Commentary

Fisher Investments Editorial Staff
Reality Check, Into Perspective

The Joy of All-Time Highs

By, 08/22/2014
Ratings534.226415

Acrophobia abounds. Rejoice in it.

The S&P 500 hit its 112th and 113th new all-time closing high of this bull market Wednesday and Thursday.[i] Cue the acrophobia[ii] and claims you’d be certifiable to buy stocks at these supposedly lofty levels. But there is nothing about an all-time high that says stocks can’t get much, much loftier before a bear market begins. And perversely, that new all-time highs are greeted mostly by concerns—not celebration—is a sign these highs aren’t the bull market’s peak.

In a development that strikes us as pretty much the norm for the preceding 111, there was no shortage of fearful warnings that this all-time high—THIS!—signals the end is nigh. They point to Ukraine. Gaza. Iraq. The Fed and a supposedly more hawkish tone in meeting minutes released Wednesday—the Fed could hike rates sooner than the unknowable date pundits speculated was likely! Or certain investor sentiment surveys that allude to bullishness bubbling up, a contrarian warning sign, in their view. It’s that eurozone’s troubles are supposedly back, in the form of a deflationary depression. The US is still not growing at a lightning fast pace. Or it’s Japan’s falling GDP. Oddly, one of the most-read articles on a major financial news website rehashed fears from basically 2009, that the withdrawal of stimulus (monetary and/or fiscal) would yank the one supporting pillar from underneath the bull. Others presume the trouble is a distorted measure of valuations (the cyclically adjusted price-to-earnings ratio, or CAPE) has reached a level it last saw in July 2004, smack in the middle of the last bull market.

Commentary

Fisher Investments Editorial Staff
MarketMinder Minute

MarketMinder Minute - Do Retirees Need to be Conservative?

By, 08/21/2014
Ratings94.777778

MarketMinder's Editorial Staff debunks the common investor myth that retirees must be conservative.

Commentary

Fisher Investments Editorial Staff
Reality Check

Statista: The Countries Hit Hardest By Russia’s Trade Ban

By, 08/21/2014
Ratings303.633333

In our daily perusal of websites we came across this bar graph from Statista and thought we’d share. The point here is relatively simple: Russia’s feeble ban on certain food imports totals $6.8 billion. It won’t be pretty for Norwegian fisheries, but the macroeconomic or stock market fallout of such a tiny ban is unlikely to amount to much more than a blip.

Source: http://www.statista.com/chart/2572/sanctioned-food-exports-to-russia/

Commentary

Fisher Investments Editorial Staff
Investor Sentiment

Oddly Calculated, Bizarrely Inflation-Adjusted Thing Says Stocks Are Overvalued

By, 08/21/2014
Ratings403.975

If you as much as skim financial news headlines these days, you’ve likely read the following: Stocks are overpriced. With many indexes bouncing back near new all-time highs (again!), the media has returned to bang the drum that investors are too rosy, setting up a fall. As evidence, many point to the cyclically adjusted price-to-earnings ratio (CAPE) being above its historical average as a sign a downturn looms. They aren’t alone. One of the CAPE’s inventors[i]—Nobel Prize-winning economist Robert Shiller—recently shared a similar sentiment in a widely read New York Times op-ed. In our view, though, there is ample evidence CAPE isn’t any more predictive today than it has been historically, and the chatter around it is a better sign investors aren’t euphoric than one they are.

CAPE compares stock prices with the past 10 years of inflation-adjusted earnings. Because corporate earnings fluctuate throughout business cycles, the creators wanted to make sure these gyrations didn’t skew the ratio, like when earnings growth is slower at the top of expansion or faster after cost-cutting coming out of a recession. Now, as we’ve written, valuations are not the be-all, end-all indicator of future market direction many presume. In our view, this is even more true of CAPE. Yet it’s still a media darling, and it has been all over the financial press all week—with many warning CAPE is not only above its average, but at levels similar to those seen in 1929, 1999 and 2007—ahead of three widely known bear markets.

