Commentary

Fisher Investments Editorial Staff
Media Hype/Myths

G-20 Minus One Country Plus 900 Bullet Points = 2 Percentage Points of Extra Growth?

By, 09/23/2014

Australian finance minister Joe Hockey has one of the greatest last names in politics. He also claims (along with 18 fellow fin-mins) to have the 900-point key to faster global growth. Photo by Bloomberg/Getty Images.

What happens when finance ministers from 19 apparently important economies hang out in Australia for a weekend? For one thing, you get bizarre promises like this: “As of today, we are 90 percent of the way to reaching our 2 percent goal for additional global growth.” At least, so says Aussie finance minister Joe Hockey, talking up the 900-plus initiatives he and his cohorts supposedly agreed to in their effort to make the world grow two percentage points faster (annually) over the next five years.[i] But before you start doing the Snoopy dance over the prospect of faster growth, here is a reality check: This is the G-20.[ii] We are darned skeptical that 900-plus measures blessed by the consensus at a political sideshow will do anything to boost growth above and beyond what it already would have done anyway. Don’t get us wrong—we think the world is poised to grow faster over the foreseeable future! But this isn’t why. All the media attention on this gathering of global economic glitterati is a sideshow for investors.  

Commentary

Fisher Investments Editorial Staff
Interest Rates, Media Hype/Myths

The FOMC’s Rorschach Test

By, 09/19/2014
Ratings323.34375

Wednesday was one of those days the financial press just goes nuts for. They live blog. Feature exclusive video. Previews lead up to it. Prognostications and analyses, factboxes[i] and listicles detail what you should take away. It, we are told, is a really big deal. However, in our view, “It” is really just noise, and something investors would be well served to tune out.

In this case, “It” is the Federal Reserve’s policy statement and the presser that takes place at the end of the biquarterly meeting of the Federal Open Market Committee, the (usually) 12-member committee that sets US monetary policy.[ii] The meeting has taken on a new aura in recent years, not because (as we are often reminded) the Fed did a lot of stuff in the years after 2008. But rather, because one of the specific things it did was release individual Fed member forecasts of expected economic conditions, unemployment and interest rates. The media loves forecasts, especially coming from a mysterious body so widely claimed to sit at the helm of the US economy, steering output and markets along the way. But this was a media dustup, pure and simple, and when the release of September’s statement came, markets basically yawned. And moved on.

The run up to the meeting was rife with talk of “risky” semantics—a will-they-or-won’t-they debate over whether the words “considerable time” would be in the statement. As in, would the statement keep this Hemingway-esque phraseology:

Commentary

Fisher Investments Editorial Staff
Emerging Markets, Into Perspective

The Li Keqiang Put

By, 09/18/2014
Ratings214.285714

Beijing (and China broadly) likely continues to benefit from the government’s growth-and-reform balancing act. Source: Feng Li/Getty Images.

“New normal China is less interested in growth rates and more interested in quality and efficiency of growth: pushing forward reform, adjusting structure and trying to benefit the people.” So said China’s state-run media in a piece called “No Need to Hype China’s Weak Figures,” published Wednesday after a string of dismal (by Chinese standards) data and quite in keeping with what Premier Li Keqiang said at last week’s World Economic Forum: “We are restructuring instead of expanding the monetary supply.” He also said growth was still in a satisfactory range despite some noticeably weaker figures in August. And yet, on Wednesday, the top headline on state-run China Daily’s English language website was this: “PBOC Injects $81b into banks.” Then, on Thursday, the PBOC cut banks’ short-term borrowing costs. All of which smells a lot like monetary stimulus. Yes, it seems China is sticking with its standard approach: Talking up reform efforts and trying to manage folks’ expectations while quietly ensuring the economy has just enough oomph to meet their target.

Commentary

Fisher Investments Editorial Staff

A Buyback Boost?

By, 09/17/2014
Ratings453.844445

Who’s buying equities these days? If trade volumes are any indication, not many folks—at least according to headlines.[i] Which means, by Fleet Street logic, if stock buybacks are surging, corporations must be the only buyers—and without them, the bull would be in trouble, lacking buying power to drive stocks forward. But this theory ignores some key things, like how markets work—and how buybacks really influence them. Stock buybacks are groovy, but they aren’t the only thing driving this bull market.

Buybacks have been hot for this entire bull market, but 2014 has been especially gangbusters. US corporations bought back $338.3 billion of stock in the first half of 2014, the most of any six-month period since 2007. The number of companies with a repurchase program is the highest since 2008. At the same time, trading volumes are low, so headlines put two and two together (they think) and say if buybacks stop, the bull’s out of gas because regular folks just aren’t buying. 

