Commentary

Fisher Investments Editorial Staff
Media Hype/Myths

The Great Global Disconnect: Headlines Versus Data

By, 10/24/2014
Ratings524.480769

While many headlines and sentiment have shown their skeptical streak lately, the data just don’t seem to want to cooperate and collapse. In fact, what we see in comparing sentiment and recent data seems much more like what we’ve seen during the five-plus year course of this big bull market.

First, let’s take a trip around the World Wide Web and assess the economic headlines grabbing eyeballs. All these headlines hit in the last two weeks:

Most of the theses underpinning these articles are very well known to investors: China faces a big slowdown—a hard landing—which will ripple globally; the eurozone is an economic quagmire; the US can’t grow alone; global growth is faltering; did we mention the eurozone is an economic quagmire? Economists have their standard prescriptions: Fiscal stimulus; don’t hike rates yet!; more (misguided) quantitative easing; weaker currencies; debt forgiveness.

Commentary

Fisher Investments Editorial Staff

Misinterpreting Volatility, Economic Edition

By, 10/23/2014
Ratings314.33871

The recent volatility has not only given some investors pause, it caused economists and academics to speculate and ruminate on what it might foretell about the economy. Which the media has now picked up on, spinning the yarn that investors’ concerns about volatility would beget a weaker economy, in turn creating more volatility for markets. While stocks are a forward-looking economic indicator, they aren’t perfectly rational in the short-term. Volatility is often just markets being markets. It doesn’t necessarily reflect economic conditions, much less create them.

Many see the latest round of swinging stocks as evidence the weak global economy is entering a new and more uncertain stage, including monetary policy shifts that might conflict, slowing growth in pockets of the globe and even health fears. They point to recent sharp shifts in the Chicago Board Options Exchange’s Volatility Index (VIX)—which surged to a 28-month high last week, then plummeted at least 10% per day on October 16, 17 and 18—then rose the same amount the following trading day.[i] Many see the VIX as the uncertainty index—“The Fear Gauge.” (Nevermind that this is a fallacy, because the VIX merely attempts to measure the magnitude of future moves, not the direction.) The presumption is that with rising uncertainty/fear/VIX comes a near-inability for businesses to plan for the future.

The Kansas City Fed added some academic firepower to the issue, too. They published a paper September 4, suggesting spikes in uncertainty slow growth and hiring. The VIX is their uncertainty gauge, and they wag an accusatory finger at the sharply rising readings in 2011, 2012 and 2013. Hiring, they found, slowed during the volatility. They argue the effect didn’t go away as fast as the VIX fell, suggesting to them a lingering fear that weighed on the economy. In theory, uncertainty is bad for business and stocks. So you might presume there is some underlying truth to the notion today.

Commentary

Fisher Investments Editorial Staff

Moving Averages Don’t Move Stocks

By, 10/22/2014
Ratings304.116667

After a big surge to close Tuesday at 1941.28, the S&P 500 Price Index easily surpassed an average of its closing prices over the last 200 trading days, 1908.[i] To many, that’s trivia. But to bullish technical analysts, it’s confirmation—time to breathe a sigh of relief—the market’s bounce back is real! The 200-day moving average is a widely watched gauge for chart-lovers, and since the S&P fell through it recently, it has been a source of great consternation for some. But in our view, using stocks’ 200- (or any period, really) day moving average to predict future direction is pure folly. Past performance—whether smoothed, averaged or other—does not dictate the future, as the S&P’s recent ride (again) shows.   

For the unfamiliar, the 200-day moving average is a very common technical indicator. Broadly speaking, proponents argue if the S&P 500 is above its 200-day moving average, it should continue rising. If it falls through this average, look out below. Many cite instances when the 200-day moving average was broken during bear markets and, sometimes, corrections. But that is just kind of a function of longer-term average meeting shorter-term sharp move. It isn’t predictive, just a result.

