(San Francisco)

Facebook’s stock has taken a hit lately, and with good reason. Several large businesses have announced boycotts of Facebook because of their poor record on hate speech. A recent survey found a third of top US brands are planning to suspend their social media spending soon. That spending is of course not just limited to Facebook, but Twitter, and others as well. According to the World Federation of Advertiser’s, a trade body covering 90% of the world’s ad spending, the survey of 58 WFA members who account for $90 bn of ad spend worldwide found that combined with the one-third just mentioned, an additional 41% were still undecided about whether to pause campaigns. According to the CEO of the WFA, “In all candour, it feels like a turning point … What’s striking is the number of brands who are saying they are reassessing their longer-term media allocation strategies and demanding structural changes in the way platforms address racial intolerance, hate speech and harmful content”.

FINSUM: Hard to tell if this could be a sustained movement that could really hurt Facebook and other social media companies, or this will just be a few-week flash in the pan that will make no real difference. Our view is that the social media companies will respond strongly now that it is threatening revenue, and the advertisers will quickly fall back in line because the social media platforms are the bedrock of current customer acquisition strategies.

(Washington)

Most advisors will have heard of Michael Kitces’ lawsuit to try to stop Reg BI from implementation. This lawsuit, often cited in media as XY Planning Network, is an effort by the RIA planning group to block the lawsuit. XY says that the new Reg BI does not represent Congress’ intent with the Dodd-Frank Act, and that it does not creative a uniform standard of conduct for brokers and advisors as the 2010 law intended. Seven states joined the XY effort, but last week a US circuit court of appeals upheld the SEC. This means Kitces and the team may try to take the rule to the Supreme Court.

FINSUM: This effort seems completely doomed to us. In Kitces’ own words “Courts do tend to give [government regulators] deference and the bar is fairly high to prove that they misunderstood the law itself and did not apply it properly”.

(New York)

While some are saying that we are in “TINA” mode with equities (i.e. there is no alternative), high yield bonds have been seeing a big influx of demand. Because dividends are drying up in the stock market, high yield bonds are becoming increasingly attractive, and Bank of America thinks they are going to do well. They point out that yields in some bonds are much higher than similar yields on equities in the same sector and they expect spreads to tighten in the coming quarter. “While the easy money was last quarter, we still see many tailwinds to nudge high-yield spreads tighter in Q3...Markets should be treated to plenty of positive data surprises now that economies are exiting their lockdown hibernation…an essential ingredient for leveraged credit to perform.”

FINSUM: This seems like a reasonable call, but we think the positive data surprises might be a stretch. That said, yield-hungry investors will likely keep the high-yield space humming along.

(Washington)

In a week that saw American COVID cases surge and claim one quarter of all the world’s 10m cases, the US health secretary said that the US may not be able to contain the virus. The US has recently seen a huge jump in cases, with only two states showing a weekly decline in cases. This has led to speculation that the virus may be completely uncontained in the country. Health secretary Alex Azar appeared to acknowledge this, and when discussing containing the virus, he said “The window is closing…”, and that the southern US was seeing the worst of the flare up.

FINSUM: All the hopes that warm weather would hurt the virus have been proven wrong—the hottest places in the country are having the worst outbreaks! How does one price the odds of another economic decline because of this surge?

(New York)

Markets have been rough for the last few weeks. Investors are doubting the pace of the recovery because of a big renewed rise in cases and the possibility of new lockdowns. And according to market analysts, signs are increasingly pointing to another meltdown. If you study various volatility indexes, starting with the VIX, it is becoming clearer that another big move lower is on the horizon. The VIX and other indexes have recently shot back higher after a steady fall after the huge March volatility and their momentum indicates investors may panic sell and create another big correction.

FINSUM: We do not give much respect to technical analysis on its own, but it is useful (in our opinion) as a tool to quantify what one is seeing in the real world. Right now, this makes sense given the rising worries about new cases and lockdowns.

(New York)

The long sought V-shaped recovery has been like a white elephant for investors. It has been hoped for since March when the economy started to shrink, but in the last couple months, most let go of the hope as the depth of the downturn became clear. However, given recent economic data, there are growing odds that the economy might vault out of its recession like a rocket ship. Morgan Stanley says it won’t be long until investors completely buy into that narrative. MS thinks in the next six months investors will go from “doubting to believing” in the v-shaped recovery, and that by the end of the year risk assets will be in a “mid-stage bull market mind-set”.

FINSUM: This is highly speculative, but it is a clear un-muddled position. We suspect the recovery is going to be slower than v-shaped, so our expectations are not nearly so bullish.

(New York)

We have been saying this for months now, but Wall Street is also coming around to the idea: the COVID lockdown was ultimately going to be very bullish for ecommerce and the social media companies with which they are inextricably linked. According to Wedbush, the COVID lockdown has permanently changed shopping habits, and ecommerce’s share of total retail sales will maintain the big jump it saw over the last few months. With that in mind, here are six stocks to consider: Wix.com, GoDaddy, Shopify, eBay, Etsy, and Pinterest.

FINSUM: Just like work habits, people’s buying habits have changed, and they are likely to stay that way. That is a big victory for retailers who were winning the ecommerce race, those who support ecommerce (e.g. Shopify), and social media companies who benefit from increased advertising.

(Washington)

For the last several months, brokerage firms have been preparing for the implementation of the SEC’s Reg BI, which comes into effect next Tuesday (June 30th). The driving force behind the rule has been the SEC’s current chief, Jay Clayton. However, those paying attention will have seen that the whole Reg BI project was throw in doubt this week as President Trump has just nominated Clayton to be the US Attorney for the Southern District of New York. Clayton is apparently interested in the role. This raises serious questions about how seriously the rule will be enforced as the entire rule was basically Clayton’s project. According to Phyllis Borzi, who formerly headed the DOL, “It matters in the sense that this [Reg BI] was his baby, he was determined to push it through…”, its “effectiveness” she said “will rise and fall on how well it’s enforced because the rule itself leaves a lot of ambiguity, so it will be critical how it’s implemented”.

FINSUM: If Clayton leaves, it will create a major void for the rule, including, its enforcement, changes, and focus.

(New York)

Covered calls are an old investing methodology, but one that does not get much attention. That said, employing covered calls can be a great income strategy. So what is a covered call? Simply put, it is the process of selling call options while simultaneously holding the underlying shares. The idea is to earn income from selling the call options, while hedging risk by holding the underlying shares. The ideal outcome is that the underlying share price rises but does not hit its strike price, yielding the seller both the income from selling the option and the capital appreciation of the shares.

FINSUM: In markets with big momentum this is not a great strategy, but in back and forth ones like those at present, it can be very effective for increasing income. There are a number of funds that also employ this strategy so you don’t have to do it manually.

(Washington)

Markets are having a tough time right now on news of surging cases across many parts of the US. In what has become a typical cycle, optimism on the recovery is being tempered by media reports of surging COVID cases in several states. The markets seem to be unusually wounded this morning, and the reason might be comments from Coronavirus Task Force chief Anthony Fauci. Speaking about the rise in cases, he called it a “disturbing surge” and warned congress that the virus was not under control.

FINSUM: The rise in cases in Florida, Texas, California, and Arizona has been alarming, especially in the last week, so markets are starting to worry about the potential for new lockdowns.