This is sheer fallacy. Corporations aren’t the only buyers. They may get the most headlines, but with 329 and 164 billion shares changing hands on the NASDAQ and NYSE, respectively, year to date,[ii] it’s clear many, many others are trading too. The $338 billion in buybacks is a teensy share of the $6.5 trillion[iii] worth of shares that have traded hands in the NYSE this year alone—to say nothing of the many, many more that traded in the dozens of other trading venues in the US. Yes, volume has decreased in recent months—August had the smallest share volume in both the NASDAQ and NYSE for the year[iv]—but markets don’t need lots of activity to generate big moves.

Commentary

Fisher Investments Editorial Staff
Media Hype/Myths, Interest Rates

Words, Words, Words

By, 09/16/2014
Ratings254.26

Janet Yellen shares a moment with ECB chief Mario Draghi at last month’s banker powwow in Jackson Hole. (Not pictured: The red pen Yellen might use to make some edits to the Fed’s policy statement.) Photo by Bradly Boner/Bloomberg via Getty Images.

So said Hamlet to Polonius in Act II, Scene 2, when asked what he was reading as he wandered the castle halls with his nose buried in parchment. We’ve always felt the same way about the forward guidance in the Fed’s meeting statements—the Fed’s supposed attempt at previewing future moves. They aren’t policy promises or prophesies. They’re just a bunch of words written in a language called Fedspeak, deliberately fuzzy so they don’t back the Fed into a corner. So we’re a wee bit puzzled by the punditry’s handwringing over the mere possibility of the Fed removing the words “considerable time” from its meeting statement this week. As in, changing the sentence saying, “The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends …” Whether or not those two words go bye-bye, it says nothing about when rates actually will rise.

Commentary

Fisher Investments Editorial Staff

Does the US Stand Taller With a Strong Dollar?

By, 09/15/2014
Ratings84.875

Cue the John Phillip Souza! The dollar is on the march higher lately, strengthening against most major currencies worldwide. And according to some, that’s proof the US economy has a leg up over the rest of the world! But currency strength or weakness doesn’t tell you much about economic vibrancy—and it tells you nothing about stock market direction. Our bullish outlook has nothing to do with the expected rise or fall of the greenback.

Currencies only move relative to one another, so arguably the best gauge of what “the dollar is doing” is the Broad Trade-Weighted US Dollar Index, which tallies the moves of the dollar versus 26 other major currencies, weighted by our total trade in each. Since reaching its low for the year on July 9, the dollar has risen fairly consistently versus most currencies. The Broad US Dollar Trade Weighted Index is up in seven of the last nine weekly reads, with the currency up over 2% during the span.[i] A narrower gauge measuring the USD against six currencies is up more, over 5% in the same period.[ii] (Unsurprisingly, most media accounts cite this second, bigger figure. More eye catching, we guess.)

The punditry’s explanations for these moves are many and varied. Some cite “political shocks” elsewhere—Iraq, Ukraine, the Scottish referendum—and claim these events made the dollar look that much greener. Others cite the eurozone’s uneven recovery. The US is their “safe haven,”[iii] if you will, from these global trouble spots. To many, a strong dollar also makes the US economy far more attractive than its peers.  

Commentary

Elisabeth Dellinger
Into Perspective, Personal Finance

Shinzo Abe Walks Into a Bar

By, 09/15/2014

This is not a picture of Shinzo Abe walking into a bar, but we like how jolly he looks. Photo by Matt Cardy/Getty Images.

Here is a wacky idea for Shinzo Abe, the Prime Minister on a quest to revitalize Japan’s economy: Fly to the UK and have a beer or two with a fellow named Tim Martin.

Commentary

Fisher Investments Editorial Staff
MarketMinder Minute

MarketMinder Minute | Can Geopolitical Conflict Knock Stocks?

By, 09/15/2014
Ratings44.625

This MarketMinder Minute looks at the effects of geopolitical conflicts on the stock market.

Interested in market analysis for your portfolio? Why not download our in-depth analysis of current investing conditions and our forecast for the period ahead. Our latest report looks at key stock market drivers including market, political, and economic factors. Click Here for More!

Commentary

Fisher Investments Editorial Staff
Deficits

A Surplus of Fun Factoids About the Federal Deficit!

By, 09/12/2014
Ratings983.923469

When your next dinner party conversation turns, inevitably, to public finance, here are a few fun factoids you can “Wow!” all your guests with.