Overall, the rule that breaking the 200-day moving average predicts bad times ahead doesn’t pass the logic test. If the S&P 500 staying above its 200-day moving average indicates future gains, stocks should never fall. Likewise, the S&P falling below its 200-day moving average would mean stocks would never rise. Both statements are quite obviously faulty, but when the S&P fell towards—and ultimately breached—its 200-day moving average last week, many technical analysts saw stocks entering a longer-term downtrend. However, unless you define “longer-term downtrend” as seven trading sessions, we’d say those concerns were a teensy bit off. (Exhibit 1)

Commentary

Fisher Investments Editorial Staff
Commodities, Media Hype/Myths

About Those Falling Commodity Prices

By, 10/21/2014
Ratings524.048077

Here is a scary story you may have heard this month: Commodity prices are tanking as Asia’s demand for crude oil and industrial metals dives, signaling a global economic slowdown. It has appeared, with varying degrees of detail and hyperbole, here, here, here, here, here, here and here. Some infer bad things from charts like Exhibit 1. Others use anecdotal evidence and rhetoric. We don’t think either approach—or the thesis—matches reality, however. Take a deep data dive, and you’ll see a far more boring, benign reason for falling prices: Supply is up way more than demand, which isn’t plummeting (contrary to widespread belief).

Exhibit 1: Select Commodity Prices Year-to-Date

Commentary

Fisher Investments Editorial Staff
Behavioral Finance

Amid Volatility, Beware Your Inner Investing Demons

By, 10/20/2014
Ratings374.554054

Ebola, deflation, the Fed (!), bond market liquidity, technical indicators and more. The media seems obsessed with hunting down larger explanation for recent volatility. The more obsessive they get, the more likely investors get caught up in all the noise, increasing the risk their brains get the best of them. Take note: Now is a time to be conscious of your inner investing demons—the kind that can cause you to act counter to your long-term goals. Recognizing these pitfalls is a key step to keeping them in check.

Year to date, the MSCI World Total Return Index has closed more than 1% up or down 18 days.[i] Of those 18, five came in October’s 13 trading sessions, and two had intraday swings of greater than 1% (one was greater than 2%) this tally doesn’t capture.[ii] Friday continued October’s choppy start, with the MSCI World jumping +1.3% (yes, big up is still volatility). At one point, the global gauge had fallen -9.3% from its peak.[iii] After Friday’s big bounce, global stocks were -8.1% below the peak.[iv] Will they fall further? No one can know, in our view. There is no way to tell if Friday’s bounce marked the end of the short-term dip. We’ll know if markets avoided the first technical correction since 2012 only in hindsight.[v] But we do know when volatility runs higher, it often triggers humans’ innate fight-or-flight instinct. This is a useful evolutionary reaction when you are trying to avoid being a wild animal’s lunch, but it isn’t helpful in markets, which require rationality. Maybe you’re above making such errors. That’s possible. But at the same time, it doesn’t hurt to review some typical mental errors so you can learn from others’ mistakes and hopefully avoid making them.

Recency bias is one pitfall many investors succumb to when markets get rocky. Recency bias is the tendency to take very recent market behavior and extrapolate it forward, sometimes to degrees most people would think irrational when coolheaded. It’s easy to see how you might get engulfed by this today, as headlines proclaim, “October’s Wild Ride Isn’t Over Yet” and attempt to explain “Why All This Market Volatility Is Here to Stay.”

Commentary

Fisher Investments Editorial Staff
Media Hype/Myths

Did a Fed Waffle Cause Thursday’s Rebound?

By, 10/17/2014
Ratings324.328125

This investor is putting Thursday’s market action under a magnifying glass. Photo by Comstock.

We have to make sure that inflation and inflation expectations remain near our target. And for that reason I think a reasonable response of the Fed in this situation would be to invoke the clause on the taper that said that the taper was data dependent. And we could go on pause on the taper at this juncture and wait until we see how the data shakes out into December.…

Commentary

Christopher Wong

Four Tips for Retirement Investing

By, 10/16/2014
Ratings1224.204918

Retirement should mean more time to relax, not worry. Photo credit: Guillermo Murcia/Getty Images.

Retirement: the word strikes both joy and fear in the hearts of many long-term investors. Joy over the possibilities of post-working life: traveling, pursuing new hobbies and/or spending more time with family and friends. Fear due to all the unknowns: How much should I be saving?; Will I have enough to retire when I want?; What if I run out of money during retirement? The media exacerbates the fear with headlines screaming how unprepared Americans are for their golden years. But retirement investment needn’t intimidate. Now, ask most financial professionals how to prepare, and you’ll probably get a cliché answer—Save More! But here are four less-often-shared tips to get you started—tips equally applicable if you’re far from retirement or already in it.

