(New York)

There has been a lot of focus, including both worry and skepticism, surrounding the potential inversion of the yield curve. The two and ten-year Treasury are now just 20 bp apart. Because yield curve inversions have been a very reliable indicator of recession, many are worried. However, some are skeptical that the current near-inversion means much because of how distorted long-term bond prices have become because of quantitative easing. The reality though, according to the FT, is that it doesn’t matter if long-term yields are artificially low. Because the market believes in the predictive power of inversions, companies, consumers, and investors will act as though we are headed into a recession, and thus create one in a self-fulfilling prophecy.

FINSUM: This is an interesting argument that relies strongly on the concept of herd mentality amongst investors. We tend to agree that an inversion may cause an adverse reaction in the economy and markets.

(New York)

We are in an era of rising rates. That means that income-based stocks generally suffer as their yields look less and less and attractive. So how does one maintain an allocation to high-yielding stocks while preserving capital—buy stocks with good dividend growth. With that in mind, here is a list of seven good dividend growers. The list favors “established dividend paying stocks with strong fundamentals and stocks potentially trading at or below fair value. Dividend safety is another important factor”. The stocks are Home Depot, Boeing, Union Pacific, Amgen, J.M. Smucker, Honeywell International, and Pepsico.

FINSUM: This is a nice mix of sectors and well-known names that seem to have some real value in them. Definitely worth a deeper dive.

(New York)

Pimco, long-time leader in fixed income, has just gone on the record saying there may be some good opportunities in emerging markets. The company’s CIO sees the major turmoil in EMs, but says they offer opportunity. With all the selloffs, Pimco says “There are clearly a lot of challenges in emerging markets. But we see a little bit of value. It’s beginning to look interesting … We don’t see the same complacency in emerging markets as we do in other markets … We are more buyers than sellers”. For instance, Pimco is a major holder of Argentinian debt, and favors the country over Turkey.

FINSUM: With all the currency weakness and selloffs, there are certainly some good opportunities. However, this is an area where we may favor active management, as it takes a lot of work and insight to understand the internal dynamics of EM opportunities.

(New York)

The long-awaited (long-feared?) shake up of the S&P 500’s sectors will occur soon, and there is a lot of focus on how the tech sector, as traditionally defined, will change. Google and Facebook will be making the switch out of tech and into the new communications services sector. Netflix, as well as Walt Disney, Ford, and Nike will be joining them. There is some fear about the volatility that will be caused as big index trackers have to change their holdings on September 21st. Overall though, it seems like tech stocks (as traditionally thought of) will be winners, as having them distributed across multiple sectors will avoid the sector-weight limits many asset managers face.

FINSUM: Tech stocks will likely do well, but so will the companies getting grouped with them. As one analyst pointed out, AT&T and Verizon joining Google and Facebook is kind of liking outsiders getting invited to the cool kids’ party, which may help their share prices.

(New York)

Investors in fixed income need to be aware of a brand new loophole that was just opened to Delaware-based companies. A new provision allows companies (specifically LLCs) to split in two and divide their assets and liabilities between them as they see fit. The rule would allow companies to put certain assets beyond the reach of creditors, for instance putting debt in one entity and assets in another. The big problem is that most bonds don’t have provisions to protect against this behavior because it didn’t exist as a concept or legal process until it was approved this month. Another issue is that many contracts are written from the perspective of New York law, but that might have not much weight with Delaware-based rules.

FINSUM: This is a messy problem for anyone who owns private or smaller company debt. We thought investors should be made aware right away.