Commentary

Fisher Investments Editorial Staff
Into Perspective, Media Hype/Myths

Greek Voters Say No, Yanis Varoufakis Says Bye—What Next?

By, 07/07/2015
Ratings124.666667

It is Game (Theory) Over for now-former Greek Finance Minister Yanis Varoufakis, who resigned early Monday. Photo by Chris Ratcliffe/Bloomberg via Getty Images.

Well folks, Sunday will go down in history books … as the day the US Women’s National Team won their third World Cup. Oh, and it was also the day Greek voters rejected the tough bailout conditions proposed by creditors late last month. Headlines seem divided on whether this puts Greece one step closer to the eurozone’s exit, but not much has fundamentally changed. Greece’s future is still a big question mark, the risk of contagion from “Grexit” remains minimal, and Greece remains far too small to rock the global economy or markets. Heck, Grexit could even be bullish, removing the false fear’s weight from investor sentiment and allowing markets to focus on fundamentals.

Commentary

Fisher Investments Editorial Staff
Media Hype/Myths, US Economy

People Are Not Leaving the Workforce

By, 07/02/2015
Ratings493.826531

US job growth topped 200,000 again in June, knocking the unemployment rate down to 5.3%—lowest since April 2008—but many headlines chose to dwell on a perceived negative: the falling labor force participation rate. Many argue this is a sign folks are still leaving the workforce in droves, indicating labor markets remain distressed after the 2007-2009 recession. This is all backward-looking as far as stocks are concerned—whatever happens in job markets stems from economic growth (or contraction) several months before. Growth drives hiring, not the other way around. Stocks, by contrast, move before the economy does. But we would like to clear up this whole bugaboo about folks leaving the labor force, because it is just not true, and knowing what’s what might improve your perspective on the economy.

The labor force participation rate is the ratio of the civilian labor force to the total civilian noninstitutional population.[i] Here is how it has moved over the last 45 years:

Exhibit 1: Labor Force Participation Rate

Commentary

Fisher Investments Editorial Staff
Into Perspective

Some Thoughts on Greece’s Don’t-Call-It-a-Default

By, 07/02/2015
Ratings694.434783

Greece’s Tweeter-in-Chief, Prime Minister Alexis Tsipras, gives a national television address urging Greeks to reject harsh austerity. Photo by Greek Prime Minister’s Office via Getty Images.

So Greece officially missed its €1.5 billion IMF payment due Tuesday, and it is now “in arrears” with the organization. It is not in “default,” because the IMF doesn’t use that term. Nor does missing an IMF payment trigger credit default swap (CDS) payouts or earn a “default” grade from credit ratings agencies. But that’s all semantics. What matters more is where Greece goes next.[i] Whatever verb you use to describe what happened Tuesday, Greece has missed a debt payment and is without a bailout program for the first time in five years.

Commentary

Fisher Investments Editorial Staff
Into Perspective, Media Hype/Myths

On Greek Tweets, Capital Controls, Chaos and Volatility

By, 06/30/2015
Ratings614.237705

Greek Prime Minister Alexis Tsipras takes a break from Tweeting to address Parliament Sunday. Photo by Kostas Tsironis/Bloomberg via Getty Images.

So Greece had a busy weekend, PM Alex Tsipras sent 30 increasingly bizarre Tweets[i], and global markets had a busy Monday pricing in all the chaos. Except in Greece, where markets are closed all week to prevent panic. Virtually everywhere else, though, volatility reigned. With Greece facing political pandemonium, capital controls and imminent default—and creditors clearly out of patience—we can only imagine the bludgeoning Greek stocks would have taken if it weren’t for the emergency bank holiday.[ii] Our take hasn’t changed: However this ends, the risk of protracted global fallout remains quite small. But brace for more volatility, just in case, and spare a thought for Greek people, because they’re in for a tough time.

