Commentary

Fisher Investments Editorial Staff
Repeatable History, Reality Check

Fun With Fun Facts

By, 10/18/2017
Ratings784.044872


Investment trivia might be useful for quiz night, but not for your portfolio. (Photo by natasaadzic/iStock by Getty Images.)

MarketMinder does not recommend individual securities. The below simply illustrate a broader theme we wish to highlight.

Pub quiz! Here are three fun factoids. What do they have in common?

Commentary

Fisher Investments Editorial Staff
MarketMinder Minute, Taxes

Market Insights: Tax Reform and Stocks

By, 10/17/2017
Ratings694.094203

In this Market Insights video, we discuss the relationship—or lack thereof—between US tax policy changes and US stock performance.

Commentary

Fisher Investments Editorial Staff
Personal Finance

Fiduciary Rules, Annuities and Due Diligence

By, 10/17/2017
Ratings524.644231

The Department of Labor’s fiduciary standard—unveiled in April 2015—was intended to prevent brokers from selling unnecessary high-fee products. A nice thought! Unless, we guess, you are a variable annuity salesperson. Some predicted these annuities—famously fee-heavy—would take a hit once the rule took effect (it hasn’t fully yet). But annuity factories are adapting in anticipation. They’re finding ways to keep targeting retirees—for example, by offering new products they expect to better fit the fiduciary standard, though they aren’t fundamentally different otherwise. In our view, this is a great example of the issues with the DoL’s rule—and a reminder for investors to always do their due diligence on any investment product or service before jumping in.

The DoL’s fiduciary rule is supposed to protect investors by requiring brokers and advisers working with retirement accounts to act in their clients’ best interest; disclose all conflicts of interest in writing and on a dedicated website; and inform clients how they are working to mitigate those conflicts. Most of the rule is on ice until July 2019 while regulators decide how to apply it, but many brokers and insurers are preparing now for its eventual implementation via new annuity offerings for use in IRAs and 401(k)s.

There is a basic problem here: Simply, annuity marketing promises funds that grow tax-free until withdrawal, when the assets can be converted into a “guaranteed” stream of income payments. But most retirement accounts already grow tax-free—and that annuity shell will still cost much more than a comparable non-annuity option. Adding another tax shell in your IRA or 401(k) is redundant. The SEC has had warnings on its website for about a decade regarding this practice.

Commentary

Fisher Investments Editorial Staff
Currencies, Into Perspective

No, IMFcoin Won’t Rule Them All

By, 10/16/2017
Ratings234.608696


A purse, wallet or blockchain basket doesn’t change the value of what’s inside. (Photo by sandorgora/iStock by Getty Images.)

Recently the IMF floated an idea for making its special drawing rights (SDRs)—the accounting unit for the IMF’s reserve assets and bailout funding—more relevant: relaunching SDRs as a bitcoin-like digital currency. Behold, IMFcoin! Naturally, this plays into longstanding fears the US dollar’s days as the world’s most-used reserve currency are numbered, in this case because where cryptocurrency talk goes, so goes wild speculation. It sort of reminds us of the brief “Fedcoin” hoopla after a Fed economist’s mere suggestion central bank digital currency could be useful.[i] Though the prospect of innovation is interesting, speculating about endgames—for cryptos, the IMF and the dollar—seems pointless for now. Markets don’t discount far-future hypotheticals and, in our view, the dollar losing reserve currency status was always a false fear.

As the SDR presently stands, putting it on blockchain and turning it into a cryptocurrency would be window dressing. The SDR isn’t a currency. It is a claim on five major currencies: US dollar (41.7%), euro (30.9%), Chinese renminbi (10.9%), Japanese yen (8.3%) and British pound (8.1%). Countries that hold SDRs simply have the right to swap them for the underlying currencies. Their original purpose was to give countries an alternative to gold and US dollars in international transactions—a way of supporting foreign trade.[ii] These days, they feature mostly in IMF bailout funding and a small part of countries’ forex reserves. SDRs in circulation amount to around $285 billion, which is tiny compared to major global central bank reserves, which total north of $14 trillion.[iii] Turning it all crypto doesn’t seem like much of a change. SDRs are already an electronic accounting unit—one that includes dollars. Putting it on a blockchain would just turn it into a different sort of electronic accounting unit ... that would presumably include dollars. The value of a global reserve currency basket isn’t the basket—weaved with blockchain or not—it’s the currencies in it.

