(New York)

Those close to Michael Cohen and the situation say that the lawyer seems poised to turn on his friend, Donald Trump, if put under pressure by investigators. At least that is what long-time Trump legal advisor, Jay Goldberg, is telling the president. Goldberg was a former prosecutor who has advised Trump since the 1990s. Trump reportedly called Goldberg asking for advice, and the Wall Street Journal quotes Goldberg as saying “On a scale of 100 to 1, where 100 is fully protecting the president, Mr. Cohen ‘isn’t even a 1,’”. He explained that if Goldberg were faced with criminal charges, he would tell all.

FINSUM: So it looks like Goldberg is going to tell all, but what nobody knows is how much of value he might really have to say.

(New York)

This was supposed to be the year when stockpickers would finally have their way, grabbing control of the fund management market away from passive ETFs as correlation fell away and analysis of individual stocks paid off. So much for that. No sooner than investors imagined a different market, correlation has returned in a big way. Correlation has once again surged, and markets are moving more in-sync than they have at any time since the stock market crash of 1987.

FINSUM: The rise of passive investment vehicles seems relentless, and the one thing that seemed like it might get in its way has evaporated. In many ways the rise of correlation makes sense though, as when the market worries about macro issues, stocks tend to move in the same direction.

(Washington)

One of the world’s most respected economists has explained something all investors need to hear—why a trade war with China is impossible to avoid. Stiglitz says that so long as the US does not accept China’s right to develop its economy, there will be no meaningful agreement. Because of the path China is on, and the US’ position—led by Trump—no durable trade deal can be achieved. Fundamentally, the US does not accept that China is a “developing country”, rather it sees it as a large and mature nation, and this conflict will keep any serious deal from getting done.

FINSUM: There may be a short-term deal to save public face, but the US and China seemed destined to square off on trade for the foreseeable future.

(New York)

Worries are rising that the Vix index may be getting manipulated. Last week, the Vix surged 10% just moments before an auction which sets the price of derivatives, which has led many to cry foul. What is so odd about the move is that it occurred despite no corresponding move in the S&P 500, which the Vix is supposed to reflect. Apparently what moved the market was a massive purchase of options betting that the S&P 500 would fall 50% in the next month. The bet is so improbable that it appears it was placed solely to send the volatility index soaring.

FINSUM: This sounds like standard manipulation. Buy a large amount of cheap out of the money options and try to profit on the rise in the Vix. They need to look at the make up of the index, as a $2.1m options purchase should not send the Vix soaring 10%.

(New York)

For a while there it was looking less likely that the Fed might hike aggressively. Weak jobs numbers seemed to indicate that the economy might be headed downward instead of upward, which would have put rate hikes on hold. However, investors are now once again increasing their bets that rates are going to rise. Many investors now expect the Fed to hike three to four times this year. According to Allianz, “You have this tug of war with the Fed trying to match policy to rising inflation expectations without taking the wind out of the sails of the economy”.

FINSUM: To be totally honest, we don’t think Powell is going to be hawkish enough to hike 3-4 times this year.

(Washington)

Advisors need to prepare themselves for what could be a harsh reality. While the wealth management business collectively holds a great deal of hope that the SEC will come out with an enlightened rule that makes much more sense than its DOL predecessor, the reality is that the SEC rule is likely to be much more expansive, and potentially much more onerous. The new SEC rule seems poised to cover all types of accounts and all groups—RIAs, B-Ds, and “associated persons”, all under a broad umbrella.

FINSUM: While the industry definitely has a much higher faith in the SEC, there is certainly an element of the “devil you know” going on here. If the rule is much more expansive, it could lead to a higher regulatory burden and yet more disruption to the industry.

(New York)

One of the big overarching questions regarding the Mueller probe over the last few weeks has been two-part: will Trump try to fire Mueller, and will the Senate step in to protect Mueller from said firing. Well, one half of the answer is now clear. Senate majority leader Mitch McConnell has made clear that the Senate will take no action to protect Mueller from whatever moves Trump might make. McConnell said “I am the one who decides what we take to the floor … That’s my responsibility as majority leader. And we will not be having this on the floor of the Senate”.

FINSUM: The one Caveat here is that McConnell thought he said protecting Mueller was unnecessary because he did not believe Trump would try to fire him, which slightly leaves the door open to a change of position.

(San Francisco)

Where should investors put their money in the stock market? That has been a very tough question lately, as everyone’s favorite darling, tech, has had a rough several weeks, and the outlook still seems dicey. However, Credit Suisse says that despite its woes, tech is still the best sector to be in at the moment. The reason why? Fundamentals. Tech has great underlying business momentum, with strong revenue, great growth, and strong free-cash-flow valuations.

FINSUM: We think regulation of tech is still some distance away, which mean it should have a good medium term runway to keep outperforming. All of that means the lower valuations right now could prove a good opportunity.

(New York)

Stocks have managed to turn around from their dire condition of a couple weeks ago, and from last week, have rallied well. So, what has driven the turn around, investors are probably asking. According to Barron’s, part of it is earnings, but there is more to the story. The apparent answer is that market breadth and sentiment are improving across the board, which is helping provide positive momentum. It also isn’t hurting that earnings have been strong across the board.

FINSUM: We think the more positive sentiment is just from a lack of bad news on the trade war front. No news is usually good news in such a situation and fear ebbs so long as no new developments are released.

(New York)

The retail sector has been in tumult for years, but the struggles have intensified over the last few years as ecommerce has accelerated and physical stores are under pressure. The big winner so far has been Amazon, but lately, Walmart has been pushing back with a greatly improved and expanded ecommerce offering. Now, Walmart may be able to grab more market share in the US retail market by undercutting other retailers on price. Walmart has been lowering prices and is now 3-5% below other retailers like Dollar General, Kroger, and Big Lots for the same items. Many of the items are so-called “traffic-driving”.

FINSUM: We can comment on this from personal experience. It is remarkable, especially in rural America, how much minor price differences can entice consumers to drive 10+ extra miles to the store which is perceived as cheaper. We think these price differences will be material.