(Washington)

If there is a core element to the debate going on over the SEC rule, it is whether the rule actually does anything new. Some argue that the SEC’s best interest rule is just a rehashing of the well-established FINRA suitability standard. For instance, the CFP has commented that “Our concern is that as introduced, the rule proposal may offer the appearance but not necessarily the reality of increased investor protection”. There are two areas of consternation about the rule, at least as far as consumer groups are concerned—the lack of a definition of “best interest”, and how the rule has differing standards for brokers versus fiduciaries.

FINSUM: While it does seem unconventional, the SEC’s lack of a definition of “best interest” means it may ultimately be more broadly applicable than defining it, and thus creating loopholes.

(Washington)

The SEC has been getting a grilling over its new best interest rule. The industry doesn’t like its proposed disclosure document (CSR) or its restriction on the use of titles, while consumer protection groups say the rule is not stringent enough. Yesterday, SEC chairman Clayton faced questions over the rule from the House Financial Services Committee. Answering questions on whether the rule went far enough and whether the rule should be harmonized between brokers and advisors, Clayton explained that brokers and fiduciaries have different relationships with clients and said “There is no conflict-free relationship … Disclosing [conflicts], mitigating them, making sure everybody understands what the motivations are ... that's what I want to do in this space”.

FINSUM: We think Clayton stood his ground quite well, and we particularly like that final quote, which was grounded in realism.

(New York)

Don’t be fooled by the “prophets of boom”, or the many Wall Street and economic leaders who are saying that the US economy is in great shape and will deliver strong growth for years to come. One well known strategist, David Rosenberg, who called the Great Recession before the Crisis, says that a recession is imminent and will arrive within the next 12 months. Rosenberg believes the January 26th high for the S&P 500 will be the peak of this bull market, and that it will ultimately be the Fed that sparks the recession. “Cycles die, and you know how they die? … Because the Fed puts a bullet in its forehead”.

FINSUM: There are a lot of late cycle indicators flashing in the US economy right now. A recession in the next year does seem plausible, if not overly likely.

(New York)

Corporate earnings are doing well and are forecasted to keep rising. Alongside those improvements in operating performance, one would expect stocks would likely keep rising. Not so fast, says Goldman Sachs, who says that earnings improvements will likely do little for stock prices. David Kostin, the firm’s chief US equity strategist, says that earnings’ influence on prices will be moderated by a number of factors. “The appreciation potential will be constrained by tightening monetary policy, a flattening yield curve, rising trade tensions, and the upcoming mid-term Congressional elections.”

FINSUM: In other words, stock market investors are dealing with much more than operating performance. We think the market will discount earnings even more than expected because a lot of the gains are being driven by the tax policy change, making the improvement temporary in nature.

(New York)

Well, the Dow might be about to suffer its longest losing streak in 40 years. The index has lost eight days in a row, and many of them were punishing. Now, if the Dow loses again today, making it nine days in row, it will be the longest streak since 1978. Since 1896, the Dow has only suffered ten losing streaks of nine days or more.

FINSUM: This seems like one of those stats that appears fairly meaningless when it is happening, but in hindsight might seem the start of a bear market/correction or recession.