Commentary

Fisher Investments Editorial Staff
Inflation, Media Hype/Myths

Why We Don’t Fear Deflationary Doom Is Here

By, 10/16/2014
Ratings474.404255

Stocks had a wild ride Wednesday, with the S&P 500 Price Index down as much as -3% before climbing back to finish the day down just -0.8%.  Perhaps the correction many have long awaited is here—at one point, the S&P 500 Price Index was about one percentage point removed from correction territory (10% lower than a prior high point)—but it’s only clear in hindsight. Such moves are sentiment-driven and tend to come and go fast. There is usually a host of negative headlines, surrounding a spooky story or stories. But corrections can be caused by virtually anything. Or nothing. Such headlines abound today.

Let’s consider one of the day’s big fears: global deflation. To many observers, the evidence prices are about to spiral downward is stacking up. Chinese consumer inflation slowed to just 1.6% y/y in September—the lowest since 2009—and Chinese producer prices slid faster, hitting -1.8% y/y. September US producer prices fell -0.1% m/m. UK CPI slowed to 1.2% y/y, also the slowest since 2009. 10-year US Treasury yields briefly dipped below 2%. Oil prices continued tanking.[i] Market-driven future inflation gauges, including five-year US TIPS spreads and the eurozone’s five-year/five-year inflation swap, are falling. German inflation is stuck at 0.8% y/y. The eurozone’s final September inflation estimate hits Thursday, and no one expects improvement from the 0.3% y/y first read. 

Two primary interpretations emerged from this data bonanza. One, the slow ebb in prices will be a self-fulfilling prophecy, and deflation will choke off the global expansion. Two, low inflation/deflation will make debt more burdensome—another growth headwind. These are big, popular, scary stories, but we don’t think either carries much weight—problematic deflation doesn’t appear to be in the cards.

Commentary

Fisher Investments Editorial Staff
Across the Atlantic, Media Hype/Myths

Return of the Euro Crisis’ Ghosts

By, 10/15/2014

With volatility back, many seek to explain what has amounted to quite a back-and-forth October. And it seems many settled on recent developments in Europe as the culprit. While possible, a quick glance at Europe’s recent headlines might have you thinking it’s 2011 or 2012. In our view, fears around the eurozone likely lack the teeth to materially bite this bull. The questions may be slightly different now: It’s more, “How does the eurozone avoid a ’lost decade of growth?” than warnings of the imminent collapse of the common currency. But most of the fears—and many of the specifics—are the same. These recycled false fears likely lack the surprise power to knock a global bull off track.

Interested in market analysis for your portfolio? Our latest report looks at key stock market drivers including market, political, and economic factors. Click Here for More!

Better Together, Spanish Edition

Commentary

Fisher Investments Editorial Staff

The US Federal Deficit: Choose Your Own Fiscal Adventure

By, 10/13/2014
Ratings524.346154

Last week, the Congressional Budget Office (CBO) released its final projection for fiscal year 2014’s US federal budget deficit. And it is down again! They estimate the feds ran a $486 billion deficit in 2014.[i] The direction, even the magnitude of the dip, isn’t all that surprising—the deficit has fallen for some time. However, it still managed to attract plenty of debate. Why? The deficit is a frequently kicked around political football, and this time there is something in it for everyone. But we’d suggest ignoring all the noise and taking the figure for what it is—a result of a growing economy!

Interested in market analysis for your portfolio? Our latest report looks at key stock market drivers including market, political, and economic factors. Click Here for More!

This year’s reduction isn’t a new trend—aside from a teensy uptick in 2011, the deficit has been drifting since 2009’s peak—falling steeply in 2012 and 2013. Since 2009, the deficit is down 65.6%. Exhibit 1 shows the deficit’s progression over the past decade in dollars. Exhibit 2 shows it as a percent of GDP, down from 9.8% to 2.8%.[ii] (Exhibit 2)

Commentary

Fisher Investments Editorial Staff
Media Hype/Myths

Did a Fed Waffle Cause Thursday’s Rebound?

By, 10/17/2014
Ratings324.328125

This investor is putting Thursday’s market action under a magnifying glass. Photo by Comstock.

We have to make sure that inflation and inflation expectations remain near our target. And for that reason I think a reasonable response of the Fed in this situation would be to invoke the clause on the taper that said that the taper was data dependent. And we could go on pause on the taper at this juncture and wait until we see how the data shakes out into December.…

Commentary

Christopher Wong

Four Tips for Retirement Investing

By, 10/16/2014
Ratings1224.204918

Retirement should mean more time to relax, not worry. Photo credit: Guillermo Murcia/Getty Images.

