Commentary

Fisher Investments Editorial Staff
Behavioral Finance

Funds Behaving Badly

By, 03/26/2015

Revolutionary technology! Hot-shot startups! Super-high yield! Funds offering exposure to these goodies are making the rounds, all trying to tempt investors with visions of smokin’ returns and the Next Big Thing. Exciting? A word of caution—this all smacks of heat-chasing, one of the biggest pitfalls investors face as bull markets age and human nature makes us greedy. Flashy tactics might seem splashy, but in our experience, gimmicks and sound long-term strategies don’t mix. This is a time to stay grounded and focused on your long-term goals.   

Consider the gimmicks in question, and you’ll see a theme. One glitzy new ETF will track companies that develop, use and invest in “disruptive” technologies like robotics, 3-D printing, nanotechnology and bioinformatics (analyzing body chemistry and genetics)—all on the theory that exposure to “technology of the future” is the ticket to sky-high returns. That’s a popular view these days, but it betrays a fundamental behavioral error: viewing investing as a get-rich-quick trick. There actually isn’t much evidence “disruptive technologies” offer superior returns over time. In short bursts? Sure. But a lot of it ends up being a flash in the pan (see: Bubble, Dot-com). Plus, a strategy that banks on this will likely be over-concentrated in Tech and Health Care. The fund in question has about 60% in those two sectors alone. Great if they surge, but there is a giant opportunity cost—and risk of loss—if they don’t.

Elsewhere some mutual funds are taking a different approach to chasing the Next Big Thing: buying shares in private tech startups, banking on a big IPO payout. Think of it as the mutual fund equivalent of investors searching high and low[i] for “the next Dell” in the late 1990s—more swinging-for-the-fences, get-rich-quick thinking. Now, on the one hand, these are traditional mutual funds and generally more diversified than the pure disruptive technology-chasers. On the other, they’re tying up pretty significant sums in illiquid investments that may or may not pay out one day. That’s an odd mismatch with mutual funds’ traditional purpose of offering instant, highly liquid diversification. It’s also an odd mismatch with the goals of most folks who own mutual funds in their retirement accounts. Most people simply do not need to double down on some speculative startup. But it’s a powerful marketing gimmick[ii], and many investors might not consider the tricky details and potential drawbacks here.[iii]

Commentary

Fisher Investments Editorial Staff
Inflation

Misinflation

By, 03/25/2015

Is inflation about to start inflating again? You might get that impression from recent headlines announcing inflation may have turned a sharp corner and is headed for greater heights. The evidence? US and eurozone prices rose in February. In our view, though, everyone is being a tad hasty—a deeper look at the data shows February’s figures are likely a blip rather than the start of a new trend. 

In the US, the Consumer Price Index ticked up from January’s -0.1% y/y to 0.0%[i], as prices rose 0.2% m/m, the first monthly rise since last October. The eurozone’s annual inflation rate decline slowed from January’s -0.6% to -0.3%, with prices increasing 0.6% m/m. The UK, however, didn’t follow suit—while prices rose 0.5% m/m in February, its annual inflation still dropped from January’s 0.3% to 0% due to falling food and energy prices. Pundits cheered overall, welcoming higher prices in the US and Europe and the prospect of “good” deflation in Britain. Some suggested the US report “could give the Fed confidence inflation is slowly heading toward its 2% target.” In euroland, many breathed easier, saying fears of prolonged deflation were “eased.” In Britain, some welcomed the lowest inflation rate on record by pondering a new term for falling prices during a growing economy.[ii]

Far be it from us to pooh-pooh optimism, but in our view, this all misses the elephant in the room. February’s m/m CPI upticks result from a short-lived jump in oil prices—the same oil prices that drove deflation in prior months. From June 2014 through January 2015, Brent Crude oil prices fell from $111.03 to $47.52.[iii] That pulled down headline monthly CPI from September through January. But in February, Brent prices rose a bit reaching $61.89 by month’s end.[iv] So, they naturally boosted February CPI. But they will probably detract from March CPI, considering crude is down 11.4%[v] this month (through 3/23/2015). WTI Crude, the US benchmark, moved similarly.

Commentary

Fisher Investments Editorial Staff
Politics

One Fish, Two Fish, Red Fish, Blue Fish

By, 03/24/2015
Ratings253.84

We did not hear Ted Cruz’s speech, but we are told it didn’t rhyme. Photo by Mark Wilson/Getty Images.

