(New York)

Morgan Stanley is a world leader in wealth management, but its asset management unit has long left something to be desired. It first sold off the arm after the Crisis, but has been building a new one since. The firm currently has $469 bn under management, paltry compared to Goldman Sachs and JP Morgan, both of which has over $1 tn. However, CEO James Gorman says one of his seven year goals is to reach $1 tn. The area is a priority for the firm and according to Gorman “one of the most important growth vehicles we have as a firm right now. I’m very excited about it”.

FINSUM: We imagine there would be a lot of synergistic growth between the wealth and asset management businesses, which would be great for the firm. Additionally, asset management is a capital light business that boosts ROI, which both investors and management love.

(Houston)

Oil has come a long way over the last year, and light years from two years ago. Brent crude is now trading around $80. That has some worried that this big rally might be running out of steam. However, some say it is only in its 2nd or 3rd inning. With that in mind, Barron’s has put out 8 stocks to ride the boom. The big winners seem likely to be the refiners, says Morgan Stanley, who sees oil entering a “golden age”. Some stocks to look at include: Marathon, Phillips 66, Valero Energy, Thai Oil, Repsol SA and more.

FINSUM: Morgan Stanley has done some good analysis of the market, especially looking at future oil supply versus demand, and seems bullish on prices.

(Detroit)

Just when it seemed like trade war ambitions were over for the White House, they are rearing their head again. President Trump has ordered the US Commerce Department to investigate whether the extensive use of foreign parts in the US auto industry is a threat to national security. The mandate he is using for doing so—Section 232 of the Trade Expansion Act, is the same as he used for his tariffs on aluminum and steel last year.

FINSUM: While we do understand the national security considerations, this could hurt both the car industry (because of increased costs) and spark retaliations from trading partners.

(Washington)

Over the last few months there were growing fears that the US tech industry, a stock market stalwart, might be poised for a damaging crackdown by regulators. This fear had somewhat subsided in the last few weeks as no new worries had arisen, until now. Treasury Secretary Mnuchin has just now called for an anti-trust review of the US tech industry following a 60 Minutes story on Google’s monopoly power. Mnuchin said the power to do so was not part of his mandate, but that someone in the government needs to be looking at the issue. “These are issues that the Justice Department needs to look at seriously — not for any one company — but obviously as these technology companies have a greater and greater impact on the economy”.

FINSUM: This is a very worryingly development for the tech industry and its investors, but not one we think is unwarranted. We suspect this is going to wound tech stocks, especially if the idea of an anti-trust review gets traction in Washington.

(Washington)

In what should give investors a huge sigh of relief, President Trump has called off a trade war with China. The White House has called off the aggressive approach in light of China’s statement that it would try to increase US agricultural imports there. Trump says it would be good for US farmers, who were threatened with becoming a casualty in a trade war. Democrats are criticizing the president for cutting a deal too easily.

FINSUM: We do think the US has gotten the raw end of many trade deals (not that it did not play a large part in undermining itself), but trying to throw its weight around with China was a risky strategy.

(Rome)

In a very interesting, or maybe offensive, release, the Vatican has just put out commentary from the Pope which criticizes financial advice. In a bulletin called “Considerations for an ethical discernment regarding some aspects of the present economic-financial system”, the Pope appears to criticize advisors who are not fiduciaries, listing among its “morally questionable” activities, “a failure from a due impartiality in offering instruments of saving, which, compared with some banks, the product of others would suit better the needs of the clients.

FINSUM: We have no problem at all with fiduciary advice, but we think it is very close-minded when anyone broadly calls non-fiduciary advice immoral.

(New York)

A lot of advisors have been under pressure to cut their fees. Pressure from competition, both digital and human, has reportedly put downward pressure on the fees advisors feel they can charge. However, Barron’s has put out a piece arguing that advisors should not cut their fees. The reason why stems from the results of a survey which found that advisors who lowered their fees actually brought in less assets and experienced less revenue growth than when they left fees higher. An industry commentator summarized the situation this way, saying “That supports something we’ve seen, frankly, for 15 years, which is, clients don’t leave because of price; they leave because of service issues”.

FINSUM: We think this is a bit of a misleading survey, at least if you buy the “services issues” theory. The reason why is that it is only advisors who have service issues that are cutting fees, which means the lower asset growth does not really have to do with fees, it has to do with a problem with the advisor.

(New York)

While markets have been doing a little better of late, investors may be looking for safe stocks that could perform well. Well, if that is the case, look no further than three old-time consumer goods companies that look ripe for outperformance. Coca-cola, PepsiCo, and P&G all look set to thrive and are available at a bargain. On the back of a slew of industry factors, consumer goods stocks are down by over 12% this year. However, the three stocks mentioned are solid dividend producers and seem likely to provide strong earnings growth, making a 10% total return for the year look likely.

FINSUM: 4% dividend yields with good top-line revenue growth for rock solid stocks seems like a pretty attractive proposition to us.

(New York)

One of the pioneers of smart beta investing has just gone on the record tearing down the concept. A long time quant strategist, Vincent Deluard, who helped build early smart beta funds, has lost faith in the strategy as he has seen fund providers use statistics to disingenuously prove all manner of strategies using selective back-testing. Deluard even built model portfolios to show how “dumb” constructions could lead to good results, and “smart” constructions could lead to poor results.

FINSUM: We don’t think smart beta is necessarily “smart” or “dumb”. In the end, these are really just strategies that are only as “good” as the market circumstances they are applied to. Smart and dumb is ultimately about the buyer of the funds.

(Washington)

The fiduciary rule saga presses on. Just when it looked like it was all over and the DOL had finally avoided its own rule, the court battle is not over. A new group of state attorney generals has just asked the to be allowed to appeal the fifth circuit court’s ruling against the DOL rule. California, Oregon, and New York have all asked for a rehearing of the court’s May 2nd decision to deny their request to step in as defendant. In their appeal, the states said “The federal government is no longer pursuing this appeal … Given that posture, the exceptional importance of the issues, and the grave harm the states will suffer as a result of the panel opinion — billions of dollars in lost retirement income to their residents and tens of millions of dollars in lost tax revenue — the states respectfully request that the court reconsider the decision”.

FINSUM: This is dragging on so long it is even getting annoying to report on! This does not seem likely to be granted, but one can never be sure.