Astute observers will have noticed that President Trump last week nominated Eugene Scalia to head the DOL following Acosta’s resignation. Even sharper readers will know that likely means the DOL’s newest version of the Fiduciary Rule is likely dead. Scalia was instrumental in the first version of the rule’s defeat last year. He was the lead counsel for SIFMA and the body of trade groups that defeated the rule. With him becoming head of the DOL, it seems highly unlikely the Labor Department would advance the newest version of the regulation.
FINSUM: We think Eugene Scalia is the DOL head that most of the industry has been waiting for. He has a reputation as a fierce anti-regulation warrior, so is hard to imagine him advancing the newest version of the Fiduciary Rule to any degree.
For many years, emerging markets were a must-have in every investors’ portfolio. The idea was that a large swath of the world was on an inevitable path towards economic parity with the west, and that there was a great deal of money to be made by investing in that growth. For several years, that view held. However, changes over the last decade mean that such a thesis is increasingly in doubt as many of the factors that drove EMs have fallen away. In the words of the Financial Times, “high commodity prices are a fading memory. Trade is stuttering and global supply chains are being disrupted. Far from catching up with the developed world, many supposedly emerging markets are growing more slowly”.
FINSUM: It is not just economic either. Governments have not cleaned up as fast as many had hoped, which means the law and governance aspect of EMs has hardly improved.
It has been forecasted for some time, but now it is finally happening—US banks are hiking dividends. After getting the all clear from regulators after successful stress tests, US banks are beginning to hike their dividends. For instance, Morgan Stanley and Citigroup hiked their dividends by 13%+ recently, with both now yielding 2.5% or over. Bank stocks have been beat up over the last year, with Morgan Stanley down 10%, for instance.
FINSUM: On the one hand, bank stocks looked undervalued and now have attractive yields. On the other, if you think we are headed towards a slowdown, then it is not a good time to buy financial shares.
One of the oldest form of analysis of the Dow is sending a pretty grave signal at the moment. The Dow Theory, which has been around for more than a century, contend that if the Dow Jones Industrial Average or the Dow Jones Transportation Average reaches a new high, the other must follow quickly in order to confirm a bullish outlook. Well, despite the core index’s gain, the Transportation Average has been lagging badly, sliding 3.59% in a single day last week.
FINSUM: Okay a couple thoughts here. The first is that the structure of the economy is different now, such that the relationship between growth and Transportation is not the same as it has been over the last century. Outside that though, logistics tends to expand at multiples of underlying growth, so this still feels worrisome.
The wealth management industry has been holding its collective breath for the last week or so. Ever since DOL chief Acosta resigned, it became very unclear what sort of Fiduciary Rule might be released later this year. Would it be a more onerous version, or a more lenient one? Well, the answer seems very likely to be a lighter-touch version of the rule. That is because Trump has just announced his nomination to the position—Eugene Scalia, son of the former Supreme Court Justice. Scalia has a long and quite conservative track record, and is seen as likely to deregulate more quickly than Acosta.
FINSUM: Scalia seems like an ideal choice for those hoping the DOL’s new Fiduciary Rule is significantly lighter than the 2017 version. Perhaps he even scraps it altogether?