Finance

If current forecasts are accurate, 2064 will be the first year in centuries when fewer babies are born than people die. Birth rates in India will fall to below the level seen in America last year. Even with immigration and successful pro-natal policies, America’s population will only have a little bit of growth left. By 2100 there will be many fewer migrants left to attract. The world’s fertility rate will hit 1.7. Just two Pacific islands and four African countries will manage to reproduce above replacement level.Sooner or later, therefore, every big economy will collide with a demographic wall. The bill from pensions and hospitals will pile on fiscal pressure. Sapped of workers and ideas, economic growth could collapse while public debt balloons. Just how catastrophic the situation becomes depends on whether policymakers maintain budgetary discipline, withstand pressure from angry older voters and, crucially, are willing to inflict pain on populations now in order to save future generations from more later on. More

As one of the leaders of the passive-investing revolution, BlackRock is usually a disruptive force in the financial world. But the asset-management giant’s battle with Saba Capital, an activist fund, has cast it in an unfamiliar role: as besieged incumbent. Ten of BlackRock’s investment vehicles, known as closed-end funds, are in Saba’s sights.The funds—worth nearly $10bn based on current share prices—run at a steep discount to the value of the assets in their portfolios. Like publicly listed firms, closed-end funds sell shares in an initial public offering and trade on secondary markets. Since they do not offer new shares to incoming investors, as mutual and exchange-traded funds do, their share prices are able to drift far from the value of their assets. Boaz Weinstein, Saba’s founder, wants BlackRock’s funds to offer to buy back shares from investors, pointing to a history of poor returns. He argues that if investors could exit at the full value of their assets, some $1.4bn in value would be unlocked. Saba is also promoting a slate of nominees to the funds’ boards at shareholder meetings scheduled across the second half of June. These representatives will, it says, negotiate for lower fees. More

At last, it seemed time for a manufacturing take-off. Having struggled to compete with China’s industrial might, other emerging markets stood ready to benefit as their rival’s labour costs surged and rising tensions between it and the West pushed firms to look for new factory locations. Last year foreign direct investment into China fell to a 30-year low.But China has started to fight back. To reverse an economic slowdown and cement its control over global supply chains, its leaders have launched an investment spree in high-tech goods, such as batteries, electric vehicles and other green devices. Weak domestic demand for traditional products, such as cars, chemicals and steel, mean they are also flooding global markets. The average price of Chinese manufactured exports fell by nearly 10% from 2022 to 2023. China’s export volumes have surged to near-record levels. More

Three decades ago much of the housing in China’s cities belonged to state-owned enterprises, which provided homes to workers at low rents. A lot has changed since then. China is now blessed, if that is the right word, with a sprawling commercial property market, which has produced vast numbers of flats and equal amounts of drama. Since the height of the last boom in 2020, sales have dropped by more than half. To try to put a floor under the market, China’s government has turned to a new, old solution. It wants state-owned enterprises to step in to buy unsold property and turn it into affordable housing.The policy was announced on May 17th after an unusual video conference by He Lifeng, China’s economic tsar. The country’s central bank will offer cheap loans worth up to 300bn yuan ($42bn) to 21 banks, which will in turn lend to eligible enterprises owned by city governments. These firms will use the money to buy finished but unsold flats from property developers, including private-sector ones. The flats can then be either sold or rented at below-market rates to low-income buyers. More

Roundhill Investments wants to mimic the success of its Magnificent Seven ETF (MAGS) in China.
The firm’s CEO Dave Mazza plans to launch the Lucky Eight ETF, which aims to be China’s answer to the success of Wall Street’s big tech stocks.

