Thursday, 13 October 2016 00:00


Fed minutes released yesterday showed that the Fed was closer to raising rates than many expected, which is lifting expectations that the central bank could hike before the end of the year. Three members wanted to raise rates immediately, but they were held off in a “close call”. The big consideration is the job market and whether it had strengthened enough to push inflation towards the Fed’s 2% goal. However, the other two considerations are harder to measure—the market’s preparedness for a hike, and how the US election might affect the economy. On the first point, the Fed even explicitly discussed the market’s odds that it would hike in September, a point that does not always show up in Fed minutes. The market thinks there is about a 65% chance the Fed will hike by the end of the year, but November looks unlikely because the meeting is the week before the presidential election. But depending on how that goes, it could prove a big hindrance to a hike.

FINSUM: The only election situation in which we think the Fed will still hike this year is a Clinton presidential victory and a Republican congressional victory. Markets would react mutedly or favorably to that, which would not scare off the Fed. In any other scenario, which seems less likely right now, the Fed would likely be derailed.

Source: Wall Street Journal

Warning Sign: Food Prices are Plummeting in the US

Systemic Risk Grows as AMs Get Big Bank Credit Lines

The September Rate Hike is Off, Payrolls Disappoint

Thursday, 25 May 2017 00:00


Many have been betting on multiple Fed rate hikes this year, and given the latest word out of the Fed, it looks like that might hold true. The minutes are out from the last Fed meeting, and they show that the central bank is close to pulling the trigger on another hike. So long as the economy remains on track, they will hike “soon” say the minutes. The Fed last hiked in March and said it expects two more hikes in 2017. The economy was not great in the first quarter and inflation has been sluggish, but central bankers have been bullish on the economy.

FINSUM: The Fed continues to be very positive on the economy, so it does seem like they will hike again soon. One wonders if it is will start to affect the housing market given inevitably rising mortgage rates.

Source: Financial Times

China Sees First Downgrade Since 1989

Massive UK Terror Attack Rocks Europe

Buy and Hold Has Been Great in the Art Market



Thursday, 25 May 2017 00:00


There have been a lot of conflicting signs out of the real estate market lately. There is some indication that inventories, especially at the high end, have grown bloated at the same time as sales are slowing. However, price gains have been strong, and now more data: houses are spending their shortest time on the market since the stat began to be tracked (2011). The median number of days on the market for a US home in April was just 29 days, beating the previous record of 32 days. The total amount of homes for sale in the US was 9% lower this April than in April 2016.

FINSUM: All the current demand seems to be at the lower and medium end, which is keeping that segment hot.

Source: National Association of Realtors

Trump Proposes $3.6 tn of Spending Cuts

Say Goodbye to Warren’s Limitless Agency

The Space Crisis in American Real Estate

Monday, 22 May 2017 00:00

(San Francisco)

Uber has just taken a revolutionary and potentially dangerous step. It has transformed the way it charges riders, and in doing so has disconnected what it charges from what drivers are paid, as well as from the usual way that pricing is done in the taxi business. Rather than charging by time, distance, and demand, it is now using AI to charge people whatever it thinks they will pay. For instance, if a rider asks for a ride from a wealthy neighborhood to another wealthy enclave, it will charge then more than another rider who is taking a more blue-collar trip of the same distance and traffic level. In doing so, it is also disconnecting what it pays drivers from what it is actually taking in as revenue.

FINSUM: This is a big step for Uber and we are not sure it will be a successful one. The company says it wants to be profitable, but this could just lead to more rider and driver outrage.

Source: Bloomberg

Amazon Shows the Virtue of Buy and Hold Investing

Tesla’s Biggest Bull Just Downgraded the Stock

Amazon’s Big Risk

Thursday, 25 May 2017 00:00


Democratic lawmakers are trying to find a back door to dig in to President Trump’s business dealings. Some of those lawmakers have just requested Deutsche Bank to release details of his business relationship with the bank, including his loans, and his potential connection to Russia. They are hoping to see if any of his loans were backed by Russia. Since Democrats are the minority in the House, they don’t have the authority to make Deutsche Bank make any disclosures. However, it remains to be seen if Republican Jeb Hensarling, chairman of the committee that can make such requests, may be interested in doing so.

