(Rome)

We do not cover too much European news. This is mostly because our readers don’t pay much attention when we do. However, we thought the crisis going on in Italy warranted special attention. Stocks are plummeting and bond yields soaring on the back of a political uproar over the future of leadership. In particular, two big parties (i.e. the Five Star Movement and the League) who are leading in the polls both propose lavish tax cuts and spending increases which look on the surface to possibly lead Italy to a default, which has bond investors and the European establishment worried.

FINSUM: We feel for Italy, we really do. We think the country has really been crippled by the Euro and now there is no easy way out. We expect positions will moderate, but this could cause some volatility.

(Washington)

Brokers who want to publish more of their own research will now find it easier. For the last several years, publishing research on individual funds has been a complicated and risky endeavor for brokers as rules meant some research work could be seen as a sales material, subjecting it to stricter scrutiny. The SEC is harmonizing rules to allow brokers to publish research on ETFs, mutual funds, registered closed-end funds, and business development companies under the same rules that govern other types of research.

FINSUM: This delineation had existed too long and we think this is a good change of rules.

(Washington)

The Trump administration may be on the verge of a large regulatory pullback in wealth management products. In particular, Trump is considering dropping the rule which limits variable annuities. The products have widely been considered too complicated for retail investors and have been limited alongside the DOL rule. Sales of variable annuities fell to $98 bn last year, the lowest figure in two decades.

FINSUM: These products only seem likely to rise again if any fiduciary-type rule disappear. As one advisor put it best, saying “If you are required to put clients’ interests first, they [VAs] almost never make sense”.

(Washington)

In what could be could news for those worried about the Fed hiking us into a recession, one of the Fed’s top leaders has just come out with a very dovish tone. St. Louis Fed chief Bullard says the Fed needs to slow its pace of rate hikes to preserve its credibility. “Inflation expectations in the U.S. remain somewhat low, suggesting that further normalization may not be necessary to keep inflation near target”. He suggests that the best policy going forward may be to freeze hikes.

FINSUM: One of the things that has worried us about the Fed is that they seem to be viewing rate hikes as some sort of automatic pre-determined path towards normalization rather than basing it on actual inflation numbers.

(Washington)
The DOL rule is on the way out and the SEC best interest rule is on the way in, but that did not keep the SEC from taking a parting shot at the DOL. Outgoing SEC commissioner Michael Piwowar, long a critic of the fiduciary rule, said yesterday “I think it was a terrible, horrible, no good, very bad rule … It set up an unworkable, impossible set of standards for people to comply with. The Department of Labor couldn’t have cared what we thought and what you all thought, didn’t listen to Finra, didn’t listen to state regulators or the insurance regulators, and went forward with a rule that proved to be unworkable”. Piwowar is expected to leave the SEC on July 7th following his resignation.

FINSUM: We could not think of a more comprehensive critique of the DOL rule. We think the SEC really “gets” it.