“There’s a lot of question marks about the Chinese economy and the potential for growth of the consumer in China,” Mazza told CNBC’s “ETF Edge” on Monday. “But at the end of the day, we believe that investors are looking for exposures that give them precision, just like we found with MAGS.”
Trading under the ticker “LCKY,” the Lucky Eight ETF will include equal-weighted exposure to Tencent Holdings, Alibaba, Meituan, BYD, Xiaomi, PDD Holdings, JD.com and Baidu at launch. According to Roundhill’s SEC filing on May 17, these names were chosen due to their “market dominance in technological innovation.”
“Particularly if they’re coming out of an economic slowdown, that could be an opportunity for investors to step into China and do so in just really the names that matter,” Mazza said. 
While existing exchange-traded funds such as the KraneShares CSI China Internet ETF offer broad exposure to Chinese tech, Mazza hopes to give investors the option to focus on just a few key names in the space.
“I firmly believe in broad based diversification for big parts of a portfolio,” Mazza said. “But if you just want those names, it’s hard to get with some traditional Chinese ETFs. And this is going to do that.”

Pending SEC approval, the Lucky Eight ETF is set to launch this summer.
Disclaimer More

A dispute between a fintech startup and its banking partners has ensnared potentially millions of Americans, leaving them without access to their money for nearly two weeks, according to recent court documents.
Synapse serves as a middle man between customer-facing fintech brands and FDIC-backed banks, but it has had disagreements with several of its partners about how much in customer balances it owed.
The situation left users of several fintech services stranded with no access to their funds, according to testimonials filed this week in a California bankruptcy court.

Sarinyapinngam | Istock | Getty Images

A dispute between a fintech startup and its banking partners has ensnared potentially millions of Americans, leaving them without access to their money for nearly two weeks, according to recent court documents.
Since last year, Synapse, an Andreessen Horowitz-backed startup that serves as a middle man between customer-facing fintech brands and FDIC-backed banks, has had disagreements with several of its partners about how much in customer balances it owed.

The situation deteriorated in April after Synapse declared bankruptcy following the exodus of several key partners. On May 11, Synapse cut off access to a technology system that enabled lenders, including Evolve Bank & Trust, to process transactions and account information, according to the filings.
That has left users of several fintech services stranded with no access to their funds, according to testimonials filed this week in a California bankruptcy court.
One customer, a Maryland teacher named Chris Buckler, said in a May 21 filing that his funds at crypto app Juno were locked because of the Synapse bankruptcy.
“I am increasingly desperate and don’t know where to turn,” Buckler wrote. “I have nearly $38,000 tied up as a result of the halting of transaction processing. This money took years to save up.”

10 million ‘end users’

Until recently, Synapse, which calls itself the biggest “banking as a service” provider, helped a wide swath of the U.S. fintech universe provide services such as checking accounts and debit cards. Former partners included Mercury, Dave and Juno, well-known fintech firms that catered to segments including startups, gig workers and crypto users.

Synapse had contracts with 20 banks and 100 fintech companies, resulting in about 10 million end users, according to an April filing from founder and CEO Sankaet Pathak.
Pathak did not immediately respond to an email from CNBC seeking comment. A spokesman for Evolve Bank & Trust declined to comment, instead pointing to a statement on the bank’s website that read, in part: “Synapse’s abrupt shutdown of essential systems without notice and failure to provide necessary records needlessly jeopardized end users by hindering our ability to verify transactions, confirm end user balances, and comply with applicable law.”
It is unclear why Synapse switched the system off, and an explanation could not be found in filings.

‘We are scared’

Another customer, Joseph Dominguez of Sacramento, California, told the bankruptcy court on May 20 that he had more than $20,000 held up in his Yotta fintech account.
“We are scared that money will be lost if Synapse can not provide ledgers and documents to Evolve or Yotta to prove we are the legitimate owners,” Dominguez wrote. “We don’t know where our direct deposit has gone, we don’t know where our pending withdrawals are currently held.”
The freeze-up of customer funds exposes the vulnerabilities in the banking as a service, or BAAS, partnership model and a possible blind spot for regulatory oversight.
The BAAS model, used most notably by the pre-IPO fintech firm Chime, allows Silicon Valley-style startups to tap the abilities of small FDIC-backed banks. Together, the ecosystem helped these companies compete against the giants of American banking.