Editors’ Note: Our discussion of politics and elections is purely focused on potential market impact. Stocks favor neither party. Believing in the market/economic superiority of one group of politicians over another can invite bias—a source of significant investment errors.

Commentary

Elisabeth Dellinger
Reality Check

Friday Treat: Why 2015 Won’t Repeat the S&P 500’s Worst Year Ever

By, 03/20/2015
Ratings384.526316

According to one investment research group, of all the years on record, 2015’s stock returns look most like 1931—the S&P 500’s worst year ever, and there are two things you need to know about this. One, this predicts nothing, and two, 2015 does not resemble 1931.

To make the comparison, the researchers compared the S&P 500 price index’s year-to-date return through March 18 with equivalent periods at the beginning of every year on record, then ranked them according to their correlation coefficient. That is statspeak for how closely one year’s directionality resembles another. 1931’s first 54 trading days had the highest correlation, 0.8%—very close to 1, which would represent perfect correlation. The next closest was 1945 at 0.76, then 1996 at 0.7.

This is a fun study, because history and patterns are fun! But fun is all it is. Around the MarketMinder braintrust, we have a slogan: “No correlation without causation!” But even if you don’t buy that and instead believe patterns are predictable, there actually isn’t much of a pattern here. Yes, there is mathematical correlation! But here is what that supposedly strong relationship actually looks like.

Commentary

Fisher Investments Editorial Staff
Politics, The Big Picture

Political Tool Returns After One Year Vacation: Debt Ceiling

By, 03/20/2015
Ratings214.452381

The debt ceiling returned Monday, along with warnings the US will default unless Congress raises it before the Treasury’s spare cash runs out. It’s a foregone conclusion Congress will comply at some point, as they have 109 times since its 1917 inception. But how they do it is anyone’s guess. Maybe they’ll do it with little debate and no fanfare, like 2012! Or maybe they’ll have a knockdown drag-out, a la 2011 or 2013 (or 1985—debt ceiling fights aren’t new). Congress isn’t split this time, but they could still have a standoff with the White House, and intra-party bickering is always possible. If it does get noisy, fear not: These debates are political grandstanding, nothing more, and delayed action won’t trigger default.

Today, the debt ceiling is an annoyance, but it wasn’t intended to be. Initially, it was a convenience, designed to spare Congress the drudgery of approving each bond issue needed to fund World War I operations. In the intervening decades, it has become a political tool: a lever for parties to extract concessions from the opposition or to manage their own appearance to voters.

After 2011’s debt ceiling fight drove credit rater Standard and Poor’s to strip America’s AAA credit rating, Congress passed the Budget Control Act, which allowed for three debt limit increases at Presidential request. Congress would have to pass bicameral acts disallowing the second two increases, which didn’t happen. We guess they (temporarily) tired of the theatrics, because in early 2013 the debt limit was unceremoniously suspended until May, when brinksmanship began anew—continuing through October’s big debate and semi-related government shutdown. Last February, another quiet suspension followed, then another. This last suspension is the one that expired March 14. That’s how we got where we are—with debt at the new limit and nary a “raise it” bill close to a vote. What gives?

Commentary

Fisher Investments Editorial Staff
Monetary Policy, Media Hype/Myths

Pundits Forecast Fed, Prove Forecasting Fed Is Folly

By, 03/20/2015
Ratings254.34

Ever since the Fed began “tapering” quantitative easing, fears have morphed from misplaced terror over the taper to a similarly false fear over the fed-funds rate. So we guess it wasn’t surprising Thursday’s headlines remained fixated on the Fed’s word choices and editorial decisions, with speculation running rampant about what the deletion of “patient” and some dots meant regarding the timing of a rate hike.

(For our coverage of Wednesday’s decision, please click here.)

But as we’ve written time and again, trying to divine when a hike may come is unnecessary and impossible. Yesterday’s flip-floppy Fed illustrated that once this week. And the headlines in its wake put an exclamation point on it. (!)

Commentary

Fisher Investments Editorial Staff
Politics, Across the Atlantic

UK Politicians Want Some Votes

By, 03/19/2015

Chancellor of the Exchequer George Osborne showcases the famous red briefcase before delivering this Parliament’s final budget to the House of Commons. Source: Getty Images/Bloomberg.

