(Washington)

Donald Trump’s lawyer, none other than former NYC mayor Rudy Giuliani, said on the record very recently that Trump has the power to pardon himself. Despite that power, though, Giuliani says Trump likely won’t do so as it would probably lead to immediate impeachment. The statement falls in line with Trump’s argument that he cannot be charged with obstruction of justice because “he could, if he wished, terminate the inquiry, or even exercise his power to pardon if he so desired” (quote form Trump’s legal team) based on the far-reaching pardoning powers of the US presidency.

FINSUM: From a legal perspective this is a quite an interesting question. But given the obvious political perils involved in exercising this theoretical power, we suspect this might be a moot point (but maybe not).

(New York)

US Treasuries took a nose dive last week on fears over Italy. They fell from well over 3.1% to well under 2.9% very quickly. However, don’t get used to those levels. The reason why is that the underlying economy is fundamentally solid, with wages and jobs strong, growth solid, and corporate tax cuts likely to give a boost. The Fed also seems likely to continue hiking, even if only slowly.

FINSUM: All these reasons aside, our own view is that yields were on a solidly rising path until the Italy issue. Since we seen that as only a temporary problem (for global markets), we suspect bond investors will regain their views.

(New York)

It might be a great time to buy gold, or at least that is what one of the top gold funds on the street is saying. VanEck International Investors Gold fund, which has routinely outperformed peers, says Gold is finally likely to break out its narrow trading range. Gold suffered a terrible bear market from 2011 to 2015, and prices are low and there is little selling pressure. This, coupled with heightened geopolitical risk and inflation, mean that gold seems likely to find a catalyst for strong performance.

FINSUM: We do agree that prices are low and there is little selling pressure, but there have been plenty of other times there were geopolitical catalysts, so it is hard for us to get behind that notion.

(Sao Paulo)

Investors who had been betting on emerging markets stocks might want to take notice of what is happening in the Treasuries market. While the explanation is a little technical, hear this: since the US deficit is set to rise rapidly, the US will see a surge in Treasury issuance. That big jump is issuance will suck up investor Dollars, and is likely to greatly wound Dollar-based EM funding. The Fed will also be forced to stop shrinking its balance sheet, which will also exacerbate the situation for EMs.

FINSUM: It sounds like the EM funding market is going to take a hit, which could have major ripple effects throughout the whole asset class.

(New York)

Credit rating agency Moody’s has just put out a broad and scary warning to investors: when the economy turns around, we have may have a junk bond crisis on our hands. Moody’s says that there will be widespread junk bond defaults in the next recession stemming from huge issuance and heavy indebtedness. With rates so low following the Crisis, indebted companies issued hugely risky and burdensome debt that was eagerly gobbled up by investors. According to Moody’s “The record number of highly leveraged companies has set the stage for a particularly large wave of defaults when the next period of broad economic stress eventually arrives”.

FINSUM: All that issuance was always going to come back to bite. Credit-worthiness was low and investors gave up a lot of safeguards. It seems inevitable the bill will come due.