(New York)

JP Morgan just published what could be the most well-documented financial crisis forecast ever written. The bank’s quant team put out a 143-age report chronicling how the next crisis will unfold which features the opinions of almost 50 of Wall Street’s top analysts and strategists. The consensus is that there will be a major “liquidity crisis” with huge selloffs in major asset classes, and no one to step in to buy. The losses will be exacerbated by the shift to passive management and the rise of algorithmic trading. JP Morgan says that the Fed and other central banks may even need to directly buy stocks, and there could even be negative income taxes. The bank thinks the crisis will hit sometime after the first half of 2019, most likely in 2020.

FINSUM: Assessing the validity of these kinds of predictions is always hard. While we have no idea about the timing, or whether this will actually happen, the argument is well thought out and quite logical.

(New York)

Advisors need to prepare themselves for a nasty eventuality that looks like a near certainty when the market next crashes. According to a top wealth management lawyer, there are likely to be a great deal of lawsuits filed by clients against their advisors whenever the next big crash comes. The lawsuits will be focused on claims of reverse churning, or that advisors put client money in fee-baseds account in order to collect fees without offering significant advice or trading. Since switching clients into fee-based accounts (versus commission-based accounts) has been a very common practice over the last several years, the atmosphere is ripe for a massive wave of lawsuits.

FINSUM: This article is worryingly insightful. The big switch to fee-based accounts, which preceded but also corresponded to the DOL rule, might have set up advisors for some major legal headaches in the next downturn.

(New York)

The Fed seems almost certain to hike later this month, as well as in December. Rates heading higher looks like a certainty. So what does that mean for high yielding equity sectors which many Americans rely on for dividend income? The answer is a mixed picture. Pure rate-driven sectors like utilities, real estate, and telecoms will likely be hurt, but high-yielders like healthcare and and consumer staples should hold up better because their businesses can generate a lot of cash that can be returned to shareholders via dividends and buybacks.

FINSUM: Pharma has returned over 12% this year while real estate is just around 2%, showing how the former can outperform in rising rate environments.

(New York)

Fidelity is doubling down on its recent move to offer completely free index funds with no investment minimums. The money manager will launch a pair of new free index funds, one focused on large caps, and the other on the “extended market” (or small and midcaps), in late September. The new free funds are part of Fidelity’s strategy to compete vigorously on pricing to bring in new clients, and then try to earn money from them spending on other services.

FINSUM: Fidelity is almost using these funds as loss leaders in order to drum up other business. This may work for them because they have such a large product suite, but for less diversified managers, it poses a serious challenge.

(Washington)

Right now it does not seem like it has a high likelihood, but given the current direction of antipathy towards Trump, a sweep by Democrats in the midterm elections could happen. If it does (as opposed to the more likely option of Democrats only taking the House), the following sectors should do well, says Barron’s. These include: consumer staples, utilities, and real estate, all rate-sensitive sectors. The reason why is that Democrats are expected to push through a big infrastructure spending plan if they win, which would create deflation and keep rates pinned.

FINSUM: This is quite an insightful take on what might flourish if Democrats do have a breakthrough. It seems unlikely, but then again, it seemed unlikely Trump was going to win going into election night!