Commentary

Fisher Investments Editorial Staff
Media Hype/Myths

How Not to Use Valuations

By, 06/29/2015
Ratings353.971429

19, 17, 27. No, this isn’t a pattern-identification test. Nor is it a Fibonacci number sequence or our gym locker combo. It is also not LeBron James’ salary (in millions of dollars) over the last three years, though that’s close. These are three flavors of current S&P 500 price-to-earnings (P/E) ratios. All are above their long-term averages, leading many to contend that any way you slice it, US stocks are overvalued ,  expensive, or any other adjective you might use—hence sub-par returns must lie ahead. But valuations—no matter the flavor—do not predict future returns.

What exactly are these different P/Es? Simple! They are, in order, the S&P 500’s trailing, forward and cyclically adjusted P/E ratios. Trailing earnings are the index constituents’ reported profits over the prior 12 months. This is the oldest and arguably best-known P/E ratio—stock price divided by actual, reported, known earnings.

But reported earnings are … well … already reported—old news. Stocks look forward, so many consider trailing P/Es irrelevant. To solve this, many use forward P/Es—the second “traditional” measure—which compare prices to consensus earnings expectations for the next year. Analysts estimates often prove inaccurate, but proponents claim they are usually close enough and are at least forward-looking. Analysts currently expect rising profits over the next year—explaining why the S&P 500’s forward P/E is currently the lowest of the three.

Commentary

Fisher Investments Editorial Staff
Behavioral Finance, Forecasting

The Missing Lesson: Unfriend the Trend

By, 06/26/2015
Ratings603.875

Thursday’s personal finance pages were awash with pundits sharing investing lessons learned (with varying degrees of value). The Wall Street Journal’s Morgan Housel offered up four mostly sensible points. The Motley Fool’s Sean Williams offered 21 occasionally overlapping points that have some real pearls of wisdom. Best of all, US News and World Report’s Catherine Alford offered “12 Money Lessons Your Child Should Know Before Age 12.” (This latter article included the most basic-yet-overlooked lesson of all—the power of compound interest. Many folks older than age 12 could benefit from learning to love compounding.) However, might we suggest a timely 38th lesson? Recent trends do not predict the future. That is a lesson it seems to us many investors—including some professional prognosticators—should probably consider.

Next week, 2015 will reach the halfway mark and, as is customary, Wall Street forecasters are already unveiling their second-half outlooks. Thus far in 2015, US stocks (the S&P 500) have returned a paltry 3.4% including dividends (2.4% without). Global stocks have fared better, rising 5.6% (with net dividends), led by Europe and Japan.

Exhibit 1: Year-to-Date Global Stock Market Returns by Country/Region, in Percentage Points

Commentary

Fisher Investments Editorial Staff
Media Hype/Myths

Down With the Dow

By, 06/25/2015
Ratings593.915254

In the stock market, not all numbers are created equal. Photo by Courtney Keating/Getty Images.

Tuesday evening, Convergex Trading’s Nicholas Colas and Jessica Rabe released an interesting note that caught our eye, highlighting a curiosity in the Dow’s 1.8% return thus far in 2015 (on a price basis). Colas and Rabe point out the year’s modest positive return is accounted for by only two stocks: Goldman Sachs and United Healthcare. That’s it! The other 28 stocks’ returns net to basically zero. They go on to discuss the fact the top 10 Dow stocks dominate the gauge’s return, suggesting whatever big round number you think is next for the Dow, your outlook better hinge on the top 10 stocks. While they don’t come right out and say it, this echoes a point we’ve long made here: Narrow, price-weighted gauges like the Dow are fatally flawed. The Dow simply does not reflect the US stock market, and investors would be well served to set it aside in favor of broader, market-cap weighted indexes.

Commentary

Elisabeth Dellinger
Into Perspective

Divestment and Rational Expectations

By, 06/24/2015
Ratings724.152778

Genocide in South Sudan. Ethnic cleansing in Myanmar. Political prisoners and purges in China, Iran and Venezuela. Continued Russian attacks in Ukraine. Human trafficking in Africa and Asia. Our world is sadly never free from state-sponsored atrocities. As we often remind readers, markets are cold-hearted and often rise in the face of localized human suffering. But people aren’t cold-hearted! Many investors care deeply about human rights and other social issues. So what is a warm-hearted investor to do about companies that run afoul of their convictions and values?

