|By Fisher Investments Editorial Staff, 02/15/2017|
In this podcast, we interview Content Analyst Elisabeth Dellinger on recent talk of protectionism, border taxes and trade.
|By Fisher Investments Editorial Staff, 12/12/2016|
MarketMinder’s editorial staff sits down with Fisher Investments Capital Markets Analyst Brad Rotolo. (Recorded 11/3/2016)
From Brexit and Trump to Italy, Brazil and the Philippines, 2016 has been a year of political upheaval and theatrics. And it isn’t over yet. South Korean President Park Geun-hye is embroiled in an influence peddling scandal that has outraged the country and likely numbered her days in office. She has offered to step down from office in April 2017—10 months before her term is slated to end—but lawmakers in the National Assembly instead introduced an impeachment bill, which gets a vote Friday December 9. While Park’s political fall looks inevitable, Korea’s political issues needn’t derail its other positive drivers. For global investors, whether or not you own any Emerging Markets stocks, this is another lesson in the importance of thinking long-term and not getting hung up on short-term events.
The movement against Park appears more about her actions (which you can read all about here), not a broader distaste with the government or the state of society. After decades of chaebol (Korea’s huge, family-run mega conglomerates/corporate fiefdoms) dominating political decisions and the economy, corruption has emerged as the societal cause du jour (see this summer’s draconian corruption bill), and Park appears a victim of the times. The scandal also coincides with some economic softness, as a slowdown in global trade hit export-oriented businesses hard. In response, the country’s largest sectors—which account for a fifth of GDP and employ nearly 15% of the workforce—have undergone significant corporate restructuring. More recently, scandals at several chaebol only further weighed on sentiment.
South Korea has also faced some geopolitical uncertainty in recent months. Besides long-running issues with North Korea, which has made progress in its nuclear program, new tensions with China have arisen as South Korea recently deployed an advanced US missile system. In addition, Donald Trump’s victory made many call into question the future of Asia’s trade relationship with the US given his campaign rhetoric and dismissal of the Trans-Pacific Partnership. There is also a potential domestic political headwind, as the legislature’s opposition party favors tax hikes, with eight different proposals put in the supplementary budget bills. With one of the world’s stronger fiscal positions (40% debt to GDP), such a move makes little economic sense, but the negative fallout is likely short term.
There’s more where that came from. Photo by yodiyim/Getty Images.
At long last, the Organization of the Petroleum Exporting Countries (OPEC) reached an agreement to cut production on Wednesday. While details are scarce, comments from oil ministers indicate the group will cut oil production to 32.5 million barrels per day (Mbpd), from recent levels of 33.5 Mbpd. Despite the hype, however, the change is basically window-dressing. It probably won’t much alter global supply or improve the outlook for Energy firms. Their earnings are tied to oil prices, which likely remain lackluster for the foreseeable future (albeit with short-term volatility).
This is OPEC’s first official action of this sort since oil began crashing in 2014. OPEC surprised markets that November by declining to cut production, as had been widely expected at the time. Oil supplies were growing briskly, primarily due to new output from US shale production, which got a boost from developments like horizontal drilling and hydraulic fracturing. The resulting oversupply led to the last two years of oil weakness. With Wednesday’s agreement to cut production, OPEC is arguably moving back to its traditional role of attempting to target a price range for oil.
In a year where populism has swept the ballot box, is Italy next? On December 4, the country will hold a referendum on whether to reform the size, powers and appointment process for Parliament’s upper house, the Senate. If the referendum is approved, the Senate’s powers would be greatly curtailed and size reduced. It would shrink from 315 members to 100, the government would no longer have to win a Senate confidence vote, fewer measures would require Senate approval and senators would be appointed by Italy’s Regional Councils instead of directly elected. If passed, it would foster government stability and make it easier to pass badly needed reforms. But if it fails, many fear it will destabilize Italy’s pro-euro government, potentially propelling anti-euro populists to power and raising the risk of a domino effect across the eurozone. In our view, however, fears of broader market impact are likely overstated.
Prime Minister Matteo Renzi proposed the referendum to mitigate the Senate’s ability to block legislation and increase the Italian government’s stability, through elimination of one confidence vote. However, he also indicated his government will step down if the referendum is defeated. Opposition parties, such as the Five Star Movement (M5S), are against the referendum, as they believe it gives too much control to the Prime Minister. Many believe a Renzi resignation could give M5S an opening to enter the national government.