Regulators stay away

Customers mistakenly believed that because funds are ultimately held at real banks, they were as safe and available as any other FDIC-insured accounts, said Jason Mikula, a consultant and newsletter writer who has tracked this case closely.
“This is 10 million-plus people who can’t pay their mortgages, can’t buy their groceries. … This is another order of disaster,” Mikula said.
Regulators have yet to take a role in the dispute, partly because the underlying banks involved have not failed, the point at which the FDIC would usually intervene to make customers whole, Mikula added.
The FDIC and Federal Reserve did not immediately respond to CNBC’s calls seeking comment.

A warning

In pleading with the judge in this case, Martin Barash, to help the affected customers, Buckler noted in his testimonial that while he had other resources besides the locked account, others are not as lucky.
“So far the federal government is not willing to help us,” Buckler wrote. “As you heard, there are millions affected who are in far worse straits.”
Reached by phone on Wednesday, Buckler said he had one message for Americans: “I want to make people aware, yeah, your money might be safe at the bank, but it is not safe if the fintech or the processor fails,” he said. “If this is another FTX, if they were doing funny business with my money, then what?”

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FA Playbook

The S&P 500 and Nasdaq stock indexes closed at record highs on Tuesday.
There are risks ahead, though: Federal Reserve policy, a surprise recession and disappointing company earnings, one economist said.
Long-term investors should avoid the impulse to sell if the stock market falls.

Michael M. Santiago | Getty Images

The U.S. stock market has been swooning. But there are risks that threaten to put a lid on the euphoria.
The three “primary” risks are Federal Reserve policy, a surprise recession and lower-than-expected results on companies’ earnings, David Rosenberg, founder and president of economic consulting firm Rosenberg Research & Associates, said Wednesday at CNBC’s Financial Advisor Summit.

The S&P 500 and tech-heavy Nasdaq closed at record highs on Tuesday. The U.S. stock indexes are up about 11% each so far in 2024, as of about 3 p.m. ET on Wednesday.

Big threats to the stock market

Nvidia, an artificial intelligence chip maker, has played a big role in driving the stock market higher, market analysts said at the FA Summit.
The company, a “poster child for generative AI writ large,” was “singlehandedly responsible for the last leg of this bull market,” Rosenberg said. It’s up 90% in 2024 alone, as of about 3 p.m. ET on Wednesday.
Nvidia is “certainly a poster child” for stock market sentiment waxing more positive, Brandon Yarckin, COO of Universa Investments, said at the FA Summit.

More from FA Playbook:

Here’s a look at other stories impacting the financial advisor business.

Nvidia reports quarterly earnings results after the market close on Wednesday.

Disappointing results could send the stock market lower, Rosenberg said. It would be similar to what happened around the dot-com craze in 2000, when missed earnings results by Cisco ended the tech mania, he added.
Also, Fed policymakers have raised interest rates to their highest level in two decades to rein in high inflation. It’s unclear when the Fed may start to lower borrowing costs; many market forecasters expect them to do so at least once by the end of the year.

High interest rates have pushed up earnings investors can get on cash and money market funds, where they can get perhaps a 5% return, for example, Rosenberg said. Keeping rates higher for longer gives cash and money market funds an advantage relative to stocks on a risk-reward basis, he said.
Additionally, the U.S. economy has remained strong amid high borrowing costs and as inflation has fallen gradually. That has led many forecasters to predict the economy is en route to a “soft landing.”
If a recession that nobody sees coming were to occur, it would be a “big surprise” that threatens the stock market, Rosenberg said.

Surprise and uncertainty — both economic and geopolitical — are two things investors hate most, Carla Harris, senior client advisor at Morgan Stanley, said at the FA Summit.
Yet, long-term investors should resist the temptation to jump ship if and when the market teeters, experts said.
The wealthiest and most successful investors “stay in the markets longer,” said Raj Dhanda, a partner and global head of wealth management at Ares Management Corporation. More

“Participants observed that while inflation had eased over the past year, in recent months there had been a lack of further progress toward the Committee’s 2 percent objective,” the summary stated.
The minutes also showed “various participants mentioned a willingness to tighten policy further should risks to inflation materialize in a way that such an action became appropriate.”
The meeting followed a slew of readings that showed inflation was more stubborn than officials had expected to start 2024.

