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Obama-era rule on financial advisers to go forward, for now

The Trump administration is allowing to go forward an Obama-era rule that puts stricter requirements on professionals who advise retirement savers on their investments. But it's leaving open the possibility that deep changes to the rule will still be made.

Wall Street and Republican lawmakers have been pushing against the so-called "fiduciary" rule, which requires that financial pros who charge commissions put their clients' best interests first when advising them on retirement investments. President Donald Trump in February told the Labor Department to delay implementing the rule, due to be phased in starting June 9.

But Trump's new labor secretary, Alexander Acosta, said Tuesday the department has decided not to delay the rule while it seeks public input on how to change it.

"Respect for the rule of law leads us to the conclusion that this (June 9) date cannot be postponed," Acosta wrote in an op-ed piece in The Wall Street Journal. "Trust in Americans' ability to decide what is best for them and their families leads us to the conclusion that we should seek public comment on how to revise this rule."

Americans have about $14 trillion in retirement savings — in 401(k) retirement accounts, other defined-contribution plans such as federal employees' plans and in individual retirement accounts. Supporters of the fiduciary rule see it as key to guaranteeing the integrity of the advice they get on where to invest it. The aim of the rule, put in by the Obama administration about a year ago, was to prevent financial advisers from steering clients toward investments with higher commissions and fees that can chip away at retirement savings.

Investors would save about $4 billion annually under the rule, according to Obama administration estimates.

The financial industry, on the other hand, has argued that the rule would limit retirees' investment choices by forcing advisers to steer them to low-risk options.

Consumer advocates greeted Acosta's announcement, which appeared as a departure from a string of moves in recent months by the administration and Republican lawmakers to ease regulations.

The move was "a great victory for Americans saving for retirement," said Dennis Kelleher, the president of Better Markets, a group that advocates for stricter regulation.

Pamela Banks, senior policy counsel for Consumers Union, urged the Labor Department "to resist industry-led efforts to diminish or weaken the rule and the important protections it provides."

Experts say problems sometimes arise when people who are retiring "roll over" their employer-based 401(k) assets into IRAs. Brokers may persuade them to put those assets into variable annuities, real estate investment trusts or other investments that can be risky or otherwise not in the client's best interest.

Variable annuities can provide higher returns from the stocks or bonds they are tied to, but they are riskier than fixed annuities, which pay a set income to an investor for life.

"The rollover decision at retirement may be the most important one many investors ever make and it is often irreversible. It generally involves large sums and there have been many reports of abuse," financial analysis firm Dalbar said Tuesday. "Now that the fiduciary rule is cast in stone, common rollover practices violate regulations."

The American Council of Life Insurers, whose member companies sell annuities for retirement income, said it was disappointed by the Labor Department's decision.

The rule that will take effect next month "significantly harms consumers' ability to plan and save for financially secure retirements," ACLI President Dirk Kempthorne said in a statement. "As currently written, the regulation limits retirement savers' access to education and information about annuities, the only financial products in the marketplace that guarantee lifetime income."

Undoing the fiduciary rule was part of a promised assault by Trump on financial rules put in by President Barack Obama and Democratic lawmakers after the 2008-09 crisis and Great Recession. Trump ordered a government review of the Dodd-Frank financial oversight law, which he has called a "disaster."

Major Republican legislation to unwind the Dodd-Frank law, now pointed toward a vote by the U.S. House, would repeal the Labor Department rule. It would not be replaced until the Securities and Exchange Commission came up with a separate rule for all investments, not just retirement assets, prescribing standards for brokers and advisers — and it would have to be close to the SEC's rule. The SEC may be expected to take a friendlier approach to the financial industry than the Labor Department.

Acosta concluded his op-ed by saying the Labor Department "will roll back regulations that harm American workers and families. We will do so while respecting the principles and institutions that make America strong."



Unemployment in the U.S. Is Falling, So Why Isn’t Pay Rising?

The U.S. economy is behaving mysteriously. Usually wage growth accelerates when the job market is tight: Employers have to pay more to attract and retain workers. But even though the unemployment rate hit a decade low of 4.4 percent in April, average hourly earnings of all private non-farm workers grew just 2.5 percent over the past year—compared with an annual rate of more than 4 percent the last time the jobless rate was this low.

What has happened to the historical, and seemingly logical, link between unemployment and wages? A lot of people want to know, including the policymakers at the Federal Reserve, who’d ordinarily be raising interest rates much more than they have to prevent a wage-price inflation spiral. In the absence of a single convincing explanation, here are eight theories.

