(New York)

A top hedge fund manager known for correctly calling both the 200 and 2008 crises, has just put out a very bearish call. Jeremy Grantham, from GMO, is warning investors that the next 20 years of returns are going to be very disappointing. Grantham thinks that even a dovish Fed can’t save this market, saying “you can’t get blood out of a stone”. His view is that the market will return only 2% a year for the next decade, way lower than the ~6% average. “This is not incredibly painful, but it’s going to break a lot of hearts when we’re right”.

FINSUM: We have personally met Grantham and respect him, but this view is ridiculous to us, as it would be from anyone. Tell what the market might do for the next 2-3 years, fine, but making a call on the next two decades is hopeless.

(New York)

The current plan for a new New Jersey fiduciary rule is of a new breed. The proposal goes to lengths never seen in the fiduciary regulation world, far exceeding both the SEC best interest rule and the defunct DOL fiduciary rule. The proposal is officially called the “Fiduciary Duty of Broker-Dealers, Agents, Investment Advisers, and Investment Adviser Representatives” and includes an expansive definition of a “recommendation”, imposes a uniform duty on both advisors and brokers, and importantly, “creates presumptive breaches if brokers and advisors do not recommend the best reasonably available option and fee arrangement”. Unlike Maryland, the state doesn’t need an internal Senate vote to enact the rule.

FINSUM: This is a very strong rule that would set an alarming, and in our view, misguided precedent for other states, or even the DOL’s update of its own rule. A presumptive breach based on single recommendations sounds ludicrous to us. Almost all decisions can be made to look poor in hindsight. Further, defining what the “best” investment selection is at one point is nearly impossible.

(New York)

Stocks are once again nearing all-time highs, which is understandably making investors nervous about a repeat of the fourth quarter occurring. While that fear is healthy, the reality is that the underlying conditions of the market are a world different now. Not only are valuations lower, but the economy is looking robust, and perhaps most importantly of all, the Fed has let off the gas pedal with hikes, which puts recession risk much lower. All of these factors seem to conspire to make a perfect environment for stock price appreciation.

FINSUM: Anyone who reads FINSUM knows we lean towards bearish news, but the truth is that our better judgment is telling us that now is probably a time to be optimistic, as the trifecta of reasonable valuations, a solid/strong economy, and a dovish Fed, are in place.

(New York)

The ECB put out research today making an argument that we hadn’t heard very much—that any trade war would hurt the US most of all. According to the ECB, “if Donald Trump’s administration was to raise tariffs and other barriers on imports by another 10 per cent — and other countries were to retaliate — growth would drop more sharply in the US than in either the euro area or China” (quoted from FT). The ECB found that one year of heightened trade tensions could knock 2% off US GDP.

FINSUM: The analysis of the actual economic impact may be credible, but the ECB is totally missing the point about the China. The risk for them is not just economic, but social and political—because they have an unelected government, officials there are under extreme pressure to keep the people happy with economic growth.

(San Francisco)

It has been several years in the making, but drone delivery appears as though it is about to become a reality. Google has just had its drone delivery project approved by the FAA, the first such approval. The caveat is that the approval is only for an area in rural Virginia. But still, it is a breakthrough for the growing and fiercely competitive drone industry. Amazon and others are vying for FAA approval as companies want to be the go-to provider of nation-wide drone delivery. The division of Alphabet running the drone program is called Wing Aviation.

FINSUM: UPS, FedEx, and USPS drivers should be nervous about this, but it is a major breakthrough that has been a long-time coming.