(Washington)

Elizabeth Warren’s ascendency to being the leading candidate for the Democratic presidential bid, coupled with her strongly leftist policies, has begun spooking various sectors. Energy is ground zero. The reason why is a tweet recently fired off by Warren: “On my first day as president, I will sign an executive order that puts a total moratorium on all new fossil fuel leases for drilling offshore and on public lands … And I will ban fracking—everywhere”. If that eventuality happened, it would greatly wound the US oil industry. Entire oilfield services industries would cease to exist in the US, and Canadian shale would be the big winner, along with huge oil companies, where the price gains from the tightened supply would offset other losses.

FINSUM: Analysts estimate this would send oil prices up around 60%, but it would really hurt the US oil industry.

(New York)

Gold has been doing well this year alongside all the market turmoil and uncertainty. While one could construe recent progress on a trade deal with China as potentially bad for gold—given its status as an uncertainty hedge—the reality is that rates are headed lower via Fed cuts. This means the Dollar will weaken, and in turn help gold. Societe Generale, for instance, is advising a maximum allocation to gold, saying investors should have 5% of their portfolios in it. Additionally, a resolution to the trade war would probably also weaken the Dollar as there would be less desire to take advantage of its safe haven status.

FINSUM: Basically Soc Gen is arguing that gold will benefit from both lower rates and a risk-on trade. The former aspect seems sound, but gold benefitting from less anxiety? Sounds a weak supposition to us.

(Berlin)

In what comes as a very worrying sign for the global economy, one of the world’s largest economies has just gone into a recession. Germany now appears to be in an economic downturn says the country’s central bank. The Bunbesbank says Germany just shrank for the second consecutive three-month period, meaning it is officially in a recession. The decline in economic output has been led by a strong weakening in the manufacturing sector, but the labor market is still hanging on. This is Germany’s first recession in six years.

FINSUM: Germany is the world’s fourth largest economy. How long until the gloom spreads?

(New York)

There are many big concerns surrounding the new Reg BI. It is considered an industry-friendly regulation, but questions abound: can we call ourselves advisors, how should we conduct rollover advice etc. The truth is that the pain and anxiety has not even really begun. Being a principals-based rule, Reg BI really won’t be understood until enforcement has begun. Therefore, it is very hard to plan for how to deal with certain questions until one feels how the SEC is behaving in practice.

FINSUM: There is a lot of uncertainty regarding this rule. In some ways, it could turn out to be very light touch, or it could be very onerous. It all depends on how it is enforced.

(New York)

Probably the world’s most famous hedge fund manager, Ray Dalio, who runs the largest hedge fund in the world, has just made an interesting comment about equities. Dalio, who runs Bridgewater, says that he does not see a big bust coming in equities, just a “great sag”. Speaking about corporate debt levels and the risk of a blow up in fixed income, Dalio says “Those extremities we are reaching are not such that it is likely to have a debt crisis. But you have reached the limits of that so it creates a big sag versus a big bust”.

FINSUM: We think this is a pretty nuanced view. A big meltdown similar to 2008 does not seem likely, but a long-term growth overhang from too much debt does seem a distinct possibility.