(Washington)

If the fiduciary rule was on its last legs before, it is really in trouble now. The DOL’s rule suffered its first significant court defeat this week. A US circuit court struck down the rule, saying it was too broad and “unreasonable”. The court found fault with the government’s broadened definition of what constitutes financial advice and who gives it. The loss means circuit courts have split on the fiduciary rule and it now appears likely the Supreme Court will take up the case.

FINSUM: This is a major blow to the fiduciary rule, and may help usher an even quicker departure for it. It will certainly give the DOL more ground to shift to a new rule co-drafted with the SEC.

(Washington)

Special counsel Robert Mueller may very well have just crossed one of Trump’s red lines in his investigation into the White House’s connections to Russia. Mueller has just subpoenaed the Trump organization. The Trump organization has been voluntarily giving the special counsel documents to assist with its investigation, but now faces an official subpoena. The tactic mirrors the approach used by Mueller during his investigation into the White House itself. The story of the subpoena was first issued by the New York Times.

FINSUM: It will be interesting to see how sharply, if at all, Trump reacts to this move. Is this the action that moves him to try to end the investigation?

(Washington)

Stocks may do well after the midterm elections, but Barron’s is arguing that rise will be preceded by a fall in share pricing leading into the elections. The contention is based on two arguments which rely on historical trends for the market. One is that markets do well in the third year of a presidential cycle, and the other is that stocks tend to do poorly in the summer. All of that points to a market that is likely to start rallying in the Autumn, specifically November 1st, says Barron’s.

FINSUM: While Barron’s does point it out, it is very worthwhile to bear in mind that these types of calls are only as good as the actual catalysts one sees that could really drive them. In this case, the uncertainty over how the Republican party will fair in the midterms may be a key factor.

(New York)

Walmart stockholders beware, the company might be in for a big scandal. A whistleblower internal to the company has come out claiming that Walmart is using misleading ecommerce results to make investors believe it is catching up to Amazon. A former director of business development says he was fired after raising concerns at the company about its “overly aggressive push to show meteoric growth in its e-commerce business by any means possible -- even, illegitimate ones.” “Wal-Mart sacrificed and betrayed its founder’s key principles of integrity and honesty, pushing those core values aside in its rush to win the e-commerce war at all costs”, said the whistleblower.

FINSUM: So reading these claims, we do not see any evidence of the claimant saying Walmart actually falsified financial results, only that it used aggressive tactics (such as underpaying vendors), so the damage may not be that bad.

(New York)

Despite a very poor three months, there have been increasing amounts of articles arguing that Bitcoin may be a tipping point where it moves higher. However, Bloomberg has published a piece saying it is at a so-called death cross. The cryptocurrency’s 50-day moving average has dropped to its nearest point to its 200-day moving average in nine months, a move which spells doom for technical analysts. If it crosses below the 200-day threshold, it would signal the “death cross”.

FINSUM: While this does seem significant, we would argue that technical analysis is not as relevant in Bitcoin. The reason why being that the fundamentals of the market (e.g. a sound regulatory environment) are unstable, and there is little trading history from which to weigh technical indicators.

(New York)

Gun stocks may be in for a deep fall. For many years gunmakers have been protected by a legal precedent which keeps them from being held liable in cases of gun violence. However, a novel new argument in a court case may bring that crashing down. Families of the victims in the Sandy Hook shooting in 2012 have brought a case against Remington which argues that the gunmaker should be held liable because it made the choice to distribute its rifles to a dealer who illegally sold weapons. Essentially, the case holds Remington liable for its distribution channels.

FINSUM: If this argument holds it would defeat the 2005 precedent that has protected gunmakers and open the door to unknown levels of legal action.

(New York)

Investors beware of yields. That is the message from one of Wall Street’s most respected names in fixed income. In particular, Jeffrey Gundlach is warning that if ten-year Treasury yields get to over 3% then it will spell doom for stocks. Yields are currently at 2.84%, down from a peak on February 21st of 2.95%. “My idea that the S&P would go down on the year would become an extraordinarily strong conviction as the 10-year starts to make an accelerated move above 3 percent”, says Gundlach.

FINSUM: So the argument here seems to be based on the idea that stocks would become less attractive as investors could earn more from bonds given rising yields. That makes some sense given the increasing size of the retirement population.

(New York)

In a refreshing article given the relative doom and gloom over the last month, Barron’s has published a piece arguing that it is the bears, not the bulls, that need to be afraid of the equity market right now. The view is based on technical analysis. Many might be interested to learn that rather than the technical indicators showing a bull market at or near its peak, signs are suggesting a move upward may be in store. The piece is also quick to point out that despite the shallow correction a month ago, the bull trend for the market has continued unabated.

FINSUM: We don’t put a great deal of stock in technical analysis and only view it as useful as a companion to fundamental analysis. Nonetheless, it is good to stay abreast of this information.

(Washington)

In what seems a status quo that has been in place for eons, the way credit is measured in the mortgage market appears poised to change. For many years, Fair Isaac Corp’s FICO score has been by far the dominant credit score used when determining mortgage issuance. Now Congress is trying to shake things up with a bank deregulation bill that would require Fannie Mae and Freddie Mac to consider credit scores beyond FICO. If the move happens, it is expected that more mortgages would be approved.

FINSUM: This would be a huge shakeup with big implications for the market. If more mortgages get approved, it seems like credit-worthiness would fall in aggregate, with a commensurate rise in rates.

(Washington)

Wall Street is getting nervous about the changes occurring in the White House. Over the last week, President Trump has lost or fired both Gary Cohn and Rex Tillerson, former Goldman Sachs COO and former Exxon CEO, respectively. Both Cohn and Tllerson were considered the business-friendly part of Trump’s White House who would look after corporate and investor interests. With them gone, investors are betting the odds of a trade war are getting more likely. One equity strategist summarized the situation, saying “We’ve gone a long time with a zero percent chance of a trade war, it’s now higher than that -- probably significantly higher than that … The internationalists have lost and the nationalists have won”.

FINSUM: We agree that a trade war is getting more likely. If it occurs, we think it will be poor for equities markets, but not necessarily terrible for the economy.