"Kee" Points with Jim Kee, Ph.D.

Stocks, both US and International, had a pretty good positive bounce last week. Crude oil remained above $40 per barrel, and some of that equity strength probably reflected confidence that an agreement by OPEC nations to restrict output would be reached at meetings in Doha, Quatar this weekend. That did not happen - the negotiations ended without agreement - so there will probably more volatility in stocks over the coming months because of oil price uncertainty. Russia and Saudi Arabia, OPEC’s two largest producers (number 2 and 3 in the world behind the United States), seemed most interested in reaching an output restriction agreement, but the Saudis were adamant that other nations, particularly Iran, had to follow suit. It is quite clear that the Saudis will not cede market share to other members as has occurred in prior decades. So no Doha agreement was reached, a negative for oil producers but a positive for net consumers of oil - which is all of the developed world.


Another event that needed to occur (in my opinion) for stocks to move higher was signs of stabilization in the data from China, and that does in fact appear to be the case. China’s first quarter GDP growth came in at 6.7%, and there have been signs of accretion in retail sales and industrial production in China (IBD). Of course, there are also concerns over a credit-fueled real estate bubble in China, and the fact that the banks and state-owned enterprises (SOE) have a “zombie element” to them, meaning they are surviving more by state fiat than market realities. It would take a year’s worth of Kee Points to properly outline all of the difficulties that China faces, but the key for this year has been the expected policy responses from Chinese authorities - which appear to be forthcoming.


All in all, global leaders (Group of 20 or G20 finance chiefs) expressed less concern regarding global growth in March than they did in February, arguing that growth remains “modest and uneven” (Barron’s). Key risks remain including terrorism, geopolitical conflicts, refugee flows and the potential U.K. exit from the European Union.


The other big piece of news last week was the Department of Labor’s (DOL) new “Fiduciary Rule” which intends to raise the standard for investment advice to retirement savers by requiring all who give advice to adhere to a “fiduciary standard” rather than just a “suitability standard.” A “fiduciary standard” means that the entity providing the investment advice must put their clients' best interest before their own interests. STMM, as Registered Investment Advisor (RIA), has always adhered to a fiduciary standard. The regulation primarily affects financial services companies like brokers and insurance companies who tend to give investment advice while selling investment products like life insurance and annuities at the same time. The following quote from Investor’s Business Daily sums it up nicely:


“Investors may assume that a suitable product fits their retirement needs, but they may not realize how their broker, insurance company or financial services provider earns fees and commission - and how those earnings affect the provider’s advice.”


The fiduciary standard mandate is designed to increase transparency regarding this rather obvious conflict of interest.