(New York)

So headline economic data has been good lately. Yet the markets are leaning towards a bearish view on the economy and a dovish view on the Fed. With such confusion, it is hard to figure out what might happen. Therefore, we are going to focus on some alternative economic indicators and today we found an interesting one: lumber prices are slumping badly at the time of year they are supposed to be rising. Lumber prices usually rise in the spring as builders stock up for construction. However, poor weather and a lack of construction is badly hurting prices. In May 2018 prices were at $639 per thousand board feet, now they are just $334, or down about 50%! Mills are cutting back production as a response.

FINSUM: That is a pretty alarming price drop and another sign that the underlying health of the real estate market is not good.

(New York)

Vanguard funds have been performing well for years. That performance, mixed with ultra low costs is the reason they have thrived over the last decade and now contend for being the largest asset manager. However, there is a little known reason they have done so well—they employ a patented system for minimizing taxes in mutual funds. Vanguard uses a trading technique employing “heartbeat” trades which move stocks between ETFs and mutual funds in such a way that completely eliminates the taxability of their capital gains. Vanguard employs the strategy on 14 funds, and those have reported a combined $191 bn in gains while reporting zero to the IRS. Vanguard says the technique is entirely legal and has a patent on it through 2023.

FINSUM: This is an excellent competitive advantage and we thought advisors would like the view under the hood as to why Vanguard is thriving as one of the very best fund providers.

(New York)

Want to know an asset class that has better risk-adjusted returns than equities over the decades and still has quite good liquidity? Look no further than external sovereign bonds, or the bonds issued in foreign currencies, like the Republic of Argentina 7.5% bond maturing in 2026. The bonds also have a low correlation to stocks, which means having both of them in the portfolio overall should produce lower volatility. The asset class has flown largely unnoticed because of a lack of a benchmark or return history (until now) and the fact that there have been a handful of notable sovereign crises in recent years.

FINSUM: A lot of people shy away from this asset class, but it definitely has a place in the portfolio. The lack of correlation and the good risk-adjusted returns make it attractive.

(Los Angeles)

Love Tesla cars but scared of their company’s cash burn and Elon Musk-related antics? There is a way to invest in the company without buying the stock. Tesla has issued automobile asset-backed securities, or bonds with coupon payments backed by lease payments from Tesla customers. Last year, the carmaker sold $1.5bn of such bonds, which are not backed by the company’s cash flow, but directly by lessee’s payments. One portfolio manager put it this way, “Oftentimes, investors get Tesla the company and Tesla the car confused, but in this case, you really get to separate the two out”. The bonds issued have various tranches divided up by credit quality.

FINSUM: This seems like a smart way to invest in Tesla without all the volatility related to Elon Musk and the company’s cash flow struggles.

(New York)

One of the old adages of the market is to “sell in May and go away”, or get out of stocks in the summer and come back in the fall when everyone gets back to work. That axiom holds water when you look over many decades, but its record in recent years has been spotty, with summer returns over the last five years being quite solid (though still less than November-April). Over the last five years, the average return from May-October has been 4.31% while in November-April is has been 5.53%.

FINSUM: Anyone’s guess what will happen this year, but the last few summers have been more positive. 5 years is a pretty short sample size though.