U.S. Federal Reserve Chair Jerome Powell holds a press conference following a two-day meeting of the Federal Open Market Committee on interest rate policy in Washington, U.S., May 1, 2024. 
Kevin Lamarque | Reuters

Federal Reserve officials grew more concerned at their most recent meeting about inflation, with members indicating that they lacked the confidence to move forward on interest rate reductions.
Minutes from the April 30-May 1 policy meeting of the Federal Open Market Committee released Wednesday indicated apprehension from policymakers about when it would be time to ease.

The meeting followed a slew of readings that showed inflation was more stubborn than officials had expected to start 2024. The Fed targets a 2% inflation rate, and all of the indicators showed price increases running well ahead of that mark.
“Participants observed that while inflation had eased over the past year, in recent months there had been a lack of further progress toward the Committee’s 2 percent objective,” the summary said. “The recent monthly data had showed significant increases in components of both goods and services price inflation.”
The minutes also showed “various participants mentioned a willingness to tighten policy further should risks to inflation materialize in a way that such an action became appropriate.” Several Fed officials, including Chair Jerome Powell and Governor Christopher Waller, have said since the meeting that they doubt the next move would be a hike.
The FOMC voted unanimously at the meeting to hold its benchmark short-term borrowing rate in a range of 5.25%-5.5%, a 23-year high where it has been since July 2023.
“Participants assessed that maintaining the current target range for the federal funds rate at this meeting was supported by intermeeting data indicating continued solid economic growth,” the minutes said.

Since then, there have been some incremental signs of progress on inflation, as the consumer price index for April showed inflation running at a 3.4% annual rate, slightly below the March level. Excluding food and energy, the core CPI came in at 3.6%, the lowest since April 2021.
However, consumer surveys indicate increasing worries. For instance, the University of Michigan consumer sentiment survey showed the one-year outlook at 3.5%, the highest since November, while overall optimism slumped. A New York Fed survey showed similar results.
Stocks held in negative territory while Treasury yields were mostly higher following the minutes release.

Upside inflation risk?

Fed officials at the meeting noted several upside risks to inflation, particularly from geopolitical events, and noted the pressure that inflation was having on consumers, particularly those on the lower end of the wage scale. Some participants said the early year increase in inflation could have come from seasonal distortions, though others argued that the “broad-based” nature of the moves means they shouldn’t be “overly discounted.”
Committee members also expressed worry that consumers were resorting to riskier forms of financing to make ends meet as inflation pressures persist.
“Many participants noted signs that the finances of low- and moderate-income households were increasingly coming under pressure, which these participants saw as a downside risk to the outlook for consumption,” the minutes said. “They pointed to increased usage of credit cards and buy-now-pay-later services, as well as increased delinquency rates for some types of consumer loans.”
Officials were largely optimistic about growth prospects though they expected some moderation this year. They also said they anticipate inflation ultimately to return to the 2% objective but grew uncertain over how long that would take, and how much impact high rates are having on the process.
Immigration was mentioned on multiple occasions as a factor both helping spur the labor market and to sustain consumption levels.

Market lowering rate-cut expectations

Public remarks from central bankers since the meeting have taken on a cautionary tone.
Fed Governor Waller on Tuesday said that while he does not expect the FOMC will have to raise rates, he warned that he will need to see “several months” of good data before voting to cut.
Last week, Chair Jerome Powell expressed sentiments that weren’t quite as hawkish in tone, though he maintained that the Fed will “need to be patient and let restrictive policy do its work” as inflation holds higher.
Markets have continued to adjust their expectations for cuts this year. Futures pricing as of Wednesday afternoon after the release of the minutes indicated about a 60% chance of the first reduction still coming in September, though the outlook for a second move in December receded to only a bit better than a 50-50 coin flip chance.
Earlier this year, markets had been pricing in at lease six quarter-percentage point cuts. More