But it is a bit bizarre to us to evaluate the future direction of forward-looking stocks using information a decade old.[ii] Especially bizarre since CAPE was never intended to be a cyclical forecasting tool, as its creator notes in his op-ed. It is an attempt to do the impossible: Forecast 10-year returns.[iii] But many try to twist it into a market timing tool—perhaps because CAPE was lauded for registering investors’ “irrational exuberance” in 1999. Never mind that the phrase was first trotted out in December 1996, three-plus years and 115.6% of S&P 500 Return before the actual market peak, figures that don’t seem like rounding errors or even in the ballpark to us.[iv] So that this same indicator is supposedly “hovering at a worrisome level” once again doesn’t mean you should cue up the ominous music. It also doesn’t mean three big years of solid stock returns necessarily await. It is just an oddly calculated, bizarrely inflation-adjusted thing.

Commentary

Fisher Investments Editorial Staff

Still Off Target

By, 08/20/2014
Ratings74.357143

Even the arrows that hit the blue circles are closer to the target than target-dated funds. Photo by Paul Gilham/Getty Images.

Recently, some of the biggest target-date fund (TDF) providers revealed they were changing their funds’ asset allocation, increasing both their stake in equities and staying in stocks for a longer time period. But before you high-five them for finally acknowledging the time value of money, we have to break some bad news: The move has nothing to do with raising compound growth potential to position folks better for retirement. Nope, it is simply because the firms’ “research” says folks’ risk tolerance has improved, justifying a bump in equity allocation. Which is sort of a weird, misperceived reason for a product designed to be disciplined to make a change. It also underscores why, in our view, folks investing for retirement can do better: If a product alters its strategy based on a common investor behavioral mistake[i], it probably isn’t a great fit for your long-term goals.  

Commentary

Fisher Investments Editorial Staff
Into Perspective

Banks Fail Vague Test, Blame Vagary

By, 08/19/2014
Ratings244.291667

No word on whether banks’ living wills use such fancy script. Photo by Getty Images.

Here is a rough approximation of how the dialogue between banks and regulators has gone since the Fed and FDIC gave 11 big banks an F on their living wills: “You’re vague.” “No, you’re vague.” “Well you’re not transparent!.” “No you’re not transparent!” “Yah, well, you’re the vaguest and we make the rules—no lender of last resort for you! So there!” At least, that’s how we interpret the latest rumblings from the ever-reliable unnamed sources “familiar with the process,” who said banks shouldn’t include the Fed’s discount window in their list of things they can use to make their potential failure potentially more orderly during a potential crisis in the potential future. Now, if the Fed really does close the discount window during the next crisis, it could be really bad, and we’ll get to that shortly. But for now, the news simply underscores what an opaque exercise these living wills are—and why investors shouldn’t put much stock in them.

Commentary

Fisher Investments Editorial Staff
GDP, Across the Atlantic, Into Perspective

The Eurozone’s Not-So-Flashy ‘Flash’ GDP

By, 08/18/2014
Ratings174.147059

This is a big euro symbol.[i] Photo by Getty Images/Bloomberg.

Thursday, the eurozone released its preliminary or “flash” Q2 GDP reading, with the aggregate data showing no contraction in the quarter. But the aggregate also showed no growth, and this was the media’s central focus. These ”flash” releases aren’t exactly chock full of details one might want to perform a meaningful analysis of what drove the slowdown, but they give some high level numbers. And many in the punditry don’t need much more than that to jump to conclusions. In this case, they jumped to fear for Q3 due to increased sanctions on Russia and the still-tense situation in Ukraine. Others fear renewed recession generally and the potential for a lost decade a la Japan—calling for big ECB actions to head off a protracted slump. But these data don’t show much of an impact from the Ukraine situation on the eurozone economy. And the evidence a long-term slump looms in the eurozone is flimsy. In our view, this is mostly an example of the slow eurozone recovery overall and not something new and terrible for investors to be concerned about.

Commentary

Elisabeth Dellinger
Into Perspective, Taxes, Reality Check

Can Korea Tax Its Way to Business Investment?

By, 08/18/2014

Korean President Park Geun-hye is on a quest to goad big firms into spending more. Photo by Getty Images.

