(Washington)

Well, after a long wait (but perhaps one shorter than most expected), the SEC is ready to announce its framework for a new fiduciary rule this week. The SEC plans to hold a public meeting to discuss the three components of its new rule: “whether to propose new rules and forms for brokers and RIAs to summarize their relationships with clients; whether to establish a standard of conduct for brokers; and whether to provide an “interpretation” of the fiduciary responsibility of RIAs”. Advocates of the current DOL rule don’t like the approach the SEC is taking because it appears to be disclosure-based, something they think is insufficient to fulfil the need for fiduciary duty.

FINSUM: To be honest we did not think the industry would be able to have this much insight into the new SEC rule this quickly. Stay tuned.

(Washington)

The public spat between the president and the former director of the FBI went very public yesterday as a Comey interview about his firing was aired on national television last night. In the interview, Comey called Trump morally unfit to be president and said that Russia may be holding something over Trump that is affecting his behavior. Comey would not say whether he thought Trump firing him amounted to obstruction of justice, saying that would be up to investigators to decide. Trump fired back at Comey through a series of tweets.

FINSUM: Hard to say if this spat will amount to anything, but one thing is clear—it will not lessen the pressure Trump is under in regards to this investigation.

(New York)

Banks may be about to receive a huge gift from regulators in a move that shows just how much the deregulatory push of the Trump era might help the financial industry. The US Federal Reserve, which has significant oversight of the financial regulatory landscape has proposed changes which would loosen restrictions on banks’ balance sheets, allowing them to become more reliant on debt financing, thus having more leverage.

FINSUM: All the details of the new proposals are not clear yet, but this could be a significant boon for banks.

(New York)

Goldman Sachs seems very committed to expanding its business. Not only is the bank trying to make a bigger push into wealth management, but it also also reportedly downsizing its trading unit and putting more resources into its consumer finance business. It now offers consumer savings products, and last week, made an acquisition to grow revenue in its consumer business. The bank bought consumer finance app Clarity Money, whose CEO is Adam Dell, younger brother of Michael Dell. The app helps consumers lower their bills and suggest ways to help their budgets and then keeps a cut of the savings.

FINSUM: To us it is quite amazing how Goldman is proactively shedding its elite image to become more broadly consumer focused. We wonder how it will affect its business in the long run.

(New York)

If you have been reading the news, you will have seen that many are starting to worry that a recession is on the way. While the economy still seems to be in good shape, at the fringes are some data that could foretell a period of contraction. The question is how sharp a contraction might come at the end of this long bull market and economic cycle. Well, Wall Street economists think that the contraction will be slow rather than a steep drop off. Most economists see solid global growth this year of between 3-4%, but thereafter is when things could get dicey.

FINSUM: The big troubling sign to us is that both the US and Europe, which were on different cycles, both seem to be slowing this year, which could portend a recession sooner rather than later.

(New York)

While the market has not been doing so well this year and there are many warning signs, there are some positives too. One great sign for markets is that earnings are very strong. First quarter earnings season looks to be a great one, but what will that do for the markets? This year is supposed to be the best for earnings growth since 2010, but that is exactly the problem—great earnings this year have been forecasted for a while because of the strong economy and tax cuts. That means all the risk appears to be to the downside rather than the upside.

FINSUM: We think this round of earnings have little margin for error as everyone is expecting them to be great.

(New York)

While the housing market has been doing well and credit markets still look solid on a fundamental basis, there is big trouble brewing in US housing. The proportion of highly indebted mortgage borrowers is surging. Fannie Mae recently increased the amount of total debt as a proportion of income it allows for federally-backed mortgages from 45% to 50%. Rising house prices and stagnant incomes mean that 1 in 5 mortgage borrowers now have 45% or more of their pre-tax income eaten up in debt every month. That is triple the same proportion of borrowers compared to 2016 and the first half of 2017.

FINSUM: The mortgage market has been running out of prime borrowers, and in response, the proportion of subprime borrowers seems to be rising, though this is being accommodated by increased federal support for such mortgages. Are we headed down the same road again?

(London)

The US stock market is looking increasingly volatile at the moment. Valuations are high, there are a number of fears, and worries over a trade war are causing daily swings. So what is an investor to do? One good option is to hedge US equity exposure with some international equities. Overseas stocks had a mixed first quarter but have been doing well recently. The reason why appears to be that they have underperformed the US for years, but are now finally catching up. While lending standards are tightening in the US, they are loosening elsewhere, causing a consumer spending boom. Further, higher US valuations make overseas stocks look “cheap”.

FINSUM: Having some overseas allocation seems like a good idea right now. The only real weakness we see, beyond Dollar risk, is that a trade war would negatively affect all countries, at least in the near term.

(Washington)

The standoff between the president and special counsel Robert Mueller is heating up once again. On Monday, federal agents raided the offices of Trump’s personal lawyer Michael Cohen, which Trump vehemently protested in the media. This has led to speculation Trump may now move to fire Mueller. In response, the White House officially said yesterday that they felt doing so was within the president’s authority. GOP lawmakers have warned Trump not to do so, but say they will not protect Mueller.

FINSUM: Whether or not Trump is allowed to fire Mueller, we think it would cause an unprecedented political firestorm if he were to do so. Just look at what happened to Nixon after he fired a special counsel.

(New York)

Despite a tumultuous market over the last few weeks, stocks are at least maintaining their ground. This may give investors hope that prices can make a turnaround and the bull market can resume. However, beware history, as in previous periods of Fed tightening, valuation multiples have tended to decline, a fact that spells trouble for this market.

FINSUM: If higher rates mean lower multiples, then the 18-month outlook is not too strong for this market. However, the economy may not be as strong as many expect (look at the most recent jobs report), which could keep the Fed at bay.