Commentary

Fisher Investments Editorial Staff

This Month in Global Elections

By, 10/13/2017
Ratings274.12963

Entering 2017, most everyone figured the global election circus would be over by now, as September’s German election was the last major contest on the docket. But politicians had other ideas, as Austria and Japan decided to get in on the fun. First Austria called a snap election after its centrist coalition government collapsed in May. Japanese PM Shinzo Abe followed suit last month in a bid to strengthen his hand. While both perhaps stir uncertainty in the short term, neither should upend this year of falling political uncertainty. Rather, they give investors a couple more opportunities to gain clarity and shift focus to the world’s strong economic fundamentals.

Austria: The Adventures of Wunderwuzzi  

The center-right People’s Party (OVP) leads polls ahead of Sunday’s contest, followed by the far-right Freedom Party (FPO) and center-left Social Democratic Party (SPO) in third, teeing up the prospect of the OVP’s 31-year-old hot shot leader, Sebastian Kurz (aka Wunderwuzzi), becoming the next prime minister. But as with most continental European elections, no party is likely to win an outright majority, forcing the eventual winner to cobble together a coalition.

Research Analysis

Christo Barker
Into Perspective

Making Sense of Catalonia

By, 10/13/2017
Ratings514.352941

On October 1, following a widely watched political spat, voters in Spain’s Catalan region went to the polls in an independence referendum and elected to leave Spain—despite Spain’s government and constitutional court declaring the vote illegal and Spanish police attempting to deter it. The vote ratcheted up investors’ uncertainty, and Spanish markets fell in the ensuing days as headlines called it Spain’s biggest constitutional crisis ever (Exhibit 1). Some even claim it threatens the eurozone. We think these accounts are vastly overblown. A small region of a country seeking secession is far different than an entire country seeking secession from the eurozone. Regional disagreements like this occur frequently across Europe—Spain has a rich history of them. Continued volatility in local markets wouldn’t surprise, but eurozone stocks have barely budged—and global stocks are even less likely to see much impact. 

Exhibit 1: Spanish vs. EMU Market Performance

Commentary

Fisher Investments Editorial Staff
US Economy, Reality Check

Help Wanted: Hurricanes Hit US Jobs

By, 10/10/2017
Ratings354.528572

The longest streak of US job growth is over! Nonfarm payroll employment fell -33,000 in September, the first loss in seven years. However, while headlines touted this drop, most also added a crucial caveat: Hurricanes Harvey and Irma. Those storms didn’t just exact a major personal toll on those directly impacted in Texas and Florida—they affected national economic data, too. The hurricane-impacted jobs report gives us a good opportunity to review an important investing reminder: Always put data in its proper context.   

While headlines picked up on September’s 33,000 job loss, they didn’t pay as much attention to the unemployment rate, which fell to 4.2% from August’s 4.4%. This may seem counterintuitive: If the number of employed fell, shouldn’t the unemployment rate rise? Not necessarily. The BLS’ “Employment Situation” report has two primary inputs: the establishment (or payroll) survey and the household survey. Each tells a different story.

To illustrate a major difference between the two surveys, consider food services and drinking places[i] jobs. Because of the hurricanes, many workers in this sector couldn’t work in Texas and Florida and thus weren’t paid. The establishment survey doesn’t count these people as “employed” because they weren’t on payrolls, so food and drink jobs fell by -105,000—the main contributor to payrolls’ decline. However, the household survey considers these workers “employed” and noted 1.5 million workers had a job in September but couldn’t work—the highest level in more than 20 years.[ii] The unemployment rate is based on the household survey, so comparing it to establishment survey data is apples-to-oranges.    

Research Analysis

Fisher Investments Editorial Staff
US Economy

Market Insights Podcast: Natural Disasters And Market Impact – October 2017

By, 10/10/2017

In this podcast, Communications Group Vice President Naj Srinivas speaks with Capital Markets Team Leader Brad Pyles about the economic effects of hurricanes, earthquakes and other natural disasters.

