Why I sold my bank stocks this week (not DBS Bank)


Almost exactly 1 year ago, I shared that I was selling stocks to derisk my portfolio.

Back then, it was clear to me that COVID was going to get worse before it would better, and with the market at all time highs, I wanted to meaningfully take risk off the table.

A year on, after an unbelievable 12 months – here I am, selling stocks again.

But for very different reasons.

How I am investing in 2021

A lot of you have asked how I am investing in 2021:

Hi FH, what is your position for the market in 2021? Apart of diversification and proper position sizing, what other risk mitigation could be considered to protect the downside if I choose not to take profit but rather to stay invested in the market. It’s very hard to predict the future market direction it will go.

I penned a lengthy post for Patrons this week to share my latest macro views and positioning, and I wanted to do the same for all FH readers.

I hope this is useful to you in your portfolio planning.

Don’t forget to join our Telegram Channel and Instagram!

BTW – we share commentary on financial markets every week, so do sign up for our mailing list, its absolutely free (goes out every Sunday).

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Rising Rates (steepening Yield Curve)

The single biggest event in global markets to watch right now is the rising rates.

Today, the US 10-year yield is at 1.34%, and the 30 year is at 2.13%. Less than a month ago, it was 1.0% and 1.8% respectively.

That’s 30 bps of tightening, in the most important monetary rate in the whole world, in the span of 3 weeks.

FT has some good charts on this.

Line chart of US 10-year Treasury yield, % showing Treasury sell-off accelerates on stimulus hopes

At the same time, the US 2 year yield has gone from 0.13% to 0.11%, creating a massively steepening yield curve.

Now this happens all throughout history.

After every recession, the yield curve steepens, and stabilizes around 2% spread eventually.

If the same thing were to repeat here, it would take the US 10 year yield to 2%+.

Can the world survive with US 10 year at 2%?

But Financial Horse, this has played out after every single recession in the past 40 years.

Yield curve steepens to 2%+, and nothing breaks.

Why is this time different?

Well, I think this time is different, because of 3 reasons:

  1. Stock valuations are very high for the start of a new cycle
  2. The stock market is very tilted towards growth stocks
  3. Global debt levels are crazy high (and long duration)

Stock Valuations are very high

The Buffett Indicator - Stock Market Value to GDP

Usually, the steepening happens after a recession, when stocks have bottomed out.

This time around, because of unprecedented Fed action, stocks never went into that massive decline.

So we’re starting out the new cycle, and the yield curve is steepening, all while stocks are at record levels.

This has never happened in the past 40 years.

And I think that changes things meaningfully.

Market is heavily tilted towards growth

This time around, the market structure is very heavily weighted towards growth stocks.

As a growth stock investor, what’s the one thing that will strike fear into you?

Rising interest rates.

When interest rates go up, future growth is worth less (time value of money).

If yields continue their climb up, there could be the mother of all corrections in growth.

Global debt levels are crazy high

After 12 years of zero interest rates, the whole world is just massively juiced up on debt at the moment.

Everyone from companies to governments are at record debt levels.

And all that debt is very long maturity.

If long term yields start rising meaningfully and stay there, I expect that at some point everything will start to break.

I don’t see companies / governments being able to sustain their debt levels if that happens.

How does this play out short term?

2 ways this plays out:

  • Scenario 1 – Yield curve steepens to previous cycle levels
  • Scenario 2 – Feds save the day

Scenario 1 – Yield curve steepens to previous cycle levels

The yield curve steepens like it does after every recession in the past 40 years.

The party can go on for the next 3 to 6 months.

But at some point in time, the music will stop, and there will be a correction.

The response of the Feds then is key. Do they step in, or do they not?

If they do not, and yield curve continues to steepen, then there could be a violent derisking across all asset classes. The mother of all corrections.

Companies/Governments will need to relook their record debt levels.

Investors rotate violently out of growth stocks.

Big correction in stocks (and the return of value stocks).

Scenario 2 – Feds save the day

Scenario 2 is broadly the same at the start.

The only difference is that when the correction happens, the Feds step in to bring long term yields down.

By holding down the long end of the yield curve, you stop the violent derisking from happening.

This was done in 2008 as Operation Twist, and in WWII as Yield Curve Control. Call it what you like, but the Feds need to bring the long end of the curve down.

Then Companies/Governments can continue to juice on record debt levels.

Investors continue to YOLO into growth stocks.

Stock market powers to new highs.

What’s my personal view?

My personal view is for Scenario 2.

I find it hard to see the Feds/Govt allowing Scenario 1 to play out.

They’ve spent trillions of dollars, and crossed every single red line there was in 2020 to prevent the mother of all recessions.

But 1 or 2 years on, they’re suddenly willing to crash everything just to prevent a bubble in stocks?


I think the paradigm has shifted fundamentally. Governments / central banks will no longer allow a meaningful correction in the business cycle to happen short term.

We’ve moved away from free markets, to centrally planned markets.

You can debate whether that is right or not, but hey, I’m just calling it as I see it.

