(Chicago)

In 2010, Meredith Whitney, famed market analyst, made a bold call that still haunts her and the muni market to this day—that there would 50 to 100 sizable defaults in the next year. The call, which came on 60 Minutes in 2010, led to a major backlash by the muni market. Besides Detroit and Puerto Rico, which were widely forecasted, her predictions never came true, or at least were certainly far too early. To this day, many of the problems that haunt the muni market, like shrinking populations in indebted areas, are still definitively long-term issues that are not going to immediately take down the market. Even the pension deficit is not as bad as many perceive, with a 71% funded ratio on average (economists say the optimal number is 80%).

FINSUM: The muni market gets a lot of bad press, mostly because of the handful of dire situations, but on the whole it has been quite steady.

(New York)

If you think the market has been bad overall, take a look at the asset management sector, which has been brutalized in the last few weeks. The S&P index of asset managers has fallen 14% this month, compared with a 9.3% drop for the market overall. That adds to a lot of pain already this year—the index has lost almost 25% of its value in 2018 and is headed for the biggest loss since 2008. Some, like leader BlackRock, have been hit very hard just this month with shares down 17%.

FINSUM: Weak fees and poor fund flows are the immediate problem, but they are a major issue because they support investors’ fears of disruption in the industry.

(Berlin)

In what could be a sign of a looming recession in Western countries, the EU just released its worst GDP figures in four years. The third quarter produced just 1.7% growth across the EU, the worst number in four years. The pace slowed from the second quarter, when growth was at 2.2%. Oxford Economics commented on the numbers that “‘temporary factors’ have been overplayed to justify the slowdown in the eurozone economy at the start of the year, and that risks are clearly skewed to the downside.” Notably, Italy produced no GDP growth in the third quarter.

FINSUM: We wonder if this is a case of the EU suffering its own problems, or whether it may be systemic and spreading.

(Washington)

Just when it finally felt like it was gone, the fiduciary rule appears to be back from the dead. Not only is the DOL working on a new version to be debuted in 2019, but it is reportedly enforcing the current version intensely. According to ThinkAdvisor, “attorneys with Drinker, Biddle and Reath report that both the Labor Department and Securities and Exchange Commission are leveraging enforcement initiatives at a historic level of tenacity”. Fred Reish, top industry lawyer concurred, saying “Now that the fiduciary rule has been terminated, I think the focus at DOL is more on enforcement”. In terms of how the DOL is opening up investigations, a partner at Drinker, Biddle & Reath says that “They start with ‘hello, we are the DOL, show us how you do ERISA,’ and from there take a very broad based approach”.

FINSUM: We are confused by what is going on at the DOL. Following Trump’s appointment of the new chief at the DOL there seemed to be a hands-off approach being adopted (e.g. not pushing the rule further in court). Now everything seems to have reversed. Stay tuned.

(New York)

“We think U.S. growth may have just peaked”, says the chief US economist for Barclays Capital. The US is coming off a strong GDP report, but the reality is that growth fell from 4.2% in the third quarter to 3.5% in third quarter. Most economists say that will slow to 2.5% in the first quarter of 2019, and 2.3% one year from now. In other words, the economy has already seen “as good as it gets” and we are past-peak. Most expect consumer spending and business investment to stall as the benefits of the tax cuts wane, weighing on the economy.

FINSUM: It is hard to imagine the economy getting better than it has been this year. Furthermore, we have a hard time believing it is going to slow down as gradually as the forecasts. We think a more abrupt recession is probably more likely.