For the last week, Microsoft has been in a delicate dance to try to acquire the hugely popular social media app TikTok. President Trump has been adamant that it needs to be bought by US interests or he may ban the app. Last week, Microsoft said it was trying to acquire the company, but then swiftly abandoned the efforts because Trump said he would block the deal. Now, Microsoft says that Satya Nadella and Trump have spoken and gotten on the same page and that the deal is back on. Wedbush thinks the deal could be transformational for Microsoft as it would put them in direct competition with Facebook, Alphabet etc, and give them a huge social media prize while those competitors remain mired in major regulatory scrutiny.
FINSUM: TikTok already has 100 million users in the US. We think if this goes through it could end up being a major boost to Microsoft. Perhaps not unlike Facebook’s acquisition of Instagram.
Junk bonds have been on a tear lately. July was the best month for the asset class in nearly nine years, with overall returns near 5%. The average junk bond yield fell from 6.85% to 5.46% over the course of the month on the back on continued monetary and fiscal stimulus. The market has risen so much that many are questioning if they have already missed the opportunity. To this question, one high yield fund manager says “I don’t think so . . . Governments across the world want to make sure credit is working properly”.
FINSUM: As long as sovereign yields stay super low and the Fed and government keep the life lines open, it is easy to imagine yields will keep falling for junk.
Here is an eye-opener for you: odds are that 7 months from today the SEC’s Reg BI and the new fiduciary rule will be no more. The Democrats—who are currently leading in the polls—have published an action plan for a potential Biden presidency. Included in it was a clear plan to reverse the current version of Reg BI, all according to a section of the report entitled “Guaranteeing a Secure and Dignified Retirement”. On page 24 of the document, Democrats say “Democrats believe that when workers are saving for retirement, the financial advisors they consult should be legally obligated to put their client’s best interests first. We will take immediate action to reverse the Trump Administration’s regulations allowing financial advisors to prioritize their self-interest over their clients’ financial wellbeing”.
FINSUM: Because of how polls are trending, these kind of manifestos are becoming very relevant for advisors to consider.
Yields have almost never been lower. In some cases, they are at all-time lows. This has made income-oriented investments a real challenge. So how can investors get great yields right now? Well the first thing to bear in mind right now is that to get really juicy yields, one is going to have to take some risk. With that understood, take a look at mortgage REITs. Mortgage REITs took a huge hit when the pandemic began for fear of declining credit quality in the underlying mortgages. To-date they have only recovered somewhat. However, two of the biggest—Annaly (NLY) and AGNC Investment (AGNC)—are sporting yields of 13.5% and 10.6% respectively.
FINSUM: Mortgage REITs have obvious risks right now given ongoing unemployment, but with prices low and yields high, they look like they have a place in the portfolio.
May was a rough month for the housing market, new data shows. Much of the media narrative has been on the strength of the housing market of late, but the most recent data shows that home sales fell almost 10% in May. Further, home price growth decelerated from 4.6% to 4.5% in the same month. Some economists think home price growth figures are being artificially inflated by the total lack of homes for sale, with inventory very low.
FINSUM: It is hard to tell how healthy the housing market actually is. In one way, it does look healthy, but the lack of inventory and its relationship to prices reminds us when corporate bonds market seize up and there is so little inventory that prices stay “high” because of the lack of liquidity. This is an obvious exaggeration, but there could be some truth in it.