(Washington)

Investors may not realize it yet, but the Fed is in a quite pickle: damned if they keep hiking, damned if they don’t. In what is being dubbed a potential “Dollar doom loop”, the Fed might create a cycle of excessive Dollar strengthening if it keeps hiking. This may cause an overseas debt crisis as many foreign borrowers, especially EMs like Turkey, have issued excessive Dollar-denominated debt. This would in turn put stress on Europe. Additionally, the strong Dollar strengthening would start to hurt US corporate earnings and exports, in turn weakening the economy and possibly causing the Trump administration to move to artificially weaken the Dollar. That said, if the Fed quits hiking, it risks the economy, which is already hot, quickly overheating.

FINSUM: This situation is very real, but luckily we think there is a pretty simple solution—only proceed slowly with hikes. It should be enough to keep the economy in check (given inflation is not high), but not so much as to send the Dollar surging (imperiling foreign borrowers).

(Washington)

The US and Mexico have reached an important trade agreement after a year of acrimonious bickering over Nafta. The new deal, from which Canada is conspicuously absent, will put harder trade restrictions on Mexico. The deal is a sign that Trump and the US are willing to ease their fight with neighbors as the country ramps up a battle with China. The Trump administration was in a rush to get a deal done before a power change coming in Mexico. The deal will no longer be called Nafta, but the US-Mexico trade agreement.

FINSUM: This is encouraging from our perspective. The last thing we want right now is a multi-fronted trade war. Hopefully a deal with Canada can be reached as well.

(New York)

One of the ways that investors or advisors might think to diversify their risk is to invest in a number of different managers. The reality is, however, that many of those managers, especially within an asset class, will all have similar looking portfolios, which means you may be much less diversified than you think. The obvious analogue is index tracking funds. There would be no point in buying multiple ETFs from different providers that all track the same index. Yet that is what investors are doing in some markets. This concept is particularly relevant for the riskier end of the credit markets right now, where the market seems to be poised for the same kind of correlated fall as happened during the Crisis. In CLOs for instance, many of the largest loans are held by a majority of the major managers.

FINSUM: This seems like a smart and timely warning. Correlation can doom even the best diversification efforts, especially when it is credit driven.

(New York)

Retail as a whole has had a great last twelve months after a very rough ride beforehand. Some think the run is going to continue as the US economy stays strong. That may be the case, but there is one segment of retail that looks likely to do particularly well—footwear. According to a number of analysts, footwear sales like likely to shine across the retail landscape. Everything from Nike, to Michael Kors, to Steve Madden, to Stuart Weitzman all have positive analyst outlooks in the near term.

FINSUM: Retail often does well in Q4 because of colder weather driving spending in higher margin items, so perhaps footwear could benefit.

(New York)

Since the end of the Broker Protocol, it seems that many firms have shied away from recruiting. Especially at the senior level, but even at the junior level, firms have not been investing as much in recruiting. But that may be starting to change, as recent reports of increased recruiting activity have emerged, such as word today that Edward Jones is ramping it up. Edward Jones says it aims to hire 250 senior advisors from other firms this year. Additionally, there is some news out that Morgan Stanley and Merrill Lynch may be working on a so-called Broker Protocol 2.0.

FINSUM: This seems an encouraging sign on the recruiting front after a rough year. FYI Edward Jones is not part of the Broker Protocol.