Time stamps:

Commentary

Fisher Investments Editorial Staff
Into Perspective

Lessons From the 10th Anniversary of the Last Bull Market’s Peak

By, 10/09/2017
Ratings1664.460844

10 years ago today, markets peaked, and one of history’s worst bear markets began. At the time, there was little hint of the panic to come. Declines were gentle, and banks weren’t yet taking huge (and unnecessary) balance sheet writedowns. But a year later, as the fallout from banks’ having to mark illiquid securities to the most recent (fire-sale) price grew worse and the US Fed and Treasury botched the crisis response, panic was spreading. Autumn 2008 and winter 2009 were harrowing for most investors. From peak to the March 9, 2009 trough, the S&P 500 Index fell 55.3%.[i] In the darkest days, some felt like stocks would never rise again. Many feared their investment goals were finished. Yet 10 years later, stocks have erased the decline and then some. Even with that bear market, the S&P 500 is up 102.2% over the past 10 years.[ii] While that doesn’t make the memories of the bear any less painful, it does highlight a key lesson: If you have a long time horizon, staying invested through bear markets shouldn’t put your long-term goals out of reach.

This was hard for many to grasp during the bear’s depths. Since the last true financial panic occurred in 1930 during the Great Depression, most US investors in 2008 had never experienced one. Ten years on, it might be hard to grasp what sentiment was like—emotional scar tissue can blunt memories. But it was wild. Stocks would swing down big one day, then bounce high the next as speculators scrambled to cover short positions—and then tank again on day three. The volatility was gut-wrenching, and it seemed like anything—or nothing—could trigger it. Some folks worried the entire stock market could go to zero. Investors fled en masse, desperate to exchange stocks for anything that seemed less susceptible to the madness—cash, bonds, gold, annuities, you name it. Yet while this might have felt better immediately, it overlooked a simple truth: Bull markets follow bear markets. It’s often darkest just before the dawn.

In our view, losing sight of this can be dangerous. Depending on an investor’s time horizon and cash flow needs, participating in a bear isn’t necessarily devastating. However, abandoning stocks after participating in a bear’s deep declines locks in losses, and it raises the risk stocks snap back before you get back in. In the industry vernacular, you could get whipsawed.  

Commentary

Elisabeth Dellinger
Behavioral Finance

The Obligatory Investing Lesson From Blade Runner

By, 10/06/2017
Ratings954.178947

The interior of Los Angeles’ famous Bradbury Building, where Rick Deckard and Roy Batty had their climactic encounter in “Blade Runner.” Photo by Elisabeth Dellinger.

Because we’re so friendly (or something), investors regularly ask our opinions on articles and books—and occasionally, those books are works of fiction. One title making the rounds earlier this year was The Mandibles, by Lionel Shriver, a family saga set in a fictional US destroyed by the mother of all financial crises. Spoiler alert: I didn’t read it (sorry). But the description reminded me of other recent novels imagining economic calamity in the hypothetical near-future. Gary Shteyngart’s Super Sad True Love Story, published in 2010, imagined an America in hoc to Venezuela, whose oil might led it to dominate the western hemisphere. (Oops.) Ernest Cline’s Ready Player One, from 2011, saw a country ravaged by the aftermath of peak oil. (Oops.) And who can forget “Blade Runner,” whose sequel just hit theatres? The 1982 film, set in an imaginary 2019, pegged Atari and Pan Am as global titans and Japan the world’s economic superpower.[i] All take whatever happened in the very recent past and project it far into the future. It’s great entertainment sometimes, but it’s also a shining example of a classic investment error.

Commentary

Fisher Investments Editorial Staff
US Economy, Reality Check

Help Wanted: Hurricanes Hit US Jobs

By, 10/10/2017
Ratings354.528572

The longest streak of US job growth is over! Nonfarm payroll employment fell -33,000 in September, the first loss in seven years. However, while headlines touted this drop, most also added a crucial caveat: Hurricanes Harvey and Irma. Those storms didn’t just exact a major personal toll on those directly impacted in Texas and Florida—they affected national economic data, too. The hurricane-impacted jobs report gives us a good opportunity to review an important investing reminder: Always put data in its proper context.   

While headlines picked up on September’s 33,000 job loss, they didn’t pay as much attention to the unemployment rate, which fell to 4.2% from August’s 4.4%. This may seem counterintuitive: If the number of employed fell, shouldn’t the unemployment rate rise? Not necessarily. The BLS’ “Employment Situation” report has two primary inputs: the establishment (or payroll) survey and the household survey. Each tells a different story.

