The problem with the fiduciary rule: it doesn’t go far enough–yet

Talk is cheap.  But anyone that is serious about actually remedying conditions adversely effecting working people and families today, will insist on a fiduciary standard from financial ‘advisors’. No exceptions or excuses.

The incoming fiduciary rule standard (presently being questioned, yet again, under Trump), is solely with regard to retirement accounts.  This is a start, but not far enough, as it does not cover non-registered investment savings accounts. Imagine how ludicrous where an adviser can say to clients:   “I have to put your best interests first on the registered accounts, but not on your other accounts, now here is what I recommend with your money.”

Even so, the financial business and Trump’s cabinet (many of whom hail from the financial sales business), are insisting that it is not possible to put the clients’ best interests first. That’s like “putting only healthy food on the menu” says ex-Goldman chief Gary Cohn, now Trump’s chief economic advisor (yes, believe it…a direct quote).

When you cut through the BS, the argument is that we have to allow financial advisors to abuse trust and put their own best interests ahead of the clients, or else the financial business (one of the most profitable in the world) will not make as much money.  The arguments are circular, mad, self-serving and indefensible.  For a good discussion see:  The fiduciary rule’s real shortcoming, that Trump should fix

Let’s tackle this by invoking Charles Munger’s idea — invert the fiduciary rule to see what would happen. This would mean brokers could take undisclosed kickbacks to push certain products, and place their interests ahead of their customers — recommending mutual funds and other products that earned them the highest fees, rather than served the interests of clients…

President Trump’s has asked for 180-day review of the Department of Labor’s fiduciary rule. It is, of course, reasonable to assume that this is the prelude to the new administration’s effort to kill the regulation.

If there is an actual shortcoming to the rule, it is this: The fiduciary rule shouldn’t apply just to retirement accounts; it should apply to all investment accounts, no matter the size and type. It’s probably doubtful that Trump’s review will come to this conclusion.

Yet this is what the SEC staff who reviewed this issue recommended in 2011.

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About that Trump business genius

There is yet another important reminder to public market investors in the Trump business history: the stock and corporate bond market exist to cash out founders by distributing shares and debt to the public. Those who receive the cash win big, those left holding the securities often end up losing.  With all the hype and hope it is easy to forget this, but we do so at our financial peril.  If we are going to play this game, then avoiding when prices are high and buying only after they have plunged is key to survive and thrive.  See: Donald Trump was a stock market disaster:

It is already well-known that Trump’s businesses have passed through Chapter 11 four times over the past 25 years. Creditors have lost billions along the way. But as most of this has involved complex debt arrangements between Trump, his various business entities and dozens of banks, the details can easily get lost in the shuffle. Trump himself says he has merely been “smart” to use the corporate laws — including the bankruptcy code — to his advantage.

But the stock market is a little different. The losses are very public and very easy to follow — and the losers are ordinary investors who bought the stock directly or through mutual funds. Even worse, many of those investors are voters, too.

All in all, it’s a lucky thing for Trump that the public is so easily distracted … and have such short memories.

Also see this direct video link.

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“Spicy” returns on SNL

A little levity is needed. Well done.

Melissa McCarthy returned to “SNL” with her explosive impression of President Trump’s press secretary Sean Spicer.
Here is a direct video link.

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Why we have separation of powers

It seems many people today are unaware of history or why separation of powers is so critical to a democratic society. This little video offers a refresher.

Political power is divided in a democracy in order to prevent abuse of power by a single person or party. That is the so-called “separation of powers.” In case you ever wondered what the meanings of executive (government and public administration) legislative (law) and judicial (court rulings) are, we will clarify you on this!  Here is a direct video link.

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Commercial mortgage backed securities heading south

As I have mentioned several times over the past year (see:‘Genius’ fails again and Commercial realty loan defaults booming, for just a couple), the retail sector is dramatically over built and mean reverting in North America.  As stores close, mall operators are facing a domino effect of falling rents and bankrupt tenants which leads to rising defaults on property mortgages.  This is bad news for the investors who have funneled yield-desperate capital into commercial mortgage backed securities the past few years.

This next “Big Short” has many of the same old characters, products and behaviors as the residential mortgage bust did in 2007-08.  That ought to have served as a warning for people, but apparently not. It seems Michael Lewis will need to write a sequel.  See, Deutsche Bank says next ‘Big Short’ is on CMBS as malls suffer:

Analysts at Deutsche Bank AG, one of the biggest underwriters of bonds tied to U.S. commercial mortgages, say now it’s time to bet against the securities.

The bonds are vulnerable because they are supported in part by leases from retailers, a lagging part of the economy, wrote Ed Reardon and Simon Mui in a note this week. A combination of bankruptcies and closures could lead to faster-than-expected mortgage defaults for stores and malls, as long-term pressure from internet competitors wears many companies down, the analysts wrote.

“Big mall loans have outsize losses for investors,” said Morningstar analyst Edward Dittmer. “We expect the stores like Sears, Macy’s and Penney to close more stores later this year and next year, and as they close, there will be knock-on effects that lead to other mall tenants leaving. This can start the cycle of blight.”

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“It’s the economy dummy!”

David Stockman suggests President Trump might best spend some time actually addressing economic issues instead of the administration’s travel ban for immigrants from Middle Eastern countries, which Stockman called “a giant misfire:”

“Trump was elected because flyover America is hurting economically. The voters of Wisconsin and Pennsylvania are imperiled not because of some refugees, they’re imperiled because their jobs have all been disappearing for decades. The problem is far more the Federal Reserve, Janet Yellen, the bubbles they’re creating on Wall Street…
Here is a direct video link.

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