FINSUM

FINSUM

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Friday, 31 July 2020 08:48

Democrats Publish Plan to End Reg BI

(Washington)

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.

Friday, 31 July 2020 08:47

A Bold Play to Get High Yields

(New York)

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.

(Miami)

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.

(Washington)

There are just under 100 days left until the election and there is a lot on the line for markets. The economic approaches of the Trump administration and the potential incoming Democrats could not be more different, which means there are huge implications for stocks. Here is the good news—over the last 40 years, markets have historically risen leading up to the election, and volatility has usually decreased. Now the big possible twist is the COVID pandemic, a major factor that has not occurred during an election cycle. The most comparable election cycle seems to be 1968, when the US was going through similar levels of social unrest. The S&P 500 gained more than 3% in the run up to that election.


FINSUM: As we see it, the two big risks are COVID (and its economic consequences), and a leftward move by Biden. The Fed will certainly soften the blow of the former, while the latter remains.

Wednesday, 29 July 2020 14:38

UBS Found a Great New Market Indicator

(New York)

Ever on the search of new ways to think about the markets and innovative methods to predict them, we found new research from UBS which identifies a good new predictive indicator for single stock performance. That indicator is pay revolts. UBS ran an exhaustive study of 1,700 known pay revolts (when shareholders vote against executive compensation packages), and found that such companies were much more likely to suffer share price underperformance following the event. The average one-year underperformance after a pay revolt was 15%.


FINSUM: This is great info in its own right, but what makes it very timely is that Netflix lost a pay vote last year, as did Ameriprise and Xerox.

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