XLF is going to take a nosedive as the US turns dovish

Right, a bit of a congested chart...

In white, we have XLF, purple, the US unemployment rate, orange is the European bank index and in yellow, we have the effective Fed Funds rate (US interest rate).

Recent rhetoric from the Fed has been pretty dovish, and we have had a pause in hiking rates, with there likely to be absolutely no hike this year.

If an economy that is apparently 'doing well' cannot afford a rate hike, is there not something seriously wrong?

Let's take the European banks...

Since the crisis, they've experienced negative rates whilst the US has had positive real rates...

See, banks like interest rates.

It allows them to make money, and allows for productive lending since there is not adverse selection when it comes to borrowers.

The Fed is about to follow the ECB's lead... I think Fed member Williams said they could go to negative rates if needed...

Which is crazy, since all they end up doing is creating zombie firms.

So let's get this idea set...

The Fed are pausing with rate hikes...

They're likely to stop the balance sheet run off...

And unemployment is at a record low...

Every time the Fed has stopped their rate hike cycle, unemployment has increased and XLF has fallen off...

Is that a decent enough thesis to get short if we start seeing unemployment data tick up?

Well, we already have... we've just had the highest Q1 layoffs in the US since the financial crisis...

Buckle up!