One is that the Phillips curve is effectively dead. In textbooks, wage growth is on the vertical axis and unemployment on the horizontal: The curve goes smoothly down to the right as unemployment rises and wage growth falls. In reality, the correlation has been so inconsistent in recent years that a Phillips curve graph looks more like a Jackson Pollock drip painting or the footprints of a staggering drunk. Steve Forbes, the editor-in-chief of Forbesand former Republican presidential candidate, calls the curve “a quack theorem.”

Economists aren’t as quick as Forbes to reject the Phillips curve; it just makes intuitive sense that a tight labor market such as this will eventually push up wages. So some fall back on the explanation that workers’ bargaining power has weakened. The decline of unions is a crucial factor, says Peter Temin, a retired MIT economics professor and author of a new book, The Vanishing Middle Class: Prejudice and Power in a Dual Economy. The Bureau of Labor Statistics says fewer than 11 percent of wage and salary workers were union members last year, down from 20 percent in 1983. Globalization has also weakened the leverage of American workers, says Jonas Prising, chairman of Manpower Group, by allowing companies to shift production where wages are cheaper. “Whether you know it or not, you are competing on a global scale,” Prising says.

It could be that workers are content with what they’re earning. Employees will be more willing to settle for small raises if they’re confident inflation will remain low, as it has since the recession of 2007-09. The tortoise-like pace of wage hikes has beaten the snail-like pace of consumer prices by almost 5 percentage points since unemployment peaked at 10 percent in 2009.

Alternatively, maybe companies are making do with the workers they have—retraining employees rather than paying top dollar for new recruits and raising pay only for the particular jobs where they need to attract talent. “We have very robust development programs to make sure that we got the right labor at the right time and the right place,” Todd Teske, chief executive officer of Briggs & Stratton Corp., which makes lawnmowers and other products, told analysts in an April earnings call.

Then again, maybe the workers simply aren’t worth more money. Output per hour of work has shrunk in four of the past six quarters, according to the BLS. If workers’ productivity is weak, companies may be resisting their wage demands to protect their profit margins, says Daniel Silver, an economist at JPMorgan Chase & Co. Weak productivity growth isn’t entirely workers’ fault: Companies have chosen to stash profits offshore or return them to shareholders rather than invest in the modern equipment and software that would enable their employees to do their jobs efficiently.

Some economists explain the Phillips curve anomaly by saying there’s more slack in the labor market—and therefore less leverage for workers—than the 4.4 percent unemployment rate indicates. Only 78.6 percent of people age 25-54 are employed, down from 80 percent before the last recession. If workers demanded big wage hikes, employers could try to pull people off the sidelines into the workforce. “The unemployment rate is not measuring the tightness of the labor market in the same way it used to,” says James Diffley, chief regional economist for IHS Markit Ltd., which collaborates with payroll services company Paychex Inc. on an index of small-business jobs.

Other economists argue the real problem is that wage growth is being undermeasured. Neil Dutta, head of economics for Renaissance Macro Research, wrote in a May 15 note to clients that the oft-quoted average hourly earnings gauge devised by the BLS may not accurately capture what’s happening in the labor market. It’s true that average hourly earnings growth didn’t accelerate from the first quarter of 2016 to the first quarter of 2017, but other wage indicators from the BLS did, in some cases dramatically. Hourly compensation, which includes benefits along with wages and salaries, grew 3.9 percent in the 12 months through this year’s first quarter, up from 2.4 percent a year earlier. The wages and salaries measure in the Employment Cost Index rose 2.6 percent, up from 2 percent a year before. “Taking an average of all measures points to underlying wage growth of about 3.0 percent,” Dutta wrote. Consider construction: Desperate for skilled help, builders are showering workers with pay hikes and even signing bonuses, says Joseph Natarelli, a partner and head of the construction practice at Marcum LLC, an accounting and advisory firm. Yet according to the BLS, average hourly earnings in construction rose just 2.1 percent in the year through April. Says Natarelli: “I don’t know where that data is coming from.”

Last but not least is the theory that bigger wage increases will begin to appear soon—the forces of supply and demand can’t be denied. Last year, Federal Reserve Board Principal Economist Jeremy Nalewaik released a paper called Non-Linear Phillips Curves With Inflation Regime-Switching. The thrust was that the famous curve has a sharp bend: There’s a wide range of unemployment rates where wage growth is unaffected, but below a certain threshold, wages begin to rise rapidly. “It would be unwise to assume the Phillips curve remains so flat at all levels of the unemployment rate,” Nalewaik wrote.

