(London)

Just a couple of days ago it seemed like the UK and EU were on the verge of coming to an agreement over Brexit. Now, just 48 hour later, a deal actually seems further away than it ever has. Reviewing UK headlines, the irony of PM May’s proposed deal is that it did what no one else has been able to—unite Britain. However, the unity is driven by shared hatred from all sides over what a terrible agreement the government has proposed. Numerous government ministers have resigned on the back of the proposal.

FINSUM: The pushback to this deal has been more than anyone would have anticipated. A no-deal Brexit looks increasingly likely.

(New York)

With all the volatility of the last month, and midterms, less focus has been on one of the most ominous of economic signs—the yield curve. Well, Goldman Sachs has just weighed in, warning investors that a yield curve inversion is looming. Goldman went further than to say that 2-years might be flat or overtake 10-years, the bank said that spreads between 2- and 30-year bonds would fall to zero. To put that call into perspective, it would be a narrowing of 50 basis points versus now. Goldman highlighted the move in its top themes to watch for 2019.

FINSUM: We have to give Goldman Sachs a little credit here as they have been consistently hawkish about rates for at least a year and are sticking to it. We tend to agree with this view.

(New York)

The biggest and most famous investor of them all just took a big position in US financials. In particular, Warren Buffett just made a large investment in JP Morgan to the tune of $4 bn. Buffett already holds a $23 bn position in Wells Fargo. Berkshire Hathaway has a history of making successful investments in banks, including in Bank of America. Buffett also boosted its holdings in BAC, Goldman Sachs, and US Bancorp.

FINSUM: Rising rates are good for banks. Recessions are not. The risk and reward is clear.

(New York)

One of the guiding mantras of small cap investing has always been that small caps tend to outperform their larger peers over the long-term. While always cyclical, small caps have outperformed large caps over the last several decades. However, in recent years that has all changed. In fact, since 2005, the relative performance between the two share classes has been trendless, with no discernible relationship. This is directly counter to the almost century-long trend that preceded it. One CIO explained the change this way, saying “Market-cap tilts have historically been about catching, and riding, strong and persistent performance waves … Over the last 13 years, in an unconventional fashion, the opportunities to add performance from cap tilts have been relatively small and have required frequent and expert timing”.

FINSUM: Interesting change for small caps. We suspect the change has to do with a combination of the pre-Crisis boom and the extraordinary liquidity thereafter.

(Seattle)

Amazon may get all the fan fare, but Walmart is lurking. For many years, Amazon was considered so far ahead of rivals in ecommerce, that anyone catching up with it was considered unlikely. And while Amazon is still the undisputed leader, that view is changing. Walmart’s most recent earnings show that its commitment to ecommerce is thriving. Walmart is leveraging its food business particularly well in transforming its operation. The company is already operating click-and-collect food businesses in 600 US locations. Amazon only has such operations in 22 cities, via Whole Foods.

FINSUM: Both companies seem to want to be the “everything” of 21st century retail, but they are going about it from different angles. Amazon is going from ecommerce into groceries, and Walmart is doing the opposite.

(Washington)

One of the big concerns advisors should have right now is how the newly Democratic House might affect fiduciary regulation. Most will be aware that the SEC Best Interest rule was much lighter touch than the first version of the DOL rule. However, on top of the DOL rule making a return in 2019, the SEC could be derailed by the House. Maxine Walters, a staunch fiduciary advocate, will now head the House Financial Services Committee and it seems liklye the House will call SEC head Jay Clayton in for a questioning session where they press him to add a fiduciary element to the current Best Interest rule.

FINSUM: The exact path to derailing the SEC rule is still a little unclear. Because Trump has already appointed the heads of the relevant agencies, the House has an unclear ability to get in the way.

(New York)

One of the safe bets during bouts of volatility since the Financial Crisis has been to pile into Treasury bonds anytime things got tough. Every time stocks dipped, the bonds tended to rally strongly and became a safe haven. However, since the recent downturn in equities, this correlation has ceased. Even amidst stock and oil’s plunges recently, Treasuries have basically remained flat, giving no comfort to investors.

FINSUM: The big difference this time around is that the volatility is coming during a period of rising rates, which means Treasury bonds are not as safe a bet as in the past several years.

(London)

The Brexit deal has taken so long to figure out that it mostly seemed hopeless. Markets were legitimately pricing in the chances of a no-deal Brexit. Now, the EU and UK have announced they have come to a provisional agreement. While that is cause for some relief, it is very far from a done deal as both the UK and European Parliaments need to endorse the agreement. The UK side in particular may be tricky as PM Theresa May needs to rally an extremely factionalized government behind her.

FINSUM: This could go many ways, but we think either everything will just fall into place quietly, or there will be major fireworks

(New York)

2019 is shaping up to be a rough year for markets. Growth is weakening, inflation may rise, and the tax cuts’ contributions to earnings and GDP are going to fade. With that in mind, the Wall Street Journal is arguing that gold is likely to be the “best house in a bad neighborhood” next year. One research analyst summarizes gold’s outlook like this, saying “Being long gold has been a tough investment since 2012, and so often, when we see the yellow metal gaining traction, the [U.S. dollar] regains its mojo, and we see the inevitable reversal … However, as we look into our crystal ball and gaze into 2019, emerging warning signs can be seen that suggest 2019 could be the year where gold bulls finally get their day in the sun”.

FINSUM: If asset classes all become correlated and are trending downward, there is a view to gold doing well. However, we are worried about inflation and rates rising, both of which would strengthen the Dollar, and in turn hurt gold.

(New York)

The whole Fiduciary rule saga seemed to be over earlier this year, but now that couldn’t be further from reality. While the DOL seemed to gracefully fade from the limelight in March, the truth is that the rule is a “sleeping giant’ according to one industry lawyer. That giant has now woken up, as the DOL is set to release an updated version of its rule in September of next year. The big question is how the SEC rule will be affected, and whether the rules will work in tandem. In either case, advisors and brokers seem likely to see much more regulation within a year or so.

FINSUM: The other big question is whether the political changes in Washington mean the SEC rule might be scuttled in some way. We sense some big changes happening.