(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.

(New York)

Retirement takes a lot of planning, which every financial advisor knows intimately. Yet, retirees themselves often forget some of the big things that can derail their financial plans. Accordingly, here is a list of several important high expense items that retirees forget to account for. Firstly, one-time big ticket things, like new furnaces, air conditioning units, repainting the house etc. This big expenses can catch retirees off-guard. Relatives in need are often another big commitment that retirees don’t see coming. Additionally, many don’t realize that as their Social Security distributions rise, they can be moved into a higher tax bracket and may also see their Medicare premiums rise.

FINSUM: This is a just a good reminder piece of some of the pitfalls of retirement.

(Washington)

Speaking as a financial publication, the SEC’s new Reg BI has been an odd story to cover. For something so consequential to the industry, there has been quite scant coverage of it, and very little industry commentary from actual advisors and networks. Unlike the DOL rule, there has not been the ceaseless cacophony of voices chiming in for and against the rule. But why? The answer is that the SEC has much sharper teeth than the DOL. Unlike the DOL, which has a very narrow scope of regulation in wealth management, the SEC is the principal regulator of the industry, and thus nobody wants to get on its bad side with aggressive commentary about the rule. Accordingly, everyone has been quite tight-lipped, even in interview requests.

FINSUM: This makes a lot of sense. If one wants to get really critical of the SEC’s new rule, they better have very deep pockets for lawyers, as the SEC can basically put any firm out of business.

(New York)

There is serious trouble brewing in the riskiest corners of the debt market. The lowest rated group of corporate bonds have seen their yields rise for months as a host of factors are causing losses. Whether it be the switch to ecommerce, poor energy prices and renewables, or prescription drug regulations, companies across multiple sectors have been getting hammered. The problem is that the issues hurting these CCC rated companies are not just isolated to them, the move in sentiment and selling is spreading to the broader high yield and speculative loan market. More companies are being downgraded too, and default rates are picking up.

FINSUM: Rather than a panic, this is a broad-based and fundamental move away from risky debt. It may not lead to huge losses—yet—but expect spreads to keep rising.

(New York)

Investors have been playing defense in stocks for months. Everyone has been very spooked by economic data and the trade war, which has caused a rotation into defensive sectors. However, a top manager at Fidelity, Denise Chisholm, is saying the opposite: it is time to play offense. Her core argument is that real interest rates in the US are negative--which happened after the Crisis and also in the 1970s and 1980s—which is highly bullish for the stock market. Further, the ECB and Fed are cutting at the same time, a quite rare occurrence, and one that has always led to an equity market rally.

FINSUM: This is an interesting contrarian argument. We particularly like the ECB + Fed narrative.

(New York)

Warren and Sanders’ tax plans have been scaring those on the right for several months, especially as Warren has risen to become the dominant candidate for the Democratic bid. But how much of a negative effect might her plans have on the market? The answer is probably not much, and if anything, it will be bullish for risk assets. Firstly, Warren’s plan will only touch the top 75,000 households in the country, so it is a niche focus. But secondly, because of the taxes imposed, ultra high net-worth families will need to be more aggressive in their asset allocation in order to continue to grow their wealth, meaning they will likely put more capital into risk-on investments.

FINSUM: This was quite a useful insight. It is hard to imagine Warren’s wealth tax being good for the market, but the logic of this argument (from Barron’s) seems sound.

(New York)

One of the biggest changes in the advisor-oriented ETF market in recent years has been the sharp rise in broker-owned ETFs, such as those from Schwab and Fidelity. Both have jumped to be major players in the ETF market thanks to their ability to sell these funds on their own platforms. One of the important things advisors need to understand is that a lot of new funds are seeded by the provider itself. Some ETFs have hundreds of millions put into them by their sponsors, which means they are not as liquid, or in-demand as they appear. Hartford and John Hancock are examples of this approach.

FINSUM: Brokers deposit huge sums in new ETFs to make them look established and in-demand. The best way to actually double-check that AUM figures are representative of reality is to look at the volume of shares traded, which is much less likely to be misleading and gives a true picture of liquidity.