 Good day, fellow investors. Hope you're doing great today. Today I want to focus on banking and finances. The Fed minutes are out, the minutes of their meeting and three major banks have released their earnings on Friday. And I want to discuss here how interest rates work, banking earnings work, recession, psychicality to show you how I see what's going on and how that might be different from what the beginning investor sees and what some let's say longer term investor sees. Also what the Fed sees might be different from what I see and I'll also show you why that is really different and you should take both perspective always. Let's start by seeing what has happened. So for a change five-day change 2% up which is good for those investors who look for higher stock prices every day. However on Friday there has been a little decline plus on Monday it was very very volatile so the volatility is still there. Year-to-date the stock market didn't go anywhere and this change where stocks don't grow every day every week led to a falling confidence in the stock market. So those who expect stock prices to constantly increase the number dropped from 48% to around 45%. And this is how sentiment works. It's all about trend, trend, trend and when the trend is let's say negative it can switch the trend. So the stock market is still looking for direction. Going on to the Fed minutes one thing is what they say in the speeches after the meeting and one thing is what they have discussed that we can read in the minutes. And we see that all participants agreed that the outlook for the economy beyond the current quarter had strengthened so very good economic news and there is an increased likelihood of progress toward the committee's 2% inflation objective. Further no single Fed official is concerned by downside risks to inflation. So exactly zero of them think downside risks outweigh upside risks. And here you can see the longer term of how their perspective actually is correct or not. The red columns are when there are more hawkish words or when there are a lot hawkish words in their speeches of Fed members and the blue columns are when they are most more dovish. And you can see that 1997 they were a little bit more pessimistic than boom 1998 1999 2000 still in 2001 and almost in 2002 they were very very positive. A recession followed exactly after they were so positive. Then there were neutral for a few years then 2004 five six very very positive with the highest optimism in 2007. Of course 2008 2009 we know what happened and they were very very negative. Now after nine years of economic growth now they are positive. I leave to you to think about what will happen next now that the Fed is so positive. Positive Fed means interest rates might rise four times this year not free as expected and higher interest rates hit the hardest high yield bonds. And junk bond ETFs net flows are very very negative and haven't been so negative in the past 10 years. On the banking we have seen negative returns for the banks on Friday because earnings weren't as good as expected. However earnings were very good if you look at just from a five day change. So the five day change of JP Morgan is positive. So why are stocks banking stocks down because after such an appreciation after stocks go higher in advance of earnings means that the expectations the positive expectations are priced in. And sometimes beginning investors can understand why earnings were better earnings beat estimates and the stock price drops. Because the stock price has already been pricing in positive expectations positive things from tax breaks from a better economy for already a while. If we look at a one year change for JP Morgan it's 30% up and here you see what I mean when I say that the market has been pricing in all the positive news for already a while. On the data net income is up 35% from a year earlier and the stock price is also 30% higher for JP Morgan. And the chief executive officer James Dimon said that the results reflected a brightening economic and business environment. However lower taxes mean companies have more cash. When companies have more cash do they need banks? No so that is then a negative for banks. Secondly banks the idea was the positive was that higher interest rates mean good for banks. Yes but not sharply rising higher interest rates because then it's a negative for banks because they cannot transfer the higher interest rates that fast to the consumer. So higher interest rates are not always good for banks and those are very very delicate models to a price in what will happen in relation to the earnings rates. So now in relation to banks we have seen the huge run up over the last year and now investors are looking okay what will be the catalyst to push stock prices even higher. Good earnings weren't enough we will see. Similarly Citigroup again positive five day change negative on Friday. And now let's go back to the Fed. Participants generally regarded the magnitude and timing of the economic effects of the fiscal policy changes as uncertain because there have never been historical examples of expansionary fiscal policy being implemented when the economy was operating at a highly level of resource utilization. So we have now a very loose fiscal policy that will increase the deficit. We wonder if that is sustainable over a long term and here are the first signs that this let's say increasing earnings might contract in the future. Long term taxes in the US were much much much much higher. So when the economy was doing much much better and growing much much faster. So it is always a balance if you give it one side you have to take from somewhere else in this case the deficit which might come back hunting the same American people that are doing this. Trump will probably enjoy his four years as everything is growing. I did so good but in eight ten years the bill will come and he doesn't care about that because he will probably be dead by then. That's not that just Trump I'm not criticizing Trump I'm criticizing in general politicians that have a short really really short term orientation. On the long term to finish with the banks and why I'm wary of investing in banks look at Citigroup each recession each drop there is a huge huge drop in the stock price. So to quote Nassim Taleb for me banks are Mediocristan investments. There are good small returns over the let's say long term until a black swan hits and you lose everything. So that's why banks for me are in the too hard pile. It's not that it's too hard but the time that I should spend analyzing whatever JP Morgan Citigroup owns Deutsche Bank own it's not beneficial for the long term idea that I have in investments. Short term you never know when there will be a surprise just look at the Deutsche Bank chart what happened there and you can see that it's very very difficult to analyze what are they doing what are their derivatives games how much are they exposed what are their actual risks. So you won't be seeing much bank analysis maybe some emerging markets but that's a different story depending on how the bank is playing but that's my view on banks you might have a different view it's not that it's not a good investment it's just that I'm not a specialist in that that's it thank you for watching looking forward to your comments as always see you tomorrow in the next video when we'll discuss first majestic silver