(New York)

No matter how many times you tell them that renting a vacation home is a better financial idea, many clients get the “I want to buy a vacation home bug” and can’t get it out of their system. When that happens, here is a few things of which to remind them. Firstly, their vacation home will not have the same capital gains tax exemption as their primary residence. Additionally, costs associated with the property, including insurance, property taxes, and possibly fees associated with renting the property, can all rise faster than their incomes, especially if they are on a fixed income in retirement. Vacation homes can also be complicated from an inheritance perspective, as some heirs may want to keep the property while others may want to sell it.

FINSUM: All good arguments. Hopefully some clients will listen!

(New York)

Financial advisors often wonder about the best way to get client money into private equity. The industry has long had very high hurdles for investing directly in funds, and publicly traded funds that try to replicate private equity returns are still nascent. However, there is another good way to get PE like returns by proxy—buy publicly traded private equity company stocks. KKR is a very well known firm that is currently trading very cheaply and seems like a good buy. The stock rose 50% last year but badly trailed its rivals in a year that saw many PE companies double in value as they shifted from partnerships to corporations.

FINSUM: The market seems to be underpricing KKR’s ability to create management fees based on its dry powder, which is causing the weaker valuation.

(New York)

It may not get much attention right now, but the biggest threat to stock prices is also the same thing that has been supporting them for years. If you really consider what has driven the extraordinary rise in stocks, it is the fact that bond yields have been so outrageously low since the Crisis. This has created the widely-covered “TINA” (there is no alternative) syndrome that has driven investors to pour capital into stocks. Accordingly, many analysts say the biggest risk to stocks is a pickup in inflation, which would likely send bond yields sharply higher.

FINSUM: This is a solid argument theoretically, but calling a rise in inflation has been a very poor bet for over a decade. Why is that different now?

(Washington)

It has been stewing for a while, but antitrust regulation regarding some of the stock market’s largest companies is starting to look like more of a reality. However, it is not in the way one might expect. Trump has long said he wanted to work on anti-trust regulation—with Amazon the frequent target of his ire—but now he is taking steps that actually support big companies and corporate power. The way the administration is going about is through the Justice Department filing many legal arguments in cases where it is not even a party. In this way, it is trying to influence how the courts handle competition cases, and it has generally been pushing patent-holder friendly positions and undercutting lawsuits of other enforcement agencies.

FINSUM: This does not track very well with Trump’s general rhetoric, but it does follow a general Republican economic line. It seems positive for stocks.

(New York)

If you think the economy is going to keep humming along, then buy small caps, as they look set to gain the most from that scenario, at least according to Leuthold group. Small caps look likely to benefit disproportionately from the rising inflation and higher appetite for risky assets that accompany a strong economy. That said, small caps have lagged large caps for the last decade, so there is some reason to be skeptical about this call. Accordingly, “If 2020 should prove difficult for earnings growth, we would expect large-caps to maintain their earnings growth superiority”.

FINSUM: We can see the economy continuing to roll, but we have a harder time seeing inflation jumping up. We think the status quo will continue.