Hedge fund guru Doug Kass recently made a strong case to short financials. This is a pretty easy thing to do for any retail investor: just get the Financials Select Sector SPDR (XLF) and short it in your brokerage account. But why is Kass urging such a trade?

There’s a macroeconomic and a fundamental aspect to Kass’s argument, and both aspects of the thesis are so elegantly woven together that it’d be a disservice to the article to try to pick them apart. Instead, let’s focus on what those macro and fundamental arguments are.

The macro argument is about housing and the future of fiscal and monetary policy in the United States. The fundamental argument is about how these things influence financial stocks in particular, and how the market has gotten this connection wrong.

Let’s start with Kass’s macro view. He writes that positive economic surprises are moderating and we’re seeing less commercial and industrial loan growth. Most crucially, we’re also seeing a decline in housing activity, which “remains a meaningful source of revenue for the commercial banking industry.” As a result of higher interest rates, the demand for loans is declining. Less people are going to take out mortgages as interest rates rise, causing economic weakness everywhere.

But this is going to hurt the financial sector the most, since retail banks remain dependent on the sector, as Kass notes. Yet the market has seen rising interest rates as a good thing for the financial sector, in the hopes that higher rates will cause higher net interest income and higher operating margins. These have already been experienced at several commercial banks, which is why stocks like Bank of America (BAC) and Wells Fargo (WFC) jumped double digits over the last few months. Add to that the hopes of deregulation from the Trump camp giving banks more profitable opportunities, and you have a sector that’s up over 20% in the last six months.

But the problem isn’t just coming from housing, Kass says. “Retail is undergoing an existential crisis as the channels of distribution change violently, but the problem facing retail likely runs deeper,” he writes, adding that “auto sales are peaking.”

These are fundamental tailwinds to the economy and to financial stocks in particular, as they depend on lending to retail outlets, car loans, and mortgages. On top of that, there is a lot of evidence of macroeconomic turbulence that isn’t getting priced into the markets. Protectionism is up, Europe’s banking industry is “in disarray” with Deutsche Bank (DB) being the most obvious weak link in a sector struggling with a number of issues, Brexit being just one of them.

With all of these macro and fundamental risks, Kass warns that “valuations of bank stocks have returned to pre-Great Recession levels.” With the valuations divorced from the risks, Kass urges a short.

Whether he’s right or wrong, this is a commanding analysis that incorporates a number of dynamics and several markets into a cohesive and coherent market view. This is exactly the kind of financial analysis investors need to listen to, whether they eventually agree with Kass or not.

A great exercise for analysts would be to take Kass’s view and try to write two responses: one in disagreement and one in agreement. Such an exercise should in theory uncover a market view that can be turned into an investment strategy that will outperform the market as a whole.

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