(San Francisco)

The market has periodically started to worry about the regulation of the tech industry. For a while that felt a bit premature, but given recent events, it is starting to feel more real. For instance, the FTC has just begun a marathon of hearings, which will run through November, into the state of competition and consumer protection in the digital economy. The hearings are about more than tech though, as they are fundamentally about inequality and worker’s rights across the whole of the economy. The head of the FTC said “In my view, basing antitrust policy and enforcement decisions on an ideological viewpoint (from either the left or the right) is a mistake”.

FINSUM: These hearings seem like the first stage of what might prove to be big changes for anti-trust policy in the US. If changes do happen, we believe they will be much more far-reaching than just for tech.

(New York)

Rates look to be rising quickly. The economy is red hot and the Fed is hawkish, meaning two more rate hikes this year look very likely. With that in mind, investors need to protect themselves from rate risk. That means a lot of sources of income, like dividends stocks and bonds, could become sources of losses. However, fortunately there are numerous ETFs that can help investors earn income while protecting against losses. One such is Pimco’s 0-5 Year High Yield Corporate Bond (HYS). The ETF has a yield approaching 5% and has a duration of just over 2 years, putting it in the low duration category (meaning it has low rate risk).

FINSUM: This seems like a good option if you want to earn high rate-protected income. Given the current rate environment, funds like these should probably be a fixture of most portfolios.

(New York)

JP Morgan just published what could be the most well-documented financial crisis forecast ever written. The bank’s quant team put out a 143-age report chronicling how the next crisis will unfold which features the opinions of almost 50 of Wall Street’s top analysts and strategists. The consensus is that there will be a major “liquidity crisis” with huge selloffs in major asset classes, and no one to step in to buy. The losses will be exacerbated by the shift to passive management and the rise of algorithmic trading. JP Morgan says that the Fed and other central banks may even need to directly buy stocks, and there could even be negative income taxes. The bank thinks the crisis will hit sometime after the first half of 2019, most likely in 2020.

FINSUM: Assessing the validity of these kinds of predictions is always hard. While we have no idea about the timing, or whether this will actually happen, the argument is well thought out and quite logical.

(New York)

Advisors need to prepare themselves for a nasty eventuality that looks like a near certainty when the market next crashes. According to a top wealth management lawyer, there are likely to be a great deal of lawsuits filed by clients against their advisors whenever the next big crash comes. The lawsuits will be focused on claims of reverse churning, or that advisors put client money in fee-baseds account in order to collect fees without offering significant advice or trading. Since switching clients into fee-based accounts (versus commission-based accounts) has been a very common practice over the last several years, the atmosphere is ripe for a massive wave of lawsuits.

FINSUM: This article is worryingly insightful. The big switch to fee-based accounts, which preceded but also corresponded to the DOL rule, might have set up advisors for some major legal headaches in the next downturn.

(New York)

The Fed seems almost certain to hike later this month, as well as in December. Rates heading higher looks like a certainty. So what does that mean for high yielding equity sectors which many Americans rely on for dividend income? The answer is a mixed picture. Pure rate-driven sectors like utilities, real estate, and telecoms will likely be hurt, but high-yielders like healthcare and and consumer staples should hold up better because their businesses can generate a lot of cash that can be returned to shareholders via dividends and buybacks.

FINSUM: Pharma has returned over 12% this year while real estate is just around 2%, showing how the former can outperform in rising rate environments.