(San Francisco)

A prominent fund manager has just come out with a bold and bearish prediction—that the big multi-year surge in FAANG stocks will fade. Rob Arnott of Research Affiliates says “Will these stocks produce such impressive growth that they will justify their current market cap, or are these implausible growth expectations? We don’t have a crystal ball, of course, but we would recommend not betting on the momentum continuing”. Overall, FAANGs account for $4.2 tn of market cap, a huge concentration in such a small group of stocks, and a big threat to the overall bull market. Arnott is considered the founder of smart beta and has turned Research Affiliates into a firm that manages $184 bn.

FINSUM: The basic argument here is that FAANG valuations have simply grown too large relative to other sectors and are bound to come down. But what is the catalyst?

(New York)

Most investors are deeply worried about a forthcoming recession and the damage it could cause to markets. However, recession is hardly the biggest risk to worry about. Rather, investors should fear the end of globalization, anemic interest rates and growth, and liquidity risks, says Amundi Asset Management. According to Amundi’s CIO, the world’s future will be more regional and less global and suffer from aging populations. “Investors like me have been long global trade for three decades … It is the reason international diversification doesn’t work”.

FINSUM: So the argument here is that long-term stagnation causes by aging and the end of globalization is a bigger threat than a recession. Seems a solid point of view.

(Washington)

The Department of Labor has just proposed a new rule for advisors. We know what you are thinking—“oh boy, another DOL rule”. However, this new one might be quite a positive development. The new rule concerns disclosure. Specifically, it is a new proposal to allow retirement plan sponsors to make disclosures electronically. It would actually make electronic disclosure the default method. The proposal also includes additional protections for participants, including standards for the websites where disclosures are made.

FINSUM: This seems on the surface like a good idea, as it saves time, money, and hassle. Industry commentators have so far been supportive of the idea, but there has not been an in-depth review yet.

(Washington)

Between all the whistleblowers, and the questions over whether they actually had first hand knowledge, the ongoing impeachment inquiry centered on Trump’s phone call with Ukraine has become more confusing by the day. However, fresh news today has added weight to the situation. In particular, career US envoy to Ukraine William Taylor gave a deposition to the House inquiry which stated that Trump made the payment of US security assistance to Ukraine explicitly tied to the Ukrainian president opening a public investigation into Biden. Taylor says that in exchange for the aid to Ukraine, “President Trump did insist that President Zelensky go to a microphone and say he is opening investigations of Biden and 2016 election interference, and that President Zelensky should want to do this himself”.

FINSUM: Regardless of your position on this, Taylor’s testimony adds a lot of weight to the situation, as this is no longer an anonymous whistleblower. The impeachment inquiry just got more serious.

(Hong Kong)

Beijing is making a big change at the very top of Hong Kong’s leadership. Xi Jinping is said to be drawing up a plan to replace Hong Kong’s leader Carrie Lam with an interim chief. Beijing has been critical of Lam’s handling of the Hong Kong protests. Lam reportedly already offered to resign, but Beijing made her stay. Evidently, Beijing is now concerned about any timing of the move to replace her as they don’t want to further inflame the situation.

FINSUM: Beijing wants to replace her because of mismanagement, but they do not want to be seen to cave into the violence of protesters. Big pickle.