(Istanbul)

The big crash in oil has a lot of investors worried. Generally speaking, falling oil prices are seen as a bad sign, as they tend to forecast a weakening economy. However, this time around, there is a big beneficiary—emerging markets. The large majority of EMs are oil importers, which mean they benefit from weakening prices. Accordingly, countries like India and the Philippines are seeing benefits to their currencies, and likely, their economies. Indonesia and Turkey are also big oil importers.

FINSUM: This is more of a silver lining to a negative than a positive development in itself.

(New York)

Vanguard appears to be taking action on one it its biggest weaknesses. Others in the industry, notably Fidelity, have been making moves to try to make their funds ever more accessible and cheaper. Vanguard has been the low cost leader for years, but some of their features now make them look slightly outdated. Perhaps no longer. For its Admiral Shares class, its cheaper option, Vanguard has lowered the minimum investment from $10,000 to $3,000, a significantly lower threshold for younger and less wealthy investors. The changes will apply to 38 of their index mutual funds.

FINSUM: This is a good move but we are surprised they didn’t just change it to no minimums.

(New York)

Here is a big warning. Goldman Sachs says that with bonds and stocks falling, and the outlook remaining poor, cash will be king. The bank thinks that stocks will only rise by single digits in 2019. In the words of Goldman analysts, led by David Kostin, the chief of Goldman’s research arm, “We forecast S&P 500 will generate a modest single-digit absolute return in 2019. The risk-adjusted return will be less than half the long-term average. Cash will represent a competitive asset class to stocks for the first time in many years”.

FINSUM: Goldman basically think T-bills are a great buy right now and we have a hard time disagreeing. The yields on short-term holdings are very favorable and quite rate insensitive.

(New York)

Merrill Lynch’s new compensation plan is not being received well by brokers. Many are angry about certain aspects of the plan and are pushing back. In particular, brokers don’t like that the plan incentivizes them to tell clients to take on more debt during a period when interest rates are rising. Around 15,000 advisors have complained to Merrill Lynch management. Management responded by saying it was a good incentive and was designed so that it didn’t heighten conflicts of interest.

FINSUM: This seems like it will just create misaligned incentives, especially given that it is being put in place when it is very unfavorable to be adding debt.

(New York)

One of the surest signs in the economy right now is that real estate is in trouble. Data coming out of the sector has been consistently weak for months and shows a clear downtrend in the housing market. Rates seem to be playing a big part of that, as demand for housing has sunk as rates have risen. That could prove one of the few brakes on the Fed’s relentless rate hike path. The fall in real estate comes at a time when the market should be surging, as unemployment is at extreme lows and Millennials are entering their peak home buying years.

FINSUM: Besides stocks and bonds freaking out, real estate is one of the areas showing a lot of weakness, and this it is perhaps one of the few aspects that could stop the Fed.

(San Francisco)

As of today, the FAANG stocks have shed over $1 tn in market cap since their recent highs. The turmoil pulled markets down around 2% across indices, with the Dow seeing the biggest drop at 2.21%. The losses mean once again that indices have lost virtually all their gains for the year. As one CIO put it, “absolute bloodbath for technology stocks”. The selloff seems very forward looking, as investors are quite focused on what might go right and wrong in 2019. The biggest worries seem to be around trade.

FINSUM: Here is a question: why exactly is tech selling off? Apple obviously has its own problems, but those particular issues don’t seem very relevant to Facebook etc. Panic?

(New York)

How to protect against the next recession? This is a difficult question. Since it may be rate induced, it will be hard to hide out in Treasuries, and gold has not inspired much confidence. Well, SkyBridge Capital thinks the big money maker is to short high yields. “Our largest short position right now is in high yield, and it’s not because we think we’re going to make money this year or next year … It’s to protect against the eventual recession or [a] surprise recession”, says a portfolio manager there. “If you’re looking to put on [a] relative cheap short position, it’s hard to figure out how you lose money given how tight spreads are”.

FINSUM: High yield has seen a big expansion of credit and a decline in quality, and when the next recession rolls around there are going to be some big losses.

(New York)

There is a lot of focus on stocks, bonds, and oil right now, but a very important US asset class is sending increasingly bleak signals: real estate. Data out of the sector has been growing weaker for months, and now new figures reinforce the trend. US homebuilder confidence has fallen to its lowest level in two years. The National Association of Homebuilders commented that “While home price growth accommodated increasing construction costs during this period, rising mortgage interest rates in recent months coupled with the cumulative run-up in pricing has caused housing demand to stall. As a consequence, builders have adopted a more cautious approach to market conditions”.

FINSUM: The rea estate market is slowly but surely tightening up. However, because price gains were never as over-the-top as pre-Crisis we only expect shallow declines as the next recession unfolds.

(Houston)

Oil, like many other commodities, is seen as a good leading indicator of the economy. Because it is a strong gauge for total economic demand, it functions are a good bellwether of future growth. However, Barron’s is arguing that, right now, the signal is broken. There are a number of reasons why. The foremost of them are that the recent moves in oil have much more to do with supply growth and geopolitics than they do with economic demand.

FINSUM: Oil is not a good barometer of the economy right now because of its own issues. The oil market has changed dramatically in the last decade because of the huge expansion of oil reserves due to shale. That has led to the whole sector recalibrating itself. As evidence of this argument, take for instance the fact that oil suffered an extreme bear market from 2014-2016, but the global economy kept expanding nicely.

(San Francisco)

Apple’s CEO Tim Cook went on the record yesterday telling the market that he feels pending regulation of the tech sector is inevitable. Cook has been a recently strong critic of the data abuses exhibited in the sector. He argued that the free market is not doing its job to protect privacy and that governmental action is necessary. In cook’s own words, “Generally speaking, I am not a big fan of regulation … I’m a big believer in the free market. But we have to admit when the free market is not working. And it hasn’t worked here. I think it’s inevitable that there will be some level of regulation . . . I think Congress and the administration at some point will pass something.

FINSUM: We have to agree with Cook about the likelihood of regulation here. The financial incentives for companies are not aligned with protecting privacy, so the government would likely need to step in to make that happen.