Predictions are hard, especially about the future. If one still has to make them, it is advisable to rely on a careful analysis to defend one’s argument. Such a careful analysis may, for example, rely on macro-economic considerations. Here, we will use an argument of a different nature, and while not entirely rigurous, it should at least be provokative.
It is no secret at this point that banks have been making their earnings courtesy of (a) changes in accounting rules, and (b) their proprietary trading. In fact, the latter has been extremely proftable for banks with well-run trading desks. The problem is that it is much harder to make huge amounts of money when markets flat-line as they recently have. So, some market movement seems desirable, and if it does not come by itself, then next quarter’s bank earnings may disappoint and thereby trigger said movement. Alternatively, realizing that they need some “market action”, banks may just kickstart it themselves.
Now, if market movement is necessary and indispensable, then the question is which direction the market is going to move …
[...] Prediction, Part II Following up on Part I, our gut feeling is that the market’s rally will continue a bit longer and then, we will [...]