Here’s a popular refrain on both sides of the Atlantic: When will corporations stop hoarding cash, start investing, raise wages and make our economies grow faster? US and UK firms have nearly $3 trillion in cash and other liquid assets, and many folks are convinced that if they just started spending this mountain of idle money, we’d all be way better off. On the other side of the world, the IMF is yelling at Japanese firms to “unstash Japan’s corporate cash.” A similar chorus has rung through Korea for years, and earlier this month, officials announced plans to do something about it (uh-oh): a tax on the biggest firms’ cash balances. While they get points for realizing that if you tax something you get less of it, I can’t see how this is anything other than a big fat headwind for firms—and it’s highly unlikely they splish-splash more cash through Korea’s economy.

Commentary

Fisher Investments Editorial Staff

Crooks' Common Threads: Three Red Flags to Watch Out For

By, 08/15/2014
Ratings1794.01676

A crooked Minnesota adviser bought a getaway car not unlike this one with part of the $10 million he bilked from friends’ portfolios. Source: Bloomberg/Getty Images.

These days, it seems headlines are full of one investment scam after the next. Weren’t these supposed to die down after the Bernie Madoff scandal made the world hyper-aware of financial fraud? We sure hoped so. Yet, sadly, investors are still getting duped six years later. Perhaps the saddest part of all is protecting yourself against criminals and charlatans is fairly simple if you know what to look for. If you’re familiar with three basic signs of fraud, you can easily avoid being a victim.

Commentary

Fisher Investments Editorial Staff

Into the Abenomics Abyss?

By, 08/14/2014
Ratings424.464286

We’ll give you the bad news first: Japan’s Q2 GDP, released Wednesday, was terrible. It confirmed what most folks pretty much already knew: Japan’s economy took a huge hit from April’s sales tax hike. Now for the good news: For investors, it doesn’t much matter—GDP is backward-looking, and a drop was expected (and Japan’s woes don’t prevent global growth). But in a somewhat concerning inversion of recent sentiment, investors aren’t worried. They’re sure economic sunshine, rainbows and unicorns are in Japan’s future. Which, to the discerning long-term investor, is a wee bit telling. Stocks move most on the gap between reality and expectations, and in our view, investors’ optimism on Japan doesn’t square with the likely reality. That’s a strong indicator the best investing opportunities remain outside the land of the rising sun.

Here are the facts: Japan’s GDP fell -6.8% q/q annualized in Q2—effectively wiping out all of Q1’s +6.1%, which was boosted by consumers pulling major purchases forward before the tax hike. In short, the hike wasn’t a zero-sum event. Predictably, results were lousy across the board—consumer spending (-18.7% q/q annualized), housing investments (-35%) and private business capital expenditures (-9.7%) all nosedived. The only thing that worked in Japan’s favor was math—and that’s no compliment. Imports detract from GDP, so their -20.5% drop actually boosted the headline number, even though cratering imports means cratering demand. Inventories, which add to GDP, rose sharply. But all this shows is goods piling up on shelves. Again, dismal demand. Not surprising, but still.

We’ve seen this movie before: Q2 1997, when GDP tanked as consumer spending dropped -3.5% after Japan raised its VAT from 3% to 5%. That was the Japanese government’s baseline for forecasting the impact of the tax hike—and they undershot. Which makes us a bit skeptical of their current forecast—namely, their belief Japan will bounce relatively quickly. And it’s not just the government. Headlines and investors broadly are still rather optimistic. Most of them for one reason in particular: Abenomics! (That’s the three-pronged economic revitalization strategy championed by Prime Minister Shinzo Abe, for those of you who have better things to do than follow this saga.) One plank of Abenomics is quantitative easing (QE), similar to the US and UK, and investors are convinced this will prevent a repeat of the 1997 recession. And if things look dicey? The BOJ will just QE some more! (Yes, we just made that a verb.) Never mind the similar tax hikes already scheduled. The BOJ has already set expectations for more asset purchases if necessary, making investors believe they needn’t fret further economic weakness. But in our view, this is a tad hasty.