Some members of the Federal Open Market Committee (FOMC), the rate-setting arm of the Federal Reserve System, seem to be swinging in Nalewaik’s direction. Eric Rosengren, president of the Federal Reserve Bank of Boston, who was once a dove on monetary policy—favoring low interest rates—has become a hawk. In a May 10 speech in Vermont, he argued that the jobless rate is on the way to “overshooting”—becoming too low for comfort. He urged three quarter-point hikes in the federal funds rate over the rest of the year, vs. the median projection of two hikes among FOMC voters. Many economists simply don’t believe wage growth will remain modest with unemployment headed toward 4 percent or lower. Says JPMorgan’s Silver: “The logic behind the Phillips curve just makes sense.”

The bottom line: Globalization and low inflation may be among the reasons U.S. workers haven’t realized bigger wage gains.



How the Trump administration is affecting the multibillion-dollar marijuana industry

The pot industry is one of the fastest growing in the country — projected sales this year are in the billions. But with a new administration at the helm in Washington, D.C., one that is potentially less friendly to legalization, marijuana entrepreneurs and investors alike are dealing with uncertain times. 

Startups, analysts and investors convened this week at Marijuana Business Daily's Conference and Expo right outside the nation's capital in Oxon Hill, Maryland. The topic on everyone's minds: what the marijuana industry looks like under a Trump presidency, as Attorney General Jeff Sessions and Press Secretary Sean Spicer have signaled the potential for stricter enforcement at the federal level, where marijuana is technically illegal. The Department of Justice did not immediately respond to request for comment.

"I am concerned about what I am hearing, but we've been through several administrations at this point, and this is a matter of states' rights," says Christie Lunsford, COO of Pro MAX Grow, which sells LED horticultural lighting for licensed marijuana growers and is based in Tappan, N.Y.

"I think the impact we will see coming out of Washington, D.C., is fewer investors coming into the space ... fewer people launching businesses direct to the plant — cultivation, dispensing and manufacturing. That's where you're going to see people not wanting to enter the cannabis space," she says.

To date, the growth within the industry is undeniable, with marijuana legalized for recreational use in eight states and Washington, D.C., and for medicinal use in 30 states and Washington, D.C., per Marijuana Business Daily.

Projections vary among industry analysts, but the numbers are substantial. Marijuana Business Daily predicts retail sales will hit $6.1 billion for 2017 and the industry could have a maximum economic impact of some $68.4 billion by 2021; GreenWave Advisors predicts $7.7 billion for 2017 and $30 billion by 2021 if recreational and medicinal cannabis is legalized nationwide.

Capital has also flooded into the space — nearly $1 billion from 2012 through 2016, according to GreenWave Advisors, citing data from Pitchbook. What's more, Marijuana Business Daily finds that investors report plans to increase the size of their investments this year. The average investor or firm involved in the industry has put around $450,000 in cannabis companies to date, with each investment coming in around $100,000. But this year, they plan to invest around $500,000 on average in marijuana businesses.

"The Trump Administration has not yet changed our strategy, because there's been a lot of rhetoric but not a lot of action," says Patrick Rea, CEO and co-founder of Boulder, Colorado-based Canopy Accelerator, an investment fund for early stage cannabis companies. It has invested over $6.5 million since early 2015 in more than 64 companies.

"A lot of investors are becoming more aware that they have an impact on what the administration might decide or not decide to do based on how they present themselves as a business-friendly environment, creating jobs and having positive effects on society," Rea says.

Investors, like Emily Paxhia, are also closely watching developments out of Washington as they strike new deals. Paxhia is managing director at San Francisco-based Poseidon Asset Management, which has a fund dedicated entirely to investing in the cannabis space. Since January 2014, the fund has invested nearly $20 million into 30 cannabis companies.

"We take everything that is happening from the top down in the regulatory environment very seriously," says Paxhia. "We are not sure what the administration is going to do…. It makes us really think carefully about the types of investments we are placing and whether or not it stays in the United States or moves abroad."

But for some cannabis entrepreneurs, Washington, D.C. isn't on the radar as a potential problem. Ryan Wileman, founder of San Diego-based Abscent, which sells odor-absorbing bags marketed toward the cannabis industry, isn't worried.

"Before the new administration I was selling a lot of bags, and now that they're in, I am still selling a lot of bags," Wileman says. "I think that no matter what, people have a need to keep that smell discreet."



Wake up! Amazon, Google, Apple and Facebook are running our lives

Let’s say you woke up this morning and after stopping your alarm clock, asked it to play some get-up-and-go music. You go to make breakfast and see that you’re out of coffee, but it doesn’t matter, because a delivery is on its way. On your commute, you catch up with friends from back home. You turn to news across the Atlantic, read an interesting article on Trump. You go to a new spot for lunch and pay using your phone – and also for the train, and then for the last stretch, a cab. Once home, dinner is by app, and you settle down to watch the latest TV show, except, it’s not actually shown on a TV.