And we’re at the point where the market has become reflexive (ie. Chicken and egg).

If the NASDAQ corrects 20% from here, the recession is going to be self-fulfilling.

So many people have money invested in the market that they’re going to cut spending. As do companies.

Push comes to shove, if the 10-year soars and stocks are correcting 10%-20% – Powell is going to buy long term treasuries regardless of what he says now.

But we’ll see though.

I know a lot of smart people out there who are positioning for a Scenario 1, so don’t rule it out too.

How to trade Scenario 2?

The key in Scenario 2 is when do the Feds step in? Because that’s the big buying point.

I don’t think the Feds will inject more stimulus out of the blue, they need a catalyst.

A new COVID strain perhaps. A correction in stocks.

Who knows.

Portfolio Pruning

We don’t know exactly when this is going to play out, but looking at how quickly the curve is steepening, I would say probably sometime in 2021. Possibly earlier rather than not.

So it’s a great time to be doing portfolio rebalancing right now.

What I’ve been doing the past few weeks, is to (1) figure out what I want to hold long term for fundamental reasons, and (2) what I want to exit to cut risk short term. And gradually rotate capital from Bucket 2 into Bucket 1.

My portfolio is available on Patron (together with the moves I am making), but broadly, I:

Sold my US Banks (JP Morgan and Bank of America) 

These were intended as short-term reflation plays, never to hold long term.

The reflation trade has played out to a great extent, and I was sitting on 50% gains for both.

At that kind of prices, sure there’s probably another 10-20% gain short term, but risk-reward isn’t the same anymore.

Closed the dead money bets (Comfort Delgro, Singtel)

Comfort was a big mistake.

I should have taken my own advice and put that money into oil stocks instead.

Comfort has COVID risk + execution risk (competition from grab etc), which makes it a poor way of playing the reflation trade. By contrast oil doesn’t have the execution risk, and there’s OPEC to manipulate prices for you.

I closed at a 10% gain, but had that money gone into Exxon it would be a 50% gain.

I also finally decided to sell my Singtel. For those who have been following Financial Horse for a while, you will know the story.

That’s the lesson when you forget to take profits in a trading stock.

Trimmed my position in gold as well.

DBS, UOB, MCT, CICT etc I see as core long term holdings, that I’m happy to hold long term and add on dips.

What do I like long term?

3 big sectors I am bullish on long term:

  • Growth stocks
  • Real estate
  • Commodities

Full details on Patron, but I will touch on it briefly here.

Growth stocks

There are 2 powerful tailwinds for growth stocks: (1) low interest rates, and (2) secular growth in tech.

On (1) – If I am right, interest rates don’t go up for a long time.

On (2) – I genuinely think that the tech revolution is only just beginning. So much potential in cloud infrastructure, machine learning, decentralized systems built on blockchain etc.

Think about your life in 2010, when smart phones were just getting started.

Think about your life today, and how almost every aspect of your life has been touched by the smart phone and apps built around it.

Think about how life will be like in 2030. I can’t even begin to describe it.

The tech revolution is only just beginning, and tech has to be a core part of any portfolio going forward.

This area is a bit bubbly though, so it’s important to pick the right ones.

Look for those that can continue to grow their business model with a 5 or 10-year timeframe.

So even if there is a short term collapse, you can just use the opportunity to add, and longer term the company emerges stronger.

Within this space, I’m bullish on the semiconductor plays, the cloud plays, and the more traditional software platform plays.

You can check out the FH Stock Watch for my detailed thinking and plays on each.

Real estate

If interest rates go up short term, expect lots of pain here.

I also think rents will take a while to recover, and the pain for office space is only just beginning.

But real estate is very cyclical, and I see the short-term weakness as opportunities to add.

Stick with high quality real estate, located in great locations in gateway cities. Those will remain relevant for decades to come.

If you use REITs – get one from a good sponsor.

Penny wise pound foolish here. That extra yield can disappear quickly if there is capital loss like First REIT.

And by middle of the decade when inflation starts to rear its head (or maybe earlier), I think real estate will start to outperform.

I like the CapitaLand and Mapletree REITs for this play.


JPM’s Kolanovic is one of the few market strategists I actually listen to.

And he published a piece recently on how he thinks a commodity super cycle is only just beginning.

His reasons are:

  • post pandemic recovery (‘roaring 20s’),
  • ultra-loose monetary and fiscal policies,
  • weak USD,
  • stronger inflation,
  • unintended consequences of environmental policies and their friction with physical constraints related to energy consumption and production.

Now I don’t know if we see a “super cycle”, but I do see commodities as a logical hedge against a potentially more inflationary environment going forward.

They’ve done very well over the past few months which means a short-term correction is on the cards.

But if ultra-loose monetary and fiscal policies are here to stay, the run may only be just beginning.

I prefer to play commodities via commodities stocks.

Oil equities are a decent part of my portfolio now, and most of the oil majors are viable – Royal Dutch Shell, Exxon, Chevron, mid-sized ones like ConocoPhilips etc.