A guy walked out of an old London townhouse holding a red briefcase Wednesday, and with that photo-op, the UK election campaign was off and running.[i] Yes, it’s Britain’s Budget spectacle, where the government toots its own horn, the opposition blasts them, leaders announce sweeteners, and opposition leaders argue those sweeteners are bitter pills. It’s an annual rite, and that rite is even noisier this election year, as both major parties used the Budget to launch their economic campaigns. Now come 40-something days of debating, one-upping and bargaining—and all the accompanying noise. While it’s too early to handicap the winners, the likeliest outcome is more gridlock—bullish for UK stocks.

Commentary

Elisabeth Dellinger
Media Hype/Myths, Into Perspective

Unfunded Liabilities, the Lockbox, and Other Social Security Myths

By, 03/19/2015

Social Security trust funds do not live in this or any other lockbox. Photo by Joe Corrigan/Getty Images.

Social Security: It’s the third rail of American politics. Its trustees warn it will be insolvent by 2033. Third-party studies warn the day of reckoning could come nearly a decade earlier. Pundits warn its $70 to $120 trillion in “unfunded liabilities” will bankrupt America.[i] Congress recently held hearings on how to fix it. One Senator just tabled a bill to patch it with a high-income tax hike and expand benefits to battle what pundits call a “retirement crisis.” Two Connecticut Congressmen submitted legislation to hike Social Security taxes across the board. However, if you take a closer look at the solvency projections in question and how Social Security works, it becomes clear this is a manufactured crisis. Rumors of Social Security’s impending demise have been greatly exaggerated.

Commentary

Michael Hanson
Into Perspective, Media Hype/Myths

Book Review: The Shifts and the Shocks Obsesses Over Equilibrium

By, 03/19/2015
Ratings284.482143

The Shifts and the Shocks: What We’ve Learned—and Have Still to Learn—From the Financial Crisis -- Martin Wolf

In the world of ideas, metaphors rule—a continually underestimated fact. In economics, the metaphor of equilibrium has prevailed for over a century. It's perhaps the most antiquated and dangerous of myths, but it's seared into the brains of virtually every economist in the world. Understanding this can help investors see through the euphemistic arguments for and against post-crisis financial regulations—and come to terms with the fact that crisis-proof economies are a fantasy.

The idea that there is a point where supply meets demand is fine enough—we call that a price. But equilibrium is a biological and physical metaphor—it denotes a kind of balance to be sought everywhere. That prices want to reach a "balance" point, a homeostasis as it were. That's the myth—there is no such thing as a "balance" I can find in any economic system. Prices never, ever, find a resting point—they roil, turn, churn, react and adapt at every second of every day to new information, new opinions, new developments. Markets are a flow, not an equilibrium.

Commentary

Elisabeth Dellinger
Media Hype/Myths, Monetary Policy

Fed People Write Words, Draw Dots

By, 03/18/2015
Ratings244.708333

Don't let the smile fool you—Janet Yellen is no longer feeling patient. Photo by Bloomberg/Getty Images.

Welp, the Fed is officially impatient, stocks are over the moon, and everyone is reading way too much into 157 words and two charts. Sorry folks, but we don’t know the Fed’s next move any more than we did yesterday.

Commentary

Fisher Investments Editorial Staff
Monetary Policy, Media Hype/Myths

Pundits Forecast Fed, Prove Forecasting Fed Is Folly

By, 03/20/2015
Ratings254.34

Ever since the Fed began “tapering” quantitative easing, fears have morphed from misplaced terror over the taper to a similarly false fear over the fed-funds rate. So we guess it wasn’t surprising Thursday’s headlines remained fixated on the Fed’s word choices and editorial decisions, with speculation running rampant about what the deletion of “patient” and some dots meant regarding the timing of a rate hike.

(For our coverage of Wednesday’s decision, please click here.)

But as we’ve written time and again, trying to divine when a hike may come is unnecessary and impossible. Yesterday’s flip-floppy Fed illustrated that once this week. And the headlines in its wake put an exclamation point on it. (!)

Commentary

Fisher Investments Editorial Staff
Politics, Across the Atlantic

UK Politicians Want Some Votes

By, 03/19/2015

Chancellor of the Exchequer George Osborne showcases the famous red briefcase before delivering this Parliament’s final budget to the House of Commons. Source: Getty Images/Bloomberg.

