(Washington)

Labor unions have long been a hallmark of developed economies. While their power has been on the decline for decades in the US, they are still a principle part of the labor market. Now, with their grip already in decline, they might be dealt a death blow by the Supreme Court. The court is about to hear a case on whether it is constitutional for labor unions to require government workers to fund the unions which represent them. Because of the decline in private sector unions, about half of all US union membership is now held by government employees, so a ruling against mandatory union dues could likely spark the end of American unions as we know them.

FINSUM: The decline of unions has been a complex and long-term affair. Aside from this case, we wonder if the power of unions might increase or decrease as automation takes further hold of the workplace.

(New York)

Despite a seemingly very hawkish Fed, bond traders just aren’t buying it, according to Bloomberg. Traders think the economy is burning very hot, and that the Fed, despite rhetoric, is actually content to just stick to only gradual rate hikes. According to one CIO, “The bond market is telling the Fed we see rising inflation pressures and if you are going to be gradual and crawl into three more rate hikes this year we are not going to wait around”, continuing “The long end of the yield curve is tightening for the Fed”.

FINSUM: Fed minutes did not show that the bank was considering four hikes this year, and the market thinks they should be.

(New York)

Unfortunately, there have been many school shootings and other massacres over the last few years. Each of them was followed by a brief outcry to increase gun regulation, to which there was no government response. However, something feels different this time around, and President Trump is moving to tighten some gun rules. Now it might be Wall Street’s turn to step back, as big asset managers such as BlackRock are looking at ways to strip gun companies out of the portfolios of clients who do not want to invest in them. Gun sector stocks have slumped badly since Trump’s election, mostly because the threat of new regulation—which drives gun sales—seems to be gone.

FINSUM: We are very unsure of how things will proceed here, but we can say that there does seem to be increasing political momentum towards more gun control for the first time in many years), which could influence Wall Street.

(New York)

Many investors are currently worried about the bond market. There is a lot of uncertainty over just how much rates and yields will rise and what that might mean for the economy. Well, Bloomberg is taking a strong stand on the issue, arguing that a bond Armageddon is on the way. The paper says that all the focus has been on ten-years, but that 30s might be where the danger is. They are within shouting distance of their 2015-2017 highs, and are very close to the 3.24% level, which would signal the difference between an orderly selloff and a full-on rout.

FINSUM: There may be some short-term volatility, but our overall view is that there won’t be a cataclysm in bonds. Global populations are aging and people need income. We expected yields to stay in check and spreads to narrow even if sovereign yields rise.

(Washington)

The fiduciary rule is starting to throw its weight around despite the fact that it is only half-implemented and very much on the regulatory rocks. Massachusetts is currently going after Scottrade under the rule, and now Barron’s says there will be another victim—annuity sales. The asset class saw its total sales fall 8% in 2017 to $203.5 bn, and those figures are expected to fall further this year unless the fiduciary rule is reversed. “The impact to IRA annuity sales was much more pronounced than nonqualified annuity sales”, says an industry expert.

FINSUM: This is a huge market that is being eroded by the rule. Hopefully the SEC and DOL come in with a new rule this summer.

(New York)

In an article that contrasts strongly to some others we are running today, here is a different view on bonds coming out of the Wall Street Journal—that the bull market is far from over. The argument is based on two interconnected factors. The first is that rates and yields do look likely to rise in the short term, but at the same time, there are many signs the business cycle is poised to end, which will bring on a recession. When that happens, yields will once again plunge, keeping the bond market surging.

FINSUM: If a recession does come then rates and yields will likely drop again. Unless of course inflation sticks around and we get caught in a stagflationary period.

(Washington)

Whether one likes it or not, Treasury yields hitting 3%, which they look bound to do, will be a major event. The big question is what to do once it happens. Is it the signal of a sharp move higher in yields, or will it be the climax to a short-lived selloff? The reality is that if Treasuries move just a little above three, there could be a strong wave of selling. However, strategies betting against volatility have been paired back in recent weeks, so the selling might not be as furious as one might fear.

FINSUM: Nobody has any idea what will happen if Treasuries move above 3%. As far as bonds, we expect that there will be more and more organic buyers above 3%, which should keep things in check. On the stock side, we do not see why a move higher would be too bad, as the spread to equity yields will still be wide.

(New York)

In an article that addresses an issue unknown to us—that Americans don’t give US stocks enough love (?!)—BlackRock says that investors should buy American stocks in some select sectors. BlackRock says that “We have upgraded our tactical view of U.S. equities to overweight from neutral” continuing “The reason: Impending fiscal stimulus is supercharging U.S. earnings growth expectations”. Blackrock says it likes American tech stocks, US financials, and momentum and value plays.

FINSUM: US stocks surely haven’t been short on love over the last year, but we suspect BlackRock just means in the last few weeks. In that perspective, we agree that things aren’t as bearish as many fear.

(New York)

This topic gets thrown around a reasonable amount in the media, but because it seems to defy normal human perception, we wanted to run a story on it—the growing and dangerous level of stock concentration. So what do we mean by that? We mean that three stocks—Amazon, Microsoft, and Netflix, have accounted for almost 50% of all the gains of the S&P 500 so far this year. This kind of concentration plays itself out time and again, whether it be in broad index tracking, or in niche sector ETFs, which end up being hugely weighted to just a few stocks.

FINSUM: Anyone can understand the danger of concentration at the point of purchase, but one of the key points to remember is that time tends to make a portfolio more and more unbalanced as the winners inevitably grab a larger share and the losers less.

(Washington)

None other than Eugene Scalia, son of former Supreme Court justice Anton Scalia, has now written a formal letter asking that the courts expedite their ruling on the fiduciary rule. Scalia says that Massachusetts’ new attack on Scottrade is a sign that the rule needs to be settled once and for all, as having it half-implemented means heightened legal risk. The wealth management industry has been waiting several months for a final decision on a fiduciary rule case in the Fifth Circuit Court of Appeals in New Orleans. Scalia called for urgency, saying “The action also shows that the fiduciary rule is exacerbating the risk of litigation, even absent 'best-interest contracts”.

FINSUM: There is absolutely no point to having a half-implemented rule. The government (courts included) either needs to fully implement a rule, or get rid of the concept entirely, because the half-in nature of today’s arrangement if not beneficial for anyone.