(New York)

Call it euphoria, irrational exuberance, or a melt-up, everyone is looking for signs that market valuations are out of control and approaching a downfall. Some signs have finally started to show up in the last few months as stocks have steadily gained. One such sign can be seen across the market—the elimination of hedges. Consistently low volatility has reduced fear in investors’ hearts to the point that many are abandoning puts and other downside protections. They are trying to chase the performance of passives and don’t want to “waste” money on hedging. The chief market strategist at Cantor Fitzgerald comments on the trend that “I haven’t seen hedging activity this light since the end of the financial crisis … It started in late 2016 and accelerated in the second half of the year”.

FINSUM: This is typical late cycle imprudent behavior, but chasing benchmark performance is a good explanation of the trend.

(San Francisco)

There is no doubt about it, the FAANG stocks—Facebook, Apple, Amazon, Netflix, and Google—were a huge force is delivering 2017’s great return. But it might be time to remove them from your portfolio, at least as Barron’s argues it. And if not removing them, then at least reducing exposure. The stocks count for a huge portion of many funds, so investors may have more exposure than they realize. The stocks have seen a massive run-up in valuation, but that makes them look increasingly vulnerable. Barron’s also cites the increasing risk of regulation of the sector, which could prove a weight on values.

FINSUM: The tech industry has grown very large and dominant, and seems to have its own cycle versus the rest of the economy, all of which makes it very hard to call a top. There are some dark clouds gathering on the horizon, but nothing looks like it is imminently going to bring the FAANGs down.

(New York)

The comment heard round the world seems to have been eating JP Morgan CEO Jamie Dimon. Several months ago Dimon made the much publicized comment that Bitcoin was “fraud”. The CEO is one of the most respected on Wall Street and the comments have been the bane of the cryptocurrency for some time. However, speaking at a conference yesterday, Dimon said about his statements that “I regret making them”.

FINSUM: The funny part of about this new statement is that it was accompanied by several more veiled expressions of dislike for bitcoin, such as saying he is “not interested in the subject at all”.

(New York)

While logistics companies have understandably done well alongside the rise of ecommerce, FedEx might be poised to deliver something particularly special in the medium term. There are two big reasons why. The first is that the US postal service looks likely to raise its rates, which would make the margin between USPS and UPS/FedEx smaller, giving an edge to the latter. Additionally, FedEx has been investing heavily into upgraded distribution hubs which will give it a speed advantage over UPS. UPS, on the other hand, is just at the beginning of that process, so the recent status quo of UPS having higher margins looks set to end.

FINSUM: We think we might be entering a few golden years for FedEx, as their upgraded speed of delivery, combined with more competitive pricing, will be an “x” factor given the ever growing demand for quick delivery.

(San Francisco)

The tech industry seems to be at the very early stages of a crackdown by regulators. At this point the talk is mostly in media and amongst the public (a few Trump tweets aside), but the push is coming, both on the back of fake news and of anti-trust concerns. Well, there may be a much more immediate threat now. Apple may be facing a near-term regulatory crackdown as its own shareholders are calling for a study into the link between the iPhone and smartphone addiction, especially in children. Apple shareholders Jana Partners and Calstrs are calling for a study to see if the phones are addictive and what negative mental effects they may have on children. Some researchers believe the young have a serious metal health problem related to smartphones, with one academic saying “It’s not an exaggeration to describe iGen as being on the brink of the worst mental-health crisis in decades”.

FINSUM: So Jana and Calstrs, who are calling for this, say it is better to deal with the issue now rather than later and that doing so will provide value to shareholders. If regulations on smartphones actually come to pass, it could change the entire industry.

(Washington)

2017 was a wild year for both the wealth management industry and for its most famous regulation—the fiduciary rule. But what will happen in 2018? The answer is a lot, and not all in the direction some might think. While the DOL rule does feel like it might be on its last legs given the long delay and SEC involvement in developing a new rule, there are some factors which might help it, or at least advance the fiduciary rule cause. For instance, industry buy-in of the rule, especially by big firms, is increasing as they realize it is more profitable to adhere because of higher revenues from fee-based accounts. Additionally, many states are working on their own rules, another factor likely to push federal rule-makers. Finally, the SEC may come out with its own universal rule this year.

FINSUM: We expect it to be another wild ride in the fiduciary saga this year. Our best bet is that the SEC will come close to making a rule this year, but that it will not be implemented until mid 2019.

(Seattle)

If you listen to the media, Amazon is a retail juggernaut posed to swallow just about every industry. The company has lived by Bezos’ famous mantra “your margin is my opportunity”, and has thrived by dominating commoditized low-margin businesses. However, the company has some inherent limits and part of what has made it so successful is that not every industry is an Amazon industry. In particular, one area of retail the company may not be able to crack is high-margin uncommoditized business. These are not its forte, and driving down costs and making such goods widely available is not what drives value. That is why many luxury brands, for instance luxury handbag makers, refuse to sell on Amazon.

FINSUM: We will not put anything past Amazon, especially in its home turf of retail, but the company has not done well in moving into luxury. So what.

(Washington)

The battle over client is heating up again. On one side stands the broker, and on the other, the firm. Who owns the client relationship? Both say they do. Some may have been wondering where FINRA stands on the issue. However, the regulator has just taken the easy way out, saying it has no stance on the question. FINRA says it is not involved in the broker protocol and takes no sides on the topic, though it does have arbitration rules to handle disputes. Brokers want a FINRA rule, or at least process on the issue, with one attorney saying “Finra needs to convene an industry conference to finally be able to decide on what’s a workable definition of who owns the customer … There’s got to be a better way of doing this than TROs and arbitration”.

FINSUM: The broker protocol seems likely to completely dissolve this year. Hopefully something workable will take its place, because the legal alternatives are not great for anyone (other than lawyers!).

(New York)

Call it a “silent killer”, but there is a big threat coming to US malls that many don’t see coming. While the big bout of retail bankruptcies in 2017 hit the industry hard, a less headline-grabbing, but more widespread issue might cause bigger issues in 2018. That issue is that smaller mall tenants are likely to simply not renew their leases. Smaller operators between the big anchor stores actually generate more revenue for malls, and a decrease in tenancy would be a big blow to mall revenue. Smaller operators are actually better indicators of retail health because their lease terms keep them on the lookout for greener pastures.

FINSUM: Mall REITs could be in for a rough time here. While little companies won’t get much press, this pending increase in vacancy rates could hit malls hard.

(New York)

While the economy seems to be innovating faster recently, nothing can match the pace of online retail, whose entire operating model has been completely overturned in about a half decade. Physical retail is being rethought and marketing is now primarily social media driven, two big changes. But what is next? Equity research analysts argue that voice orders through new devices like the Amazon echo will be key, as will better digesting customer data. More digitally-native brands will move into physical retail, which will be more about marketing and client experiences than it will about sales.

FINSUM: It will take some very astute investors to make money in retail at the moment as one has to have a sharp view about the development of the industry to pick winners (perhaps outside of buying Amazon or Walmart/Target).