A guy walked out of an old London townhouse holding a red briefcase Wednesday, and with that photo-op, the UK election campaign was off and running.[i] Yes, it’s Britain’s Budget spectacle, where the government toots its own horn, the opposition blasts them, leaders announce sweeteners, and opposition leaders argue those sweeteners are bitter pills. It’s an annual rite, and that rite is even noisier this election year, as both major parties used the Budget to launch their economic campaigns. Now come 40-something days of debating, one-upping and bargaining—and all the accompanying noise. While it’s too early to handicap the winners, the likeliest outcome is more gridlock—bullish for UK stocks.

Commentary

Elisabeth Dellinger
Media Hype/Myths, Into Perspective

Unfunded Liabilities, the Lockbox, and Other Social Security Myths

By, 03/19/2015

Social Security trust funds do not live in this or any other lockbox. Photo by Joe Corrigan/Getty Images.

Social Security: It’s the third rail of American politics. Its trustees warn it will be insolvent by 2033. Third-party studies warn the day of reckoning could come nearly a decade earlier. Pundits warn its $70 to $120 trillion in “unfunded liabilities” will bankrupt America.[i] Congress recently held hearings on how to fix it. One Senator just tabled a bill to patch it with a high-income tax hike and expand benefits to battle what pundits call a “retirement crisis.” Two Connecticut Congressmen submitted legislation to hike Social Security taxes across the board. However, if you take a closer look at the solvency projections in question and how Social Security works, it becomes clear this is a manufactured crisis. Rumors of Social Security’s impending demise have been greatly exaggerated.

Commentary

Michael Hanson
Into Perspective, Media Hype/Myths

Book Review: The Shifts and the Shocks Obsesses Over Equilibrium

By, 03/19/2015
Ratings284.482143

The Shifts and the Shocks: What We’ve Learned—and Have Still to Learn—From the Financial Crisis -- Martin Wolf

In the world of ideas, metaphors rule—a continually underestimated fact. In economics, the metaphor of equilibrium has prevailed for over a century. It's perhaps the most antiquated and dangerous of myths, but it's seared into the brains of virtually every economist in the world. Understanding this can help investors see through the euphemistic arguments for and against post-crisis financial regulations—and come to terms with the fact that crisis-proof economies are a fantasy.

The idea that there is a point where supply meets demand is fine enough—we call that a price. But equilibrium is a biological and physical metaphor—it denotes a kind of balance to be sought everywhere. That prices want to reach a "balance" point, a homeostasis as it were. That's the myth—there is no such thing as a "balance" I can find in any economic system. Prices never, ever, find a resting point—they roil, turn, churn, react and adapt at every second of every day to new information, new opinions, new developments. Markets are a flow, not an equilibrium.

Commentary

Elisabeth Dellinger
Media Hype/Myths, Monetary Policy

Fed People Write Words, Draw Dots

By, 03/18/2015
Ratings244.708333

Don't let the smile fool you—Janet Yellen is no longer feeling patient. Photo by Bloomberg/Getty Images.

Welp, the Fed is officially impatient, stocks are over the moon, and everyone is reading way too much into 157 words and two charts. Sorry folks, but we don’t know the Fed’s next move any more than we did yesterday.

Commentary

Fisher Investments Editorial Staff
Into Perspective, Personal Finance

A Winning Standard?

By, 03/18/2015
Ratings113.590909

Tuesday, SEC chair Mary Jo White announced the SEC “should implement a uniform fiduciary duty for broker-dealers and investment advisers where the standard is to act in the best interest of the investor.” And with that, after five years of waiting[i], we finally know the SEC chief’s opinion of Dodd-Frank’s orders to investigate the matter. While this doesn’t mean the SEC for sure writes a rule, it raises the likelihood they’re headed that way. Predictably, there are cheers and jeers, though we think strong reactions on both sides largely miss the point. We’re all for more transparency in this industry, but a uniform fiduciary standard won’t ensure investors’ best interests are protected.

Most US investment professionals are currently subject to one of two regulatory standards: the suitability standard or the fiduciary standard. Brokers and most financial salespeople fall under the suitability standard, which requires them to sell investments that they reasonably believe are in keeping with a client’s basic financial situation. They don’t have to disclose conflicts of interest or put their clients’ interest first. Registered Investment Advisers[ii] (RIAs) are held to the fiduciary standard, which requires them to reasonably believe they are putting clients’ interests first and disclosing any potential conflicts of interest and how they attempt to mitigate them.

