(Washington)

Financial advisors have been highly focused on the prospect of the Biden Administration imposing a new capital gains tax rate. In particular, the abolition of the “step-up in basis” at death that inheritors currently benefit from. The popular parlance that has emerged in the industry is “death tax”. Clients generally hate this new proposal, but one of the underappreciated risks is the major liquidity risk that the rule presents. On many assets, capital gains taxes could be large—and take a large amount of cash to pay, cash that many inheritors may not have.

FINSUM: One typical example is on US farms, where land has become hugely valuable over time, but where the actual farming business runs on slim margins. This means inheritors may have high wealth in terms of assets, but little liquidity, creating a significant tax debt under Biden’s proposals.

(New York)

Active ETFs have grown in popularity, doubling in the last two years, and they are starting to reverse the 30-year index trend invented by John Bogle. Mutual fund giants such as Fidelity, T.Rowe Price, Franklin Templeton, and American Century all have opened active funds. Driving this inflow is a series of regulatory changes that protect active fund insights and make them more tax efficient. SEC regulations have allowed semitransparent ETFs to use custom baskets and move around stocks in order to not realize gains. Semitransparent ETFs have better liquidity which allows them to cut the high transactions costs of yesteryear. Some of the fastest-growing funds are Cathie Wood’s ARK Innovation, but JPMorgan’s Ultra-Short Income, PIMCO Enhanced Short Maturity and JPMorgan’s Equity Premium Income. Finally, the current environment is allowing active funds to edge out. Active funds have thematic interests that satisfy investors at lower costs than traditional funds, and pickers outperform when there is high dispersion (as there is now).

FINSUM: Active funds are cutting costs to some of the lowest levels historically and in these tumultuous times that makes them as competitive as ever.

The European Stockxx 600 was up .5% on Friday driven by earning releases in the banking sector. That trend followed around the globe as Asia-Pacific’s Taiex index boosted 2% and Wallstreet’s S&P was up 2%. It was strong financial earnings in U.S., and semiconductors in the East pushing the Taiex. All of this happens as inflations concerns continue in the U.S. as consumer prices rose 5.4% on the year, but the Euro areas are seeing the opposite results as monthly inflation was negative in France. The common price thread is definitely in energy prices as Brent crude hit $84.40 a barrel.

FINSUM: The trickling earning reports have generally exceeded expectations. That trend looks to continue, and global portfolios are not only diverse but are outperforming.

Bitcoin flew by $60,000 and is approaching all-time highs. This was a 4% climb in less than a day. Speculation is what pushed the world’s most prominent cryptocurrency higher, as it seems it seems regulators will be approving the first bitcoin exchange-traded fund. While there hasn’t been anything official, the ETF is set to launch at the NYSE on Tuesday, and investors are expecting the SEC to not object. Investors like Mikkel Morch, executive director at ARK36, are putting $65k price target on bitcoin. The rally wasn’t widespread in all crypto as both XRP and ADA slumped. Regulation is still one of the largest risks as central banks and governments around the globe are weary to embrace. Jon Cunliffe Dpubbt BoE Governor said crypto could spark a 2008 sized financial crisis.

FINSUM: Chinese regulators were the biggest threat to crypto earlier this year, but it appears the U.S. is moving more progressive on crypto regulation moving forward.

(Washington)

The SEC’s Investor Advocate has pointed out that Reg BI is under threat. Some of the developments in the market have meant that Reg BI may be rendered useless. In particular, the increasing use of “nudges” in trading inevitably rubs against the fundamental meaning of Reg BI. If trading platforms for retail investors are constantly using “nudges”, or encouragements to trade, how much does that constitute a recommendation? That is the esoteric question that the SEC must address. According to the SEC’s Investor Advocate, Rick Fleming, “In my view, it appears that the use of certain DEPs, by gamifying securities trading for retail customers, could significantly influence these retail customers’ investment decisions in ways that were not fully contemplated when the commission adopted Reg BI with its important distinction between solicited and unsolicited trading.

FINSUM: Reg BI is only a couple years old and it is already antiquated!