks. If you want to make 10 times your money, look at bank stocks.

Regular readers aren’t used to hearing that, and for good reason. You see, bank stocks aren’t Casey Research’s bread and butter. Our specialty is in natural resource stocks and making bets on assets that other investors want nothing to do with.

With that said, bank stocks obviously don’t fall in the commodity basket.

But they could be one of today’s top contrarian plays.

At least, that’s what Strategic Investor editor E.B. Tucker thinks.

I know this because I heard E.B. give a speech on the topic last week in Miami, Florida. It was one of the best presentations I heard all week.

After his talk, E.B. and I caught up over dinner. We talked about music and LA’s out-of-control homelessness problem. He even recommended his favorite parrilla (steakhouse) in Buenos Aires, my home for the next few weeks.

But the conversation kept coming back to bank stocks. He was pounding the table on them.

Today, I’ll tell you why E.B.’s so bullish on bank stocks. And I’ll also tell you why I think he’s spot-on with this call. But first, let me say a few words on the big picture…

• U.S. investors have fewer choices than ever…

If you read yesterday’s Dispatch, you know what I’m talking about.

In short, there are about half as many U.S. publicly traded stocks as there were 20 years ago. And E.B. says that the Federal Reserve’s to blame for this.

You see, the Fed has been running an ultra-low interest rate experiment for the last two decades. This has made it incredibly cheap to borrow money.

When you can borrow money for next to nothing, you spend more money than you would otherwise. Everyday people do this. Large corporations do, too.

• That’s why we’ve seen an explosion in mergers and acquisitions (M&A) in recent years… 

All this deal-making has led to massive consolidation in corporate America. Just look at Silicon Valley: Facebook, Google, and other tech giants have gobbled up start-ups and even billion-dollar “unicorns” before they’ve even had the chance to go public.

The same thing can be said about every other major sector, including banking. Just look at this chart, which E.B. shared with his readers last month:

You can see that the number of U.S. banks has plummeted. There are now 65% fewer banks than there were in the 1980s.

That’s a dramatic decline. But E.B. says that “there will be half as many banks at the turn of the next cycle.”

That’s a bold call. But I believe E.B.’s spot-on with this prediction for a simple reason.

• Donald Trump is leaving the banking industry alone… 

Two weeks ago, American Banker reported that financial regulations have fallen to a 40-year low under Trump:

Regulators now are issuing or revising two to four items a week, a dramatic drop from the five to seven items a week, on average, that companies have had to comply with for years, according to Continuity. The new range is the lowest that the compliance management provider has found since tracking the issuance of regulations dating back to the 1970s.

The company’s “bank compliance index” currently measures an average range of 24 to 48 regulatory actions per quarter, compared with a 30-year average of 60 to 85 per quarter that had held steady through the financial crisis and dates back to the 1980s.

• It’s now only a matter of time before Trump repeals Obama-era banking regulations…

That would obviously be good news for banks.

It means they’ll spend less money on compliance, and more money on growing their businesses. They’ll become more profitable. As a result, they’ll have more cash to go out and acquire other banks.

That’s why E.B. thinks we’re about to see a huge wave of consolidation in the banking sector. So consider investing in bank stocks if you haven’t already.

Regards,

Justin Spittler
Buenos Aires, Argentina
April 18, 2018

P.S. I also encourage you to test drive E.B.’s new advisory, Strategic Investor. By signing up today, you’ll learn about E.B.’s top bank stock. This company has an incredible track record of acquiring other banks. Because of that, E.B. says this company will emerge as a takeover target itself in the coming years. Click here to learn more about a subscription to Strategic Investor.

 

 

Mr. Justin Spittler is a Research Analyst since March 2014 and also serves as an Editor of The Casey Daily Dispatch at Casey Research, LLC. Earlier, Mr. Spittler was a contributing writer at the firm. Before this, he worked for several years as a Commercial Real Estate Appraiser. Mr. Spittler graduated with degrees in Management and Economics from Loyola University New Orleans College of Business in 2011.

www.caseyresearch.com