(New York)

Equity investors may be understandably frustrated and anxious at the moment. The rebound after February’s lows has not held up and stocks are right around their bottom for the year. Well, if history is any guide, the pain will likely last 200 days. That is the average length that a correction has lasted during this bull market, and this is the sixth of its kind since 2009. The longest was 417 days between 2015 to 2016. The market is already 60 days into the correction, so if the forecast holds, it would emerge in August.

FINSUM: This would only provide comfort if one thinks the current correction is merely that, and not a full blown bear market.

(New York)

No, the headline above is not a joke, though it may look like one to some. While it is easy to joke about people leaving millions to their dogs, the reality is that setting aside a portion of inheritance to take care of a pet is increasingly common, and advisors need to be aware. 44% of pet owners have some financial plan in their will for the care of pets, with the structure usually being that money would go to a designated caregiver. One advisor in Boca Raton who handles pet planning says “If you care about them and you want to make sure they’re taken care of, you have to have a contingency plan for them or else they end up at the Humane Society”.

FINSUM: 44% is a huge number, but it does make a lot of sense. Pets are valued family members and it seems irresponsible to many to leave them without care.

(New York)

Morgan Stanley has been making some interesting investments with its own account, with four stocks standing out. The bank increased its equity holdings in these companies enough to trigger regulatory filings. The four stocks are Greenlight Capital, Shake Shack, Overstock.com, and CGG. Greenlight Capital, David Einhorn’s fund, has not been this cheap since 2009 because of poor performance. Shake Shack is looking very healthy, and MS owns over 11%. Overstock skyrocketed in 2017 on blockchain hype, but has since lost a bunch this year; but MS’ seems to like the valuation, again increasing their holdings to over 11%.

FINSUM: What an interesting mix of stocks. It is also illuminating to see where banks are putting their own money.

(New York)

For anyone who thinks a trade war might not hurt the US economy, or that one may be easy to win, this is an important story. Robert Shiller, famed economist, just said a trade war with China would cause quick and devastating damage to the US economy. “It’s just chaos … The immediate thing will be an economic crisis because these enterprises are built on long-term planning, they’ve developed a skilled workforce and ways of doing things”. Shiller says that even if tariffs don’t directly affect the economy, many companies will lose their confidence to plan and invest. “It’s exactly those ‘wait and see’ attitudes that cause a recession”, says Shiller.

FINSUM: So we imagine that a trade war would be very disruptive and would undermine the confidence of US companies as it would destabilize the ground on which industry has been built for the last 25+ years. However, the US has put itself at the raw end of trade deals for many years and claiming some ground back may be positive in the long-term.

(New York)

One of the most popular fixed income assets for wealthy US investors are municipal bonds. Their tax exempt status has made them continually popular, but what will their fate be during a period of rising rates? There are currently fears that tax cuts and rising rates will wound the sector, but one top financial advisor says the muni sector “will retain its rightful position as a place where wealthy Americans protect their wealth”. Despite rising rates there will be lower issuance this year, which will protect the sector. Additionally, tax cuts for the wealthy will be modest, and not really enough to damage munis. “They will still be a relative value compared with other fixed-income, high-grade asset classes”.

FINSUM: We suspect munis will continue to have a high degree of demand, and if issuance stays low, then those are two important supportive factors. However, some municipalities are facing big budget and pension issues, which could pose a risk.

(Beijing)

Well the market took a big sigh of relief yesterday, with prices swinging back massively. One of the big reasons why was less fear over a possible trade war. In particular, China took a much more conciliatory approach this week. The country announced it would ease foreign investment rules and buy more American semiconductors, a stark move that contrasts the American push towards big tariffs on Chinese imports to the US.

FINSUM: The bottom line in the US tussle with China over tariffs is that the US has a $375 bn trade deficit to Beijing, which means we have much less to lose than them. This is probably the reason Trump referred to trade wars as easy to win.

(New York)

Sometimes looking at raw materials is a great way to get a signal on the economy, especially as they are frequently leading indicators for what is coming. Well, one metal is screaming of bad times to come—silver. Gold is priced at 82x silver, the highest level in two years, which is a seen as a poor indicator. “Money managers tend to favor gold when they think markets might turn rocky and discard silver when they are worried about slower global growth crimping consumption”, says the Wall Street Journal. 55% of demand for silver is for industrial purposes, which links it more with fundamental metals like copper.

FINSUM: So this is an interesting insight, but because silver is not a pure industrial commodity (it is also somewhat of a value store), this comparison does not seem quite as pertinent. Gold to copper would be more interesting.

(New York)

Something very curious is going on in the REIT industry—the funds are liquidating their holdings. REITs have not performed well over the last couple of years, which means many share prices are quite low relative to the market. This means they also frequently trade at a discount to the value of their underlying holdings. In response, many REITs are selling off their property holdings to make a return and bring in cash instead of issuing new shares. REITs have fallen victim to rising interest rates, but are not, in general, using the cash injections to pay down debt.

FINSUM: Considering the position they are in, this does not seem like an unwise move. It also likely signals there is a big buying opportunity in REITs if only you can stay in them long-term.

(New York)

Well it didn’t look like it would be a great year for bonuses, but 2017 bonus data is just in and it was a good year for the industry. Bonuses were up a whopping 17% this year and nearly eclipsed their pre-Crisis levels for the first time. The big bonuses largely reflected the growth of the leveraged loan market, which boosted fees across the industry. The New York state comptroller makes a good point about the data, saying “The large increase in profitability over the past two years demonstrates that the industry can prosper with the regulations and consumer protections adopted after the financial crisis”.

FINSUM: With bonuses getting to near pre-Crisis levels, it seems to be another sign that things are getting toppy.

(New York)

Despite the fact that the DOL says it will no longer enforce the fiduciary rule in any capacity, those in the industry say that firms should not abandon their fiduciary rule compliance. The reason why is that despite all the momentum against the rule, it is still not officially gone. That means the DOL could change course and decide to enforce the rule at any time, giving no comfort about getting rid of fiduciary rule compliance for firms.

FINSUM: So our view is that the whole fiduciary rule playing field is more uncertain after this court ruling. The SEC could still be dissuaded from proposing a new rule, and the current rule could still hold up in court, with both possibilities completely changing the picture.