(New York)

Precious metals are heating up, much to the joy of the investors that have stuck with the shiny laggards. Gold has been enjoying a good rally, and that should help pull up silver, which has been in a slump. “It is difficult to be pessimistic about silver at these levels”, says one portfolio manager. Silver is down more than 9% this year, even as gold has rallied. However, eventually gold will start pulling investors into silver. “Silver has lacked retail investment demand, so a sustained rally in gold will lead to the speculators coming and buying silver”, says the portfolio manager.

FINSUM: Precious metals have not been getting much attention for years, but gold is off on the right foot this year. Importantly for silver, a recession doesn’t hurt demand because it isn’t an industrial commodity.

(New York)

We bet that when you read that headline you thought we were using garbage in a metaphoric sense. We weren’t. We are actually taking about waste management stocks, which the market has been ignoring lately. The two biggest US waste haulers, Waste Management and Republic Services, are down almost 4% this month, way behind the market. Analysts have been souring on the stocks too. However, that is odd considering they have been performing well. Perhaps most interestingly, they have a strong long-term catalyst, which is the growth in the recycling business.

FINSUM: We cannot profess to have any expertise in waste hauling, but there are definitely some interesting mixed signals coming through here. Our instinct is there might be a good contrarian bet here.

(New York)

There have been a lot of bullish indicators lately, and not just in share prices rising. However, there is a big warning sign that investors need to be paying attention to. One of the challenges of assessing corporate earnings is to get a feel for where things are really headed when the whole Wall Street reporting mechanism is stacked to make you think companies are always outperforming. One way to do so is to look at spreads between GAAP earnings and so-called “adjusted earnings”, or the doctored earnings companies love to show to make themselves appear more attractive. The wider the spread, the more companies are reaching to appear as though things look good. This, therefore, makes it a bellwether for how earnings and the economy are really trending. The spread between the two types of earnings stood at $200 bn for year-end 2018, the highest level since 2010.

FINSUM: This is not a perfect proxy, but it is certainly indicative, and the indication right now is not positive.

(New York)

How does a big global housing meltdown sound? Crappy. Well, that is exactly one of the things that the IMF is currently warning investors about. Americans will already be well aware of the several month downturn in real estate, but what is likely much less well understood is that many markets around the world, including emerging markets, look at risk of a major housing bust. One of the big worries of the IMF is that a real estate downturn will spark a banking crisis in overseas markets that could then bubble over to the rest of the world.

FINSUM: We don’t tend to think of real estate as a particularly globally-correlated asset class. However, the banking industry that underpins it certainly is, so the risk is definitely there.

(New York)

The bond market took on a very strong position about the Fed in its recent rally—that rate cuts were likely this year in order to stimulate the economy. However, upon the release of the most recent Fed minutes, that view appears to be quite clearly wrong. The Fed minutes show no indication at all of cuts to come this year. Instead, those at the Fed merely indicate that hikes are likely to be put on hold for the rest of the year.

FINSUM: We don’t think there is much of a chance the Fed will cut this year. Recent economic data has been a little better, which means they seem much more likely to stand pat than to cut.

(New York)

A rising tide lifts all boats right? Well it also means credit scores get lifted alongside the economy. Goldman Sachs thinks this is a problem. The bank is arguing that credit scores have been artificially inflated by FICO, a dangerous development that could have implications for all sorts of lending. Goldman thinks that current FICO scores are not an accurate reflection of consumers’ ability to pay in an economic downturn, meaning there is much more credit risk sloshing around in the economy than is currently priced into the market.

FINSUM: The big risk here is really at the lower end of the lending spectrum. There are 15 million less consumers with scores of 660 or below than there were before the last Crisis. Therefore, the risk of borrowers in that area is probably being underappreciated.

(San Francisco)

HSBC just put out a big warning to investors—it is time to sell Apple stock. The news comes as a bit of a surprise because the iPhone maker has been performing well this year and there have been rumors of a big new push into healthcare. However, HSBC says investors should get out of the stock because Apple’s new services business will disappoint. The bank summarized its view this way, saying “Services makes ecosystem more sticky but won’t necessarily enable Apple to recruit more consumers to iPhone … All in, we remain far more cautious on services than some of the numbers in the street might suggest”.

FINSUM: Not only does HSBC think the new services offerings will disappoint on the top line, but they think they will be lower margin too! It is hard to speculate how this might go, but we do think this transition to services will be harder than many expect.

(New York)

There is a LOT going on in fixed income markets right now, and for the most part, those developments are confusing. Treasury bonds had a huge rally, and then a little pull back, on worries about the economy. But at the same time, the riskiest bonds—high yield—have been doing very well even though they are the most likely to suffer in a recession. So where should investors have their money in fixed income? Long-dated municipal bonds might be one good idea. Advisors will be well aware of their tax exempt status, but what is interesting right now is that they appear a relative discount. 30-year munis have yields over 3%, well above Treasuries, making them look like a relative steal.

FINSUM: These seem like a good buy right now, especially with the rate outlook being so dovish.

(Washington)

US core retail prices came in soft in new data this week. The US core consumer price index, which excludes food and energy, rose 0.1% from the previous month and 2% from a year earlier in March. The readings both underperformed expectations, but are not considered indicative of a recession or any real economic trouble.

FINSUM: This data reinforces the idea that we are in a goldilocks moment with the economy. Let’s see if that continues. If it does, it sets up a nice environment for asset price growth.

(New York)

The FINSUM team came across an interesting ETF recently, run by a team that we really liked. We always pay special attention to small caps because we think it is an area where strong research and a well defined strategy can create a lot of value. That is exactly the feeling we get with the LeggMason Small-Cap Quality Value ETF (SQLV). The fund is run by George Necakov, and experienced portfolio manager from Royce & Associates, themselves a specialist in small and microcap portfolio management that has been around since 1972. The fund seeks to create outperformance by tracking the results of an index made up of small cap stocks with relatively low valuations. The fund uses a multi-factor approach to choose companies with high profitability and low relative valuations. SQLV has an expense ratio of 60 bp.

FINSUM: This fund is still small but we like their approach and George seems like a very competent manager. Small cap value is an area where one needs a considered and labor-intensive approach and this ETF appears a great way to get some simple and reliable exposure.