It’s possible that this entire day is delineated by a handful of technology companies. Google Home wakes you up in the morning and later, Google recommends a lunch spot – it even gives you live information on how busy it is. It is partly responsible for your cab home, as Google is an investor in Uber. You checked in with friends on Facebook on that morning commute (you might have also used the Facebook “check-in” feature at your lunch spot).

The Trump piece you read is courtesy of the Washington Post, owned by Jeff Bezos, the man behind Amazon. Amazon can replenish your coffee with the touch of a button, and will automatically recognise when you’ve run out of detergent. And the TV show you watch? Even if you are watching Netflix and not Amazon Prime, Netflix would not exist without Amazon, as Amazon owns the web cloud services its rival uses. With an 18% share of the smartphone market, it’s likely the apps you use are running on an iPhone. No? Well, maybe you have an Android device – owned by Google.

Cabal is not too strong a word. Take Amazon. It’s unfathomable, when you think about it. The idea of selling books online morphing into something that wants to get in your home and even the bottom drawer of your freezer, and – as we learned this week – live music events. You might think that tech companies are taking over the globe – until you realise that Google, or rather Google’s parent company Alphabet, has invested in a space exploratory arm, Space X. So not just the globe. (Facebook has also dipped its toes into space, while Amazon looks set to join it.) Google’s latest mission, in fact, is taking on death itself. Why not?

Thing is, none of this might bother you. Why should it? All of these companies improve our lives, right? I’d go as far as to say Google has made me a smarter person. It’s perhaps made me a more intolerant person, because I believe there are very few gaps in knowledge that can’t be filled by an online search, and most of us, in developed countries at least, carry that ability in our pockets. It’s why I love the Let Me Google That For You website – in which askers of easily answerable questions are sent an automatic link that enters the question into Google, to shame their indolence.

It could be argued that tech has made us lazier, but I’d counter that it has only made us lazier in whichever area we tended to be lazy in already. I’m a bad cook, so apps such as Uber Eats or Deliveroo, on my Apple phone, have perhaps made me lazier, but if I was a better cook I might not use them. (And the tech, if I wasn’t as lazy, could help me get better at cooking.) But I’m not going to stop drawing by hand, something I enjoy, just because there’s an app I can do that on. It’s undeniable that tech has changed our lives fundamentally, but in often very good ways.

The problem is, a small group of companies ruling the world, just as with people, is not a good thing. This is why antitrust laws exist. It’s why Rupert Murdoch has suddenly started to clean up Fox and News UK, because he wants his BSkyB bid to go ahead, despite considerable concerns of a monopoly.

Recently there’s been speculation that Mark Zuckerberg might run for US office. I am not being hyperbolic when I say that it’s possible he would have less power if he was president than he does now. Facebook has 1.28 billion daily active users. Most individuals now get their news via the platform and, as was emphasised in the election of Donald Trump, this is problematic when there’s a lack of editorial control. Zuck at first tried to play down Facebook’s “fake news” influence, which was difficult when simultaneously boasting about his company’s influence on voter turnout and engagement. 

And I’ll tell you something; there’s nothing more incensing than a dude bashing out a 5,000-word manifesto on how he wants to change the world having based some of his operations in offshore locations so he can avoid paying corporate taxes. Likewise, it is disingenuous at best and dictatorial at worst to say you want to help extend India’s internet access and then make Facebook one of few available websites.

And if you want to opt out? Well, it isn’t always that easy. Some of these companies make it difficult to cut ties entirely, hence concerns around data retention and individual rights. But the other point is that unilateral opting out might mean you end up living a somewhat ascetic life. 

I quit Facebook in 2013, and as a direct result of this, I have fallen out of touch with many friends. People have had babies, people have got married and divorced and other people have died and I have been absolutely none the wiser, because I don’t keep up with Facebook. Sure, that’s my own fault, but I was tired of the banalities of the medium and the time it was taking up in my life, and the concern that Facebook was following me everywhere, like the eyes of an Old Master painting.

It is time now for two things: for people to wake up and realise how much our lives are dominated by such a small number of Silicon Valley bros, one hand in their jean pocket announcing their next move, and for tech companies to acknowledge their power and influence and become truly accountable. To pay their goddamn taxes. To actually do something about online abuse. To not take the piss out of consumers by releasing a $700 product and then tweaking it months later for greater profit. I don’t want to worry that the curating of Apple News is quasi-Pravda. Or that companies are making money from extremist content. And I understand that in so many “free” services we pay a different way, by becoming a product ourselves, and giving up some of of our privacy. That’s a trade that many of us are willing to make and will keep making, but up to a point. Up to a point.



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