Some allocation to gold/silver/bitcoin probably makes sense too. I don’t think gold/silver does well in the short term because of the rising real yield environment, but mid-term I think having some as a hedge makes sense.

Detailed thinking and names in the FH Stock Watch.

How to protect against the downside?

Another question from the reader was how to hedge against the downside.

Now this isn’t our grandfather’s time where you just buy a 60/40 stock-bond portfolio and hold for 30 years.

With yields so low and inflation making a comeback – These days, bonds are a guaranteed way to lose money if you hold them long term.

So any hedging strategy has to be far more active.

I would say the main tools here are:

  • Put option hedging – More for institutional investors, not cheap and tough to execute for retail investors
  • VIX – The problem with the VIX is the decay. You lose money on the bet every day, which makes this an expensive hedge. But if you think you can get the timing right then yes it’s probably the best risk/reward.
  • Long term treasuries (TLT) – Like the VIX, timing is critical. You will lose money short term as yields go up. But once the Feds start buying long term treasuries, then this trade profits. Time the purchase as close to that event as possible.
  • Gold – I don’t think gold does well short term because of rising real yields. You might even say gold is dead money in 2021. But midterm, I can really see gold coming into its own again. While I trimmed my gold position recently, I will look to add as the year plays out.

And of course, don’t forget the basics of holding a sufficient cash position, and diversifying.

Closing Thoughts

In some ways, the biggest risk at this point is not investing.

Governments and central banks have shown that they are going to systematically devalue fiat currency in the coming years.

The only way to hedge against that is to stay meaningfully invested.

Lots of risk warnings out there, that indicate the possibility of a short-term correction.

But I view any dips from here on out as buying opportunities, unless the policy support goes away.

I did a ton of portfolio pruning the past few weeks, to identify the assets I want to hold long term for fundamental reasons, and exit everything else to free up capital. And start rotating towards the former.

As always, this article is written on 20 Feb 2021 and will not be updated going forward. Latest thoughts (and my stock watch and personal portfolio) are available on Patron.

Governments and central banks have shown that they are going to systematically devalue fiat currency in the coming years.

The only meaningful way to hedge against that is to stay meaningfully invested.

Learn to invest here. We’re running a Chinese New Year promotion for all investing courses. Promo ends tomorrow (21 Feb)!


  1. Hi horse! Great post once again. Crazy world we live in. I think the democrats will be releasing huge fiscal, but markets seem to be so impatient. I kind of feel like the market is pressuring the fiscal/fed to do something. So the question is what next right? What happens after the next wave of liquidity? Those are the opportunities to look out for as you said. I wouldn’t rule out a rise in rates though, but just not this year.

    • I don’t see a rate hike for years to come. Which is why I think inflation will run hot, which seems to be the consensus now.

      The difference now is that the market itself is selling off long duration treasuries, which begs the question of whether the Feds will be forced to step in to intervene.

      The tail risk actually I think is what happens if inflation doesn’t run hot. What if we have all that monetary and fiscal stimulus, and inflation stays below 2%? That would be a very interesting scenario.

      And with the powerful tailwinds from demographics (aging population and tech), don’t think it’s impossible too.

  2. Dear FH. Thank you for another interesting post.

    I am also accumulating cash and looking to trim holdings as I find stocks are just too pricy right now.

    I sold my oil shares last year as I anticipate there will be a gradual transition to renewable forms of energy, so I don’t consider oil a good long-term play.

    • Thanks Eric, glad you found it helpful.

      I agree that oil is not a good long term play, the world is transitioning to renewables like you said. But that’s a 5 to 10 year transition.

      Short term, 1 or 2 years out, all the cars and planes still run on fossil fuels. And with capex cuts from last year, and with reopenings this year + next, we could be setting up for a massive oil shortage. So my oil is intended as a short to mid term play, and I will exit by middle of the decade.

  3. The 5 to 10 year transition that you mention probably only applies to cars. I don’t think planes will be running on electricity for a long, long time. This transition to electricity has been going on for more than ten years – GM’s EV1 was introduced in 1996.

    It’s true that oil is probably not a good long term play though (compared to many other sectors) – there’s no good compelling reason for oil and gas consumption to meaningfully grow in the years to come.

    Tech is definitely something though. I think many people who were forced to do online shopping during the lockdowns might actually continue after the pandemic is over.

    • Yep I agree with this. But if cars start to meaningfully transition to electricity, that’s probably really bad news for oil demand. Don’t think planes can prop up oil price by itself. But I agree this is a multi year transition, hence there is still time in the short term for oil to do well.

  4. Seems the market is challenging the Fed here. Why doesn’t the Fed just push back to bring yields back down? After all they do have unlimited buying power. Why do they have to wait for a “breaking point” since their past actions have all been preemptive?

    • None of their past actions have really been preemptive though. 2018 was forced by the big market correction, and 2020 was forced by COVID. Politicians (and central bankers) tend to be reactionary, and there is lots of inertia in policy making.

      I don’t see it different here, but I could be wrong. If they’re preemptive then it’s going to be close to impossible to time right, only option is to front run and average in now.


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