(New York)

Goldman Sachs has been working hard to build up its advisor business. While the firm already has very strong revenue per advisor, it is trying to build up its advisor base and boost its securities lending business. However, it has a problem—many of it advisors are jumping ship. Goldman used to be a place where advisors stuck around for years, but in the last 12 months no less than five big, high quality teams have left the firm. Two have gone to other wirehouses, three became independent. Those in the industry say more are likely to leave.

FINSUM: It looks like Goldman is experiencing the same issues as everyone else.

(San Francisco)

Facebook has been going through a lot of turmoil lately. CEO Mark Zuckerberg is under fire, and the company is currently embattled over data leaks, especially related the Cambridge Analytica debacle. A majority of Facebook users now say they don’t trust Facebook with their data. Because of all this turmoil, however, Facebook’s shares now look like a bargain, says Barron’s. Three year ago the company’s p/e ratio traded at a 140% premium to the S&P 500. Now it down to just 30%, even though its revenues are growing 5x as fast as the market and its profit margins are 3x average. Barron’s argues that if you view Facebook as a “sin stock”, more like a cigarette company than a tech titan, then its return profile could prove very strong.

FINSUM: A lot of sin stocks, such as tobacco companies, have done very well despite public scorn. We think this current bout of anger will likely blow over and the company will return to delivering excellent earnings.

(Washington)

While all the current political anxiety seems to be centered around the midterm elections and what future that may hold for Republicans, the real trouble could be for Trump in 2020, says Bloomberg. According to economists, all signs are pointing to a recession in 2020. While the current tax cuts and fiscal stimulus will insulate the economy this year and next, “Fading fiscal stimulus, higher and rising interest rates, and cresting world demand could leave the economy vulnerable to a contraction -- just in time for the presidential campaign”, says Bloomberg.

FINSUM: A recession starting in the year of reelection would not be good for an incumbent president, and the timelines do seem to make sense.

(New York)

The mortgage market has been doing quite well for a number of years. A steady stream of home buying and refinancings because of ultra low mortgage rates has kept things flowing. However, with rates rising, the refinancing part of the business is weakening for lenders. In 2017, 37% of all mortgage origination was from refinancings, down from 72% in 2012. Accordingly, the overall mortgage market fell by a whopping 12% in 2017. In order to combat the fall, lenders are pushing home equity lines of credit and adjustable rate mortgages.

FINSUM: This is a huge part of the mortgage market that is falling away. This will mean lower earnings for lenders. One wonders when the rising rates will start to curtail purchases. It seems inevitable.

(Washington)

Investors get ready, because it looks like the next recession is on the horizon and the Fed is set to start it. And we are not talking about a distant horizon. The Fed has now made its goal a task that has been nearly impossible historically. That is to boost the unemployment rate without causing a recession. The odds of failure are very high and the Fed has never successfully achieved it in its history. The reason the Fed wants to boost unemployment is that labor markets are very tight, which will produce unacceptably high inflation. Accordingly the Fed must intentionally walk up the unemployment rate to keep things in check. The tool it will use is gradual rate rises to slow down growth and boost unemployment.

FINSUM: We think the Fed is probably going to fail in this exercise, either by being too dovish and letting inflation get too high, or by being overly hawkish. Either way we do not see a good outcome. This cycle might have just crested.