(New York)

When you think of gold’s role in a portfolio, most would immediately say it is for hedging against inflation. However, new research shows that gold is only a good hedge for inflation over very long periods, such as decades or centuries. In normal time horizons, say one to five years, it is a very weak hedge, and equities have performed much better. Now this is not to say gold cannot be a good asset class in its own right, just that its traditional role should be rethought.

FINSUM: If gold is really a poor inflation hedge, then investors and their advisors need to think very carefully about how they conceptualize it within their portfolios.

(New York)

Few remember how this very long bull market started, but it happened with some very badly blown earnings forecasts. At the grim bottom of the Financial Crisis in 2009, analysts were expecting double digit declines in corporate earnings. Instead, earnings rose, starting what is a bull market entering its tenth year. Now, Bloomberg says, blown earnings forecasts will be what turns this bull into a bear. Analysts tend to be comically wrong on earnings forecasts at the most pivotal moments, and with sentiment looking very strong, it may very well be a similar miss to 2009 that sends the bull market off its lofty perch.

FINSUM: A big earnings miss right when the economy looks strong would be very jarring for investors and sow a lot of doubt about the future. This call seems plausible to us.

(New York)

It as another solid year for RIA M&A. Just as in 2016, there was strong deal flow, and the number of transactions closed was exactly the same in 2017 as the year prior. That said, deal size and total AUM declined. The first half of 2017 was significantly stronger than the second half, with the majority of the year’s 94 deals getting done in the first half. TD Ameritrade says distraction from tax reform in the second half of the year was partly to blame for the decline in momentum. Total AUM acquired was $106 bn, and the average transaction size was $1.13 bn.

FINSUM: These look like pretty pretty strong numbers to us. The market still seems to be ripe for further consolidation.

(New York)

Advisors need to be very mindful of an old regulation that is taking on new relevance in light of the fiduciary rule. While the DOL’s rule may not be fully enacted, one concept it adopted, which is based on precedent from the ERISA and IRS codes, could be a thorn in the side of advisors. That concept is “reasonable compensation limits”, and is of particular concern to high earning advisors as they will need to look hard at the services they provide and come up with justifications for their pricing. According to a top industry lawyer, this rule will not be undone by a new SEC or DOL rule, so it is here to stay; “Even if the DOL, SEC or Finra roll back the fiduciary rule so that lots of advisor reps and insurance agents are no longer fiduciaries, the reasonable compensation limits would still apply”.

FINSUM: The argument is that this rule’s new relevance will lead to a clearing out of highly priced and highly paid advisors.

(New York)

Many who are worried about the future of the stock market take solace in the fact that the US economy looks strong. If the economy is doing so well, the market is less likely to fall, or so the logic goes. However, looking at history, that understanding is unwarranted, as stocks lag well in advance of economic downturns. In fact, the market usually tops out well before any economic downturn begins, and by the time a recession actually starts, stocks will have long since been in a bear market.

FINSUM: This is an excellent point. Just as the current bull market started during the fallout of the Financial Crisis, the bear market will probably start when the economy looks like it is in full swing.

(New York)

Aside from the general tensions over rising rates and what they mean for the economy, investors need to pay attention to another important consideration. That consideration is that with each basis point of increase, stocks are looking less attractive as the allure of dividends fades. While for years the view has been that “there is no alternative” to investing in equities because of weak bond yields, that perception is now fading as yields rise to a place where they start to offer acceptable returns. “Investors now have a viable alternative to cash with yields finally above inflation levels”, says the chief investment strategist at BlackRock.

FINSUM: It might not a recession, but the simple emergence of a viable alternative might be what ultimately unwinds this bull market.

(New York)

One way to judge the fear level of investors in regards to inflation is to look at flows into TIPS, or Treasury Inflation-Protected Securities. The bond market had its biggest bout of volatility in around a decade over the last 6 weeks, and one big upshot of that has been a surge into TIPS, as investors seek a safe haven for the strong rise in inflation which they see coming. BlackRock’s TIPS ETF, for instance, just hit a new high with $25 bn under management.

FINSUM: Interest in TIPS has a lot to do with the Fed and rates, but also with the government’s budget deficit, which is set to widen.

(Washington)

The word is that Robert Mueller’s probe into a possible obstruction of justice charge against President Trump is almost concluded, but that he is thinking to delay filing to charge to allow him to wrap up other facets of the investigation. The reason why is that the Mueller team reportedly thinks filing the charges would make it harder to finish the rest of the investigation because of an increasing lack of cooperativeness on the part of witnesses, in addition to Trump likely moving to shut the investigation down.

FINSUM: If Mueller actually filed charges against Trump it would be a monumental political bombshell. Mueller is sharp enough to not try to do that half-cocked.

(New York)

The life of an advisor at a wirehouse is certainly changing. In the new broker-protocol-collapsed world, things have become different. At UBS, the changes are very clear—advisors are being paid more, but it is harder to leave. The average broker for UBS earned about $471,000 in 2017 (skewed by big earners), up 13% over 2016. However, at the same time, the firm dropped out of the broker protocol, making it harder for advisors to breakaway. UBS spent 7% less on new broker recruiting last year.

FINSUM: A 13% pay bump is a pretty strong number, but it could likely be much higher if one were to go out on their own.

(New York)

Advisors look out. The big bang moment in wealth management might be about to happen. That moment might be when Amazon launches its own robo advisor, taking the concept to the masses in a way that has not been done before. Amazon is already getting involved in finance with its pursuit of checking accounts and ecommerce retailer Overstock.com is launching its own robo. One wealth management commentator put it this way, saying “Advisers have their head in the sand; they are in denial … Many think this won’t affect them or their clients … There were probably a large number of buggy manufacturers that were saying the same thing in 1910”. Amazon has a mountain of using data on people’s spending habits, which could give them a leg up.

FINSUM: It seems like only a matter of time before Amazon moves in this direction. There is still good margin to be had in this space, which makes it ripe for Amazon.