(New York)

Despite the rise of ETFs over the last few years and the weak performance of hedge funds, on average, one of the astounding things in asset management has been the staying power of the latter. Hedge funds long had a “2% and 20%” fee structure as standard, and while most discount a bit from there nowadays, fees are still very high—hundreds of times low-priced ETFs and mutual funds. Bloomberg explains that a big part of that fee goes into paying the brokers that recommend the funds. The payments go by all sorts of names, such as placement fees, payment for shelf space, and retrocessions, but the fact is they boost costs to investors.

FINSUM: Bloomberg tries to make this look dirty, but the reality is that referral fees are standard in many industries. The big question in this area is where this type of arrangement falls when the SEC debuts its new fiduciary rule?

(New York)

Well it is now official, or as official as it can be considering “correction” is a generic term. However, a drop of 10% is widely considered to be a “correction”, and that is the threshold we just crossed after yesterday’s huge losses. Stocks dropped deeply again yesterday, with the Dow falling over 1,000 points, or over 4%, and the S&P 500 nearly that far. Markets fell after positive unemployment claims data fueled fears that the economy is too good, which would lead to a tightening Fed and bring about a recession.

FINSUM: It is quite odd that the markets are afraid the economy is too good. We recognize how a hot economy brings about issues, but we just don’t think we are there yet.

(Washington)

Yes, yes, we know—yesterday we said the new SEC fiduciary rule would be launched in the fall, now we are saying the spring. Yes, it is confusing, but so is the whole DOL-SEC joint fiduciary rule process. A new article in WealthManagement cites two well-respected experts on the issue as saying that they expect the rule to debut within 3-5 months, which could mean either in May or July, much earlier than the autumn date we reported yesterday. However, aside from timing, there are two huge questions lingering over any new rule. Firstly, how comprehensive will the rule be; and two, will states—which are fed up with the federal government wasting time—accept the new rule, or press ahead with their own.

FINSUM: There is still a very good chance that the new rule will get smashed by political fighting and states will forge ahead in creating a national patchwork of rules.

(New York)
One of the most respected financial publications in the country has some bad news for investors: the selloff is not over yet. Barron’s argues that the selloff is not close to over, despite the mild recovery, because investors are not yet use to the new “yield backdrop”. For the first time in over a decade, the market seems to be pricing in higher rates and a tighter monetary environment. “The going bet, now, is that the Federal Reserve will continue to lift rates, and thus tighten credit, and maybe to a degree that produces an economic recession”.

FINSUM: We think more volatility is on the way and that it will take a little time for the storm clouds to clear, but we do not expect a bear market, or much more than a 10% overall correction.

(Washington)

A couple of weeks ago all the talk was about how President Trump was eager to have a one on one interview with Robert Mueller in order to set the record straight. Now, the reports are shifting that Trump should not speak to Mueller. Republicans think not speaking would be wise considering new documents which reportedly show bias in the investigation. One explanation of the recent reports is that Trump is trying to see if not speaking to Mueller would be acceptable to the public, or whether it would hurt his image.

FINSUM: If you think this whole investigation is a witch hunt, then it makes sense that Trump should not take the risk of incriminating himself by talking to what is assumed to be a biased investigator. If you have the opposite view, then not talking looks like he has something to hide.