Thursday, the US Treasury reported that with 11 months of fiscal year 2014 in the books, the US deficit fell again on a year-over-year basis, to $589.5 billion—a 58% reduction from the peak, fiscal 2009’s $1.42 trillion. August 2014’s deficit was $128 billion, and the news media picked up the story, reporting it for what it is—a 13% year-over-year reduction in the deficit and just moved on. Of the last 30 Septembers, 24 posted a monthly surplus—so it seems likely even that $589.5 billion figure could drop. Perhaps to match the Congressional Budget Office’s (CBO’s) $506 billion forecast made last month! Absent were fears the US would morph into the next Greece, without the fun ruins.[i] Absent also were claims American austerity would crush demand. So what gives? Simple—sentiment is slowly catching up with reality, and the deficit is one way to see it.

In fiscal year 2007, the US federal government spent $162 billion more than it took in. But when recession arrived the following fiscal year, deficits rose to $455 billion, based on a slight dip in revenue and increased spending. The following year, fiscal 2009, crisis response boosted spending sharply, in the form of the American Recovery and Reinvestment Act (fiscal stimulus) and spending associated with other crisis response programs. Meanwhile, the feds’ tax receipts fell by $419 billion. The combination resulted in surging deficits, which peaked at more than $1.4 trillion. Exhibit 1 shows the progression from Fiscal 2007’s pre-recession low through the present.

Commentary

Fisher Investments Editorial Staff
Capitalism, Geopolitics, Media Hype/Myths

There Is Nothing About Terror to Fear But Fear Itself

By, 09/11/2014
Ratings454.144444

Thirteen years ago Thursday, Americans were tragically reminded terrorist attacks can happen at any time, without warning, and bring devastating loss of life. This is always true, but perhaps more on folks’ minds now with several Western leaders warning of the threat from US and EU passport holders fighting with ISIS in Iraq and Syria. For investors, being mentally prepared is important. We aren’t predicting an event (there isn’t any way to) and we pray the day never comes—but being aware of the possibility and potential market impact is key to maintaining discipline. Especially because your instinct might very well be to sell—yet history shows any market impact is typically fleeting.

Many folks take it as given that terrorist strikes on western soil are deeply negative for stocks—after all, the S&P 500 Price Index lost -11.6% during the first five trading days when markets reopened after 9/11, and full-year returns were -13%. Yet that -13% has far less to do with 9/11 than with the bear market that began nearly 18 months prior, on March 24, 2000, as the Tech Bubble burst. Stocks were down -17.3% in the year through September 10, 2001—before the planes hit. They actually rallied between 9/21 and the end of the year, as shown in Exhibit 1.

Exhibit 1: September 11th Attacks

Commentary

Fisher Investments Editorial Staff

Does the US Stand Taller With a Strong Dollar?

By, 09/15/2014
Ratings84.875

Cue the John Phillip Souza! The dollar is on the march higher lately, strengthening against most major currencies worldwide. And according to some, that’s proof the US economy has a leg up over the rest of the world! But currency strength or weakness doesn’t tell you much about economic vibrancy—and it tells you nothing about stock market direction. Our bullish outlook has nothing to do with the expected rise or fall of the greenback.

Currencies only move relative to one another, so arguably the best gauge of what “the dollar is doing” is the Broad Trade-Weighted US Dollar Index, which tallies the moves of the dollar versus 26 other major currencies, weighted by our total trade in each. Since reaching its low for the year on July 9, the dollar has risen fairly consistently versus most currencies. The Broad US Dollar Trade Weighted Index is up in seven of the last nine weekly reads, with the currency up over 2% during the span.[i] A narrower gauge measuring the USD against six currencies is up more, over 5% in the same period.[ii] (Unsurprisingly, most media accounts cite this second, bigger figure. More eye catching, we guess.)

The punditry’s explanations for these moves are many and varied. Some cite “political shocks” elsewhere—Iraq, Ukraine, the Scottish referendum—and claim these events made the dollar look that much greener. Others cite the eurozone’s uneven recovery. The US is their “safe haven,”[iii] if you will, from these global trouble spots. To many, a strong dollar also makes the US economy far more attractive than its peers.  

Commentary

Elisabeth Dellinger
Into Perspective, Personal Finance

Shinzo Abe Walks Into a Bar

By, 09/15/2014

This is not a picture of Shinzo Abe walking into a bar, but we like how jolly he looks. Photo by Matt Cardy/Getty Images.

Here is a wacky idea for Shinzo Abe, the Prime Minister on a quest to revitalize Japan’s economy: Fly to the UK and have a beer or two with a fellow named Tim Martin.

Commentary

Fisher Investments Editorial Staff
MarketMinder Minute

MarketMinder Minute | Can Geopolitical Conflict Knock Stocks?

