(Washington)

The first round of the second Democratic debate occurred last night, and it was full of fireworks. Candidates ramped up their attacks on one another, with most of the aggressiveness directed at Bernie Sanders and Elizabeth Warren for their Medicare for All bills that would create an entirely government-run healthcare system. Other candidates criticized the plan as “fairy tale economics”.

FINSUM: We again think that the debate last night showed why Republicans are most likely to win this election—many in the party recognize the need to play more toward the middle to win the race.

(Beijing)

It has been a very bumpy run for US-China trade talks this year, but after a significant hiatus, China will again return to the negotiating table with the US in September. The most recent round of talks, in Shanghai, just concluded without an agreement, but there were some signs of life, as China buying US farm goods was discussed. The negotiators only stayed in Shanghai about 24 hours.

FINSUM: This seems to us like quite an intractable issue. We do not expect a forthcoming agreement any time soon.

(New York)

Beyond high valuations and a potentially worrying economy (not to mention a trade war), there is something else investors need to worry about. Goldman Sachs is warning investors that S&P 500 companies are engaging in unsustainable financial payouts. The bank shows that in the year ending in March, companies in the index spent about 104% of their free cash flow on buybacks and dividends. It is the first time since before the Crisis that companies spent more on payouts than they generated in free cash flow.

FINSUM: So far this behavior is not hurting companies because investors are okay with extra leverage given the likelihood of Fed easing, but this is definitely a warning sign of financial excess.

(New York)

So the Fed is widely expected to cut interest rates this week, which has sent market yields tumbling over the last several weeks. However, guess what, mortgage rates were falling steeply well before this telegraphed cut. 30-year mortgage rates have fallen from just under 5% in November of last year to just 3.75% now. What is most interesting here, and most worrying, is that other consumer lending rates did not fall similarly. For instance, auto loan rates, variable credit card rates, and home equity line of credit rates have not changed nearly as much as mortgages, signaling something unique about the market.

FINSUM: We find this to be a sign of market weakness that was more driven by the economy itself than it was the Fed.

(Detroit)

By all accounts, the US car industry should be doing well. Vehicles sales have been good, unemployment is low, and gas is cheap. However, US car companies are closing factories and laying off workers and acting like we are in a big recession. Why? The answer is that their product mix and manufacturing capabilities are seriously out of touch with the market. In particular, they have far too much sedan manufacturing infrastructure in a market that no longer has much use for sedans. This is a huge problem because overcapacity is what doomed car companies in the last recession.

FINSUM: The good thing here is that the car companies are trying to be proactive in adjusting their facilities ahead of a broader downturn. However, closing factories and laying off workers following such a good run is getting a lot of negative political attention.