FINSUM: Would it be so uncommon for a major global property developer to have some links to Russia well before he took office? Certainly not. If Deutsche Bank complies something may surface, but it will probably be blown way out of proportion. It will be interesting to see how bound up in the special probe this all becomes.

Source: Bloomberg

Real Info on Why Trump is Being Investigated

The Plot Thickens in Trump Probe

Why The Special Counsel to Investigate Trump is a Mistake

Tuesday, 09 May 2017 00:00


US and British investors tend to look down on France, but in fact its economy is strong comparatively. It has higher productivity than the UK and the much mocked 35-hour work is actually more hours on average than workers in the US put in. This, combined with Macron’s recent triumph, is exactly why it is time to invest in Europe again. After years of struggle and the rise of populism, it now appears as if the center has turned the corner in France. The economy is recovering nicely and it now looks like the continent is once again ready to thrive.

FINSUM: This is an insightful article. Now that populism seems to have been beat back, it would appear that it is a good time to get back into European stocks.

Source: Wall Street Journal

The Future Looks Bright With Macron’s Win in France

The French Election is a Nightmare

The New UK Election is a Big Risk for Markets

Tuesday, 09 May 2017 00:00


Venezuela has been in a state of protest and disarray for the last couple of years. Chaos may be a more appropriate term. However, this article argues a much scarier new term is emerging: civil war. The country has suffered from inflation and a lack of basic goods, which have spawned increasingly intense protests from those demonstrating against Maduro’s government. Now things have worsened to the point where an all-out civil war may emerge. “We’re seeing much larger masses protesting across all major cities, including the working-class neighborhoods” where Maduro used to enjoy support, says a retired Venezuelan general formerly in charge of putting down such unrest. “The government is losing control”, he continued.

FINSUM: It is hard to discern what impact this may have on the US political and investment climate. It does seem the US would be more inclined/obligated to get involved given the closer proximity of the country. The oil market would probably gain on the prospect of decreased supply from Venezuela.

Source: Wall Street Journal

Emerging Markets are on a Tear

Why the Chinese Economy May Struggle

Why EMs Will Cause the Next Crisis

Tuesday, 16 May 2017 00:00

(New York)

Investors should be worried about US real estate. That is the conclusion of new data analyzing the US housing market. This worries are particularly high at the top end of the market, where a mountain of new luxury apartment inventory is about to hit the market at a time when vacancy rates are already rising. As a result of the glut, banks have been tightening credit lines to developers, and previously planned projects are stalled. Rental inflation also appears to have peaked, all of which has weighed on residential REITs.

FINSUM: This article paints a pretty bleak picture of US real estate, but on the flip side, the low end of the market seems like it will stay strong as first-time Millennial buyers keep things buoyant.

Source: Wall Street Journal

What Wall Street Really Thinks of Trump

Why Markets are Set for a Steep Correction

OPEC Close to New Deal

Thursday, 18 May 2017 00:00


Many in markets may be cheering Donald Trump’s tax plans. It amounts to a major tax cut for business owners and the wealthy. However, one of the darker sides to Trump’s plan could be its effect on municipal bonds, a favorite among retirees. The reason why is that the overall tax cut would lower the overall incentives to buy munis versus other types of fixed income, as interest earned would be taxed at a lower rate.

FINSUM: This seems like it could lead to some sizable losses for muni bonds, as it would weaken one their key features. The primary impact will be on middle-income retirees, who are the primary buyers of munis.