Commentary

Fisher Investments Editorial Staff
Into Perspective

Banks Fail Vague Test, Blame Vagary

By, 08/19/2014
Ratings244.291667

No word on whether banks’ living wills use such fancy script. Photo by Getty Images.

Here is a rough approximation of how the dialogue between banks and regulators has gone since the Fed and FDIC gave 11 big banks an F on their living wills: “You’re vague.” “No, you’re vague.” “Well you’re not transparent!.” “No you’re not transparent!” “Yah, well, you’re the vaguest and we make the rules—no lender of last resort for you! So there!” At least, that’s how we interpret the latest rumblings from the ever-reliable unnamed sources “familiar with the process,” who said banks shouldn’t include the Fed’s discount window in their list of things they can use to make their potential failure potentially more orderly during a potential crisis in the potential future. Now, if the Fed really does close the discount window during the next crisis, it could be really bad, and we’ll get to that shortly. But for now, the news simply underscores what an opaque exercise these living wills are—and why investors shouldn’t put much stock in them.

Commentary

Fisher Investments Editorial Staff
GDP, Across the Atlantic, Into Perspective

The Eurozone’s Not-So-Flashy ‘Flash’ GDP

By, 08/18/2014
Ratings174.147059

This is a big euro symbol.[i] Photo by Getty Images/Bloomberg.

Thursday, the eurozone released its preliminary or “flash” Q2 GDP reading, with the aggregate data showing no contraction in the quarter. But the aggregate also showed no growth, and this was the media’s central focus. These ”flash” releases aren’t exactly chock full of details one might want to perform a meaningful analysis of what drove the slowdown, but they give some high level numbers. And many in the punditry don’t need much more than that to jump to conclusions. In this case, they jumped to fear for Q3 due to increased sanctions on Russia and the still-tense situation in Ukraine. Others fear renewed recession generally and the potential for a lost decade a la Japan—calling for big ECB actions to head off a protracted slump. But these data don’t show much of an impact from the Ukraine situation on the eurozone economy. And the evidence a long-term slump looms in the eurozone is flimsy. In our view, this is mostly an example of the slow eurozone recovery overall and not something new and terrible for investors to be concerned about.

Commentary

Elisabeth Dellinger
Into Perspective, Taxes, Reality Check

Can Korea Tax Its Way to Business Investment?

By, 08/18/2014

Korean President Park Geun-hye is on a quest to goad big firms into spending more. Photo by Getty Images.

Here’s a popular refrain on both sides of the Atlantic: When will corporations stop hoarding cash, start investing, raise wages and make our economies grow faster? US and UK firms have nearly $3 trillion in cash and other liquid assets, and many folks are convinced that if they just started spending this mountain of idle money, we’d all be way better off. On the other side of the world, the IMF is yelling at Japanese firms to “unstash Japan’s corporate cash.” A similar chorus has rung through Korea for years, and earlier this month, officials announced plans to do something about it (uh-oh): a tax on the biggest firms’ cash balances. While they get points for realizing that if you tax something you get less of it, I can’t see how this is anything other than a big fat headwind for firms—and it’s highly unlikely they splish-splash more cash through Korea’s economy.

Commentary

Fisher Investments Editorial Staff

Crooks' Common Threads: Three Red Flags to Watch Out For

By, 08/15/2014
Ratings1794.01676

A crooked Minnesota adviser bought a getaway car not unlike this one with part of the $10 million he bilked from friends’ portfolios. Source: Bloomberg/Getty Images.

These days, it seems headlines are full of one investment scam after the next. Weren’t these supposed to die down after the Bernie Madoff scandal made the world hyper-aware of financial fraud? We sure hoped so. Yet, sadly, investors are still getting duped six years later. Perhaps the saddest part of all is protecting yourself against criminals and charlatans is fairly simple if you know what to look for. If you’re familiar with three basic signs of fraud, you can easily avoid being a victim.

Commentary

Fisher Investments Editorial Staff

Into the Abenomics Abyss?

