(San Francisco)

The FANGs have gotten a lot of market pressure lately, both in the form of sell-offs, but also from analysts, who say tech companies will be among the worst hit by tariffs. However, one fund, Light Street Capital, which has made great returns betting on new technology companies, thinks Netflix has a lot of room to run. They reason they like Netflix is that the company has intentionally made its product very cheap in order to grow its subscriber base. They think there is a lot of room for Netflix to raise prices without alienating customers. Consumers have gotten used to paying $100 a month for cable, but are currently only paying $9-$12 per month for Netflix.

FINSUM: Netflix has a lot of room to expand margins. Think about the effect to earnings if it raised prices to a still very tolerable $14.99 per month.

(New York)

The chances of a war breaking out with Iran are not minute. They are probably not high, but significant enough that it is worth having a plan. It may be unseemly to think about asset prices during armed conflict, but just because a war has broken out does mean one’s duty to protect clients ends. The key thing to remember is not to panic. Selling into a panic is a bad idea, and historically speaking, the market tends to be higher six months later anyway. Generally speaking, that is the trend in past armed conflicts. There is an initial fall in stocks, only to be followed by a subsequent rise over the next six months to above the starting level.

FINSUM: We do not think a war with Iran will happen. This seems more like simple political wrangling.

(New York)

JP Morgan thinks bonds are the best of a bad bunch. That is essentially what JP Morgan is saying about the asset class. The investment bank says that bonds are not in a bubble, though there are no good discounts either. JP Morgan, which is the world’s largest underwriter of bonds, says that despite the 100 bp dive in Treasury yields, bonds are not a bubble ready to burst. The bank thinks the Fed will stay on hold, not cut, until the end of 2020 given the increased pressure the trade war will put on the economy.

FINSUM: Despite the speed with which the bond market has seen yields fall, it is relatively hard to imagine them rising back to over 3% any time soon (even if China dumps its holdings). Thus, we generally agree with JP Morgan’s assessment.

(New York)

The dreaded moment is coming. The DOL has been hinting for some time that it would release a new version of its infamous fiduciary rule, but now we have a concrete timeline. The agency says the new rule will be released in December. It is unclear the extent to which this new rule will sync with the SEC’s best interest efforts, but most seem to think the two rules will dovetail nicely. This will be the third time the DOL has issued a fiduciary rule. The first time was in 2010, then again in 2015 (defeated last year).

FINSUM: No details on how this will look, so hard to speculate. However, given how expansive the rule was last time, we will not be surprised if there are some surprises here.

(Los Angeles)

The US real estate market has looked weak for over a year now, and things aren’t really improving. While the market has not seen the bottom fall out, it is going through a weak period. New data on home sales shows that home price gains in 20 US cities have slowed for the 12th straight month. Property values in March were up 2.7% from a year earlier, their weakest gain since August 2012.

FINSUM: The market is steadily slowing. One might hope that falling yields could help perk up the market, but the threat of the trade war will probably keep buyers anxious.

(New York)

The market has been worried that the trade war may prove inflationary. Higher tariffs would mean higher prices passed along to customers, in turn raising inflation. This is scary because it means the US could get caught in a stagnant economy with higher inflation, which would keep the Fed from cutting. However, the reality is that the trade war may in fact be deflationary instead. The reason why is two-part. Firstly, governments, businesses, and consumers are likely to take actions to off-set the rise in costs; and secondly, the economic toll may hurt the economy so that prices cannot rise.

FINSUM: We do not think tariffs will be inflationary. Thinking of them as automatically inflationary is very narrow-minded, as it does not actually take into account the effects tariffs will have on aggregate demand.

(New York)

The trade war has really taken a toll on Treasury yields. The tensions between the US and China have made investors bearish about the economy, sending Treasury prices sharply higher, and steepening the inversion. Treasury yields just hit their lowest point since 2017, with ten-year yields falling as low as 2.27%, light years from where they were in the fourth quarter. Even the 30-year is only at 2.7%.

FINSUM: Yields are going to move in step with the trade war. We think the general trend will be downward given the market anxiety and the fact that the Fed is likely to be more dovish.

(New York)

Ten-year yields are low, very low, compared to where they were just a few months ago. Recently poor news on the trade front has sent yields spiraling lower, all the way down to 2.30%. The speed of the rally in Treasuries also prompts the interesting question of whether China weaponizing its Treasury holdings even matters. Yields have fallen so steeply, and there is so much momentum supporting the bonds, that even if China were to dump its holdings, it is hard to imagine that yields could jump back to even where they were a few months ago.

FINSUM: Let’s say hypothetically that China dumps its Treasuries. How far would ten-year yields rise? Maybe to 2.8%? We wouldn’t even be back to where we were in the fourth quarter, and it is hard to imagine that move having much of an impact on the economy itself.

(New York)

The big rally in ten-year Treasury bonds has created a worrying situation in the bond market—a steepening inversion. Despite the broad based rally, the negative spread between ten-years and three-month yields actually grew, as did the spread between two- and thirty-year bonds. Oil also plummeted 5%, as did the Dollar, a reflection of traders’ bets that the US is likely headed for a downturn and easier monetary policy.

FINSUM: The current inversion could just be a product of markets flows dictated by the trade war. What is worrying is that negative spreads actually widened instead of just staying flat, which adds more weight to the inversion-recession story.

(Washington)

It has largely faded from the news, but Americans in high tax states are feeling the pinch from the SALT cap limits. States are currently mounting a last ditch attempt to stop the new limit through a highly creative legal argument that relies on court precedent from as far back as the Civil War. However, early indications are that the push will fail, finally sounding a death knell for any hopes the cap would be overturned.

FINSUM: As one of our esteemed readers pointed out to us, this SALT cap has much more significant implications than real estate prices or asset allocations. The bigger worry is that the tax-home migration of the wealthy could hollow out the public finances of already precarious state and local governments.