(Washington)

In what seemed an attention-grabbing and worrying story, it appears that the DOL and SEC rules are merging into some sort of hybrid, but not in the way you might think. Despite the DOL rule being effectively dead due to a court ruling, the DOL seems to be pressing ahead and is planning to modify its Conflicts of Interest rule to mirror the SEC’s new language in its BI rule. “It’s the DOL and the SEC trying to end up in the same place in terms of regulation”, says a senior policy official.

FINSUM: While this is not as worrying as if the SEC were trying to mirror the DOL, it does seem like the DOL is pressing ahead with the regulation. Perhaps we have not heard the last of the fiduciary rule?

(New York)

Barron’s ran an interesting article today chronicling the market views of famed investor Leon Cooperman. The legendary hedge fund manager argues that investors should stay away from bonds, but that stocks are “fundamentally cheap”. “My world is cash and stocks … I think bonds are the bubble”, says Cooperman. He argues that a big downturn in stocks is not in the cards because the economy “if anything, is too strong”.

FINSUM: This argument makes sense, bonds do seem overvalued. However, what if stocks and bonds are too pricey? That seems logical too.

(Washington)

Republicans are feeling a lot of heat on the campaign trail because of one of their most contentious tax policy changes. Anecdotal evidence suggests that many voters says they will vote democrat in high-tax states because of the Republican-led change to greatly reduce SALT deductions, which has sent tax bills soaring for many affluent residents of high-tax states. Democrats have promised to abolish the SALT deduction limit.

FINSUM: The interesting thing here is that the most pain from the tax change is being in felt in some of the districts that went red in 2016. For example, there are many affluent suburbs in New Jersey that are now feeling the pinch from the changes, which could, in aggregate, change the outlook for midterms.

(New York)

Short-term bonds are looking like an ever better buy right now. Two-year Treasury yields are at 2.87%, up from 1.55% a year ago, and well over the 1.9% average yield of the S&P 500. That means the spread between the two- and ten-year notes is only about 28 basis points. Considering the latter has significantly more rate risk, two-year bonds like a good bet right now.

FINSUM: There are many ultra short-term bond funds out there to choose from. Actually, given the breadth of ETFs in the space, there has never been a better or cheaper time to play defense in this kind of rate environment.

(New York)

How does a REIT with great long-term business fundamentals and eye-popping yields sound? If that sounds good, take a look at Ventas. The REIT owns 1,200 properties, many focused on senior and assisted-living facilities. The long-term business looks very healthy as demographics—including retiring Baby Boomers—are a major growth opportunity for the REIT. The dividend yield is a strong 5.7%, and it appears safe, according to Morningstar.

FINSUM: Definitely seems like a REIT worth some more investigation. We like the combination of good yield and strong long-term fundamentals.

(New York)

The markets took another dive yesterday, with the Dow losing well over a 1%, the S&P 500 down almost 1.5% and the Nasdaq down over 2%. That loss jolted investors out of the sense that things might be back to normal after a strong recovery in recent days. This all begs the question of whether it is really time to start worrying about a recession? A new study from Bank of America says no. The bank did analysis of economic performance going back to the sixties and have found that compared to previous pre-recession cycles, the US is actually moving away from recession now.

FINSUM: Relying on historical data is probably not going to be very fruitful right now as the pretext (artificially low rates etc.) is totally different for this economic cycle.

(Beijing)

This story is not getting much attention in the US, but we thought it too big to ignore. S&P Global, one of the world’s leading credit raters, just announced that a “debt iceberg with titanic credit risks”. S&P says that China has seen a massive rise in borrowing by its local governments, much of it hidden from view, and the the excessive borrowing poses grave risks. The ratings agency says there is between $4.3 tn to $5.8 tn of off-balance sheet debt held by local governments following “rampant” borrowing. The debt is hidden is what are called “Local government financing vehicles” (LGFVs), which were entities used to raise debt before local governments were allowed to issue bonds in capital markets.

FINSUM: This is a pretty scary story that only the FT seems to be covering. It makes one wonder if LGFVs will be the acronym at the center of the next crisis.

(New York)

One of the challenges that all advisors are dealing with at the moment is how to handle rising rates and their affect on portfolios. There are good options out there for handling the challenge, like rate hedge ETFs, but within the efforts to defend against losses, there have a been a few hard-to-predict moves. One big surprise has been the performance of utilities stocks. Utilities generally lose when rates rise as their yields look relatively less attractive. However, utilities are outperforming the market, with a flat performance this month through Monday, and a 6% gain in the last three months. Explaining the gains, one fund manager says “'In a market like this, in a dramatic sell-off, the rotational effects will be higher than the interest rate effect”.

FINSUM: We sort of understand the safe haven status, but how does a rate-sensitive sector become a safe haven from rate-driven losses? Nonetheless, utilities stocks are doing well.

(Washington)

Investors need to be aware that big political news may be released any minute. That may not sound like much of a statement these days, but Bloomberg is reporting that Robert Mueller may release the findings from his investigations very soon. Bloomberg says Mueller is under immense pressure to release the findings of his probe or cease his investigation. He is especially under pressure to release whether he has found evidence of collusion between Trump and Russia and whether the president did anything to obstruct justice.

FINSUM: It seems likely that these findings won’t be released until after the midterms, but you never know if a politically-motivated early release right before the election might occur.

(San Francisco)

In what would likely come as the biggest IPO in recent memory, Uber says it is planning for a potential IPO in 2019. Parties close to Uber say that its bankers delivered valuation proposals for an IPO in the range of $120 bn. That is an eye-opening figure because it is almost double the company’s valuation from its most recent funding round 2 months ago. There are no guarantees the company will go public next year, but its CEO has said it is aiming for a public debut in the second half of 2019.

FINSUM: We do not think that valuation is out of the question given how much investor anticipation there might be for this IPO. The IPO market has been red-hot, so nothing seems out of reach.