Ultimately, it is a personal choice. I’m not here to tell you how to think or what to do. But one tactic championed by pundits, activists and advocates these days—divestment—is cloaked in myth. Understanding what divesting does—and doesn’t—do can help make investors make more educated decisions.

Divestment, as the name implies, means not investing in any companies that are involved—directly or indirectly—in situations or activities you don’t support. That might include Energy companies drilling for oil in South Sudan if you feel passionately about ending genocide. High-tech companies manufacturing in Malaysia, if human trafficking is your issue. Industrials and banks investing in Myanmar’s burgeoning infrastructure development, if the strife faced by the Rohingya Muslims is your cause. Any Energy firm drilling for fossil fuels, if you’re gunning for a green world.

Commentary

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

User’s Guide to a Critical Week for the Euro(TM)

By, 06/23/2015
Ratings443.829545

Hello, readers, and welcome to a new Critical Week for the EuroTM![i] It will have rumors, summits and deadlines galore.[ii] Sensationalism and hyperbole will rule the headlines. Things will sound scary and crazy. If markets don’t wobble, headlines will warn stocks are complacent and ignoring huge risk. If markets do wobble, headlines will warn the endgame is finally coming. If you are into political theater, it will be entertaining as all get out. If you are into wordplay, you will giggle over the Grexhaustion, Grexcitement[iii], Grexit and Graccident and sigh over the dra(ch)ma and rumors of drachmail.[iv] If you are trying to ignore the spectacle and figure out what it all means for your investments, you might well find the cacophony confusing and contradictory. So here is our attempt at a rational rundown of what’s at stake, what’s coming up and why the outcome probably doesn’t mean much for global markets, regardless of what that outcome is.

As best as we can tell, here is where things stand now, at 1:10 PM Pacific Daylight Time on June 22.[v] Greece’s bailout extension expires next Tuesday, June 30. If Greece and creditors agree on reforms by then, they get the €7.2 billion left in the bailout. No deal, no money, and Greece faces almost certain bankruptcy. For now, they seem to be inching toward a deal. After promising to say “the big no” to more austerity last week, Greek PM Alexis Tsipras and his team of negotiators submitted a new reform proposal that made a “potentially major concession on pensions” late Sunday (or early Monday, depending on the source). The ever-leaky unnamed sources familiar with talks said that concession is eliminating early retirement next year, replacing the planned gradual phase-out. Tax concessions reportedly include doubling VAT on hotels and hiking taxes on business profits over €500,000 annually and annual incomes over €30,000. The goal here is to close a €900 million budget gap between Greece’s earlier proposals and creditors’ demands, and Athens estimates their plan will hit fairly close to creditors’ target. Jeroen Dijsselbloem, head of the Eurogroup (the official name for the gang of eurozone finance ministers), called it “a welcome step in a positive direction” and “an opportunity to get that deal later this week.”

Temper your enthusiasm, though, because there is a lot of ground to cover, and not everyone shares Dijsselbloem’s optimism. Entering Monday’s Eurogroup meeting, the German, Irish and Finnish finance ministers threw cold water on hopes of a deal in the near future. Dijsselbloem warned they’d all “really need to look at the specifics to see whether it adds up in fiscal terms.” The Eurogroup meeting wrapped with no announcements or fanfare. The emergency eurozone leaders’ summit held Monday was similarly inconclusive—partly because Greece evidently submitted two versions of its plan, partly because no one had enough time to read the whole shebang before they all sat down.

Commentary

Fisher Investments Editorial Staff
Media Hype/Myths

Efficient, Not Complacent

By, 06/22/2015
Ratings304.45

Are investors sleepwalking their way to disaster? Some say so, with global stocks once again flirting with all-time highs in the face of what many believe are big, bad negatives. The Greek debacle. Looming Fed rate hikes. China slowdown. They suggest investors are being too complacent, ignoring big risks—cause for alarm. But are markets really ignoring these things? Or are they instead doing what markets regularly do—efficiently discounting widely known information and moving on what is most likely over the mid-to-longer term. 

