(Washington)

Trump’s former attorney Michael Cohen pleaded guilty to charges of violating US election laws yesterday. Cohen admitted to making two payments as hush money to Stephanie Clifford and to the owner of the National Enquirer. Cohen also officially implicated the president, saying he was instructed to make the payments by Trump, which would also make Trump potentially culpable. Cohen took a plea deal with prosecutors and will receive between 46 and 63 months in prison. Lawyers say that the testimony puts Trump is hot legal water.

FINSUM: It is beyond us to say how legally troubling this may or may not be, but it is not going to help the president politically.

(Washington)

Bloomberg is reporting that the SEC is under a lot of pressure regarding its investigation of Tesla and Elon Musk. The SEC usually investigates companies without public knowledge, but Musk’s very public tweet changed their whole investigation (which has been going on for months), and they are now under pressure to punish the company or Musk personally. The investigation is now so public that the SEC would come under heaps of political criticism if it were to exonerate Musk.

FINSUM: The other question here is timing, as it can take years for the SEC to determine if laws were broken, but investors want an answer quickly.

(New York)

It looks like JP Morgan is trying to eat Schwab and Fidelity’s lunch, and the latter’s stock prices show it this week. The mega bank announced that it would offer free stock trading to its clients, allowing 100 free trades a year for most, and unlimited free trades for some. That is a huge change for a bank that formerly charged $24.95 per trade as late as last year. JP Morgan has 47 million online customers, who will now have free trading access. Reacting to the move, the VP of marketing for Interactive Brokers said “Banks and brokers that give away so-called free or cheap trades make their money by paying next to nothing on idle balances, executing trades at inferior prices, and charging exorbitant borrowing fees, which is costly to those that don't do their homework”.

FINSUM: That is a pretty sharp response from Interactive Brokers, and one that sounds true. Still, this is a sign of changing times where trading will soon become largely free.

(New York)

The markets look troubling right now. They are just about to cross to a new high at the same time as they have just breached the record for the longest ever bull market. P/e ratios are way above historical averages and stocks have risen 400%+ (including dividends) since their lows in 2009. At the same time, there are ample geopolitical headwinds, tightening rates, and trouble in tech. Is it time to take risk off the table? Maybe, but don’t act rashly. The key is to take small, gradual, and reversible steps. If you end up being right, you will have minimized your losses, but if you end up being wrong, you won’t kick yourself from missing gains.

FINSUM: Advisors say that these kinds of strategies are well-received by most investors, so simple risk mitigation efforts can go a long way to minimizing the psychological discomfort one feels at the potential peak of the market.

(New York)

Citigroup says that the US just crossed a scary economic threshold. The bank’s well-known economic surprise index shows that the US is now at greater risk of negative economic surprises than is Europe, the first time that has occurred in some time. While the economy has been doing well, the trade war and a multitude of other factors, including the Fed, mean the US is more at risk of an economic downturn than Europe.

FINSUM: It is pretty easy to say that a country whose growth is at 4.1% is at risk of a downturn. It would not take much for the US to slow down considering its growth appears to be peaking.

(San Francisco)

Apple just crossed the trillion Dollar threshold. Shares have been rising, up over 27% this year, on strong sales figures. Everything seems good, right? Think again, says Barron’s, as it believes the stock could be in for a “clobbering”. The reason why is that Apple’s recent success with the iPhone X may have weakened its prospects for 2019. Because there is a longer and longer timeline between phones that have the dazzle to get customers to actually trade up, currently good iPhone X sales may be sapping demand for 2019, meaning the next few quarter’s earnings might be quite disappointing.

FINSUM: This makes sense to us. Customers only have so much wallet share for smart phones, and the iPhone X took a lot of that this year, which means the next several quarters could be lean.

(New York)

Advisors looking for good sources of income for clients should check out this piece, which is comprised of actual advisor ideas. Income is a tricky question at the moment, as one needs to preserve short-term income but also protect against rising interest rate risk. One key point is to focus on total return, or harvesting income not just from coupons and dividends but from portfolio gains too. While reaching for good yields in bonds can be very risky at the moment, considering sticking to traditional short-term bonds, but laddering their maturities from 1 to 5 years. Once you have that in place consider adding some higher-yielding options, like high yield municipals. MLPs are another good potential option given how strong the oil market is.

FINSUM: This is a nice range of specific ideas from other advisors. We favor short-term bonds for income right now, as yields are solid and interest rate risk is comparatively lower.

(New York)

We saw an article that caught our eye today. How does earning a 1.8% yield on cash sound? If that sounds enticing, consider putting some money in Betterment’s new Smart Saver option. Betterment is seeking to compete with digital banks, who have been boosting interest payouts recently, by offering a product for cash that might be stagnating in a savings account. The yield is backed by a mix of 80% short-term US Treasury bonds and 20% US short-term investment bonds. The only catch is that the account is not FDIC insured, which is a hindrance compared to some bank accounts which are offering comparable yields and are FDIC insured.

FINSUM: This seems like a good offering in principle. Betterment’s argument against the competition is that unlike banks, their holdings directly track the Fed instead of being artificially manipulated to optimize net interest margin.

(New York)

Tesla’s stock is currently in limbo. The company is under SEC investigation on multiple fronts, including for the tweet heard round the world, or Elon Musk’s announcement that he intended to take the company private. Markets are finding it hard to handicap the odds of the deal, which is supposed to take place at $420, actually coming through. However, JP Morgan made a big comment on the company this week, saying the funding to take the company private had likely not been finalized. JP Morgan cut its price forecast to just $195, or well under half the price at which Musk wanted to buy the company back. Tesla’s shares are currently trading around $308.

FINSUM: Based on the news that has come out since the tweet, it does seem like Musk exaggerated having the funding secured, which makes this whole deal look very shaky.

(Washington)

Trump spooked currency and Treasury markets yesterday. Speaking in the context of the US’ trade tussle with China and others, Trump said he wasn’t thrilled with the Fed’s interest rate hikes. He said that in the trade battle with China, the Fed should be accommodative with its policy. Trump called Beijing a currency manipulator, and said the Euro was being manipulated also. Speaking on Trump’s comments and his new consistency in criticizing the Fed, one analyst said “This is now a serious headwind to the dollar”.

FINSUM: It is true that a constantly strengthening currency is difficult to deal with in a trade war, but that the same time, the Fed’s job is to look at US economic fundamentals. That said, how rate decisions would affect the economy via a trade war do seem like they would be within the Fed’s purview.