Advisors and investors beware, the long-swelling bubble in the bond market looks set to pop. Major bond investors are as worried as they have ever been, mostly because of the reduction in easing that is finally coming to markets. Central banks are letting off the gas pedal for the first time in almost a decade, which could have a devastating effect on the bond market. According to the head of fixed income at JP Morgan Asset Management, who oversees almost half a trillion in AUM, “The next 18 months are going to be incredibly challenging. I am not an equity investor, but I can just imagine how equity investors felt in 1999, during the dotcom bubble”. He continued, “Right now, central banks are printing money at a rate of around $1.5tn per year. That is a lot of money going into bonds. By this time next year, we think this will turn negative”.
FINSUM: There is a lot at stake in bond markets after years of relentless gains on the back of dropping rates. JP Morgan seems to be very wary.
The Republican party is set to press ahead with a vote on their healthcare package today despite the fact that they appear to be short of the votes to succeed. The president has been pushing senators to stage the vote, and it is set to be held today. The strangest thing about the vote is that the Republicans are planning it despite the fact that no one is quite sure what the healthcare package is. It will be discussed on the floor before any vote is held, a high unusual gamble by the party. Senator John McCain, who was last week diagnosed with cancer, will return for the vote today.
FINSUM: Anyone’s guess how this plays out. One wonders if the Republicans have a trick up their sleeve, as this can’t be as haphazard as it seems.
One of the big changes coming to the structure of the trading and asset management businesses is that research is increasingly being split out on its own. Directed by European regulations, costs for research can no longer be bundled with trading commissions. This has led to a scramble by research providers to figure out how to price their now stand-alone research. Now, big banks are reportedly locked in tense negotiations with the clients as they are asking firms to pay $1m per year for access to their research. Fund managers think prices will come down.
FINSUM: This change could be headed over to the US soon, so something to keep an eye on. If banks are able to charge high fees, it could lead to a change of direction for the whole industry.
The Wall Street Journal has published a foreboding article which warns Americans that Robert Mueller’s investigation of the Trump administration may block political progress for the foreseeable future. The article contends that prosecutors like Mueller have in the past become corrupted by their absolute power, and have held Congress and its politicians hostage. The IRS-Lerner debacle in 2012 deeply hurt the Republican party, and the article cites numerous current politicians who say they are afraid of getting in Mueller’s way.
FINSUM: This seems to be an article supporting Trump’s idea of firing Robert Mueller, so it appears quite biased. That said, it makes some good points about the dangers of a limitless investigation with little oversight.
In what could either be taken as a good sign for the economy, or an omen of a big fall to come, new research is out which shows that Americans are spending record amounts on home improvements. Home inventory is very weak right now, which means many buyers seem to be sticking in their current homes rather than trying to buy. This seems to have led to a surge in home improvement investment. According to Harvard, Americans are forecast to spend a whopping $316 bn on home improvements this year alone. Economists say the splurge is a sign of broken housing market, with low inventory and no new construction.
FINSUM: To us this may be more of a sign of restraint and good lending practices than it is a frothy economy or a broken housing market.