By, 08/14/2014
Ratings424.464286

We’ll give you the bad news first: Japan’s Q2 GDP, released Wednesday, was terrible. It confirmed what most folks pretty much already knew: Japan’s economy took a huge hit from April’s sales tax hike. Now for the good news: For investors, it doesn’t much matter—GDP is backward-looking, and a drop was expected (and Japan’s woes don’t prevent global growth). But in a somewhat concerning inversion of recent sentiment, investors aren’t worried. They’re sure economic sunshine, rainbows and unicorns are in Japan’s future. Which, to the discerning long-term investor, is a wee bit telling. Stocks move most on the gap between reality and expectations, and in our view, investors’ optimism on Japan doesn’t square with the likely reality. That’s a strong indicator the best investing opportunities remain outside the land of the rising sun.

Here are the facts: Japan’s GDP fell -6.8% q/q annualized in Q2—effectively wiping out all of Q1’s +6.1%, which was boosted by consumers pulling major purchases forward before the tax hike. In short, the hike wasn’t a zero-sum event. Predictably, results were lousy across the board—consumer spending (-18.7% q/q annualized), housing investments (-35%) and private business capital expenditures (-9.7%) all nosedived. The only thing that worked in Japan’s favor was math—and that’s no compliment. Imports detract from GDP, so their -20.5% drop actually boosted the headline number, even though cratering imports means cratering demand. Inventories, which add to GDP, rose sharply. But all this shows is goods piling up on shelves. Again, dismal demand. Not surprising, but still.

We’ve seen this movie before: Q2 1997, when GDP tanked as consumer spending dropped -3.5% after Japan raised its VAT from 3% to 5%. That was the Japanese government’s baseline for forecasting the impact of the tax hike—and they undershot. Which makes us a bit skeptical of their current forecast—namely, their belief Japan will bounce relatively quickly. And it’s not just the government. Headlines and investors broadly are still rather optimistic. Most of them for one reason in particular: Abenomics! (That’s the three-pronged economic revitalization strategy championed by Prime Minister Shinzo Abe, for those of you who have better things to do than follow this saga.) One plank of Abenomics is quantitative easing (QE), similar to the US and UK, and investors are convinced this will prevent a repeat of the 1997 recession. And if things look dicey? The BOJ will just QE some more! (Yes, we just made that a verb.) Never mind the similar tax hikes already scheduled. The BOJ has already set expectations for more asset purchases if necessary, making investors believe they needn’t fret further economic weakness. But in our view, this is a tad hasty.

Commentary

Todd Bliman
Media Hype/Myths

Passive Investing’s Primary Error: It’s (Mostly) Imaginary

By, 08/12/2014
Ratings962.838542

OK, so maybe this strategy is more imaginary than passive investing, but still. Photo by Tristan Fewings/Getty Images Entertainment.

I am not a fan of writers quoting themselves generally, but I’m going to do it just this once anyway because, well, I can’t think of a new way to begin another article about passive investing.[i]          

Research Analysis

Fisher Investments Research Staff

MLPs and Your Portfolio

By, 11/26/2013
Ratings813.882716

With interest rates on everything from savings accounts to junk bonds at or near generational lows, many income-seeking investors are looking for creative or, to some, exotic means of generating cash flow. Some are turning to a relatively little-known type of security—master limited partnerships (MLPs). MLPs may attract investors for a number of reasons: their high dividend yields and tax incentives, to name a couple. But, like all investments, MLPs have pros and cons, which are crucial to understand if you’re considering investing in them.

MLPs were created in the 1980s by a Congress hoping to generate more interest in energy infrastructure investment. The aim was to create a security with limited partnership-like tax benefits, but publicly traded—bringing more liquidity and fewer restrictions and thus, ideally, more investors. Currently, only select types of companies are allowed to form MLPs—primarily in energy transportation (e.g., oil pipelines and similar energy infrastructure).

To mitigate their tax liability, MLPs distribute 90% of their profits to their investors—or unit holders—through periodic income distributions, much like dividend payments. And, because there is no initial loss of capital to taxes, MLPs can offer relatively high yields, usually around 6-7%. Unit holders receive a tax benefit, too: Much of the dividend payment is treated as a return of capital—how much is determined by the distributable cash flow (DCF) from the MLP’s underlying venture (e.g., the oil pipeline).