To illustrate a major difference between the two surveys, consider food services and drinking places[i] jobs. Because of the hurricanes, many workers in this sector couldn’t work in Texas and Florida and thus weren’t paid. The establishment survey doesn’t count these people as “employed” because they weren’t on payrolls, so food and drink jobs fell by -105,000—the main contributor to payrolls’ decline. However, the household survey considers these workers “employed” and noted 1.5 million workers had a job in September but couldn’t work—the highest level in more than 20 years.[ii] The unemployment rate is based on the household survey, so comparing it to establishment survey data is apples-to-oranges.    

Commentary

Fisher Investments Editorial Staff
Into Perspective

Lessons From the 10th Anniversary of the Last Bull Market’s Peak

By, 10/09/2017
Ratings1664.460844

10 years ago today, markets peaked, and one of history’s worst bear markets began. At the time, there was little hint of the panic to come. Declines were gentle, and banks weren’t yet taking huge (and unnecessary) balance sheet writedowns. But a year later, as the fallout from banks’ having to mark illiquid securities to the most recent (fire-sale) price grew worse and the US Fed and Treasury botched the crisis response, panic was spreading. Autumn 2008 and winter 2009 were harrowing for most investors. From peak to the March 9, 2009 trough, the S&P 500 Index fell 55.3%.[i] In the darkest days, some felt like stocks would never rise again. Many feared their investment goals were finished. Yet 10 years later, stocks have erased the decline and then some. Even with that bear market, the S&P 500 is up 102.2% over the past 10 years.[ii] While that doesn’t make the memories of the bear any less painful, it does highlight a key lesson: If you have a long time horizon, staying invested through bear markets shouldn’t put your long-term goals out of reach.

This was hard for many to grasp during the bear’s depths. Since the last true financial panic occurred in 1930 during the Great Depression, most US investors in 2008 had never experienced one. Ten years on, it might be hard to grasp what sentiment was like—emotional scar tissue can blunt memories. But it was wild. Stocks would swing down big one day, then bounce high the next as speculators scrambled to cover short positions—and then tank again on day three. The volatility was gut-wrenching, and it seemed like anything—or nothing—could trigger it. Some folks worried the entire stock market could go to zero. Investors fled en masse, desperate to exchange stocks for anything that seemed less susceptible to the madness—cash, bonds, gold, annuities, you name it. Yet while this might have felt better immediately, it overlooked a simple truth: Bull markets follow bear markets. It’s often darkest just before the dawn.

In our view, losing sight of this can be dangerous. Depending on an investor’s time horizon and cash flow needs, participating in a bear isn’t necessarily devastating. However, abandoning stocks after participating in a bear’s deep declines locks in losses, and it raises the risk stocks snap back before you get back in. In the industry vernacular, you could get whipsawed.  

Commentary

Elisabeth Dellinger
Behavioral Finance

The Obligatory Investing Lesson From Blade Runner

By, 10/06/2017
Ratings954.178947

The interior of Los Angeles’ famous Bradbury Building, where Rick Deckard and Roy Batty had their climactic encounter in “Blade Runner.” Photo by Elisabeth Dellinger.

Because we’re so friendly (or something), investors regularly ask our opinions on articles and books—and occasionally, those books are works of fiction. One title making the rounds earlier this year was The Mandibles, by Lionel Shriver, a family saga set in a fictional US destroyed by the mother of all financial crises. Spoiler alert: I didn’t read it (sorry). But the description reminded me of other recent novels imagining economic calamity in the hypothetical near-future. Gary Shteyngart’s Super Sad True Love Story, published in 2010, imagined an America in hoc to Venezuela, whose oil might led it to dominate the western hemisphere. (Oops.) Ernest Cline’s Ready Player One, from 2011, saw a country ravaged by the aftermath of peak oil. (Oops.) And who can forget “Blade Runner,” whose sequel just hit theatres? The 1982 film, set in an imaginary 2019, pegged Atari and Pan Am as global titans and Japan the world’s economic superpower.[i] All take whatever happened in the very recent past and project it far into the future. It’s great entertainment sometimes, but it’s also a shining example of a classic investment error.

Commentary

Fisher Investments Editorial Staff
Finance Theory, Media Hype/Myths

America’s Pristine Balance Sheet

By, 10/06/2017
Ratings754.453333


In our view, America’s balance sheet is similarly clean. (Photo by Jurgute/iStock by Getty Images.)