By, 09/15/2014
Ratings44.625

This MarketMinder Minute looks at the effects of geopolitical conflicts on the stock market.

Interested in market analysis for your portfolio? Why not download our in-depth analysis of current investing conditions and our forecast for the period ahead. Our latest report looks at key stock market drivers including market, political, and economic factors. Click Here for More!

Commentary

Fisher Investments Editorial Staff
Deficits

A Surplus of Fun Factoids About the Federal Deficit!

By, 09/12/2014
Ratings983.923469

When your next dinner party conversation turns, inevitably, to public finance, here are a few fun factoids you can “Wow!” all your guests with.

Thursday, the US Treasury reported that with 11 months of fiscal year 2014 in the books, the US deficit fell again on a year-over-year basis, to $589.5 billion—a 58% reduction from the peak, fiscal 2009’s $1.42 trillion. August 2014’s deficit was $128 billion, and the news media picked up the story, reporting it for what it is—a 13% year-over-year reduction in the deficit and just moved on. Of the last 30 Septembers, 24 posted a monthly surplus—so it seems likely even that $589.5 billion figure could drop. Perhaps to match the Congressional Budget Office’s (CBO’s) $506 billion forecast made last month! Absent were fears the US would morph into the next Greece, without the fun ruins.[i] Absent also were claims American austerity would crush demand. So what gives? Simple—sentiment is slowly catching up with reality, and the deficit is one way to see it.

In fiscal year 2007, the US federal government spent $162 billion more than it took in. But when recession arrived the following fiscal year, deficits rose to $455 billion, based on a slight dip in revenue and increased spending. The following year, fiscal 2009, crisis response boosted spending sharply, in the form of the American Recovery and Reinvestment Act (fiscal stimulus) and spending associated with other crisis response programs. Meanwhile, the feds’ tax receipts fell by $419 billion. The combination resulted in surging deficits, which peaked at more than $1.4 trillion. Exhibit 1 shows the progression from Fiscal 2007’s pre-recession low through the present.

Commentary

Fisher Investments Editorial Staff
Capitalism, Geopolitics, Media Hype/Myths

There Is Nothing About Terror to Fear But Fear Itself

By, 09/11/2014
Ratings454.144444

Thirteen years ago Thursday, Americans were tragically reminded terrorist attacks can happen at any time, without warning, and bring devastating loss of life. This is always true, but perhaps more on folks’ minds now with several Western leaders warning of the threat from US and EU passport holders fighting with ISIS in Iraq and Syria. For investors, being mentally prepared is important. We aren’t predicting an event (there isn’t any way to) and we pray the day never comes—but being aware of the possibility and potential market impact is key to maintaining discipline. Especially because your instinct might very well be to sell—yet history shows any market impact is typically fleeting.

Many folks take it as given that terrorist strikes on western soil are deeply negative for stocks—after all, the S&P 500 Price Index lost -11.6% during the first five trading days when markets reopened after 9/11, and full-year returns were -13%. Yet that -13% has far less to do with 9/11 than with the bear market that began nearly 18 months prior, on March 24, 2000, as the Tech Bubble burst. Stocks were down -17.3% in the year through September 10, 2001—before the planes hit. They actually rallied between 9/21 and the end of the year, as shown in Exhibit 1.

Exhibit 1: September 11th Attacks

Commentary

Fisher Investments Editorial Staff

Running of the Bears?

By, 09/10/2014
Ratings454.366667

Evidently, bears just became an endangered species—Wall Street bears, that is. Some notable long-time pessimists are changing their tune, leading some to wonder if the “capitulation of the bears”[i] typical of euphoric peaks is starting. It’s a fair question, though the fact folks are thinking about this is itself a sign sentiment is in check. Moreover, all it takes is some simple math to see these newly minted bulls aren’t exactly running wild with optimism.

In a full-fledged capitulation, you usually see some long-time permabears throw in the towel and jump on the super-bull bandwagon. They’re tired of being wrong year after year as stocks continually defy their “look out below!” warnings of doom and gloom. They’re tired of being made fun of by an increasingly optimistic punditry. So they give up and start forecasting 30% up years with the rest of them—a pretty fair sign sentiment is out of whack.

This isn’t what’s happening today. Though some experts are sunnier, plenty of doom and gloomers remain, and they aren’t yet the laughing stock of Wall Street. They’re journalists’ go-to sources for quotes to fill articles highlighting potential risks or threats, and they command reverence.  