Research Analysis

Elisabeth Dellinger
Reality Check

Inside Indian Taper Terror

By, 11/08/2013
Ratings174.294117

When the Fed kept quantitative easing (QE) in place last week, US investors weren’t the only ones (wrongly) breathing a sigh of relief. Taper terror is fully global! In Emerging Markets (EM), many believe QE tapering will cause foreign capital to retreat. Some EM currencies took it on the chin as taper talk swirled over the summer, and many believe this is evidence of their vulnerability—with India the prime example as its rupee fell over 20% against the dollar at one point. Yet while taper jitters perhaps contributed to the volatility, evidence suggests India’s troubles are tied more to long-running structural issues and seemingly erratic monetary policy—and suggests EM taper fears are as false as their US counterparts.

The claim QE is propping up asset prices implies there is some sort of overinflated disconnect between Emerging Markets assets and fundamentals—a mini-bubble. Yet this is far removed from reality—not what you’d expect if QE were a significant positive driver. Additionally, the thesis assumes money from rounds two, three and infinity of QE has flooded into the developing world—and flows more with each round of monthly Fed bond purchases. As Exhibit 1 shows, however, foreign EM equity inflows were strongest in 2009 as investors reversed their 2008 panic-driven retreat. Flows eased off during 2010 and have been rather weak—and often negative—since 2011.

Exhibit 1: Emerging Markets Foreign Equity Inflows

Research Analysis

Brad Pyles

Why This Bull Market Has Room to Run

By, 10/31/2013
Ratings874.109195

With investors expecting the Fed to end quantitative easing soon, the yield spread is widening—fuel for stocks! Photo by Alex Wong/Getty Images.

Since 1932, the average S&P 500 bull market has lasted roughly four and a half years. With the present bull market a hair older than the average—and with domestic and global indexes setting new highs—some fret this bull market is long in the tooth. However, while bull markets die of many things, age and gravity aren’t among them. History argues the fundamentals underpinning this bull market are powerful enough to lift stocks higher from here, with economic growth likely to continue—and potentially even accelerate moving forward as bank lending increases.

Research Analysis

Christo Barker
US Economy

Let’s Call It FARRP

By, 10/10/2013
Ratings93.777778

While the rest of the country fretted over taper terror, government shutdown and debt ceiling limits, the Federal Reserve tested its Fixed Rate Full-Allotment Reverse-Repo Facility (a mouthful—let’s call it FARRP) for the first time September 24. FARRP allows banks and non-banks, like money market funds and asset managers, to access Fed-held assets—i.e., the long-term securities bought under the Fed’s quantitative easing—via securities dealers’ tri-party repo (and reverse-repo) market for short-term funding. (More on repos to follow.) FARRP aims to address what many feel is a collateral shortage in the non-bank financial system caused by too much QE bond buying concentrating eligible collateral on the Fed’s balance sheet, where it doesn’t circulate freely. As a result, many private sector repo rates turned negative. But, should FARRP be fully implemented, the facility could actually hinder some assets (in this case, high-quality, long-term collateral like bonds) from circulating through the financial system—much like quantitative easing (QE) locked up excess bank reserves. A more effective means of freeing collateral in the repo market is tapering the Fed’s QE.

Repurchase agreements, or repos, are used to generate short-term liquidity to fund other banking or investment activity—a means to move liquidity (cash) from one institution to another. In a repo, one party sells an asset—usually long-term debt—agreeing to repurchase it at a different price later on. A reverse repo is, well, the opposite: One party buys an asset from another, agreeing to sell it back at a different price later. In both cases, the asset acts as collateral for what is effectively the buyer’s loan to the seller, and the repo rate is the difference between the initial and future sales prices, usually expressed as a per annum interest rate. The exchange only lasts a short while—FARRP’s reverse repos are overnight affairs to ensure markets are sufficiently funded. In the test last Tuesday, the private sector tapped the facility for $11.81 billion of collateral—a small, but not insignificant, amount.

