(New York)

Investors look out, it is time to go on the defensive, at least according to JP Morgan. The top strategist at JPMorgan Asset & Wealth Management, Michael Cembalest, has just told investors that the growing trade war and its threat to markets and the economy means investors need to be very worried. Cembalest points out that this will be the first sustained rise in tariffs across the global economy in 50 years and it is a profound shift away from decades of historical precedent. If the US proceeds with a further $200 bn tariff package on top of its $34 bn package, then markets could be in for a wild ride, says JP Morgan. They advise to focus on consumer staples and tech stocks.

FINSUM: This is a pretty stark warning from JP Morgan and it does make sense. Because there is little recent precedent for trade war, the market may not be accurately pricing the threat it poses.

(New York)

One of the market’s big worries over the last few years has been centered around the idea that ETFs may have some sort of implosion the next time there is a Crisis, or at least some major volatility. However, S&P has just come out with a report saying that won’t be the case. The piece cites the numerous instances of when major volatility hit markets, including this past February, and ETFs held up just fine. That said, ETFs do have the potential to be distortive, and they have been implicated in some major flare ups, such as that linked to the CBOE Volatility Index this winter. S&P concluded that “There’s not much cause for concern for systemic risk … But we have been able to quantify that there’s some minimal impact”.

FINSUM: Our feeling is that equity ETFs should be fine. However, for less liquid fixed income and other low liquidity areas, ETFs could theoretically have a “liquidity mismatch” which might cause some issues.

(Houston)

The oil market is continuing to experience some deep tremors after a great year. The oil benchmark dropped another 1% yesterday, bringing prices down to their lowest level in three months. After months of rising on concerns of weak output, the market is plunging on the threat of oversupply, especially from Russia and OPEC countries. Additionally, the IEA put out a report saying it saw global oil demand falling, another factor which weighed on the market. In addition to worries about rising supply and weakening Chinese GDP, Commerzbank commented that “The unexpected increase in U.S. crude oil stocks by 629,000 barrels reported by the API is generating headwind, as is a sharp rise in Russian oil production”.

FINSUM: It is starting to feel like the tide might really be turning on the oil market, which has had a great 18 months.

(Washington)

Three of the foremost experts on Financial Crises—proven by their experience in 2008—have just weighed in on the threat of another Crisis. Ben Bernanke, Tim Geithner, and Hank Paulson have just commented in a joint press conference that while the US financial system has better barriers in place to prevent a crisis, its tool kit should one come is considerably weaker than in 2009. The main weaknesses cited were the massive increase in debt the government has experienced since the Crisis, giving it less room to bail out the market; and secondly, the deep political divisions which could more easily block any bipartisan action that may be necessary to save the financial system. Geithner summed it up this way, saying “Better defenses, weaker arsenal”.

FINSUM: This is some very good insight from the most experienced Crisis fighters out there. All their points sound quite reasonable to us.

(New York)

All the focus in the fixed income world is currently centered around whether the yield curve will invert. However, investors should know something—the yield never inverts in municipal bonds. That’s right, the muni yield curve has never inverted. The reason why being that short-term munis are always very rich, with small supply and high demand. However, looking at longer-term yields, munis look like a great buy. While the average ten-year muni yield is only 2.43% versus 2.86% for Treasuries, for any investor in a tax bracket above 15%, buying munis makes more sense.

FINSUM: The current spread between ten-year munis and Treasury bonds makes the former look like a smart purchase right now, especially because the market seems to be in healthy shape.