(New York)

Gold has been doing well, and it is no surprise as to why. Both the economy and the trade war are having a bullish effect on gold, which has responded in line with investor fears. Additionally, worries over tensions in the Middle East and the protests in Hong Kong have offered a short-term boost to prices. Stephen Innes, managing partner at Vanguard Markets, says “Today’s price action suggests the market is not long enough gold, especially by historical standards, for this elevated level risk as investors have remained far too complacent to mounting risk in Hong Kong and the smolder explosive political powder keg in the Middle East”.

FINSUM: Gold has been in a bear market for so long that it had many times seemed to have lost its role in a portfolio. However, it appears to once again be finding its footing.

(Houston)

Oil is looking likely to fall sharply, and not just because the world’s economy is looking soft. According to the IEA, oil supply is likely to dwarf demand next year, which will very likely lead to lower prices. Many new projects will come online, boosting oil supply far more than demand, which may only grow slightly, or even shrink if the economy heads downward. This will put more pressure on OPEC.

FINSUM: Nothing is looking bullish about oil other than geopolitical tensions (the effects of which tend to blow over quickly).

(Washington)

RIAs were shocked and stunned by the SEC’s new Best Interest rule. The reason why comes down to one word. By substituting an “and” for an “or”, the SEC basically dissolved the necessity for fiduciary duty of RIAs. Fiduciary duty until now was defined by advisors having to avoid all conflicts of interest AND make a full disclosure of all material conflicts of interest. Now the rule will have an “or” instead of an and, meaning RIAs could abide by the rule simply through disclosure, eliminating a key tenet of fiduciary duty. One industry insider commented bluntly, “It guts the RIA industry”, continuing “RIAs are not fiduciaries anymore”.

FINSUM: This is a big deal for the RIA business because it means a whole slew of new advisors can call themselves RIAs but not meet the standard and reputation that has been cultivated over decades.

(New York)

Deutsche Bank is an uber dove. The bank has just come out saying it expects the Fed to make three full rate cuts before the end of the year. “Over the past month, downside risks to the outlook for the US economy and Fed have built”, said Deutsche Bank, continuing that a mix of different concerns, from the trade war to weak inflation, are pointing to “more negative outcomes”. Pimco thinks the Fed won’t cut this month, but that it may cut by 50 bp in July, saying “we wouldn’t expect Fed officials to wait for the economic data to confirm declining US growth — if they do, they could risk a more meaningful shock to economic activity”.

FINSUM: The odds of a downturn certainly seem higher than an upturn, which means the Fed is much more likely to cut than to hike. That said, three rate hikes in the next six months sounds a bit aggressive to us, especially because the Fed would want to leave some firepower if the economy really heads downward.

(New York)

Barron’s has published a piece which covers a survey of wealthy Americans. The survey sought to find out how the wealthiest Americans felt about Senator Elizabeth Warren’s plan for a wealthy tax of 2-3% on those with over $50m or over $1 bn in wealth. The results were surprisingly, with 60% of wealthy respondents saying they would embrace the plan. The feedback was split on party lines, with 88% of Democrats agreeing, 62% of independents, and 36% of Republicans in favor of it.

FINSUM: We are somewhat skeptical of these stats. Advisors, please email us with any anecdotes on how your clients have reacted to this plan.

(New York)

Governor Andrew Cuomo of New York has just announced that he will sign a dramatic bill which overhauls New York’s rental market. The bill would make permanent laws which govern over one million apartments in New York City. The bill needs to pass through the state’s Assembly and Senate on Friday, but if enacted, would greatly limit landlords’ ability to work around rent control regulations. “We believe this is going to be a huge shift in the ability of people in New York City and the surrounding areas to live in their communities comfortably without fear of being displaced”, says Senator Brian Kavanaugh.

FINSUM: Looking at the details of this bill, it appears more an effort to get votes by saying ”we froze rent increases”, than it is a well-thought out plan. We wonder if this will have an impact on the growing package of incentives wealthy people have to leave the New York area.

(Washington)

Consider it a warning shot across the bow of Silicon Valley, the opening salvo in a potentially brutal antitrust war. The head of the Department of Justice said in a public speech yesterday that low prices and free services would not shield “monopolists” from scrutiny. “There are only one or two significant players in important digital spaces, including internet search, social networks, mobile and desktop operating systems, and electronic book sales … This is true in certain input markets as well. For example, just two firms take in the lion’s share of online ad spending”, said the head of the DOJ, Makan Delrahim. He continued “Like today’s tech giants, Standard Oil was pioneering and generated a number of important patents. Scholars have noted, however, that Standard Oil’s innovation slowed as it became an entrenched monopolist”. Delrahim also listed specific behaviors which would spark investigation, including bundling products together.

FINSUM: The government is poised to launch a large and multi-fronted war on big tech. How long this will take, or how it will play out in markets is anyone’s guess, but it is hard to find any positives as far as big tech company share prices are concerned.

(Washington)

Whereas the DOL’s first fiduciary rule was highly specific, the SEC’s new version of the best interest rule is anything but. The first version of the rule was reasonably vague, such as not defining “best interest”, but this new version is even more cloudy. For instance, industry players cannot agree if the rule is stronger or weaker than the last version. Some language has been removed that might make the rule seem weaker, but on the other hand, so much of it is constructed in a manner than tries to use context to make rules, that it is hard to tell. For instance, even the head of trade group Investment Adviser Association says that "People can look at this interpretation and select phrases that concern them or comfort them”.

FINSUM: The interesting thing here is that the SEC has deliberately taken the route of making the new rule implicit versus explicit. The whole methodology is designed around not defining things so that they cannot be worked around, but that makes the whole body itself up for interpretation.

(Hong Kong)

Hong Kong has erupted into full scale riots with over 1m people taking to the streets. Protesters are angry over a new measure that would allow mainland China to extradite accused criminals from Hong Kong to their courts, a measure which many in Hong Kong say is a clear violation of China’s agreement to leave Hong Kong’s freedoms in place for 50 years. The US has condemned the measure in serious terms, but the reality is that Hong Kong’s fate, and the US’ protection of the city-state, may become a pawn in the trade war, with the US government using it as an element to help it get a better deal.

FINSUM: This seems like one more way for Beijing to exert control on Hong Kong, and we dislike it as much as the protesters on the street. There has been a furious international backlash to the proposal, but it remains to be seen how it may impact the trade war. One more thing we think is important to note: there are 85,000 Americans living in Hong Kong.

(New York)

Markets sold off in a big way when new of the government’s antitrust push against the FANGS came out. The stocks lost $130 bn of value. However, the reaction may be overblown, with each stock needing to be assessed on its own merits, as the antitrust picture would look different for each of them. A managing partner at Andreesen Horowitz, one of Silicon Valley’s top venture capital firms, makes an interesting point, saying “The big challenge with these antitrust things is, it’s not obvious what the consumer harm is today”.

FINSUM: We think that point is very salient, as given the fact that it is hard to assert how consumers are being harmed, we expect the ultimate output of these investigations may be relatively light touch (such as a GDPR-like regulation).