(Washington)

If you are hoping a middle of the road Democrat wins the party’s bid, then yesterday’s poll is an alarming one. In a new CNN poll, Bernie Sanders completed a 9-point swing to overtake Joe Biden by 3% in polls of Democratic voters. He rose a full 7 points to 27% support versus Biden’s fall of 2% to 24% overall. The first votes for the candidacy start on February 3rd in Iowa and February 11th in New Hampshire.

FINSUM: Purely looking at this from a political perspective, we think it is hard to say which candidate has the best odds of beating Trump. On the one hand, Biden can certainly capture more of the centrist voters, but on the other, Bernie is a much more realistic embodiment of the current Democrat party and could galvanize its identity to voters.

(New York)

The stock market is a tough game right now. Valuations are sky high and earnings are trending the wrong way, which makes picking any stock difficult. Even buying popular high-priced stocks isn’t a good plan when earnings are falling, which makes it seem as though there are few good options. With that in mind, consider buying cash cows like Facebook, Google, and Ford. With such good earnings prowess and free cash flow, these kinds of companies have the money to keep buying back shares, which should drive their valuations over time.

FINSUM: Cash cows can feed their own market pricing even in really rich markets, so this seems like a smart call.

(Washington)

Bank of America Merrill Lynch has just published a new survey of institutional money managers and found an interesting sentiment among those managing a hulking mass of American money. That finding is that money managers are much more worried about the election than they are about the trade war. Institutional investors think election worries will have a much greater effect on markets than the trade war will. The chief US economist at Goldman Sachs summarizes the situation this way, saying “While there are no obvious signs of election-related effects on economic activity so far in this election cycle, there is some concern that . . . uncertainty could have a more noticeable effect on sentiment and activity as the election approaches”.

FINSUM: We absolutely agree. The trade war seems to be cooling as both sides appear as though they want to hash out the issues. The election is an event with potentially hugely variant outcomes and it is highly difficult to predict. This all means it is hard to price, and that uncertainty can weigh on companies and markets.

(Washington)

Trump’s legal team put out a bold proclamation today. In a 171-page briefing that preceded the launch of his impeachment trial in the Senate, Trump’s lawyers argue that he cannot be removed from office for abusing power. They contend that since he did not break any laws, he cannot be removed from office. The team summarized their view, “House Democrats’ novel theory of ‘abuse of power’ improperly supplants the standard of ‘high crimes and misdemeanours’ with a made-up theory that would permanently weaken the presidency by effectively permitting impeachments based merely on policy disagreements”.

FINSUM: This is a very interesting argument as the legal team seems to have changed tactics. Rather than arguing the underlying facts in the case, they are now trying to say that even if all the facts are true, Trump still cannot be removed from office.

(New York)

The golden age of streaming is over, that is for sure. For the last several years, the combination of Netflix and Amazon Prime have given consumers a wide array of choices at low prices. However, the streaming space is now fragmenting dramatically as Disney and others take their programming off Netflix and others, making consumers pay for more subscriptions to get the same content. NBC, for instance, just launched its own service, Peacock, for its content. However, it did something quite differently—a lot of the content is free for consumers. You only pay for a premium section of the content, but a bulk of its is free when you sign up. If you are already a Comcast subscriber, the whole thing is free, though it does have limited ads.

FINSUM: This is the first time that a major streaming service decided to be free (outside of Prime Video being free for Prime subscribers). This may change the whole pricing paradigm for the industry.

(New York)

No matter how many times you tell them that renting a vacation home is a better financial idea, many clients get the “I want to buy a vacation home bug” and can’t get it out of their system. When that happens, here is a few things of which to remind them. Firstly, their vacation home will not have the same capital gains tax exemption as their primary residence. Additionally, costs associated with the property, including insurance, property taxes, and possibly fees associated with renting the property, can all rise faster than their incomes, especially if they are on a fixed income in retirement. Vacation homes can also be complicated from an inheritance perspective, as some heirs may want to keep the property while others may want to sell it.

FINSUM: All good arguments. Hopefully some clients will listen!

(New York)

Financial advisors often wonder about the best way to get client money into private equity. The industry has long had very high hurdles for investing directly in funds, and publicly traded funds that try to replicate private equity returns are still nascent. However, there is another good way to get PE like returns by proxy—buy publicly traded private equity company stocks. KKR is a very well known firm that is currently trading very cheaply and seems like a good buy. The stock rose 50% last year but badly trailed its rivals in a year that saw many PE companies double in value as they shifted from partnerships to corporations.

FINSUM: The market seems to be underpricing KKR’s ability to create management fees based on its dry powder, which is causing the weaker valuation.

(New York)

It may not get much attention right now, but the biggest threat to stock prices is also the same thing that has been supporting them for years. If you really consider what has driven the extraordinary rise in stocks, it is the fact that bond yields have been so outrageously low since the Crisis. This has created the widely-covered “TINA” (there is no alternative) syndrome that has driven investors to pour capital into stocks. Accordingly, many analysts say the biggest risk to stocks is a pickup in inflation, which would likely send bond yields sharply higher.

FINSUM: This is a solid argument theoretically, but calling a rise in inflation has been a very poor bet for over a decade. Why is that different now?

(Washington)

It has been stewing for a while, but antitrust regulation regarding some of the stock market’s largest companies is starting to look like more of a reality. However, it is not in the way one might expect. Trump has long said he wanted to work on anti-trust regulation—with Amazon the frequent target of his ire—but now he is taking steps that actually support big companies and corporate power. The way the administration is going about is through the Justice Department filing many legal arguments in cases where it is not even a party. In this way, it is trying to influence how the courts handle competition cases, and it has generally been pushing patent-holder friendly positions and undercutting lawsuits of other enforcement agencies.

FINSUM: This does not track very well with Trump’s general rhetoric, but it does follow a general Republican economic line. It seems positive for stocks.

(New York)

If you think the economy is going to keep humming along, then buy small caps, as they look set to gain the most from that scenario, at least according to Leuthold group. Small caps look likely to benefit disproportionately from the rising inflation and higher appetite for risky assets that accompany a strong economy. That said, small caps have lagged large caps for the last decade, so there is some reason to be skeptical about this call. Accordingly, “If 2020 should prove difficult for earnings growth, we would expect large-caps to maintain their earnings growth superiority”.

FINSUM: We can see the economy continuing to roll, but we have a harder time seeing inflation jumping up. We think the status quo will continue.