Mention “balance sheet” anywhere but an accounting cocktail party and you risk Snooze-a-Palooza. So rest assured, this article is not about America’s balance sheet. Rather, it’s about a perhaps quirky way to put investorslingering debt fears in context. Debt-to-GDP ratios have their uses, but measuring a level (debt) against a flow of economic activity (GDP) isn’t keeping like with like. Better, in our view, to weigh debt against assets and see what shakes out—just like a bank would. Do so, and it becomes clear investors needn’t fear US debt—whether household, corporate or government—sinking stocks.

Let’s start with US households, supposedly threatened by surging student and auto debt. Total household debt increased $146 billion in Q2 to $15.2 trillion—up almost half a trillion dollars since Q2 2016.[i] But household assets rose over 10 times more—up $1.8 trillion in Q2 and $8.7 trillion since last year![ii] Household assets now stand above $111 trillion, dwarfing liabilities.[iii] Now, there is an obvious rebuttal: What if the people with rising debt aren’t the people with soaring assets? And it’s true, averages obscure extremes. But mortgages make up the bulk of household debt (73.2%), and banks’ tighter mortgage standards during this expansion are pretty legendary. As the now-old joke said, for a long time, you couldn’t get a mortgage unless you didn’t need one. Mortgage loans comprise less than half of household debt’s total rise since its Q2 2013 bottom. Another gauge of residential real estate loans’ health is homeowners’ percentage of equity. During and shortly after the financial crisis, this dipped below 50%, a first. It has now recovered back to 58.4%, its highest level since Q1 2006 during the housing boom,[iv] as house prices nationally make record highs.[v]

Commentary

Fisher Investments Editorial Staff
Media Hype/Myths, Into Perspective

The Path to Wealth Isn’t Through Homeownership

By, 10/06/2017
Ratings784.115385

Last week, the Fed published its triennial Survey of Consumer Finances, which triggered predictable hubbub over inequality[i]—largely too sociological and inconsequential for markets. But of all the media angles emerging from this, there is a directly investment-related one we take issue with: Housing as “The one surefire way to grow your wealth in the U.S.” Stocks and other liquid securities not only offer a viable path to wealth, but history suggests it’s a faster road.

The study claims homeowners are gaining wealth far faster than renters, and media seized this to claim it shows the power and virtue of owning a home. Some may see this as supporting the view that real estate is a terrific investment. But there are some issues with that—principally, the fact stocks far outpace housing historically. And stocks are available for renters or homeowners to take advantage of.

Through thick and thin, the S&P 500’s annualized return since 1926—when good data begin—is 10.8%.[ii] Home prices nationally have returned 4.6% since 1976.[iii] Now, of course, these time periods differ. But even if we compare the same 40-ish years, stocks far outpace housing. (Exhibit 1)

Commentary

Fisher Investments Editorial Staff
Across the Atlantic

Eurozone Stocks Don’t Need an Ever Closer Union

By, 10/03/2017
Ratings404.5375

Last week, French President Emmanuel Macron shared his grand vision of a stronger, more unified Europe and called on newly re-elected German Chancellor Angela Merkel to back him.[i] We won’t bore you by belaboring one politician’s speech about things that may never happen, but it did resurrect several long-running questions, such as: Will the eurozone survive without a common fiscal policy, common debt and the like? Would voters support such reforms? What would they look like? There are many options, and even if folks agree on goals and principles, the specifics are messy. We don’t have all the answers and suspect no one will any time soon. Regardless, we wouldn’t overstate their importance for markets. Whether or not Macron’s push for a eurobond or fiscal union is successful, the last seven years have proven such long-term structural issues don’t materially impact stocks.

To see this, let us take our time machine back to the 2010 – 2012 European debt crisis, when the prospect of eurobonds became a going concern. Greece, Portugal and Ireland, drowning in high sovereign debt and unable to tap capital markets, had to take bailouts. Spain and Italy were teetering. Most pundits worried the euro would splinter if any of these nations defaulted and bombed out of the common currency. While each nation had its own reasons for being in trouble, many (then and now) blame the eurozone’s incomplete nature for the broader crisis: Member states share a currency and monetary policy, but taxing, spending and borrowing are country-level matters, and the rules outlaw fiscal transfers. In fiscal transfer unions like the US and UK, the strong states or constituent countries subsidize the weak, helping less competitive members skate through tough times. If the eurozone had a similar arrangement, whether through outright fiscal transfers or common borrowing via eurobonds—which would reduce borrowing costs for less competitive nations—perhaps there would be no need for bailouts.

