FINSUM
The Head of the CIA Just Met with North Korea
(Washington)
In what must be seen as nothing other than a major diplomatic breakthrough, reports are out that the head of the US’ CIA, Mike Pompeo, had a face to face meeting with North Korean leader Kim Jong Un. The meeting comes in advance of President Trump’s planned meeting with Un. The meeting apparently took place over Easter weekend and was a way to lay the groundwork for the president’s meeting. Reports of the meeting were first covered by the Washington Post, and the White House confirmed it had been having meetings at “very high levels”.
FINSUM: We are not sure why Un is talking to the US after decades of diplomatic silence, but we certainly see the dialogue as good news.
A Real Estate Apocalypse Has Begun
(New York)
There have been growing fears over the real estate market for the last couple of years, and now one corner of the market is in the middle of a growing apocalypse. Retail real estate is currently on trend to have by far the worst year in memory. Already in 2018, 77 million square feet of retail store space has been closed. In 2017, which was seen as the pinnacle of the collapse, 105m closed the entire year. The sector has been hit by the rise in ecommerce and changing shopping habits. Now landlords don’t even know what to do with all their space. They will likely “Try to re-let it as a gun range or a church—or it’s going to go back to being a cornfield”, says a head of real estate at a private equity firm. The US has 24 square feet of retail space per person, by far the highest in the world.
FINSUM: Not only do you have ecommerce as a threat, but consumer spending is starting to tighten as we near the end of this cycle. This is going to be a major bust.
It Will Be a Long Road to an SEC Fiduciary Rule
(Washington)
Many advisors are hoping the SEC will dive headlong into the fiduciary rule debate and quickly put in place a new fiduciary standard of their own. SEC chairman Jay Clayton has said it is a priority, and hopes got a big boost this week as the SEC is holding a pubic meeting to discuss the specifics of forming a new rule. However, those hoping for a quick resolution will be sorely disappointed, as there are still many steps, and many potential pitfalls, before the rule could become a reality. In particular, the DOL could still challenge its court loss, and many lawsuits could hold up the implementation of any SEC-proposed rule.
FINSUM: When you really take a look at the procedure and the legal risks, the timeline to actually get a new rule in place seems very far away indeed.
This Market is More Fragile than 2008
(New York)
In what shocked us as a very eye opening statement, a number of funds are saying the market now is more fragile than before the Financial Crisis. According to one so-called tail fund, or funds that invest for profiting when there is a big market reversal, “The financial system is a lot more fragile than it was in 2007 … Leverage is up on every single metric, in just about every category, and debt has increased. The more you indebt someone, the more fragile they become, especially with variable interest rates”, says hedge fund manager Richard Haworth.
FINSUM: These kind of funds are always warning about the next catastrophe, but somehow their warnings seem more prescient right now.
Where to Find Good Income
(New York)
With clients aging, valuations high, and rates uncertain, many may be looking for some good income stocks. Look now further than utilities, says Barron’s. In particular, the Reaves Utility Income Fund, which conceives utilities more broadly and includes telecom and interstate gas properties. The overall view for utilities is strong as they are relatively stable during periods of changing rates. Right now they average yields in the mid 3% range and they seem to be able to deliver growth of 5-7% per year. Valuations also look reasonable.
FINSUM: Barron’s paints a rosy picture of the utilities sector, but if rates head head north it could be a tough time. That said, we think rates and yields are going to stay reasonably stable, so these might be a good buy.