Stocks, like all highly liquid markets, are forward-looking and efficient. Today’s big news is near-always already reflected in stock prices, regardless of when “today” is or what the “big news” entails. Stocks usually aren’t concerned with the right now. They’re concerned with the foreseeable future. While sentiment can swing stocks in the short term, in our experience, stocks don’t move on fundamental events that occur within the next three months or beyond the next 30 or so. Instead, they weigh—and move on—what is likeliest to occur between the next 3 and the next 30 months, focusing most on the next 12-18 months. While investors and headlines obsess over the day’s headlines, markets look beyond the myopia and, usually, move on the things few talk about.

The existence of negatives—real or perceived—is typical in bull markets. The world is never pristine and needn’t be for stocks to rise. Consider the present bull market: It wasn’t born when some sounded the All Clear to Buy Stocks Again siren. It was born in early 2009, when the world economy was in rough shape but less bad than most headlines and investors feared. Folks feared Great Depression Part Deux, which became priced into markets, and, when it didn’t come, stocks surged on positive surprise. Most often, markets weigh positives versus negatives, then compare the balance to sentiment—this is what good old Ben Graham meant when saying markets are weighing machines in the long run. If the positives outweigh the negatives over the foreseeable future, that is often good enough for stocks.

Commentary

Fisher Investments Editorial Staff
Behavioral Finance, Forecasting

The Missing Lesson: Unfriend the Trend

By, 06/26/2015
Ratings603.875

Thursday’s personal finance pages were awash with pundits sharing investing lessons learned (with varying degrees of value). The Wall Street Journal’s Morgan Housel offered up four mostly sensible points. The Motley Fool’s Sean Williams offered 21 occasionally overlapping points that have some real pearls of wisdom. Best of all, US News and World Report’s Catherine Alford offered “12 Money Lessons Your Child Should Know Before Age 12.” (This latter article included the most basic-yet-overlooked lesson of all—the power of compound interest. Many folks older than age 12 could benefit from learning to love compounding.) However, might we suggest a timely 38th lesson? Recent trends do not predict the future. That is a lesson it seems to us many investors—including some professional prognosticators—should probably consider.

Next week, 2015 will reach the halfway mark and, as is customary, Wall Street forecasters are already unveiling their second-half outlooks. Thus far in 2015, US stocks (the S&P 500) have returned a paltry 3.4% including dividends (2.4% without). Global stocks have fared better, rising 5.6% (with net dividends), led by Europe and Japan.

Exhibit 1: Year-to-Date Global Stock Market Returns by Country/Region, in Percentage Points

Commentary

Fisher Investments Editorial Staff
Media Hype/Myths

Down With the Dow

By, 06/25/2015
Ratings593.915254

In the stock market, not all numbers are created equal. Photo by Courtney Keating/Getty Images.

Tuesday evening, Convergex Trading’s Nicholas Colas and Jessica Rabe released an interesting note that caught our eye, highlighting a curiosity in the Dow’s 1.8% return thus far in 2015 (on a price basis). Colas and Rabe point out the year’s modest positive return is accounted for by only two stocks: Goldman Sachs and United Healthcare. That’s it! The other 28 stocks’ returns net to basically zero. They go on to discuss the fact the top 10 Dow stocks dominate the gauge’s return, suggesting whatever big round number you think is next for the Dow, your outlook better hinge on the top 10 stocks. While they don’t come right out and say it, this echoes a point we’ve long made here: Narrow, price-weighted gauges like the Dow are fatally flawed. The Dow simply does not reflect the US stock market, and investors would be well served to set it aside in favor of broader, market-cap weighted indexes.