Debate over this preoccupied eurocrats for much of 2010 – 2013. “Europe can’t last without figuring this out,” said many. Others feared trouble arising if the eurozone did become more fiscally integrated: What of spendthrift nations free-riding off responsible taxpayers elsewhere? One country’s (think: Greece) much-needed fiscal transfer is another country’s (think: Germany) bailout—unpopular! Similarly, why should more creditworthy countries back riskier debt just because peripheral nations ruin their finances and fudge budget numbers? At the time, we spent quite a lot of pixels covering the debate—not because it had high stakes for markets but because it was sort of an interesting conversation. As we wrote in 2014 following Greece’s not-so-triumphant return to international bond markets, disputes over which reforms could have sidestepped the debt crisis and how to prevent future ones stalked European markets for years—but didn’t end the bull. To quote:

Research Analysis

Fisher Investments Editorial Staff
Into Perspective

Market Insights Podcast Emerging Markets Update-June 2017

By, 06/23/2017
Ratings273.925926

In this podcast, Communications Group Manager Naj Srinivas speaks with Research Analyst Scott Botterman about recent developments within Emerging Markets and our current outlook.

0:50 – MSCI announces Chinese A shares to be included in Emerging Markets index

Research Analysis

Christo Barker
Into Perspective

Victory to En Marche!

By, 06/19/2017
Ratings104.15

The fourth and final round of French national elections concluded over the weekend, clearing a major milestone in the year of falling political uncertainty. President Emmanuel Macron’s centrist La République En Marche! party and its ally, the Democratic Movement (MoDem), gained a clear majority in the National Assembly after winning 61% of the seats (350 of 577) in the second round of the French parliamentary election. (Exhibit 1)

At a surface level, this result technically reduces political gridlock in France. However, the En Marche party is itself an exercise in gridlock, as it is essentially a blend of center-left and center-right politicians. It includes lawmakers that defected from both of the traditional Socialist and Republican Parties. A centrist coalition likely pursues more moderate policies aimed at incremental change rather than broad, sweeping legislation with the potential to really shock markets. For example, the party’s primary policies likely include reforming labor laws, cutting corporate taxes, reducing a bloated civil sector and promoting entrepreneurship. Yet none of the proposals unveiled thus far appear terribly radical. Labor market reforms, for example, appear to dance around third rails like France’s 35-hour workweek. Plus, En Marche is also just over a year old, and over half of its National Assembly members haven’t held any political office before. How well these political novices work with the old guard—and how well the center-right and center-left can agree on policy details—will be worth monitoring, but intraparty gridlock likely creates additional hurdles to legislation.

While one could argue French gridlock could dash hopes for big pro-business reforms, potentially setting up stocks for disappointment, Macron’s relatively watered-down agenda is already widely known. Moreover, having less potential for radical legislation means less chance for new laws to create winners and losers, which reduces one source of risk for markets.  

Research Analysis

Fisher Investments Editorial Staff
Into Perspective

Market Insights Podcast: Energy Sector - June 2017

By, 06/13/2017
Ratings323.5625

In this podcast, Communications Group Manager Naj Srinivas talks to Research Analysts Luis Casian and Brad Rotolo about the Energy sector’s recent developments and our current outlook.

00:56 - Major Energy stories
01:48 - OPEC vs. US production
03:50 - What could cause oil to venture out of its recent norm near $50?
05:30 - Recent globalized nature of oil production
07:03 - Technological improvements in fracking
09:15 - Natural gas byproducts
10:13 - US production meets demand

Research Analysis

Fisher Investments Editorial Staff
Into Perspective

Market Insights Podcast: Market Update - May 2017

By, 05/15/2017
Ratings623.830645

In this podcast, we talk to US Private Client Services Vice President Erik Renaud about some recent client questions on the market and our current outlook. Topics include all-time market highs, Trump Administration tax and trade policy, European elections and bear market causes. We also discuss some of the economic fundamentals supporting Fisher Investments’ bullish outlook.