For years, regulators have pushed to broaden the fiduciary standard’s reach. The White House has backed the Department of Labor’s (DOL) plans to apply the fiduciary standard to every investment professional working with retirement accounts, like 401(k)s and IRAs—a backdoor approach to spreading it across the industry, as most brokers handle IRAs. The SEC’s unrelated potential rule charges through the front door, applying to every RIA and broker and all of their relationships. At least, we assume it would, as no one knows what the SEC’s rule would include. As White said, if the SEC decided to move forward, they’d have to first define the new standard, which could be tougher or more watered down than the current rule. They could also follow the UK’s lead and introduce new services where the rule wouldn’t apply, like “execution-only,” where the broker would merely take orders for the client, not proactively sell or recommend a security. So it’s premature to think about specifics, and at the rate regulators move, it could be years before this goes anywhere.[iii]

Research Analysis

Fisher Investments Research Staff

MLPs and Your Portfolio

By, 11/26/2013
Ratings833.885542

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
Ratings884.102273

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 , The Wall Street Journal, 03/26/2015

MarketMinder's View: There is no real divide here—they are all active investors. That is the only thing this study proves, as the numbers don’t actually tell you which group is better at timing (or whether they are equally bad). The only way you could even begin to measure this is if you were to compare a fund’s dollar-weighted return to its time-weighted return (and even that says next to nothing)—this study compares each fund’s dollar-weighted return to its category’s average total return. That is not an accurate comparison, and it basically tells you nothing. Then again, even comparing one fund’s dollar-weighted and time-weighted return wouldn’t tell you anything about investors’ actual behavior, because it lacks a counterfactual. What if they rotated into something that did even better, and their personal performance was better? The only way you can track this in real-life is by studying individual investors over time, tracking every transaction, and then evaluating the timing in hindsight. And even that wouldn’t be perfect, because you still wouldn’t have a control group. Anyway, that’s all academic—the simple takeaway here is that no, investing in an index fund doesn’t mean you are automatically smarter, more disciplined or a better trader. People are people.

By , MarketWatch, 03/26/2015

MarketMinder's View: Well, the conclusion here is correct, in our view: Today’s Nasdaq nearing 5,000 bears little resemblance to 2000’s Nasdaq at the same level. And yes, valuations (the second point of three included) are very different between now and then. We would suggest, though, that comparing inflation-adjusted index levels (point #1) is an unnecessary and wrongheaded comparison, because an index level will never show whether investors are euphoric or not. You must analyze economic and market fundamentals and then compare those to sentiment to do that. As to sentiment, we aren’t seeing actual debates on widely watched cable TV suggesting that “bust” has been eliminated (leaving just “boom”—we reckon the “and” was collateral damage), or that we are in a new economy that has rendered profits an obsolete metric, or that there are no fears. Those are your hallmark signs of euphoric sentiment, and they are basically absent today.

By , Bloomberg, 03/26/2015

MarketMinder's View: Here is a very interesting article regarding a widely overlooked feature of the US economy in 2014: “Corporate spending on research and development rose 6.7 percent in 2014, almost twice the previous year’s gain and the biggest advance since 1996, according to Commerce Department data. The pickup was capped by a 14 percent fourth-quarter surge that signals additional increases are on the way. … ‘CEOs wouldn’t be paying all these researchers -- which is where the R&D budget primarily flows to -- unless they thought that there was something really interesting going on,’ Jason Cummins, chief U.S. economist and head of research in Washington for hedge fund Brevan Howard Inc.” said.

By , The Wall Street Journal, 03/26/2015

MarketMinder's View: An alternate headline that summarizes the story more accurately: “Bank of Spain Sees Deflation Stimulating Demand, Growth.” Granted, forecasts by central banks can be revised … or just wrong. But the projection here seems to us to at least acknowledge the fact deflation in the eurozone isn’t likely to cause a downward spiral. Consumers seem likelier to respond to lower prices by consuming more.

Global Market Update

Market Wrap-Up, Wednesday Mar 25, 2015

Below is a market summary as of market close Wednesday, 3/25/2015:

  • Global Equities: MSCI World (-0.9%)
  • US Equities: S&P 500 (-1.5%)
  • UK Equities: MSCI UK (-0.1%)
  • Best Country: Hong Koing (+1.3%)
  • Worst Country: United States (-1.5%)
  • Best Sector: Energy (+1.0%)
  • Worst Sector: Information Technology (-2.3%)
  • Bond Yields: 10-year US Treasury yields rose 0.05 percentage point to 1.92%.

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.