Commentary

Elisabeth Dellinger
Into Perspective

Divestment and Rational Expectations

By, 06/24/2015
Ratings724.152778

Genocide in South Sudan. Ethnic cleansing in Myanmar. Political prisoners and purges in China, Iran and Venezuela. Continued Russian attacks in Ukraine. Human trafficking in Africa and Asia. Our world is sadly never free from state-sponsored atrocities. As we often remind readers, markets are cold-hearted and often rise in the face of localized human suffering. But people aren’t cold-hearted! Many investors care deeply about human rights and other social issues. So what is a warm-hearted investor to do about companies that run afoul of their convictions and values?

Ultimately, it is a personal choice. I’m not here to tell you how to think or what to do. But one tactic championed by pundits, activists and advocates these days—divestment—is cloaked in myth. Understanding what divesting does—and doesn’t—do can help make investors make more educated decisions.

Divestment, as the name implies, means not investing in any companies that are involved—directly or indirectly—in situations or activities you don’t support. That might include Energy companies drilling for oil in South Sudan if you feel passionately about ending genocide. High-tech companies manufacturing in Malaysia, if human trafficking is your issue. Industrials and banks investing in Myanmar’s burgeoning infrastructure development, if the strife faced by the Rohingya Muslims is your cause. Any Energy firm drilling for fossil fuels, if you’re gunning for a green world.

Commentary

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

User’s Guide to a Critical Week for the Euro(TM)

By, 06/23/2015
Ratings443.829545

Hello, readers, and welcome to a new Critical Week for the EuroTM![i] It will have rumors, summits and deadlines galore.[ii] Sensationalism and hyperbole will rule the headlines. Things will sound scary and crazy. If markets don’t wobble, headlines will warn stocks are complacent and ignoring huge risk. If markets do wobble, headlines will warn the endgame is finally coming. If you are into political theater, it will be entertaining as all get out. If you are into wordplay, you will giggle over the Grexhaustion, Grexcitement[iii], Grexit and Graccident and sigh over the dra(ch)ma and rumors of drachmail.[iv] If you are trying to ignore the spectacle and figure out what it all means for your investments, you might well find the cacophony confusing and contradictory. So here is our attempt at a rational rundown of what’s at stake, what’s coming up and why the outcome probably doesn’t mean much for global markets, regardless of what that outcome is.

As best as we can tell, here is where things stand now, at 1:10 PM Pacific Daylight Time on June 22.[v] Greece’s bailout extension expires next Tuesday, June 30. If Greece and creditors agree on reforms by then, they get the €7.2 billion left in the bailout. No deal, no money, and Greece faces almost certain bankruptcy. For now, they seem to be inching toward a deal. After promising to say “the big no” to more austerity last week, Greek PM Alexis Tsipras and his team of negotiators submitted a new reform proposal that made a “potentially major concession on pensions” late Sunday (or early Monday, depending on the source). The ever-leaky unnamed sources familiar with talks said that concession is eliminating early retirement next year, replacing the planned gradual phase-out. Tax concessions reportedly include doubling VAT on hotels and hiking taxes on business profits over €500,000 annually and annual incomes over €30,000. The goal here is to close a €900 million budget gap between Greece’s earlier proposals and creditors’ demands, and Athens estimates their plan will hit fairly close to creditors’ target. Jeroen Dijsselbloem, head of the Eurogroup (the official name for the gang of eurozone finance ministers), called it “a welcome step in a positive direction” and “an opportunity to get that deal later this week.”

Temper your enthusiasm, though, because there is a lot of ground to cover, and not everyone shares Dijsselbloem’s optimism. Entering Monday’s Eurogroup meeting, the German, Irish and Finnish finance ministers threw cold water on hopes of a deal in the near future. Dijsselbloem warned they’d all “really need to look at the specifics to see whether it adds up in fiscal terms.” The Eurogroup meeting wrapped with no announcements or fanfare. The emergency eurozone leaders’ summit held Monday was similarly inconclusive—partly because Greece evidently submitted two versions of its plan, partly because no one had enough time to read the whole shebang before they all sat down.