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What We're Reading

By , Bloomberg, 10/23/2017

MarketMinder's View: Why? Because false stories are yet another input that can prompt people to trade at the wrong time, miss opportunities by sitting on the sidelines or go hog wild for a false happy narrative. This is a handy guide on how to reduce the chances of getting hoodwinked.

By , The New York Times, 10/23/2017

MarketMinder's View: This week in taxes, lawmakers are reportedly mulling paying for tax “cuts” by slashing the annual 401(k) contribution limit from $18,000 to $2,400. Champions of cutting or limiting this and other popular deductions argue folks will still be better off, thanks to lower income tax rates and a higher standard deduction, but that isn’t at all clear yet. President Trump apparently heard the people’s worries and tweeted that 401(k) contribution caps wouldn’t change. Which is nice enough, though the president doesn’t get to write tax policy—he just gets to sign (or not sign) whatever Congress passes. Might he veto a tax package that reduces 401(k) tax plans? Might Congress decide to go along with his tweets? Maybe, but it’s impossible to know now. Mostly, this just speaks to the difficulty of passing broad tax reform. Most observers agree limiting deductions is necessary to cut rates across the board, but no one actually wants to give up their favorite deductions. It is entirely possible tax reform dies in debate, a victim of lobbyists and special interests. That’s all for now—tune in tomorrow for more tweets and talk over tax tweaks!

By , The Yomiuri Shimbun, 10/23/2017

MarketMinder's View: Japan’s election extended the status quo on Sunday, as voters renewed the Liberal Democratic Party’s two-thirds majority (together with its coalition partner, Komeito). So Japan still has a government led by Shinzo Abe with enough seats to amend the constitution and rubber stamp a bunch of economic reforms … if they want to. That has been the case for the past three years, and Abe’s administration hasn’t passed much of anything. Amending the constitution hogs all their attention, distracting from labor market reforms and other unpopular measures. Yet investors no longer seem to have high hopes for reform, setting expectations at a more reasonable level. With sentiment no longer stratospheric, there is a risk Japan surprises positively now and then, so we’d encourage investors not to ignore it outright.

By , The Wall Street Journal, 10/23/2017

MarketMinder's View: This is an article about how yield-hungry investors are gobbling up collateralized loan obligations, better known as CLOs, one form of securitized debt that featured in 2008’s financial panic and got a bum rap as part of the alphabet soup of supposedly toxic assets. CLOs’ comeback is just an interesting development, not terribly significant, but we did like this little nugget: “CLOs are often lumped together with other alphabet-soup acronyms of the financial crisis, such as more toxic CDOs, or collateralized debt obligations. But CLOs actually weathered the financial crisis well: Investors who bought at the top of the market in 2007 suffered paper losses, but there were no defaults at all for the highest-rated securities.” That is actually sort of how it was for all those supposedly toxic assets. Banks took paper losses—known as writedowns—on these assets as their market values fell. But actual loan losses were few and far between. This is another way to see that, as former FDIC head William Isaac wrote, the financial crisis didn’t have to happen. Mark-to-market accounting’s ill-advised application to illiquid, held-to-maturity assets spiraled about $200 billion in loan losses to nearly $2 trillion in writedowns. It was the unnecessary, exaggerated writedowns that bashed banks’ balance sheets, leading to the government’s haphazard response. As CLOs’ recovery shows, if banks didn’t have to mark these assets to the last sale price, they could have just ridden out the storm and collected the income along the way.

Global Market Update

Market Wrap-Up, Friday, October 20, 2017

Below is a market summary as of market close on Friday, October 20, 2017:

  • Global Equities: MSCI World (+0.1%)
  • US Equities: S&P 500 (+0.5%)
  • UK Equities: MSCI UK (-0.2%)
  • Best Country: Sweden (+1.1%)
  • Worst Country: New Zealand (-1.6%)
  • Best Sector: Information Technology (+0.5%)
  • Worst Sector: Consumer Staples (-0.5%)

Bond Yields: 10-year US Treasury yields rose 0.06 percentage point to 2.38%.

 

Editors' Note: Tracking Stock and Bond Indexes

 

Source: FactSet. Unless otherwise specified, all country returns are based on the MSCI index in US dollars for the country or region and include net dividends. S&P 500 returns are presented including gross dividends. Sector returns are the MSCI World constituent sectors in USD including net dividends.