Italy doesn’t allow the publication of polls 15 days prior to an election or referendum, but the last polls indicated the “No” vote was ahead by about three points. PredictIt, a betting website similar to the late, great InTrade, puts the odds of the “No” vote prevailing at ~80%. But as US elections and the Brexit vote showed, polling and prediction have been unreliable lately. The considerable number of undecided voters (~20%) also suggests any poll isn’t conclusive.
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|By Ann Carrns, The New York Times, 02/17/2017|
MarketMinder's View: A new report from AARP sheds some light on what traits make older investors particularly vulnerable to scams, and we recommend reading it closely regardless of age—either to help yourself or those you love. “Victims were more likely to be men 70 or older, and they tended to be risk takers. About half of fraud victims agreed that they did not mind taking chances with their money, as long as ‘there’s a chance it might pay off.’ And nearly half of fraud victims, compared with less than a third of general investors, agreed that ‘the most profitable financial returns are often found in investments that are not regulated by the government.’” Always be skeptical. Do thorough due diligence and independent research on any investment opportunity and adviser you’re considering. Understand the risks of unregulated and nontraded investments. Never give an individual or adviser custody of your money—anyone on the up and up will agree you should keep your assets in a brokerage account in your own name. Always remember that if it sounds too good to be true, it probably is.
|By Christopher Langner, Bloomberg, 02/17/2017|
MarketMinder's View: The titular complacency refers to a supposed complacency index, “which relates the ratio between enterprise value and [earnings before interest, taxes, depreciation and amortization] in the MSCI World Index to the VIX.” What do these three variables have in common? All are backward-looking and not predictive of performance. Heck, look at the chart in the article, and it’s pretty clear the index’s ups and downs don’t predict bull and bear markets, and that no level is inherently good or bad. Cherry-picking two coincidental data points doesn’t prove anything. It just makes an interesting observation. True complacency would involve investors’ overlooking deteriorating economic data and earnings. Today, data and earnings are improving, and leading indicators point positively. Any improvement in sentiment seems like the normal confidence gains that usually accompany maturing bull markets—what Keynes called “animal spirits.”
|By James Mackintosh, The Wall Street Journal, 02/17/2017|
MarketMinder's View: This discussion of monetary and fiscal policy strikes us as rather confused. For one, it presumes Fed policy was the only thing driving markets higher until now, even though quantitative easing (QE) only served to flatten the yield curve and depress lending—viewed that way, it’s clear markets rose despite QE, not because of it. Two, it’s sheer myth that the US economy needs “reflation.” Strip out plunging oil prices, and inflation has been stable and benign for years (plus, there really is no such thing as a “deflationary abyss”—deflation is a symptom of money supply shocks, not a cause of a crisis). Three, as we learned from George W. Bush’s 2003 tax cuts and Barack Obama’s 2009 stimulus package, fiscal policy usually fizzles as an economic driver. Even “shovel-ready” projects take years. Four, there is no set relationship between stocks and tax changes of any flavor. Five, focusing too much on noise in the Beltway and around the Fed ignores an overall solid economic foundation and growing corporate earnings. Economic fundamentals matter more than speculating over Fed people and politicians.
|By Julia Bradshaw, The Telegraph, 02/17/2017|
MarketMinder's View: Yah but if inflation were really the culprit for UK retail sales’ 0.3% m/m fall in January, then why did prices and sales fall simultaneously on a month-over-month basis? Volatility is normal in economic data. Plus, retail sales don’t capture all of consumer spending—a big chunk of the latter is spending on services. Retail sales and full consumer spending frequently move in opposite directions.
Market Wrap-Up, Thursday, February 16, 2017
Below is a market summary as of market close Thursday, February 16, 2017:
- Global Equities: MSCI World (+0.2%)
- US Equities: S&P 500 (-0.1%)
- UK Equities: MSCI UK (+0.4%)
- Best Country: Denmark (+1.5%)
- Worst Country: New Zealand (-1.7%)
- Best Sector: Utilities (+0.9%)
- Worst Sector: Energy (-0.7%)
Bond Yields: 10-year US Treasury yields fell 0.04 percentage point to 2.45%.
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. S&P 500 returns are presented including gross dividends. Sector returns are the MSCI World constituent sectors in USD including net dividends.