Commentary

Fisher Investments Editorial Staff
Media Hype/Myths

Efficient, Not Complacent

By, 06/22/2015
Ratings304.45

Are investors sleepwalking their way to disaster? Some say so, with global stocks once again flirting with all-time highs in the face of what many believe are big, bad negatives. The Greek debacle. Looming Fed rate hikes. China slowdown. They suggest investors are being too complacent, ignoring big risks—cause for alarm. But are markets really ignoring these things? Or are they instead doing what markets regularly do—efficiently discounting widely known information and moving on what is most likely over the mid-to-longer term. 

Stocks, like all highly liquid markets, are forward-looking and efficient. Today’s big news is near-always already reflected in stock prices, regardless of when “today” is or what the “big news” entails. Stocks usually aren’t concerned with the right now. They’re concerned with the foreseeable future. While sentiment can swing stocks in the short term, in our experience, stocks don’t move on fundamental events that occur within the next three months or beyond the next 30 or so. Instead, they weigh—and move on—what is likeliest to occur between the next 3 and the next 30 months, focusing most on the next 12-18 months. While investors and headlines obsess over the day’s headlines, markets look beyond the myopia and, usually, move on the things few talk about.

The existence of negatives—real or perceived—is typical in bull markets. The world is never pristine and needn’t be for stocks to rise. Consider the present bull market: It wasn’t born when some sounded the All Clear to Buy Stocks Again siren. It was born in early 2009, when the world economy was in rough shape but less bad than most headlines and investors feared. Folks feared Great Depression Part Deux, which became priced into markets, and, when it didn’t come, stocks surged on positive surprise. Most often, markets weigh positives versus negatives, then compare the balance to sentiment—this is what good old Ben Graham meant when saying markets are weighing machines in the long run. If the positives outweigh the negatives over the foreseeable future, that is often good enough for stocks.

Commentary

Fisher Investments Editorial Staff
Into Perspective, Developed Markets

Greece Is the Word, Not the World

By, 06/19/2015
Ratings294.293103

With most eyes focused elsewhere (ahem, Greece), investors might have overlooked some tidbits of data confirming the global economy continues plowing forward, undeterred by the Hellenic Republic’s drama. Most of these numbers didn’t make the front page, but they suggest the bull stands on a firm economic ground—and this doesn’t look likely to change in the near future.

Let’s start with retail sales, which rose and beat expectations in America and Britain last month. While retail sales have limitations, they indicate consumer spending—a large component of economic activity—is doing just fine. US sales jumped up 1.2% m/m (2.7% y/y), prompting relief that consumers were “finally” spending their gasoline savings after months of lackluster retail results—with almost no discussion of the fact that retail sales largely omits the service sector (where most consumer spending happens). In the UK, headlines were more optimistic about the 0.2% m/m (4.6% y/y) rise, even though it was slower than April’s 0.9% m/m—they simply concluded consumers were spending their extra cash on services, not gadgets and baubles. Which seems about right to us, considering the UK’s retail sales gauge excludes food service, making it even narrower than the US’s gauge. Full consumer spending is what matters, and retail sales won’t tell you much about that, whether it’s the US’s jump or the UK’s slowdown. Plus, it was always presumptuous to say falling oil and gas prices are big economic stimulus. Sure, they help consumers, but folks always had three choices when it comes to their gas savings: save, pay down debt or shop. 

The week’s industrial production data were less rosy, but we wouldn’t make much of it—the developed world’s factories haven’t led this expansion. In the UK, April industrial production rose 0.4% m/m (1.2% y/y)—its third straight monthly rise—but mining and quarrying drove the increase. The narrower manufacturing gauge, which better reflects UK factories, contracted -0.4% m/m. Manufacturing also contracted -0.2% m/m in the US in May while industrial production missed expectations—dropping -0.2% m/m. Eurozone industrial output ticked up on a monthly basis in April—0.1% from March’s -0.4%--though the year-over-year number was lower (0.8% vs. 2.1%). Some good, some meh, but all consistent with the trends we’ve seen throughout this expansion—choppy, uneven growth. The month-to-month bumpiness in industrial and manufacturing output hasn’t prevented these regions’ economies from growing overall. We don’t see much (if any) evidence today’s wobbles are different than past wobbles.