Retirement: the word strikes both joy and fear in the hearts of many long-term investors. Joy over the possibilities of post-working life: traveling, pursuing new hobbies and/or spending more time with family and friends. Fear due to all the unknowns: How much should I be saving?; Will I have enough to retire when I want?; What if I run out of money during retirement? The media exacerbates the fear with headlines screaming how unprepared Americans are for their golden years. But retirement investment needn’t intimidate. Now, ask most financial professionals how to prepare, and you’ll probably get a cliché answer—Save More! But here are four less-often-shared tips to get you started—tips equally applicable if you’re far from retirement or already in it.

Commentary

Fisher Investments Editorial Staff
Inflation, Media Hype/Myths

Why We Don’t Fear Deflationary Doom Is Here

By, 10/16/2014
Ratings474.404255

Stocks had a wild ride Wednesday, with the S&P 500 Price Index down as much as -3% before climbing back to finish the day down just -0.8%.  Perhaps the correction many have long awaited is here—at one point, the S&P 500 Price Index was about one percentage point removed from correction territory (10% lower than a prior high point)—but it’s only clear in hindsight. Such moves are sentiment-driven and tend to come and go fast. There is usually a host of negative headlines, surrounding a spooky story or stories. But corrections can be caused by virtually anything. Or nothing. Such headlines abound today.

Let’s consider one of the day’s big fears: global deflation. To many observers, the evidence prices are about to spiral downward is stacking up. Chinese consumer inflation slowed to just 1.6% y/y in September—the lowest since 2009—and Chinese producer prices slid faster, hitting -1.8% y/y. September US producer prices fell -0.1% m/m. UK CPI slowed to 1.2% y/y, also the slowest since 2009. 10-year US Treasury yields briefly dipped below 2%. Oil prices continued tanking.[i] Market-driven future inflation gauges, including five-year US TIPS spreads and the eurozone’s five-year/five-year inflation swap, are falling. German inflation is stuck at 0.8% y/y. The eurozone’s final September inflation estimate hits Thursday, and no one expects improvement from the 0.3% y/y first read. 

Two primary interpretations emerged from this data bonanza. One, the slow ebb in prices will be a self-fulfilling prophecy, and deflation will choke off the global expansion. Two, low inflation/deflation will make debt more burdensome—another growth headwind. These are big, popular, scary stories, but we don’t think either carries much weight—problematic deflation doesn’t appear to be in the cards.

Commentary

Fisher Investments Editorial Staff
Across the Atlantic, Media Hype/Myths

Return of the Euro Crisis’ Ghosts

By, 10/15/2014

With volatility back, many seek to explain what has amounted to quite a back-and-forth October. And it seems many settled on recent developments in Europe as the culprit. While possible, a quick glance at Europe’s recent headlines might have you thinking it’s 2011 or 2012. In our view, fears around the eurozone likely lack the teeth to materially bite this bull. The questions may be slightly different now: It’s more, “How does the eurozone avoid a ’lost decade of growth?” than warnings of the imminent collapse of the common currency. But most of the fears—and many of the specifics—are the same. These recycled false fears likely lack the surprise power to knock a global bull off track.

Interested in market analysis for your portfolio? Our latest report looks at key stock market drivers including market, political, and economic factors. Click Here for More!

Better Together, Spanish Edition

Commentary

Fisher Investments Editorial Staff

The US Federal Deficit: Choose Your Own Fiscal Adventure

By, 10/13/2014
Ratings524.346154

Last week, the Congressional Budget Office (CBO) released its final projection for fiscal year 2014’s US federal budget deficit. And it is down again! They estimate the feds ran a $486 billion deficit in 2014.[i] The direction, even the magnitude of the dip, isn’t all that surprising—the deficit has fallen for some time. However, it still managed to attract plenty of debate. Why? The deficit is a frequently kicked around political football, and this time there is something in it for everyone. But we’d suggest ignoring all the noise and taking the figure for what it is—a result of a growing economy!

Interested in market analysis for your portfolio? Our latest report looks at key stock market drivers including market, political, and economic factors. Click Here for More!

