(New York)

Goldman Sachs seems very committed to expanding its business. Not only is the bank trying to make a bigger push into wealth management, but it also also reportedly downsizing its trading unit and putting more resources into its consumer finance business. It now offers consumer savings products, and last week, made an acquisition to grow revenue in its consumer business. The bank bought consumer finance app Clarity Money, whose CEO is Adam Dell, younger brother of Michael Dell. The app helps consumers lower their bills and suggest ways to help their budgets and then keeps a cut of the savings.

FINSUM: To us it is quite amazing how Goldman is proactively shedding its elite image to become more broadly consumer focused. We wonder how it will affect its business in the long run.

(New York)

If you have been reading the news, you will have seen that many are starting to worry that a recession is on the way. While the economy still seems to be in good shape, at the fringes are some data that could foretell a period of contraction. The question is how sharp a contraction might come at the end of this long bull market and economic cycle. Well, Wall Street economists think that the contraction will be slow rather than a steep drop off. Most economists see solid global growth this year of between 3-4%, but thereafter is when things could get dicey.

FINSUM: The big troubling sign to us is that both the US and Europe, which were on different cycles, both seem to be slowing this year, which could portend a recession sooner rather than later.

(New York)

While the market has not been doing so well this year and there are many warning signs, there are some positives too. One great sign for markets is that earnings are very strong. First quarter earnings season looks to be a great one, but what will that do for the markets? This year is supposed to be the best for earnings growth since 2010, but that is exactly the problem—great earnings this year have been forecasted for a while because of the strong economy and tax cuts. That means all the risk appears to be to the downside rather than the upside.

FINSUM: We think this round of earnings have little margin for error as everyone is expecting them to be great.

(New York)

While the housing market has been doing well and credit markets still look solid on a fundamental basis, there is big trouble brewing in US housing. The proportion of highly indebted mortgage borrowers is surging. Fannie Mae recently increased the amount of total debt as a proportion of income it allows for federally-backed mortgages from 45% to 50%. Rising house prices and stagnant incomes mean that 1 in 5 mortgage borrowers now have 45% or more of their pre-tax income eaten up in debt every month. That is triple the same proportion of borrowers compared to 2016 and the first half of 2017.

FINSUM: The mortgage market has been running out of prime borrowers, and in response, the proportion of subprime borrowers seems to be rising, though this is being accommodated by increased federal support for such mortgages. Are we headed down the same road again?

(London)

The US stock market is looking increasingly volatile at the moment. Valuations are high, there are a number of fears, and worries over a trade war are causing daily swings. So what is an investor to do? One good option is to hedge US equity exposure with some international equities. Overseas stocks had a mixed first quarter but have been doing well recently. The reason why appears to be that they have underperformed the US for years, but are now finally catching up. While lending standards are tightening in the US, they are loosening elsewhere, causing a consumer spending boom. Further, higher US valuations make overseas stocks look “cheap”.

FINSUM: Having some overseas allocation seems like a good idea right now. The only real weakness we see, beyond Dollar risk, is that a trade war would negatively affect all countries, at least in the near term.

(Washington)

The standoff between the president and special counsel Robert Mueller is heating up once again. On Monday, federal agents raided the offices of Trump’s personal lawyer Michael Cohen, which Trump vehemently protested in the media. This has led to speculation Trump may now move to fire Mueller. In response, the White House officially said yesterday that they felt doing so was within the president’s authority. GOP lawmakers have warned Trump not to do so, but say they will not protect Mueller.

FINSUM: Whether or not Trump is allowed to fire Mueller, we think it would cause an unprecedented political firestorm if he were to do so. Just look at what happened to Nixon after he fired a special counsel.

(New York)

Despite a tumultuous market over the last few weeks, stocks are at least maintaining their ground. This may give investors hope that prices can make a turnaround and the bull market can resume. However, beware history, as in previous periods of Fed tightening, valuation multiples have tended to decline, a fact that spells trouble for this market.

FINSUM: If higher rates mean lower multiples, then the 18-month outlook is not too strong for this market. However, the economy may not be as strong as many expect (look at the most recent jobs report), which could keep the Fed at bay.

(San Francisco)

Tech stocks have had a poor last couple of months. March was especially brutal, with tech falling 4%. And while some think tech stocks still look like a good bet, Barron’s has put out an article based on a BAML opinion which contends that tech stocks look very vulnerable. The key reason why is what the piece calls an “Occupy Silicon Valley” mindset (recalling the Occupy Wall Street movement from several years ago). This mindset leaves the Valley at risk in two very core ways. Firstly, by regulation, which the government (and the public) seem increasingly intent upon delivering. And secondly, to a tax raid, especially if government finances continue to deteriorate.

FINSUM: We are of a mixed mind on tech right now. On the one hand, these arguments hold water with us. But on the other, the underlying businesses of tech companies are strong and this could all blow over.

(New York)

Fidelity, one of the largest US wealth managers, is shaking up its fees, and not just in small pockets of the business. The company is moving to a single unified fee schedule that works entirely by how much assets under management a client has with Fidelity. Existing clients will have their fees frozen so as to avoid paying more, but for many, services will cost less than before, while in certain areas they will cost more. Fidelity is also cutting the cost of its robo advisor to 0.35%.

FINSUM: This is happening across the industry, and this sort of move was led by Merrill in 2016. Nonetheless, it is a pretty significant change.

(New York)

As we have told readers, we have been keeping our antennae up for signs that an economic downturn may be on its way. Well, the biggest one of all just showed its head, and investors need to take notice. An important part of the rates market just showed an inverted yield curve. The one-month U.S. overnight indexed swap rate is now inverted, and this implies some expectation of a lower Fed policy rate after the first quarter of 2020, says JP Morgan. The Bank summarizes the situation this way, saying “An inversion at the front end of the U.S. curve is a significant market development, not least because it occurs rather rarely … It is also generally perceived as a bad omen for risky markets”.

FINSUM: If the market thinks rates are going to be lower in 2020, that means parts of the bond market are expecting a recession between now and then. Take notice.