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 , The Telegraph, 09/22/2014

MarketMinder's View: We’d actually call this list “10 False Fears” for the following reasons. 1) China likely doesn’t see a hard landing. 2) Lower iron ore prices are not an indication of said Chinese hard landing. 3) Oil prices move on supply and demand. Supply is up. Demand is perhaps up less, but energy efficiency plays a huge role here. Falling oil prices does not mean falling global demand for goods and services. 4) Nor do falling commodity prices. What about that huge supply glut caused by years of high investment? 5) Investors usually shift away from small-cap stocks as bull markets mature. This is also when market breadth (the percentage of companies outperforming) narrows. 6) Seems like rational behavior, no? 7) The Fed isn’t printing money—it’s electronically increasing its balance sheet to purchase assets through quantitative easing (QE). Banks aren’t doing much of anything with these reserves. 8) The cyclically adjusted P/E ratio—aka Shiller P/E—is terrible at predicting cyclical turning points. It was at or above today’s level for the last three and a quarter years of the 1990s bull. 9) Length alone never ended a bull market. That this is the fourth-longest on record is trivia. 10) History suggests an interest rate hike, whenever it happens, likely won’t materially impact stocks. Nor will it shock the world economy, which has decidedly more going for it than low short-term rates. In our view, each of these represents a brick in the wall of worry. The more investors fear these—and more—the bigger the wall of worry the bull has to climb.

By , Financial Post, 09/22/2014

MarketMinder's View: Here is a summary of this article: “Currencies are wiggling, interest rate futures are wobbling, the Fed is Feding, Japan is monetizing its debt(?!?!), the ECB isn’t trying hard enough, the dollar is up, gold is down, war is a thing, so buy defense stocks.” In other words, this potpourri of observations, misperceptions and widely discussed fears has pretty much no use for long-term growth investors. Though, we guess it also gets like half a nod for not suggesting you flee from stocks because of any or all of these things.

By , The Wall Street Journal, 09/22/2014

MarketMinder's View: The three tips here have one thing in common: They are terrible ways to “assess your financial progress,” which is jargon for “see if you’re on track to have enough money in retirement.” Let’s take them one at a time.

  1. Your total net worth—home plus investments minus debt—is not an appropriate baseline for measuring your retirement savings. This says you have “six years of financial freedom” if you have a $300,000 net worth and $50,000 in annual expenses, but we are pretty sure you can’t spend your house. You’d actually have to sell it or borrow against it, and then your expenses would probably rise because of rent or interest. Folks should generally count only liquid assets as retirement savings.
  2. We have no qualms with the 4% rule or the suggestion that folks should calculate their retirement expenses first, and then work backward to see if they’ve saved enough. But where we are in the market cycle on your retirement day has nothing to do with whether or not you’ve saved enough, because your time horizon does not end at retirement, and bear markets are temporary. There is no evidence experiencing a bear market early in retirement raises the risk of running out of money, provided you are invested in the ensuing bull market.
  3. Looking at your retirement cash flows as “a multiple of your income while you’re working” is a cookie-cutter approach that doesn’t account for your actual retirement expenses. Life is a lot messier and complicated than this one-size-all trick suggests, and it’s well worth the extra time it will take to sit down and map out your actual expenses—and to look at the historical rates of inflation for the main items included, as these can vary widely from headline CPI.
By , Bloomberg, 09/22/2014

MarketMinder's View: Why does corporate insiders’ behavior “defy” buybacks? Because if execs personally are net sellers, but their corporations are still buying back stocks, then their “hearts aren’t in” these buybacks, which we’re supposed to interpret to mean this bull market is a house of cards. Let us count the holes! One: How do they know which sell-happy insiders are also overseeing buyback programs? Two: What if insiders are selling because they want to diversify (which is good), buy a home, send their kids to college, pay for a wedding, or any of the other many reasons that have zippo to do with their view of their company’s future? Three: If executives receive most of their shares as compensation, wouldn’t they by definition always be net sellers? Four: Comparing today’s seller-to-buyer ratio to October 2010 through April 2011 (the eve of “the closest the market has come to ending the bull market,” which is just a weird way to describe a fairly typical bull market correction) is just plain cherry-picking. Five: If insiders are “always right,” why do other data show companies whose insiders have sold a lot haven’t done repeatedly worse than other companies?

Global Market Update

Market Wrap-Up, Fri Sept 19 2014

Below is a market summary (as of market close Friday, 09/19/2014):

  • Global Equities: MSCI World (-0.1%)
  • US Equities: S&P 500 (-0.1%)
  • UK Equities: MSCI UK (-0.2%)
  • Best Country: Japan (+0.8%)
  • Worst Country: Ireland (-2.1%)
  • Best Sector: Telecommunication Services (+0.5%)
  • Worst Sector: Materials (-0.5%)
  • Bond Yields: 10-year US Treasurys fell .05 to 2.58%

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.