FARRP’s first round is scheduled to end January 29, and during that time, non-bank institutions can invest between $500 million and $1 billion each at FARRP’s fixed overnight reverse-repo rates ranging from one to five basis points. A first for repo markets: Normally, repo and reverse-repo rates are free-floating, determined by market forces. Another of FARRP’s differentiating factors is private-sector need will facilitate reverse-repo bids instead of the Fed. Ideally, FARRP’s structure will encourage unproductive collateral to be released back into the system when it’s most needed—and new sources of collateral demand may help ensure this. Swaps, for example, are shifting to collateral-backed exchanges due to Dodd-Frank regulation—meaning more collateral will be needed to back the same amount of trading activity. Collateral requirements for loans will likely also rise.

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What We're Reading

By , Reuters, 08/22/2014

MarketMinder's View: Well, world, this is what you were waiting for: Fed head Janet Yellen’s keynote speech at everyone’s favorite rural Wyoming central bankers’ boondoggle. And it went about as we’d expect: lots of jargony mumbo-jumbo about labor markets and noncommittal policy prescriptions amounting to “who knows what we’ll do and when, so cut us some slack, mmmkay?” Hey! Slack! Labor market pun!

By , Bloomberg, 08/22/2014

MarketMinder's View: Or not? A bar chart of the ratio of combined public and private debt growth to GDP growth (unclear whether this is real or nominal) over six periods of mismatched lengths that don’t even encompass full expansions tells. You. Nothing. Like, what happened in the second half of the 90s? Would the 2000s ratio be lower if they included 2007? Then again, even if they used a full data set and clearly compared real with real or nominal with nominal, these data still wouldn’t tell you whether “inequality, shrinking labor-force participation and decelerating productivity” were causing “secular stagnation” or whether “secular stagnation” is even anything more than a myth. For one, labor force participation was higher in the 80s and 2000s, yet those periods had quite “credit-intensive” growth, apparently. Two, traditional productivity gauges don’t accurately capture productivity—output per unit of labor sort of misses a lot of things. Three, inequality, just read this.

By , The New York Times, 08/22/2014

MarketMinder's View: Maybe the 34 trucks headed from the Motherland to Luhansk really are filled with food and medical supplies to assist the eastern Ukrainians displaced by the conflict. Or maybe they’re a supply column for the Russian soldiers and artillery units reportedly firing in Ukraine today. Either way, it still remains highly, highly unlikely that this conflict escalates to the World War III-like levels necessary for it to materially impact stocks. Now, if Russia invaded France, that would be very bad for markets. But a non-EU, non-NATO former Soviet state? Probably no there there.

By , Bloomberg, 08/22/2014

MarketMinder's View: Wait. So. If you want, you can round up a bunch of gold coins, use them to buy a bond whose face value is determined by the price of gold, the exchange rate of the US dollar and South African rand and a 0.5% interest rate? And you can opt to be repaid in either gold coins or cash? And the issuing bank will use your gold coins to “fund its gold-trading adventures”? And this is real? Whoa! Um that’s crazy. We aren’t in the business of offering recommendations for or against individual securities, but, um, well just do a lot of due diligence and think about tradeoffs and complexity and stuff. Because we’re pretty sure a gold-backed bond, in theory, is no more of a safety blanket or inflation hedge than normal gold, which isn’t either of those things.

Global Market Update

Market Wrap-Up, Thurs Aug 21 2014

Below is a market summary (as of market close Thursday, 08/21/2014):

  • Global Equities: MSCI World (+0.4%)
  • US Equities: S&P 500 (+0.3%)
  • UK Equities: MSCI UK (0.0%)
  • Best Country: Italy (+2.0%)
  • Worst Country: Hong Kong (-0.9%)
  • Best Sector: Financials (+0.9%)
  • Worst Sector: Materials (-0.2%)
  • Bond Yields: 10-year US Treasurys fell .02 to 2.41%

Editors' Note: Tracking Stock and Bond Indexes

 

Source: Factset. Unless otherwise specified, all country returns are based on the MSCI index in US dollars for the country or region and include net dividends. Sector returns are the MSCI World constituent sectors in USD including net dividends.