(Washington)

The business-friendly part of the White House appears to have taken a hit over the last week. First it was Goldman Sachs alumni Gary Cohn to leave, and now former Exxon CEO Rex Tillerson has been fired as Secretary of State. In his place will be CIA Director Mike Pompeo. Pompeo is expected to walk a much closer line to Trump’s agenda. Speaking about Tillerson, President Trump commented “We were not really thinking the same; with Mike Pompeo, we have a very similar thought process . . . I think Rex will be much happier now”.

FINSUM: We are concerned that a former CIA director might not have the diplomatic skill to smooth out some of the rough edges of foreign policy. That said, greater harmony between the White House and Secretary of State will be a good thing.

(New York)

Allianz, the global financial firm, says that Bitcoin is worthless and that the bubble is about to burst. While the firm may be better known in its native Europe, Allianz is a major player speaking out against the cryptocurrency. “In our view, its intrinsic value must be zero … A bitcoin is a claim on nobody – in contrast to, for instance, sovereign bonds, equities or paper money – and it does not generate any income stream”, says Allianz, Europe’s largest insurer.

FINSUM: We thought the bitcoin bubble had already burst! Allianz really seems to think it will go to zero. We do not, as we believe it will slowly develop into a digital value store as the regulatory regime surrounding it gets harmonized.

(New York)

Market volatility is back in a big way. This has made investors nervous and has re-ignited interest in traditional safe havens such as bonds and gold. However, Goldman Sachs has just note put out a note saying those asset classes have evaporated as safe havens. “No safe havens -- and no assets or equity sectors -- have had a positive beta to the VIX recently, and few have had a positive beta to 10-year yields, leading to diversification desperation”, say Goldman Sachs strategists. Rates, which look to be heading higher, have been a major culprit in the decline of safe havens, as have changing strategies, such as at the Bank of Japan.

FINSUM: This is one of the main reasons the market might end up falling further than it otherwise would have. Since there is no easy place to put cash, the overall panic level may be higher in a situation of serious volatility.

(Washington)

It would be easy to dismiss the current uproar over the Stormy Daniels case against Donald Trump as another in a long series of minor scandals surrounding the White House. However, this one might be very different. The reason why is that the legal case surrounding the situation may force Trump to testify under oath, which could prove a very dicey situation. Daniels, whose real name is Stephanie Clifford, is now offering to pay back the $130,000 she received in exchange for releasing her from her obligation of silence.

FINSUM: It will be very interesting to see where this case leads, as there could be wide-ranging implications.

(Washington)

President Trump has just sent a strong message to overseas investors: that US tech is not for sale. The president rejected Broadcom’s hostile takeover of Qualcomm. Although Broadcom is based in Singapore, the prospect of China, which loomed over the deal, was enough to get the White House to block the hostile takeover. American Qualcomm is in a heated race with overseas rivals, including Huawei, to build next-generation wireless technologies, and the US is warned about its strategic interests.

FINSUM: The US is right to worry about this, and we think blocking the deal was a great move. China runs its companies like China Inc., which puts the US at a bit of a structural disadvantage (because our firms don’t share as much info). Therefore, Washington needs to be very careful.

(New York)

When you think of gold’s role in a portfolio, most would immediately say it is for hedging against inflation. However, new research shows that gold is only a good hedge for inflation over very long periods, such as decades or centuries. In normal time horizons, say one to five years, it is a very weak hedge, and equities have performed much better. Now this is not to say gold cannot be a good asset class in its own right, just that its traditional role should be rethought.

FINSUM: If gold is really a poor inflation hedge, then investors and their advisors need to think very carefully about how they conceptualize it within their portfolios.

(New York)

Few remember how this very long bull market started, but it happened with some very badly blown earnings forecasts. At the grim bottom of the Financial Crisis in 2009, analysts were expecting double digit declines in corporate earnings. Instead, earnings rose, starting what is a bull market entering its tenth year. Now, Bloomberg says, blown earnings forecasts will be what turns this bull into a bear. Analysts tend to be comically wrong on earnings forecasts at the most pivotal moments, and with sentiment looking very strong, it may very well be a similar miss to 2009 that sends the bull market off its lofty perch.

FINSUM: A big earnings miss right when the economy looks strong would be very jarring for investors and sow a lot of doubt about the future. This call seems plausible to us.

(New York)

It as another solid year for RIA M&A. Just as in 2016, there was strong deal flow, and the number of transactions closed was exactly the same in 2017 as the year prior. That said, deal size and total AUM declined. The first half of 2017 was significantly stronger than the second half, with the majority of the year’s 94 deals getting done in the first half. TD Ameritrade says distraction from tax reform in the second half of the year was partly to blame for the decline in momentum. Total AUM acquired was $106 bn, and the average transaction size was $1.13 bn.

FINSUM: These look like pretty pretty strong numbers to us. The market still seems to be ripe for further consolidation.

(New York)

Advisors need to be very mindful of an old regulation that is taking on new relevance in light of the fiduciary rule. While the DOL’s rule may not be fully enacted, one concept it adopted, which is based on precedent from the ERISA and IRS codes, could be a thorn in the side of advisors. That concept is “reasonable compensation limits”, and is of particular concern to high earning advisors as they will need to look hard at the services they provide and come up with justifications for their pricing. According to a top industry lawyer, this rule will not be undone by a new SEC or DOL rule, so it is here to stay; “Even if the DOL, SEC or Finra roll back the fiduciary rule so that lots of advisor reps and insurance agents are no longer fiduciaries, the reasonable compensation limits would still apply”.

FINSUM: The argument is that this rule’s new relevance will lead to a clearing out of highly priced and highly paid advisors.

(New York)

Many who are worried about the future of the stock market take solace in the fact that the US economy looks strong. If the economy is doing so well, the market is less likely to fall, or so the logic goes. However, looking at history, that understanding is unwarranted, as stocks lag well in advance of economic downturns. In fact, the market usually tops out well before any economic downturn begins, and by the time a recession actually starts, stocks will have long since been in a bear market.

FINSUM: This is an excellent point. Just as the current bull market started during the fallout of the Financial Crisis, the bear market will probably start when the economy looks like it is in full swing.