Source: Wall Street Journal

The Biggest Financial Scandal Ever

Puerto Rico Enters Largest Ever Municipal Bankruptcy

Bond Markets are Warning of Doom

Friday, 26 May 2017 00:00


Investors in GM need to be worried today. The company has a potentially VW-sized scandal brewing. A new lawsuit from the owners of over 705,000 GM trucks alleges that the company used “defeat devices” to cheat on emissions tests just like VW. The suit alleges the environmental damage, wrought by GM using such devices on two models of truck, could surpass that of VW’s infraction. Emissions were alleged to be two to five times the legal limit, and the case was filed at home in Detroit. GM is denying the claims they call “baseless” and says they will vigorously defend themselves.

FINSUM: In our view a suit of this size would probably not be brought if there was not some evidence to back up the claims. This makes us believe this scandal will grow.

Source: Bloomberg

Why the Bull Market Has Plenty More to Run

Why Apple Will Soon Be Worth $1 tn

How to Pick the Next Amazon

Friday, 26 May 2017 00:00


The wealth management industry was rocked this week by the announcement from the DOL that there would no further fiduciary rule delays and that the rule would be implemented come June 9th. However, despite the start of the rule, it won’t have any bite until January 1st. The reason why is that the DOL has already made clear it will not enforce any part of the rule until at least January 1st, 2018, meaning the rule is in effect in name only, not practice.

FINSUM: This is very important for brokers to remember, and we think it is the crux of the DOL’s strategy to get rid of the rule. By letting the rule going into supposed effect now, the DOL avoids an immediate-term fight and saves it resources towards the economic review that will be needed to truly kill the rule. The goal seems to be to get this review done before January 1st.

Source: FINSUM

Wells Fargo Ramps Up Broker Recruiting

Robos are Battling for Rich Clients

The Winners and Losers in the Fiduciary Rule Implementation

Friday, 26 May 2017 00:00


We must admit we feel a bit vindicated today. We have been talking negatively about the oil market for some weeks, pointing out that OPEC’s cuts would not be enough to raise oil prices. The market appears to have adopted the same position, as despite OPEC announcing a 9-month renewal of its output cuts, oil prices dropped significantly yesterday. Traders were disappointed by the cuts, and don’t seem to believe they will be enough to reduce market supply on a level which will raise prices. Following OPEC’s announcement, oil plunged a whopping ~5%.

FINSUM: We are very pleased that oil traders seem to have realized that OPEC does not have enough power to curtail global production. We think oil will stay below $60 for some time to come.

Source: Wall Street Journal

How US Shale Came to Dominate OPEC

Goldman Says Momentum Investing Good in Commodities

Why OPEC’s Cuts Will Fail

Thursday, 23 March 2017 00:00

(New York)

One of the bright spots in the post-Crisis era has been the collectibles market. Everything from antique cars to high end art has surged in value since the Crisis, making collectibles one of the better returning asset classes. However, at least for the art market, that appears to have changed, as 2016 saw sales shrink 11% to their lowest point since the recession. 2016’s poor performance follows a down year in 2015 as well, when sales slipped 7%. The combined losses have now wiped out all the gains seen in 2013 and 2014. 2016 was particularly poor for auction houses.

FINSUM: Hard to say exactly what slowed the sector down as it had been doing so well. One interesting factor—the declines directly coincide with the bear market in oil.

Source: Bloomberg

Property Funds Have Stopped Investing, Bad News for Real Estate?

Solar Energy Hits a Huge Milestone

Why Clinton Would Be Better for Real Estate

Thursday, 11 May 2017 00:00

(New York)

Better trading revenues are leading to higher pay at investment banks. After years of falling revenue and post-Dodd-Frank cutbacks, traders in fixed income are once again seeing their bonuses jump. Bond traders are likely to see bonuses rise 10-15% this year, while those in underwriting are set for 10-20% jumps. M&A bankers are set to see their payouts fall, however. The bond trading business has been buoyed by rising uncertainty about the economy and politics which has led to more trading overall.

FINSUM: Pay had been falling since the immediate post-crisis rebound, so this is a big change. 2017 trading patterns could prove a reversal though, as low volatility seems unlikely to help the trading business.

Source: Bloomberg

Trump to Break Up the Banks

The US Auto Industry looks in Bad Shape

Is the US Auto Industry About to Tumble?

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