(New York)

Bond gurus across Wall Street were calling it the beginning of the bond bear market. Treasuries had dropped significantly, with yields holding over 2.5%. However, the selloff halted yesterday as reports of Chinese plans to stop buying Treasuries were reported as possibly false. A commentator from BNY Mellon explains the situation best, saying “Whether the news of Chinese withdrawal was fake or not, the Treasury market is likely to continue to feel a little fragile, but the fact remains that the hunt for yield goes on and with no real signs of inflation yet and improving growth, there are still no real sellers out there”.

FINSUM: We think that is a very eloquent summary of the current situation. We do not think it is time to be bearish yet.

(Seoul)

We have been warning that one of the big risks for bitcoin is the threat of regulation, and today that prognostication is looking true. The cryptocurrency plunged yesterday after South Korean regulators took steps to shut down the trading of bitcoin on the country’s exchanges. The government views trading of the currency as akin to gambling. Bitcoin fell as much as a quarter in South Korea and over 13% on global exchanges. It is now trading between $12,000 and $13,000.

FINSUM: Bitcoin is an interesting asset class, but because it operates in a gray area of legality, it is fraught with extreme regulatory risk.

(Washington)

If there was ever exciting news in the fiduciary rule saga, this is it. The Wall Street Journal is reporting that the SEC will deliver a proposed comprehensive fiduciary rule in the second quarter of this year. The challenge of delivering a rule governing all accounts will be very challenging however, even as the SEC says it is fast-tracking development, as it will be bombarded from both sides. One of the directors from the Consumer Federation of America puts it bluntly, “It’s difficult to see how they can come up with a solution that does not land them in court … If they propose a rule we like, industry will sue them. If they give industry a disclosure-based best interest standard that they want, we’ll sue them”.

FINSUM: The SEC is in a tough position, but them coming up with a proposal for a comprehensive rule would be a step in the right direction.

(New York)

Some of the biggest names in bonds are making a bold proclamation that all investors need to hear—that the 30-year bond bull market is over. Both Bill Gross and Jeffrey Gundlach are saying that with Treasury yields rising—currently sitting about 2.5% on ten-years—the bond market has entered a new phase. Gundlach says we are entering an era of “quantitative tightening”, which will cause losses for bonds. Gross says the bear market was confirmed when 5y and 10y Treasuries crossed 25y trend lines recently.

FINSUM: We may very well be entering an era of tightening, but that does not mean it will necessary be a brutal bear market, especially with the demographically-driven demand for bonds. Additionally, with the economy going very well, a recession could be coming, which would ease the tightening.

(New York)

Tech has been the undisputed leader of the rally over the last several months, but there might be cracks in its armor that investors need to be aware of. Internal price momentum has started to fade in the sector, and it looks as though it might be ready to hand over leadership of the market. According to one equity analyst, “Relative performance has diverged on the sector’s new high, while semiconductors and small caps have failed to confirm as well”.

FINSUM: No one wants to hear this, but with valuations so high, it might well be true. The other big risk is regulation, but given good business momentum in the sector, there could still be some room to run.

(Houston)

Oil has been in a bear market for about three years. While it has not been consistent and there have been ups and downs, oil prices have been mostly stuck, plagued by oversupply. However, Citi thinks that paradigm is about to disappear, with prices rising to $80 per barrel. Citi says a host of geopolitical risks, including sanctions on Iran, broader Middle East tensions, and North Korea are three issues which will send prices higher.

FINSUM: We aren’t big fans of this prediction. Not so much because we don’t think oil could move higher, but because forecasting political risks is a hopeless exercise. Here is a different view: the OPEC agreement falls apart because the only producer it is helping is the US (which is not in OPEC), sending prices much lower.

(New York)

Despite reaching a much more mature stage of their development, ETFs, overall, are still on a torrid run. But what is next for the all-consuming asset class? Barron’s argues there are a few trends to watch. The first will be an expansion of fixed income ETFs, which have grown considerably, but have much more room to run. Secondly, advisors might have bigger clout in the sector, as RIAs may start converting their own strategies into ETFs. Also, the further hybridizing of passive/active funds may go faster as Vanguard is debuting a new range of very low-cost active ETFs.

FINSUM: Mentally we sort of compare ETFs to the growth of Amazon. The question is where WON’T they head next.

(New York)

Advisors keep your eyes open, FINRA has put out a new warning on what not to do. The regulator says that dually-registered advisors need to be very careful when moving client funds from a brokerage to an advisory account. FINRA explains best, saying “Finra will review situations in which registered representatives recommend a switch from a brokerage account where that switch clearly disadvantages the customer … such as where the registered representative recommended that the customer purchase a securities product subject to a front-end sales charge in a brokerage account and then shortly thereafter recommended that account be transferred to a fee-based account”.

FINSUM: This is sort of a suitability/fiduciary rule hybrid type of enforcement. We thought all advisors should be aware that FINRA is on the lookout for this.

(Washington)

Those hoping for a complete end to the DOL’s fiduciary rule should keep their fingers crossed, as despite political pushback, and success on slowing down the rule, the GOP is still working hard to defeat the rule. The newest chance comes in the form of a rider on the current spending bill which is designed to do away with the rule. Previous attempts at doing so have been heavily opposed by Democrats.

FINSUM: We think this one actually has a better chance of getting through. The reason why is that the tide has definitively turned against the DOL rule, and so Democrats may be more willing to give it up as a trade or concession as part of a spending deal.

(San Francisco)

The risks of regulation on Silicon Valley are rising. Fake news and data leaks have raised the suspicion of media, consumers, and government, and just yesterday Apple’s shareholders called for an investigation into iPhone addiction and mental damage in children. Now, without even a day’s rest, there is a another major probe into Apple. This one is coming out of France and surrounds the allegation that Apple deliberately worsens performance in older phones. The company faces criminal charges for the behavior.

FINSUM: So this could go both ways. If France finds something, it could turn into a global PR nightmare that could really hurt the company. However, we are not sure how much information France will actually have access to, so it may turn out to be nothing.