This year’s reduction isn’t a new trend—aside from a teensy uptick in 2011, the deficit has been drifting since 2009’s peak—falling steeply in 2012 and 2013. Since 2009, the deficit is down 65.6%. Exhibit 1 shows the deficit’s progression over the past decade in dollars. Exhibit 2 shows it as a percent of GDP, down from 9.8% to 2.8%.[ii] (Exhibit 2)

Commentary

Fisher Investments Editorial Staff
Reality Check, Media Hype/Myths, Behavioral Finance

Putting Stocks’ Zigzags in Broader Perspective

By, 10/10/2014
Ratings1934.062176

After a big, volatile bounce back Wednesday, in which the S&P 500 surged 1.8%, negativity struck US markets on Thursday, with the S&P 500 down 2.1% on the day.[i] Since October began, the S&P has swung more than 1% up or down five times (two up, three down). The back-and-forth is rather predictably spurring some eye-catching headlines. Here is a small sample so you get the flavor:

Interested in market analysis for your portfolio? Our latest report looks at key stock market drivers including market, political, and economic factors. Click Here for More!

However, all these headlines look at either one day or this month’s seven trading sessions under a microscope. A broader view can add some very valuable perspective.

Research Analysis

Fisher Investments Research Staff

MLPs and Your Portfolio

By, 11/26/2013
Ratings823.890244

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, 10/24/2014

MarketMinder's View: Parts of this are a bit buy-and-holdy, and it downplays the opportunities to capitalize on trends that arise throughout the market cycle. But those wee drawbacks aside, it is a handy look at some of the ways our brains and feelings trick us. These are four lessons every investor who isn’t a robot or otherwise lacks an emotional “off” switch would benefit from learning.

By , The Wall Street Journal, 10/24/2014

MarketMinder's View: The sciencey stuff in the first half is interesting, but probably not actionable. The second half, however, is full of good solid sense about how people err in perceiving their own ability to withstand market volatility—and what they can do about it. Why is this important? “For most investors, the most damaging risk is probably … ‘deviating from your long-term plan in pursuit of short-term emotional comfort in a time of unease.’” The four-part questionnaire at the end can help you avoid this trap.

By , MarketWatch, 10/24/2014

MarketMinder's View: This piece highlights an NBER paper claiming stocks do best under Republican governments but the economy does best under Democrats. This. Is. Hogwash. Stocks don’t prefer either party. Of the 13 bear markets since 1926, six started on a Democratic President’s watch and seven started under a Republican. The reason one is higher than the other is that there is an odd number. Differing economic growth rates during Democratic and Republican administrations stems from countless variables, many beyond the President’s control. Politically, we think the biggest swing factor is gridlock. When Congress can’t agree on anything, they can’t reshape property rights, regulation or the distribution of resources and capital. Stocks usually love the stability of the status quo.

By , The Washington Post, 10/24/2014

MarketMinder's View: No it didn’t. It just got argued, once again, which doesn’t make it remotely accurate. This time, two economists tried to model “secular stagnation” and came up with three reasons why it’s a thing and could stay a thing. Those reasons are household deleveraging, inequality and declining population growth. Let’s take a look. Households did deleverage quite a bit after the financial crisis, but borrowing bounced last year and is accelerating. Not that you need higher household borrowing and less saving to boost interest rates and boost growth—a bizarre thesis considering the paper goes on to argue we need super low rates to boost growth. (When arguments argue against themselves, they fail the logic test.) Moving to inequality, we have never seen reliable evidence it is widening. Most studies use pre-tax, pre-entitlement median household income. Which doesn’t account for a) programs created to address income gaps, b) the fact more houses are headed by singles today than 30 years ago and c) age. The household income of a 24-year-old college grad in her first job versus the household income of her parents, combined, in their prime earning years, is not inequality. It’s just life. Finally, demographic trends aren’t market drivers. Though, we’d also point out, Millennials outnumber Boomers. Japan didn’t have a lost decade because its working-age population started declining. Those economic troubles had a wee bit more to do with Japan’s structurally unsound state-sponsored neo-feudal-mercantilist economy.

Global Market Update

Market Wrap-Up, Thurs Oct 23 2014

Below is a market summary (as of market close Thursday, 10/23/2014):

  • Global Equities: MSCI World (+0.8%)
  • US Equities: S&P 500 (+1.2%)
  • UK Equities: MSCI UK (+0.2%)
  • Best Country: Sweden (+1.4%)
  • Worst Country: Japan (-1.2%)
  • Best Sector: Energy (+1.4%)
  • Worst Sector: Consumer Staples (-0.2%)
  • Bond Yields: 10-year US Treasurys rose .06 to 2.27%

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.