Research Analysis

Akash Patel
Into Perspective

Heating Up—A Look at UK Housing

By, 11/27/2013
Ratings124.041667

Is the UK housing market overheating, or is it merely the latest example of froth fears that are detached from reality?

Recent home price data and the UK’s Help to Buy scheme’s early expansion already have some UK politicians and business leaders wondering—some going as far as calling for the Bank of England to cap rising home prices. Taking a deeper look, however, I see a different story: Rapid housing price gains have been concentrated in London. Restricting overall UK housing with more legislation likely won’t fix that, and it probably won’t help spread London’s gains to UK housing elsewhere. More importantly, the fact UK housing gains aren’t widespread tells me a nationwide bubble neither exists nor is particularly probable—even with an expanded Help to Buy program.

While UK housing started slowly improving after Help to Buy began in April, the program has only been lightly used in the early going—suggesting the housing recovery is coming from strengthening underlying fundamentals and isn’t purely scheme-driven. In Help to Buy’s first phase, the government promised to lend up to 20% of a home’s value at rock bottom rates (interest free for five years, 1.75% interest after) to buyers with a 5% down payment—providing up to £3.5 billion in total loans. Only first-home buyers (of any income strata) seeking newly built houses valued at £600k or less could participate. The Treasury began a second (earlier-than-expected) iteration in October, in which it guarantees 20% of the total loan to lenders, instead of lending directly to the buyer. The program was also expanded another £12 billion for buyers purchasing any home (new or not).

Research Analysis

Fisher Investments Research Staff

MLPs and Your Portfolio

By, 11/26/2013
Ratings833.885542

With interest rates on everything from savings accounts to junk bonds at or near generational lows, many income-seeking investors are looking for creative or, to some, exotic means of generating cash flow. Some are turning to a relatively little-known type of security—master limited partnerships (MLPs). MLPs may attract investors for a number of reasons: their high dividend yields and tax incentives, to name a couple. But, like all investments, MLPs have pros and cons, which are crucial to understand if you’re considering investing in them.

MLPs were created in the 1980s by a Congress hoping to generate more interest in energy infrastructure investment. The aim was to create a security with limited partnership-like tax benefits, but publicly traded—bringing more liquidity and fewer restrictions and thus, ideally, more investors. Currently, only select types of companies are allowed to form MLPs—primarily in energy transportation (e.g., oil pipelines and similar energy infrastructure).

To mitigate their tax liability, MLPs distribute 90% of their profits to their investors—or unit holders—through periodic income distributions, much like dividend payments. And, because there is no initial loss of capital to taxes, MLPs can offer relatively high yields, usually around 6-7%. Unit holders receive a tax benefit, too: Much of the dividend payment is treated as a return of capital—how much is determined by the distributable cash flow (DCF) from the MLP’s underlying venture (e.g., the oil pipeline).

Research Analysis

Elisabeth Dellinger
Reality Check

Inside Indian Taper Terror

By, 11/08/2013
Ratings174.294117

When the Fed kept quantitative easing (QE) in place last week, US investors weren’t the only ones (wrongly) breathing a sigh of relief. Taper terror is fully global! In Emerging Markets (EM), many believe QE tapering will cause foreign capital to retreat. Some EM currencies took it on the chin as taper talk swirled over the summer, and many believe this is evidence of their vulnerability—with India the prime example as its rupee fell over 20% against the dollar at one point. Yet while taper jitters perhaps contributed to the volatility, evidence suggests India’s troubles are tied more to long-running structural issues and seemingly erratic monetary policy—and suggests EM taper fears are as false as their US counterparts.

