(Washington)

In what could be could news for those worried about the Fed hiking us into a recession, one of the Fed’s top leaders has just come out with a very dovish tone. St. Louis Fed chief Bullard says the Fed needs to slow its pace of rate hikes to preserve its credibility. “Inflation expectations in the U.S. remain somewhat low, suggesting that further normalization may not be necessary to keep inflation near target”. He suggests that the best policy going forward may be to freeze hikes.

FINSUM: One of the things that has worried us about the Fed is that they seem to be viewing rate hikes as some sort of automatic pre-determined path towards normalization rather than basing it on actual inflation numbers.

(Washington)
The DOL rule is on the way out and the SEC best interest rule is on the way in, but that did not keep the SEC from taking a parting shot at the DOL. Outgoing SEC commissioner Michael Piwowar, long a critic of the fiduciary rule, said yesterday “I think it was a terrible, horrible, no good, very bad rule … It set up an unworkable, impossible set of standards for people to comply with. The Department of Labor couldn’t have cared what we thought and what you all thought, didn’t listen to Finra, didn’t listen to state regulators or the insurance regulators, and went forward with a rule that proved to be unworkable”. Piwowar is expected to leave the SEC on July 7th following his resignation.

FINSUM: We could not think of a more comprehensive critique of the DOL rule. We think the SEC really “gets” it.

(New York)

There have been some serious warnings about real estate from reputable sources lately, but not much data to support them. To this point, most fears have been centered around how rising rates might hurt the market, but none of that had emerged in the data, until now. A new US housing report has just showed that sales of existing US homes fell 2.5% in April. Low inventory and higher prices seem to be putting a dampening effect on buyers, says the Wall Street Journal.

FINSUM: This is a worrying stat for us, and its importance is elevated by the fact that the figure comes from April, which is part of the all-important spring home-buying season. The next few months of data will be very important.

(New York)

Now might be a good time to buy dividend stocks, especially if you think rates and the economy are likely to stagnate. But even if not, having solid income stocks is always a key feature of a portfolio. With that in mind Barron’s has come up with a list of 12 income stocks with good cash flow and very solid fundamentals, all of whom are supposed to see growing cash flow in 2019. Some of the names cited include: Kraft Heinz, Target, Merck, Johnson & Johnson, 3M, Eli Lilly, and Omnicom.

FINSUM: This is a diverse list from across different sectors which includes a lot of companies with strong profiles. All of the stocks have of a dividend yield of at least 2.5%.

(Washington)

Advisors all over the country are wondering about a simple question—why the SEC did not use the word “fiduciary” in its new best interest rule. The answer to the question had remained obscure until this week, when SEC chairman Clayton answered it at a conference following a question by FINRA CEO Robert Cook. Clayton said that the new rule is “definitely a fiduciary principle, just like the fiduciary duty in the investment advisor space is a fiduciary principle”, but continuing that calling standards for both brokers and advisors “fiduciary” and “then defining them would not make it clear that the relationship models were different”.

FINSUM: So basically the SEC avoided using the word so as not to muddle the difference between the relationships of brokers to clients vis-a-vis advisors to clients.

(Washington)

First it was North Korea calling the summit into question, and then this week President Trump cancelled the meeting entirely. Now, despite Trump’s cancellation, Pyongyang says it will still meet with the US. Just minutes after Trump cancelled the summit, a senior North Korean leader said “We had set in high regards President Trump's efforts, unprecedented by any other president, to create a historic North Korea-US summit … We tell the United States once more that we are open to resolving problems at any time in any way”.

FINSUM: While it might be a bluff, we take it as an encouraging sign that North Korea is so eager to meet with the US.

(New York)

Allocation funds don’t get a lot of discussion in the press, but they could be a good buy. With their broad mandate to invest in all manner of asset classes, an allocation fund can theoretically be a one-stop shop for advisors or retail investors. However, most of them have not lived up to their hype since broad allocation takes more research horsepower than the funds can afford. However, the T Rowe Price Global Allocation fund has been performing great. The fund invests in 20 different T Rowe funds across all strategies. “This fund represents our best thinking across different asset classes”, says the fund’s manager. It has beaten 92% of its category peers over the past three years.

FINSUM: Allocation funds can be a good choice if you want to merely deposit assets into a single vehicle. However, we would worry about having a great deal of one’s assets with a single manager.

(Washington)

It was already all but over, but now it is really over and done with. States, including Oregon, California, and New York, made a last ditch (and well-worded we might add) bid to step in as defendants in the Fifth Circuit court case regarding the DOL fiduciary rule. The sates want to step in to appeal the rule. Last week was their second attempt to do so, and now the Fifth Circuit Court has turned down their second push, which means the ruling appears final. The denial was made by the same panel of judges as originally vacated the rule, though the denial was unanimous this time.

FINSUM: We think the rule is finally gone for good, but never say never in this story.

(Washington)

So we don’t usually write a story this “editorially” driven, but we wanted to share our view on the new SEC fiduciary rule, and not so much on the rule itself, as the way the SEC is handling it. While we all know the SEC’s new rule came in way less onerous than expected and there are major hurdles to its implementation, we really like the way the SEC is approaching its process. The rule is now open for comment, and listen to SEC chief Clayton’s comments on it, “I am very interested in the comments that come in, whether people think this current proposal fits their current relationships with their clients … I also want to understand, are we doing violence to the investment advisor model in any way? Are we doing violence to the broker-dealer model in any way? People should comment”. Commenting on the broker-dealer model specifically, Clayton said “there are clearly many people for whom that relationship is a more economical model than the investment advisor model”.

FINSUM: Clayton really understands the different considerations for clients and advisors. In our view, these are the most insightful comments we have heard from any wealth management-focused regulator in some time.

(Washington)

The Financial Times has just put out what we think is a very interesting story about the battle going on between President Trump and Amazon. The president has been pushing hard for a regulatory crackdown on Amazon, some say because of Jeff Bezos’ ownership of the Washington Post. But the FT points out that the president needs to tread lightly, as Amazon is a well-liked company and he might not win a popularity campaign against it.

FINSUM: Amazon is apparently the 10th most reputable company in the country. Trump’s approval rating is 43%. Even if Trump is right to try to breakup up some of Amazon’s grip, it seems like a risky campaign.