The claim QE is propping up asset prices implies there is some sort of overinflated disconnect between Emerging Markets assets and fundamentals—a mini-bubble. Yet this is far removed from reality—not what you’d expect if QE were a significant positive driver. Additionally, the thesis assumes money from rounds two, three and infinity of QE has flooded into the developing world—and flows more with each round of monthly Fed bond purchases. As Exhibit 1 shows, however, foreign EM equity inflows were strongest in 2009 as investors reversed their 2008 panic-driven retreat. Flows eased off during 2010 and have been rather weak—and often negative—since 2011.

Exhibit 1: Emerging Markets Foreign Equity Inflows

Research Analysis

Brad Pyles

Why This Bull Market Has Room to Run

By, 10/31/2013
Ratings884.102273

With investors expecting the Fed to end quantitative easing soon, the yield spread is widening—fuel for stocks! Photo by Alex Wong/Getty Images.

Since 1932, the average S&P 500 bull market has lasted roughly four and a half years. With the present bull market a hair older than the average—and with domestic and global indexes setting new highs—some fret this bull market is long in the tooth. However, while bull markets die of many things, age and gravity aren’t among them. History argues the fundamentals underpinning this bull market are powerful enough to lift stocks higher from here, with economic growth likely to continue—and potentially even accelerate moving forward as bank lending increases.

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What We're Reading

By , The Telegraph, 07/06/2015

MarketMinder's View: Here is quite a sensible take on the results of this weekend’s “Greferendum” vote against austerity. Now, it seems to overstate the impact of a potential Grexit some, claiming this would “irrevocably alter” the eurozone. Yes, it would set a precedent that the eurozone isn’t some one-way street, but is that necessarily so bad? Couldn’t it actually mitigate fears of systemic risk if one country gets into trouble? Now, that may seem big but it is actually a fairly minor quibble in what we believe was an overall sensible piece. About the only things that changed this weekend are the following: Who exactly is doing the negotiating for Greece, Greek bond yields and CDS costs. (Which are both higher).

By , Bloomberg, 07/06/2015

MarketMinder's View: Why, yes, fight-or-flight responses and the influence of body chemistry can impact how an investor reacts to various financial stimuli—in that sense, we agree. And yes! Men do have a behavioral tendency to trade too much relative to women. However, this article offers up the theory that this same trait is responsible for market volatility and crashes, which we find wanting. Did body chemistry make the Fed tighten policy drastically in the 1929 – 1933 period and fail to act as lender of last resort, while it also made Congress enact the disastrous Smoot-Hawley Tariff Act of 1930? Did it make them triple reserve requirements prematurely in 1937? We are also skeptical accounting regulators installed mark-to-market accounting for illiquid assets in 2008, bringing huge unnecessary writedowns, because of a hormone surge. It is too simplistic to blame greed and risk taking for crises.

By , The Wall Street Journal, 07/06/2015

MarketMinder's View: Always remember: It isn’t reality alone that moves stock prices, it is how reality compares to sentiment. The degree of earnings growth doesn’t determine stock price movement in a vacuum. As Q2 earnings season begins, expectations for low results are rampant—similar to Q1. Now, this alone doesn’t necessarily mean we get an exact replay of Q1, when earnings smashed too-low expectations, but the fact heels-dug-in analysts still have low expectations shows sentiment doesn’t appreciate the bright reality around them. This is bullish news, folks.

By , Bloomberg, 07/06/2015

MarketMinder's View: Yes. 

Global Market Update

Market Wrap-Up, Thursday July 2, 2015

Below is a market summary as of market close Thusday, 7/2/2015:

  • Global Equities: MSCI World (+0.0%)
  • US Equities: S&P 500 (-0.0%)
  • UK Equities: MSCI UK (+0.2%)
  • Best Country: Hong Kong (+1.2%)
  • Worst Country: Sweden (-2.3%)
  • Best Sector: Utilities (+1.2%)
  • Worst Sector: Financials (-0.2%)

Bond Yields: 10-year US Treasury yields fell -0.04 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. Sector returns are the MSCI World constituent sectors in USD including net dividends.